Doug Bandow, member of the Advisory Board at the Acton Institute and Senior Fellow at the Cato Institute, penned an exclusive article for the Acton Institute on the economic effect of the encyclical:
In Calling on Government, Laudato Si Underestimates Power of the the Market
by Doug Bandow
Pope Francis’ new encyclical, Laudato Si, offers a challenging read. That’s why he addresses his message to “every person living on this planet.” In his view “the earth herself, burdened and laid waste, is among the most abandoned and maltreated of our poor.” He advocates not only a practical political response, but more importantly calls mankind to a new “ecological spirituality.”
Indeed, his role, the Pontiff explains, is to help the rest of us apply the “rich heritage of Christian spirituality, the fruit of twenty centuries of personal and communal experience,” to the world around us. The Gospel should affect how we think, feel, and live. We should relate through it not only to people around us, but the entire environment.
Yet this challenging papal call is diminished by Laudato Si’s tendency to devolve into a policy document which might have been issued by the Democratic National Committee. It’s not that the encyclical is invariably wrong, but it often ignores the complexity of policy and limitations of politics. Most seriously, it underestimates the power of market forces to promote environmental ends.
The earth does suffer, but perhaps not as greatly as Pope Francis suggests. The severity of environmental problems and the most cost-effective solutions are not self-revealing. By many measures the environment is better today than in years past—in America, for instance, water and air are cleaner, more land is forested, packaging is more efficient. Seeming crises such as trash disposal and toxic wastes long ago passed by. The Pontiff acknowledges the good, but worries that “these achievements do not solve global problems.” Yet much that the encyclical analyzes is particular, not universal. And not all supposed global crises are real. For instance, the “population bomb” never exploded, as the Pope emphasizes.
There remain serious environmental problems, to be sure, but Laudato Si presumes rather than proves crisis is the norm: “we can see signs that things are now reaching a breaking point,” evident not only in “large-scale natural disasters” (which actually are not occurring more frequently), but also “social and even financial crises” (which have no obvious relation to the environment). The Pontiff appears to be looking at a very different world when he declares that “The earth, our home, is beginning to look more and more like an immense pile of filth.” That is not what I see when I look out my window.
It is even harder to find the right answers. Contra the underlying assumptions of Laudato Si, nothing in Scripture or nature tells us how much to spend to clean up the air how much. Drawing environmental lines requires balancing often complex and competing interests, especially ecology, liberty, and prosperity. One cannot merely assume that the correct outcome in every case is more of the first. Yet Pope Francis appears to believe there is a single correct environmental standard, discernible through a proper understanding of the common good.
Indeed, the Pontiff’s own goals conflict. For instance, he speaks movingly of the dignity of work and its importance for all, including the poor. These jobs—especially better ones, of higher quality with higher pay—come from the operation of markets rooted in a regime of property rights. Even Marx recognized the productive power of capitalism, which destroyed aristocratic structures and empowered impoverished peasants. The more expensive and extensive the government controls, the fewer and less remunerative the jobs.
Perhaps most disappointing is how the Pope seemingly views capitalism, and especially property rights, as adversaries if not enemies of a better, cleaner world. Yet most environmental problems reflect the absence of markets and property rights, the “externalities,” in economist-speak, which impact others.
Pope Francis recognizes the problem but still blames capitalism: “As long as production is increased, little concern is given to whether it is at the cost of future resources or the health of the environment.” Rather, “businesses profit by calculating and paying only a fraction of the costs involved.” However, that occurs where property rights either do not exist or are not enforced. That is the only way industry can transfer emissions to others next door and far beyond.
The encyclical rightly insists on “the obligation of those who cause pollution to assume its costs, and the duty to assess the environmental impact of given projects and works.” The best way to achieve this end is to either create or mimic markets and property rights when possible. That’s the theory behind a carbon tax, which attempts to impose the full “social cost” of their activities on producers.
Free market capitalism creates an important foundation for environmental stewardship. Alone, markets are not enough. They do not answer the ultimate questions about how clean or beautiful. But they help achieve the end chosen.
