Pontiff-icating on the Free-Market System (Ep. 149)

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(Photo: Semilla Luz)

(Photo: Semilla Luz)

This week’s episode of Freakonomics Radio takes a look at Pope Francis’s critique of the free-market system in “Evangelii Gaudium” (“The Joy of the Gospel”), his first apostolic exhortation. (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

The pontiff’s 224-page document covers a wide range of topics, but a small sub-section discussing “some challenges of today’s world” has captured the most attention. Using fiery language, Pope Francis condemns a global economy that “kills,” promotes inequality, and allows “the powerful [to] feed upon the powerless.” (Rush Limbaugh argued that this sounds like “pure Marxism.”) Here is a sample passage of “Evangelii Gaudium”:

“[S]ome people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. … One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies. The current financial crisis can make us overlook the fact that it originated in a profound human crisis: the denial of the primacy of the human person! … While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules.

Most papal documents tend to be pored over primarily by the Catholic faithful, but this one has opened the door for a larger secular question: what is the role of markets in causing — or alleviating — human suffering?

To answer this question, Stephen Dubner turns to Jeffrey Sachs, a longtime advocate for both the market system and the poor. Before bumping elbows with the likes of Bono and Angelina Jolie in the fight against poverty, Sachs was a very young tenured economics professor at Harvard, a globe-trotting market fixer and reformer, and an economic adviser to Pope John Paul II; he continues to have a working relationship with the Vatican, and has met Pope Francis. Sachs is currently the director of the Earth Institute at Columbia University and a special adviser to U.N. Secretary General Ban Ki-moon on the Millennium Development Goals. As you’ll hear in the podcast, Sachs doesn’t always sound like an economist when he talks about how the economy should work:

SACHS: First let me say I am a believer in a market economy … and I would imagine Pope Francis, too, is a believer in a market economy, but what the Church has taught … is the idea that an economy needs a moral framework. This is a very, very basic idea that we have mostly discarded but that I believe in.

We also hear from Notre Dame economics professor Joseph Kaboski, a devout Catholic and president of CREDO, the Catholic Research Economists Discussion Organization. Kaboski says that the Pope makes important points in “Evangelii Gaudium,” but stresses that markets are crucial for eliminating poverty:

KABOSKI: The pope has a point on a number of fronts. And you know, markets aren’t perfect, and ethics are important. I think that’s one of the things he’s trying to say. … But on the other hand, we’ve never seen an example of any country that has escaped extreme poverty because of foreign aid or NGOs. … More people have escaped extreme poverty in the past 25 years in part through the growth of China and India than in any period of human history. And all of these miracle countries — “miracle” in the economic sense, China, South Korea, Taiwan, Hong Kong, Singapore, Chile down in Latin America — they’ve all grown through, high levels of trade, market economies. And that’s important.

Not long ago, Dubner moderated a discussion with Richard Thaler and Dean Karlan about how to fight poverty with evidence, and this is an expansion — philosophically and in scope  — of that conversation. With more than 1 billion people living in extreme poverty, and Pope Francis just named Time‘s Person of the Year, it is both a timeless and a timely subject.

Joe D

The problem is the tendency for economic winners to use their winnings to reduce the transparency of free markets, and rig the system behind that opacity so that they continue to win. What's in those credit default swaps? I dunno, but they're rated AAA. What's my mortgage rate gonna be in three years? Doesn't matter, you'll refinance before then against the increased value of your home.

This tendency to cheat to stay ahead is closely related to the Christian concept of original sin, so it's a particularly good target for papal writing.


I think one of the Pope's problems is he doesn't actually know what real capitalism is. He grew up in the corrupt crony system of Argentina, traveled through the rest of corrupt South America, then finally made it to the more advanced and less corrupt Europe. Europe has huge welfare programs but he wasn't there to see they were built on the back of capitalism. Capitalism, which by the way, is totally unlike what went on in South America when he was young (it was more like feudalism).


Chicago is more like South America than you think. Plus drugs is free market and more companies are finding ways to addict customers to their products like drug dealers than offer a useful product.


