The Independent Institute


Pope Francis’s Failure to See Entrepreneurs as Good Samaritans Undercuts the Poor

On April 25, a videotaped talk by Pope Francis was released at the international TED conference in Vancouver, Canada. The 18-minute talk, titled “Why the Only Future Worth Building Includes Everyone,” can be viewed here.

Francis highlighted three themes, beginning with the observation that community is central to human existence:

[L]ife flows through our relations with others. . . . [E]ach and everyone’s existence is deeply tied to that of others: life is not time merely passing by, life is about interactions. . . . [W]e all need each other, none of us is an island, an autonomous and independent “I,” separated from the other, and we can only build the future by standing together, including everyone.

A better future is attainable, Francis said, but only if “we don’t lock our door to the outside world.” Peaceful social interactions are key to healthy communities and strong societies.

Next, Francis stressed the moral responsibility of every person to put themselves in the place of others, to see the world through their eyes, and to help those who are less fortunate. This “solidarity” of mankind, the pope explained, was exhibited by the Good Samaritan in the Bible who personally sacrificed to help a stranger in need who was found along a dirt road. As the parable relates, the Good Samaritan displayed true compassion by sacrificing his time, effort, and money to help.

Francis hopes that solidarity will become the “default attitude in political, economic, and scientific choices, as well as in the relationships among individuals, peoples, and countries.” He views the story of the Good Samaritan as the story of today’s humanity, where “thousands of human beings, or entire populations, [are being left] on the side of the road. Fortunately, there are also those who are creating a new world by taking care of the other, even out of their own pockets.”

Finally, Francis urged people in power to “act humbly”:

Please, allow me to say it loud and clear: the more powerful you are, the more your actions will have an impact on people, the more responsible you are to act humbly. If you don’t, your power will ruin you, and you will ruin the other. There is a saying in Argentina: “Power is like drinking gin on an empty stomach.” You feel dizzy, you get drunk, you lose your balance, and you will end up hurting yourself and those around you, if you don’t connect your power with humility and tenderness.

The themes in Francis’s TED talk are very much in the tradition of classical liberalism: community, open social interactions, helping others, and humble, transparent institutions. What is troubling about Pope Francis is that he spends much of his time traveling around the world advocating for policies that undermine these goals.

Since becoming the Roman Catholic Church’s 266th bishop of Rome in March 2013, Pope Francis has endorsed a larger and more powerful role for governments around the world and for international organizations. As Hayeon Carol Park and I show in “Pope Francis, Capitalism, and Private Charitable Giving” (part of a special symposium of The Independent Review titled “Pope Francis and Economics,” Winter 2017), Francis frequently lambastes capitalism and calls for more government redistribution of wealth and property, aided by international organizations to facilitate these transfers.

Rather than “humble” institutions, Francis calls for centralized governments and international bodies to act with hubris, replacing their plans and values for those held by individuals. The government-coerced-redistribution model favored by Francis has left a trail of tears and destruction everywhere it is pursued. Foreign aid, often government-to-government transfers, generally props up dictatorial and kleptocratic governments that murder and steal from their own people. Governmental and multinational spending is often used to bail out cronies of corrupt government authorities for failed business and banking ventures, at the expense of the “discarded people,” as Francis calls them.

William Easterly demonstrates convincingly that even as foreign aid into Africa soared during the 1980s and 1990s, African economies performed worse. He thus writes in his book The White Man’s Burden, “Remember, aid cannot achieve the end of poverty. Only homegrown development based on the dynamism of individuals and firms in free markets can do that.”

The most effective path to lifting people from poverty by the millions is decentralized market-based entrepreneurship. Recent progress in China and India, where hundreds of millions of people have escaped some of the worst poverty on earth, was the result of governments expanding economic freedoms. Francis does not recognize that what he advocates around the world undermines the core institutions of capitalism needed for this process to work successfully.