There is no better evidence of the efficacy of markets and property rights than the environmental consequences without them. The old Soviet bloc committed what some in the West labeled “ecocide.” From the Three Gorges dam to air quality in major cities, still reforming China has struggled to match economic growth with ecological improvement.
Even in America public control rarely ends well. Garrett Hardin famously wrote about the “tragedy of the commons,” in which land open to everyone typically is misused by everyone. Federal range and forest land is badly managed, not because government officials are malign, but because the incentives they face are perverse. Similar is the case of the Amazon rain forest, cited by Pope Francis: indigenous peoples typically lack defensible legal rights to what should be treated as their lands. He worries that “pressure is being put on them to abandon their homelands” to make way for economic interests. If they own their land, they can better resist such pressure.
In contrast, a private owner bears both costs and benefits, and suffers when he misuses the resource. The owner may make a mistake, but his power to do harm is sharply limited. In contrast, the U.S. government mismanages hundreds of millions of acres at a time. Simply selling off such land ultimately would improve the environment.
Another strategy is to create de facto property rights and mimic markets. While the ocean is unowned, many nations have created quotas that act as a property right to fish. Pollution taxes and tradeable permits also attempt to impose market forces on the great common areas, such as air and water.
Yet Laudato Si’s launches a perplexing attack on the use of emissions credits to limit use of hydro-carbons. The encyclical complains that this strategy “can lead to a new form of speculation which would not help reduce the emission of polluting gases” and ”may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.” The Pontiff appears to believe in harsh, universal sacrifice based on what he calls “radical change.” Yet almost any regulatory system will be arbitrary and manipulated by the well-connected. Emission taxes and tradeable permits, if properly designed, create an incentive for those who can control emissions at the least cost to control them the most. This serves the common good far more than imposing larger than necessary costs on everyone.
Indeed, the encyclical’s argument illustrates the danger of emphasizing intentions over outcomes. After all, James, Jesus’ brother, warned against the Christian who wishes a brother well “but does nothing about his physical needs.” (James 2:16) The Pontiff calls for heartfelt reform but criticizes “simply making efforts to reduce some of the negative impacts of climate change.” He worries that doing so will allow problems to continue to worsen. Instead, emissions must be “drastically reduced.” That’s an important factual, not Scriptural, claim, and actually is highly contested.
Although the Pope acknowledges “that honest debate must be encouraged among experts, while respecting divergent views,” Laudato Si ignores the most sophisticated critiques of its claims. For instance, many critics of climate alarmists do not doubt human-induced warming. What they dispute is the likelihood of catastrophic change, and the best means to deal with the likely impact of the temperature increases that occur.
For years models failed to match climatic behavior. Peer-reviewed research increasingly suggests that warming over the next century will be modest, around two degrees Celsius, equivalent to that during the Little Climate Optimum. Moreover, any prediction today as to energy use, production processes, and human behavior decades in the future is worse than a wild guess. Even a few years before virtually no one saw the shale oil/gas revolution which has revolutionized the energy marketplace. Although the Pontiff argues that “Doomsday predictions can no longer be met with irony or disdain,” they have been frequently made and have been just as frequently proved wrong.
Which all argue in favor of reducing “the negative impacts of climate change,” called adaptation, rather than imposing arbitrary, draconian, and costly changes in energy consumption which may quickly prove irrelevant or harmful. Economic analysis confirms that adaptation can achieve similar environmental ends at less expense, leaving more resources to meet other human needs.
Markets also create incentives for environmentally-friendly behavior elsewhere. For instance, Laudato Si complains: “We have not yet managed to adopt a circular model of production capable of preserving resources for present and future generations, while limiting as much as possible the use of non-renewable resources, moderating their consumption, maximizing their efficient use, reusing and recycling them.”
Actually markets based on freely-moving prices incorporating externalities do precisely this. If resources are abundant, there is no economic (or theological) reason to restrict their use. For instance, why favor recycling over planting trees as a source of paper? As resources become scarcer rising prices encourage consumers, producers, and entrepreneurs to react. That’s why there is more oil available at today’s prices and technologies than there was 10, 20, and 30 years ago. The economic system is not fully circular, but there is no reason for it to be. At some level of scarcity and cost in the future might make it so.