I am a serious Catholic and I think the new Pope is a fascinating and wonderful person. I think he will go far in moving the focus of the church to where it needs to be, as opposed to where it has been. I look forward to the years ahead with Pope Francis.

That said, I do not kid myself that the Pope is a world class economist and despite his comment above, the DATA does support that the ONLY PATH to pulling large populations of people out of poverty. And also that charity alone has NEVER worked to improve poverty for any large population.

Hans Rosling is a world class professor in these topics. His Widely known, Data driven TED talk shows this conclusively. If you haven't seen it the link is here: http://www.ted.com/talks/hans_rosling_reveals_new_insights_on_poverty.html

Phil Persinger


Thank you for the link. Novel way of looking at data and very entertaining as well. Would love to see his updates for the last 6 years.

Everyone should watch until the very end.

Sasha Patino

"Thing 7: Free-market policies rarely make poor countries rich. As I discussed in Chapter Six of my own book, every developed nation from England down to the present day got that way through protectionism and state industrial policy, not pure free markets. Even the good ol' USA played this game from Independence until after WWII.

Thing 12: Governments can pick winners. Not every time, and don't get careless, but the free market isn't always right, and the government isn't always wrong. In the U.S., government was responsible for (in order) the Erie Canal, the Transcontinental Railroad, the Interstate Highway System, and the Internet. Not to mention the aircraft and semiconductor industries. In East Asia, governments did even more.

Thing 16: We are not smart enough to leave things to the market. In the real world, markets don't take care of themselves. They need to be regulated. How much and in what way is legitimate party politics, but an unregulated economy is a dangerous fantasy."

Ha-Joon Chang, 23 Things They Don't Tell You About Capitalism.

That India and China achieved growth partly by opening up their markets to more commercial enterprises does not mean they surrendered their economies to the free market. Their growth was from direct intervention, use and management of the market. Their success is an example of the role of strong government and governance, not of unfettered markets.

Capitalism defined as a free enterprise and fair trade system among stakeholders of equal power that accurately accounts for total costs is generally better than other economic systems. But the free-market "laissez-faire" variant pushed by the neo-liberal financial sector is worse than most forms of state-controlled economies. It is anti-state, anti-democratic, non-transparent, and non-accountable. It is neither valid nor sound.

The Pope presents a valid critique of the dominant variant that shapes most economic policies across the globe. He does not offer any prescription. He may yet, but I imagine it will be in consultation with working economists such as Sachs


Julien Couvreur

Thing 7: the lack of pure free market in history is not an argue that people wouldn't have been better off without the institutionalized coercion of the State.
So you can look at China and say that it has managed to improve a lot in the last few decades under State control, but compared to what? In particular, how do you compare to the counter-factual of an even freer China? Stating a conclusion is substitute for reason or evidence.

Here is a cross-country analysis of economic freedom vs poverty: http://bastiat.mises.org/2013/12/pope-francis-income-equality-poverty-and-capitalism/
How can you look at this and conclude that the extent to which people are not free is somewhat beneficial?

Thing 12: what exactly is the argument? How do you know that those government choices are good (aside from status quo bias) or worthwhile (how do you know that the net result of government picking winners is positive?).
Pointing out that the market produced the piano tie (a fashion failure) is hardly a systematic critique. Similarly, pointing out the government may have supported some not so horrible efforts is hardly a systematic analysis of a net benefit either. You cannot look at a built bridge as a proof of the goodness of government without looking at the unseen (opportunity costs).

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” ?Henry Hazlitt

Thing 16: "We are not smart enough to leave things to the market." I'm not even sure what that means. The market is simply people within the framework of property rights and voluntary exchange. How can we not be "smart enough" to leave it to people? Do you realize what kind of magical thinking this attributes to governments?
There is no such thing as an unregulated economy. Consumers and their preferences are the ultimate regulators of an economy. Do not confuse the lack of top-down coercive regulation with absence of regulator mechanisms.