His call to weaken private-property rights and decrease economic freedom results in slower economic growth, and shrinks the surplus that people use to start new businesses, hire more employees, and engage in effective private charitable giving. Unfortunately, the approach Francis advocates generally results in more human suffering, not less, thus undercutting his call to help the poor. He does not see the contradiction between his TED talk and his actions around the world to strengthen government power and undermine entrepreneurship.

Fortunately, Francis’s talk hints at the most effective approach to lifting people out of poverty, which is market-based entrepreneurship. Francis said, correctly:

The future of humankind isn’t exclusively in the hands of politicians, of great leaders, of big companies. Yes, they do hold an enormous responsibility. But the future is, most of all, in the hands of those people who recognize the other as a “you” and themselves as part of an “us.”

This aptly describes the entrepreneur, who dedicates his or her life to solving problems faced by others, and invests and risks his or her own time, effort, and money for the good of others. Entrepreneurs are true Good Samaritans. Jesus said people should follow the example of the Good Samaritan, who did not wait for a government program, but rather acted to personally help address someone’s problem.

Francis challenged each of us to be part of the solution, “to use our hands and our heart to comfort the other, to take care of those in need.” Again, this describes the entrepreneur, who is alert to other people’s unmet wants and seeks ways to satisfy these wants (see, for example, the classic 1973 book Competition and Entrepreneurship by Israel Kirzner). Most of the time, entrepreneurs are humble, toiling scattered around the world and often losing their investments in ideas that don’t pan out (the exception being entrepreneurs under crony capitalism and other forms of corrupt governments who are bailed out by governments—the “gin” at work).

Francis said:

[T]he future does have a name, and its name is hope. . . . Hope is the virtue of a heart that doesn’t lock itself into darkness, that doesn’t dwell on the past, does not simply get by in the present, but is able to see a tomorrow. Hope is the door that opens onto the future. Hope is a humble, hidden seed of life that, with time, will develop into a large tree. . . . A single individual is enough for hope to exist, and that individual can be you.

This again describes the entrepreneur, an individual with a dream that is turned into an idea which becomes reality and transforms the world for the better. Entrepreneurs create the future, or, as Francis would say, they create “a new world.” Whether it is defeating diseases or improving transportation or advancing communications or providing better water or sewage systems, entrepreneurs, not governments, are responsible for the great leaps forward—they are responsible for the hope. History demonstrates that governments tend to destroy hope, both with weapons and with obstacles to innovation.

The most effective anti-poverty program is a job. The most effective development strategy is sustained private investment by market-based entrepreneurs. Unfortunately, Pope Francis undercuts both with his worldwide crusade against capitalism.

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Lawrence J. McQuillan is a Senior Fellow at the Independent Institute and a contributing author in the Independent Institute book, Pope Francis and the Caring Society, edited by Robert M. Whaples, with a foreword by Michael Novak.

Review: Guardians of the Galaxy Vol 2 Romps Through Space with Purpose

Chalking up Guardians of the Galaxy Vol. 2 as a just a fun romp through the universe with the galaxy’s most dysfunctional family would be easy. But the film, like the Marvel comics that inspired it, is much more. Writer-director James Gunn (Slither, Dawn of the Dead, Guardians of the Galaxy) has done an artful job fusing humor, action, first-class special effects, and social commentary to create a story that provokes deeper questions about the nature of man and the rise of tyranny.

The action, and the humor, starts with the opening credits as audiences are re-introduced to the bickering siblings of circumstance: Peter Quill (Chris Pratt, Guardians of the Galaxy, Jurassic World, Passengers), Gamora (Zoe Saldana, Star Trek, Avatar, Colombiana), the irreverent Drax (Dave Bautista, Riddick, Spectre), the raccoon weapons master Rocket (voice of Bradley Cooper, American Sniper, Silver Linings Playbook), and woodland creature Baby Groot (voice of Vin Diesel, The Fast and the Furious, Chronicles of Riddick, xXx). They begin Volume 2’s journey by defending the Sovereign race, headed by Ayesha (Elizabeth Debicki, The Great Gatsby, Everest), against an interplanetary monster. Presumably the Guardians have taken on this task to recover Gamora’s sister Nebula (Karen Gillan, Doctor Who, Guardians of the Galaxy, The Big Short), who was imprisoned by the Sovereign race’s leader.

