Thursday, December 5, 2013

Pope’s anti-capitalism rhetoric is wrong

Since becoming the head of the Catholic Church, Pope Francis has been on an anti-capitalism binge, denouncing it several times over the past 8 months.  All of this despite the preponderance of evidence that free market capitalism has lifted more people out of poverty than any other economic system ever tried. Now I know that economics is not the pope’s area of expertise, but this does not mean that he can’t be criticized. One particularly odd belief of Pope Francis is that capitalism is exclusive, leaving the poor to fend for themselves or be exploited by the rich and powerful:

“Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized…”

But unlike the Catholic Church (women priests? gay priests?), markets properly understood are incapable of systematic, long term discrimination or exclusion. More specifically, if markets are allowed to work free of intrusive government meddling entrepreneurs interested in earning profits will emerge who will sell goods and services to anyone, regardless of what group they may belong to.

Markets are formed when people with different subjective values and desires meet to voluntarily exchange goods and services. A market economy is simply a collection of markets for different goods and services. Capitalism as implemented by the countries that use is at its core a market economy, and market competition is what ensures the removal of discrimination. There is no racial, cultural, or social group in which each member harbors the same biases or preferences. If one white business owner does not want to sell to a black customer you can be sure that another white business owner will have no issue with meeting that black customer’s needs. The same goes for the Jew, the Italian, the Irish, the Chinese, etc. Systematic discrimination by a business, either on the employment side or on the customer side, is costly. Entrepreneurs under the constant threat of competition cannot afford to not hire the best worker because of their skin color, sex, or sexual orientation. Similarly they cannot afford to eliminate entire groups from their customer base. If they do, some other profit seeking entrepreneur will capitalize on their intolerance by having the best workforce or serving an under-served community.

The only way markets systematically discriminate among consumers is through the consumer’s willingness to pay. The prices of goods are what prevent some people from buying them, and the value added of a worker is what prevents some workers from being hired. But these are things that are largely under an individual’s control. People can increase the value they add to an employer by acquiring more skills and they can increase their willingness to pay by using these skills to earn more income. If there is any exclusion in a country that uses capitalism, it is the result of a poorly designed and implemented welfare state and the exclusion that occurs in the government monopoly of public education.

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