PS: It shows the depth of our trouble when the diagnosis of our financial sector is that it is taken over by neo-liberal mentality. If you cannot realize how much the financial sector is in bed with government and its supposed regulators, then what are the chances of correcting the root cause of the problem. For starters, I suggest you look into the birth of the central bank with the Jekyll Island meeting; in short, it is the use of government power by bankers to secure their business by cartelizing around a central bank and socializing risks to the government (ie. taxpayers).


Julien Couvreur

Sorry for unfortunate typos, I'll review more carefully next time:
#1 the lack of pure free market is not an argue that -> is not an _argument_ that
#2 Stating a conclusion is substitute for -> is _no_ substitute for

Julien Couvreur

I think this Papal document needs a lot more discussion, because it has such influence on the culture of a large number of religious followers and anti-market rhetoric can hinder economic development (people coming out of poverty).

Why is this anti-market rhetoric potentially harmful? As Deidre McCloskey has been documenting in her magnum opus, economists and historians are still trying to narrow down the main causal factors which enabled the dramatic development of the last two centuries. Many of the commonly discussed factors don't seem to have sufficient explanatory power, and she argues convincingly that a key factor was a cultural change: the adoption of bourgeois virtues. In other words, the appreciation of cooperation, exchange and production. Where would India and China be if people there hadn't shifted to such values (appreciation of property rights and voluntary exchange).
So the pope's message may have the opposite effect than what he is hoping for.

Also, I am quite concern with flowery images, such as the "globalization of indifference" (which is discussed in this podcast). Why not use straightforward terms?
The conflation of terms with strong connotations does not contribute to clarity and critical analysis. In this instance, globalization is general used to mean the increase in cooperation and exchange across national boundaries. So globalization of indifference doesn't mean anything.
If he means to say an increase in indifference, then say it simply. Even better would be to provide a reference or some evidence to support such a claim (is it even true that people are more indifferent to poverty in other countries than before? I doubt it).
Also, the term indifference reminds me of the famous Adam Smith quote: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." The power of voluntary exchange (the market) is that it generates benefits and creates incentives for people to serve one another regardless of selfless intentions, and it also does not preclude such intentions.
Who feeds Paris? (reference to "Naked Economics" and other classical economists who raised similar questions) It is not concern (the opposite of indifference) which feeds Paris, but the cooperation and competition of people (ie. the market).



Why not use straightforward terms?

Sorry, you're asking economists this question?

Tim McKeever

Sachs is moving the field of economics in the right direction. In my undergrad Econ courses, there was very little about ethics of markets or of market participants. Our society's focus on growth and consumption over sustainability, equality, and human rights will end badly, as I think the Pope eludes.

The "free market" kings all love socialism, as much as they rail against it. They do their utmost to socialize their risk and costs. They spew pollution nearly cost free. They use the social safety net to feed and provide health care for their underpaid workers. They take advantage of huge subsidies that make profitable businesses even more so. They beg for bailouts when their business model brings the economy to the brink. Through tax dodging, though, they make sure profits are private.

Until the externalizing machines we call corporations and private enterprise are exposed for these swindles, there can be no discussion of free market capitalism. Limbaugh is right in that respect, it doesn't exist. In a market, everything has to have a price, or there is a market failure. As a regular listener, I would like to hear greater coverage of externalizing costs and market failures as they are a big part of how our economy (mal)functions. A podcast that looks outside the orthodoxy should do just that.


steve cebalt

A couple comments:

1. I have never seen anyone able to start a greater number of worthwhile dialogues in so short a time as this Pope. He's amazing.

2. He makes many good points. "Capitalization" is a religion to many people, as opposed to merely being a useful economic concept. And as for government intervention, which many capitalists rail against in all forms with religious zeal; those anti-government capitalists seem to love the Fed's economic stimulus (bond-buying), which has propped up stock markets artificially in recent years, with the greatest benefit accruing to the wealthiest among us. BUT ...

3. All charity, except labors of love with one's own hands, depends 100% on money, profits and private enterprise. No wealth, no charity. Period. Before charity can happen, profits must be created.

