Chris Johns: Pope Francis has a point about poverty, if not its causes

Pope Francis has entered the debate over social and economic inclusiveness in an unsurprising way. Unlike Boris Johnson, London's mayor, who pronounced on similar themes this week, the pope is against inequality. President Obama has weighed in on the same topic, arguing something must be done about stagnating real incomes of middle America.

Papal economic analysis can be found
in a lengthy tome called Evangelii Gaudium (the Joy of the Gospel), published last week. This has sparked a fascinating debate, with the protagonists essentially split along familiar, if somewhat dreary, left-right lines. Notorious radio talk-show host Rush Limbaugh labelled the pope a Marxist; an apology was demanded.

The pope isn’t a huge fan of unfettered capitalism. Again, no surprise there. He is pretty sure that rising inequality is capitalism’s fault and that something should be done about it. Pope Francis might be surprised by how many economists agree with the second part of his statement; but there is no consensus on what causes inequality or why it seems to have risen in so many countries over the past few years.

We need to be careful and distinguish between market-based capitalism, growth and how it is divided. Facts are stubborn things: economic growth from the time we lived in caves until the industrial revolution, when capitalism got started, was nil.

It helps to have some largesse to redistribute and growth is the only thing that provides it. Debates over inequality probably took place in the caves but I’d guess they were not terribly interesting and often ended in violence. Gross inequality did help spark many a war but they were all about sharing a pie that never grew.

Trickle-down
I'm sure the pope is not against growth, but he did say "some 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 . . ."

Over the last couple of decades, growth has lifted more people – hundreds of millions – out of poverty than ever before.

Inequality between nations has been falling as the developing world plays catch-up with developed countries. That’s a form of trickle-down economics that seems to be working, although poorer economies have not always shared in global growth. The pope is right: there is nothing inevitable about how the spoils of growth are shared.

Today's problem is that inequality within countries is, for the most part, rising. The US, for example, has measured inequality back to levels last seen in the 1920s. Pope Francis suggests the reason for this could be "a crude and naive trust in the goodness of those wielding economic power and in the sacralised workings of the prevailing economic system". His words contain echoes of "liberation theology", popular in the 1970s but, at the time, stamped on by the Vatican.

One issue with this line of thinking is that proper capitalism is inconsistent with a system where somebody wields lots of economic power. It could be that the pope’s experiences of Latin American economies has given him a distorted view of capitalism. Many economic historians agree that a common characteristic of failed or backward economies is relatively high concentration of economic power. Latin American oligarchs or US bankers may be a big part of the problem.

Most modern economies see governments control at least one third of output, sometimes more than half. One response to capitalism’s critics is that it has yet to be implemented anywhere. Generals, monopolies and governments get in the way.

It would be a shame if the pope's
slightly simplistic analysis of capitalism obscured his thoughts on the ethics and morality of money. Inequality is a growing problem. We live in a winner-takes-all world with no obvious solution in sight. President Obama is proposing a large hike in the US minimum wage; if the problem keeps growing it is going to need more radical proposals.