@BAllanHansen

Friday, December 2, 2016

Pope Francis and Economics

The latest issue of the Independent Review is devoted to consideration of the relationship between Pope Francis and economics. The Introduction is by Robert Whaples. He is a good economic historian, and I hope that I am being fair to his argument.  That said, I do take issue with at least part of the argument. Specifically, he states that “It is clear that Pope Francis and many in the economics profession do not see eye to eye at a fundamental level.” He then proceeds to argue that Pope Francis’s views are inconsistent with fundamental assumptions of economic theory. To make the point clear he refers to the description of the assumptions about consumer behavior in Pindyck and Rubinfled’s microeconomics text :“[C]onsumers always prefer more of any good to less . . . [and] are never satisfied or satiated; more is always better, even if just a little better. (Pindyck and Rubinfeld 2005, 66)" He points out that this assumption is also known as “nonsatiation.”

Whaples then argues that the assumption of non-satiation gives rise to a fundamental difference between economists and Pope Francis:
“As shown earlier, Pope Francis’s view of the world is that one of these foundational assumptions is assuredly invalid. This simply isn’t how God made people. Christianity holds that God made man in His own image. In many cases, this relationship can make man capable of the rationality that goes into the first two assumptions about consumer choice—that preferences are complete and transitive—but the third assumption is fundamentally flawed, says Francis. More material possessions and greater consumption aren’t always or even generally better. A consumer who never feels satisfied with his material life—who always wants more—is not on the path to God.”

Whaples argument, however, misconstrues both what economists do and what Pope Francis is trying to do. First, notice the difference between what Pindyck and Rubinfled say and what Whaples says. Pindyck and Rubinfeld assume that “[C]onsumers always prefer more of any good to less . . . [and] are never satisfied or satiated.” Whaples suggests that Francis believes that “More material possessions and greater consumption aren’t always or even generally better.” Whaples switched from “goods” to “material possessions” and “consumption.” A “good” in economic is anything that a person derives satisfaction (utility) from. A good does not have to be a material possession or something that is generally described as consumption. Whaples is perpetuating one of the most common misconceptions about economics: the belief that economists think people are only interested in their own material well-being, narrowly conceived. People who believe that economists think this way have suggested that voting for interest is inconsistent with economic theory because your vote will not affect the outcome of an election, and therefore will not affect your material well-being. But voting is just as consistent with economic theory as buying a new car. Economic theory does not say what you will or will not get utility from. You can get utility from buying a car, or voting, or going out to dinner, or praying, or buying a diamond ring, or giving to charity, or even from eating this. The things that give people satisfaction are usually the result of culture, personal history, and individual tendencies.

No matter what your preferences, however, you still face the fundamental problem of choice in the face of scarcity. I tell my students it doesn’t matter whether you are Donald Trump or Mother Teresa you have to make choices about how to allocate the resources you have. By the way, I used the Donald in the example long before the election. Even if you only seek to serve God you have time make choices about how to allocate your limited resources, especially time. Francis himself has to choose between time spent in prayer, time hearing confession, time celebrating Mass, time spent on writing encyclicals, time spent meeting with Bishops, and time spent on his many administrative duties as the head of the church.

If economic theory does not say what people want, what does it do? Economic theory says that if people derive satisfaction from something they are likely to do it more if the cost of doing it decreases and likely to do it less if the cost of doing it increases. What economists get out of their models of consumer behavior is predictions about how people will respond to changes in the constraints (things like income and the costs of goods). In models of rational utility maximizing behavior, people respond in predictable ways to changes in the constraints they face. Do people in the real world maximize behavior? I don’t know. I don’t care? I can’t observe their utility. I can observe changes in constraints, and I can observe changes in behavior, and I can assess the degree to which the changes in behavior are consistent with the predictions of the model. I can’t say whether some person will think that voting is a good, but I can predict if the cost of voting increases they are less likely to do it.

As an economist I take people’s preferences as they are. Personally, I may find attendance at stock car race to be more bad than good, but as an economist it is not my business to tell other people that they should not get utility from it. The fundamental difference between economists and the Pope is that telling people what they should want is an essential part of his job as Pope. The Pope is not taking preferences as given and trying to make predictions about behavior. I stated before that people’s preferences tend to come from culture, personal history, and individual tendencies. The Pope, as well as other religious leaders and many secular leaders, do not take people’s preferences as given. They want to shape those preferences. They try to persuade us that we should get satisfaction from one thing rather than another. They try to persuade us that we will be happier if we consume more prayer and charity rather than more cars and marble counter tops.


Ultimately, economists have no more business complaining about the Pope trying to persuade people that they will gain more satisfaction from consuming prayer, penance, and charity than they do complaining about Apple trying to persuade people that they will gain more satisfaction from a Mac than a PC. 

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