4. The most under-rated story of our time is how two of the richest people on the planet, Gates and Buffett, made a friendship and are giving 99.999 percent of their capitalist gains to charity that helps the most destitute people on the planet. Andy they are recruiting -- successfully -- other ultra-wealthy people to do the same. That is a remarkable thing. Capitalism and charity are part of the same economy.

As a communicator, Pope Francis is in a league of his own.


steve cebalt

Unfortunate typos I just made:

#2, Capitalism, not capitalization
#4. And, not Andy

Julien Couvreur

I can't help but comment on your concluding remarks about market and morality. You seem to be opposing them for some reason. But nothing about property rights and voluntary exchange (ie the free-market) says anything about the values or preferences you should hold.

Nothing in the free-market per se tells you to be materialist, greedy, selfish, indifferent, destructive, void of culture, vile, impolite, or anything else. The only basic rule of cooperation is that if you steal, murder, rape, or defraud you relinquish your rights to that extent. This does encourage people to cooperate and serve one another, but it does not tell people to be kind, patient, or virtuous in any other ways.

The free-market is the mirror of the soul, as it lets individual maximally free to be who they are.
This leaves two main suspects for humanly avoidable problems in the world: preferences (if nobody enjoys forests, then no system will protect forests) and the non-free realm of society (coercive entities who violate property rights, such as genuine criminals and governments).

Maybe the pope should focus on his area of expertise, namely trying to improve people's choices, preferences and values. He should do so through persuasion, not coercion, as allowing coercion in society is sure to let those with least morals and scruples control the rest.
This means no government imposition of "morality" and no threatening impressionable children with fires of hell (although I'm afraid such simple civility may be too much to ask from the church).



"The free-market is the mirror of the soul, as it lets individual maximally free to be who they are."

If you believe in original sin, or the secular equivalent (i.e. that people left to their own devices tend to do things they're morally not supposed to do and avoid doing some things they're morally supposed to do), I can see why this might not seem like an entirely good thing to you.

No pure ideology works in practice, because the real world is messy. Given that some regulation will always be needed, morality seems like a good place to start.


Mr. Sachs is wrong. Like all Marxist theory it sounds great but breaks down when applied. Who do we trust to make these decisions for us? Marxism has never worked. Since there is not even a functioning model why should I follow Mr. Sachs' vision. And BTW George Bush is not a capitalist. He and most of the Republican Party are statist who will do anything to retain their power and privilege.


Far too many people see "Marxist theory" and think it's a single thing. Rush Limbaugh is a case in point. It's hardly PURE Marxism!

Ask anyone who actually understands how the real world works, and they'll tell you that Marx got the diagnosis of the problems of Capitalism almost exactly right, but his proposed treatment plan was almost exactly wrong.

Matthew Cecil

This is such an infantile analysis of capitalism I do not even know where to begin. You didn't mention the over 200 anti-competition bills ALEC passes yearly across state legislators, nor did you mention how repeal of the Glass–Steagall lead to our most recent economic housing bubble.

In fact you're written so little that convinces me you understand the economy as a whole I feel hesitant to begin criticizing what you did actually write, but here we go...

"And all of these miracle countries — “miracle” in the economic sense, China, South Korea, Taiwan, Hong Kong, Singapore, Chile down in Latin America — they've all grown through, high levels of trade, market economies. And that’s important."

Competition that forces desperate people into unhealthy labor at slave wages is not what I consider a "miracle"... I tend to describe this business model as exploitation...

How is it ethical or moral for companies to legal close factories, and re-open them in countries with fewer or no labor laws? I've studied logistics beside business majors enough to know they'd fire as many employees as necessary just to save a penny per unit in either production or transportation.

Ultimately this discussion comes down to two philosophies, one which was ignored and shared by the Pope frequently and the other careless thrown about by capitalists.

The economy can be designed to work for the people, or it can be designed to work for the wealthy. It is painfully obviously that "free market" capitalism has no place in a modern society that purports an ethical obligation to protect people from exploitation. It is clear the rules of an economy need to be ruled AGAINST the rich otherwise they'll use their wealth to manipulate politics to suite their unethical profit driven behaviors...