Carl Christ—Eminent Yet Sensible Econometrician and Mentor Supremo

I transferred to the Department of Political Economy at Johns Hopkins University in 1966 to continue my work for the Ph.D. degree, which Hopkins awarded me in 1968. During my two years at Hopkins, I never took a course from Carl Christ, a highly regarded econometrician and macroeconomist there. Yet Carl turned out to have a critical effect on my career as an economist because—strange to say—he was not only a sound economist and econometric pioneer, but a very, very nice guy.

The Health-Care Insurance Quagmire as a Linguistic Problem

The House of Representatives has just passed a statute it represents as “repealing and replacing Obamacare.” This legislation, now awaiting what promises to be major challenges in gaining the Senate’s approval, does amend certain aspects of the Obamacare setup, but all in all the changes are less than earth-shaking, and the previous system will continue in important regards even if the House version should gain approval in the Senate.

One critical aspect of the continuity is the requirement that, absent certain state-level options that might but need not be implemented, health-care insurers will still be forbidden to deny coverage to anyone because of a preexisting condition.

Under Obamacare, insurers had to charge people the same amount, regardless of their health status. The AHCA [American Health Care Act] would change that, allowing states to apply for waivers to charge sicker people more if those people had a gap in their insurance coverage. Those states would then get $138 billion over 10 years to help defray costs for sick people by creating high-risk pools, among other things.

The idea behind this provision is that it would make health insurance cheaper for people who are relatively healthy, while sick people would be in their own, subsidized risk pool. As they debated on the House floor Thursday, Republican members consistently assured their audience that their bill would still protect preexisting conditions. (source)

Government Schools: Sowing the Seeds of Our Destruction

Several years ago, the Independent Institute honored Andy Garcia at our unforgettable Gala for Liberty (other honorees that evening were Bill Bowes and Desmond Tutu).

There was not a dry eye in the house (including his) as Andy Garcia recounted his memories of leaving his home, Cuba, at the age of 5.

Once the Castros had seized power, they passed a law giving the State full rights over all children. As I had been taught by my true-believing Marxist Development Economics professors at Stanford, this is how you build the “New Man” that makes Socialism the ideal society.

Cuban parents not wanting their children to be raw material for Marxist experiments, instead made the ultimate sacrifice and turned their children over to the Catholic church’s Peter Pan project, under which their children were flown to live in freedom with families in the United States—not knowing if they would ever see their children again, and many of whom did not.

Trump Looks Forward to 4% GDP Growth

I take everything Donald Trump says with a grain of salt, including his claim that he believes the US can boost its GDP growth to 4% or even 5% a year. He’s quoted here saying he really believes it, but I hope it’s just more of his bluster.

Why would he think GDP could grow that rapidly? Perhaps because he thinks that as president, he can enact policies to create that growth. But if that’s what he thinks, his thinking is wrong and potentially dangerous.

Government policy does not cause GDP to grow. Private sector entrepreneurship is what causes growth. Government policy does influence economic growth, but mostly by interfering with private sector activity. Venezuela is today’s prime example of the way that government policy can affect economic growth.

Could the Civil War Have Been Avoided??

Trump is taking heat from the media on his ramblings about whether a leader such as Andrew Jackson could have crafted a compromise to avoid the 620,000 deaths in the Civil War. The general view seems to be that Trump is crazy for questioning the inevitability and justness of the slaughter. Of course, everyone knows that had Lincoln not attacked the South, slavery would exist today, right?

Not exactly. As I pointed out in my Independent Institute book, Reclaiming the American Revolution, at the time of the war there was a long history of peaceful abolition occurring around the globe. From 1813 to 1854, peaceful emancipation occurred in Argentina, Columbia, Chile, Central America, Mexico, Bolivia, Uruguay, the French and Danish colonies, Ecuador, Peru, and Venezuela. In the Western Hemisphere, violence predominated in the abolition of slavery only in the United States and Haiti.

Had Lincoln permitted the states of the lower South to depart in peace, the states of the upper South would not have seceded. But for Lincoln planning to use force to hold the Union together, Arkansas, North Carolina, Tennessee, and Virginia would have stayed in the Union. With the lower South gone from the Union, there would have been enough votes in Congress to abolish slavery in the U.S. The Gulf Coast states of the CSA would have been isolated and the costs of preventing runaways to the U.S. would have posed a crushing burden. Actually, in urging the North to secede from the South, William Lloyd Garrison, editor of the anti-slavery newspaper The Liberator, believed that such a scenario would occur and result in the collapse of the institution of slavery. Garrison was not foolish in his belief—this scenario actually played out in Brazil where the state of Ceara abolished slavery and thus caused a massive exodus of slaves from neighboring states. As Jeffrey Rogers Hummel has pointed out in his book, Emancipating Slaves, Enslaving Free Men, the value of Brazilian slaves plummeted, the institution soon self-destructed, and Brazilian slavery ended shortly thereafter.

So, while Trump’s musings were convoluted, he should not be burned at the stake for questioning the necessity of a Civil War. There is strong evidence that slavery in the Gulf Coast states would have died away without 620,000 deaths and a war that propelled the federal government to omnipotent status.

Interest Groups and Tax Reform

In a recent post in The Beacon, I said that President Trump’s tax reform proposal is a move in the right direction. But I find part of it very troubling: He wants to keep the mortgage interest deduction and the deduction for charitable contributions for individual taxpayers.

Both of these deductions have reasonable justifications, but so do a host of other deductions; both those in the current tax code and some that various interest groups would like to see added. Arguing that these two should be kept rather than eliminating all deductions speaks to the power of the interest groups that support them. That tells us right away that any tax reform that does occur will be shaped by special interests, and that additional interests are likely to enter the tax reform conversation to modify the tax code for their own benefit. Indeed, President Trump’s bargaining position begins by acknowledging that these interests can’t be beat, so should be accommodated.

Is the Largest Cost of Federal Regulation Not Measured? Insights from the (Growing) Wells Fargo Bank Scandal

A widely-cited study by W. Mark Crain and Nicole V. Crain estimates the cost of complying with U.S. government regulations at a staggering $2 trillion per year, an amount equal to 12 percent of gross domestic product. Annual compliance costs average about $10,000 per employee. Businesses in the service sector shoulder the biggest burden among all sectors, with compliance costs approaching $460 billion annually.

Despite the enormous compliance costs associated with federal regulations, it is possible that the largest regulatory cost of all might be unmeasured. I call this cost the “misplaced trust” cost, and it is illustrated by the recent scandals at Wells Fargo Bank.

As I recount in my 2016 op-ed for the San Francisco Chronicle:

Since 2011, thousands of Wells Fargo employees pursued compensation incentives by secretly opening millions of bank and credit card accounts using customer names and signatures without authorization. Debit cards and PINs were activated without consent. In some cases, employees conjured phony email addresses to enroll their victims in online-banking services. Some clients suffered major hits to their credit scores and may spend years repairing the damage. The fraud was so common that employees had a name for it: sandbagging.

Trump’s Tax Plan: A Move in the Right Direction

President Trump released an outline of changes he hopes to see in the federal income tax. If his proposal became law, we would have a better tax system than we do now.

One major change would be reducing the corporate income tax rate from 35% to 15%. The US has one of the highest corporate tax rates in the world, which is responsible for the “tax inversions” and other corporate financial manipulations that keep revenues from US corporations overseas. Rather than trying to pass regulations to prevent this activity, a better policy is to make it attractive for corporations to do business in, and keep their revenues in the United States.