Laudato Si criticizes wasteful, unnecessary consumption and worries about “the depletion of natural resources. We all know that it is not possible to sustain the present level of consumption in developed countries and wealthier sectors of society, where the habit of wasting and discarding has reached unprecedented levels.” Later the document declares that “no one looking for quick and easy profit is truly interested in” preserving ecosystems.
Of course, the Pope is uniquely equipped to make an important moral critique of consumption. How should we use the resources entrusted to us by God? Many Christians, this author included, probably fail to adequately question their own consumption patterns. Nevertheless, it is easy to dismiss conveniences valued by millions of people. For instance, Laudato Si denounces air conditioning, blaming the desire for it on markets stimulating “ever greater demand.” Actually, the demand is far more basic, as any Catholic layman attending Mass or cleric working in an ecclesiastical office during the summer would attest.
Nor does the encyclical offer any evidence for its attack on consumption in developed countries, which of course produce more than they use. In fact, resources which are unowned are vulnerable to abuse in any society. Resources priced too cheap—usually at the behest of public officials for political reasons—are squandered wherever they are located. Extravagant waste and destructive misuse of the environment go back to native peoples and continued throughout history. American buffalo were slaughtered en masse by Indians and whites alike. Today deforestation is a bigger problem in poor than wealthy societies. Government will do better aiming to ensure prices internalize all costs rather than setting arbitrary levels of approved consumption.
Where markets operate, resource depletion is largely a myth. While resources are not infinite, human creativity is, and they can be made relatively more abundant. In 1972 the Club of Rome infamously predicted that gold supplies would be exhausted in nine years and oil deposits would be gone in 20 years. In fact, people started predicting the depletion of oil almost as soon as they started pumping it. There now is more recoverable oil than ever. Prices act as powerful signals. Increasing prices tell consumers to use less, producers to operate more efficiently, suppliers to find new sources, and everyone to seek substitutes.
So it is with the availability of water, of which the Pontiff writes. It’s an important issue in many areas, and Laudato Si complains of the “growing tendency, despite its scarcity, to privatize this resource.” Yet declaring water to be “a basic and universal human right,” as does the encyclical, does not warrant turning its administration over to public monopolies, which so often provide bad service at high cost, especially in poor nations. How to ensure broad access is a practical problem, something which markets do well in solving.
Advancing cost-effective remedies is important, and not primarily as a means to bolster corporate profits, as Laudato Si seems to suggest. Pope Francis recognizes that those at the margins of society are most vulnerable to economic vicissitudes and least able to cope with higher-priced goods and services. For example, the encyclical complains that “lack of housing is a grave problem in many parts of the world.” But affordable housing is in short supply in America largely due to regulation—excessive building codes, restrictions on density, and other restrictions on constructing low-cost homes, often imposed to insulate the well-off from the poor.
Moreover, the encyclical explores the moral and social as well as economic value of work, but jobs are not created, ex nihilio, like the earth. The higher government raises regulatory barriers and costs, the fewer jobs private employers will create. Those who would most benefit from a less costly policy of marginal adaptation rather than radical transformation in response to climate change, for instance, would be the poor.
Markets typically are better than governments in protecting even “future generations,” for whom resources must be preserved, argues the encyclical. An individual landowner who misuses his property and squanders the resources therein pays a high price for doing so: the residual value of his land falls. That especially applies to someone with a short-term reference, since he or she has little time to benefit from an environmental recovery. Thus profits incorporate a long-range perspective. In contrast, the typical political time horizon is until the next election, budget cycle, or outside audit. Until future generations vote, politicians will not take due account of their interests.
Some of the adverse environmental problems of which the Pontiff complains are the product of poverty: “the gravest effects of all attacks on the environment are suffered by the poorest,” insists the encyclical. For instance, notes Laudato Si, “People take sick, for example, from breathing high levels of smoke from fuels used in cooking or heating.” That rarely happens in wealthy, developed countries. The encyclical complains that the departure of multinationals from poor nations leaves unemployment, abandoned towns, and unsustainable social programs. Yet such typically was even more so the case before MNCs arrived. This is another reason to do more to raise more people out of poverty.
Not only does economic progress ease the impact of environmental problems on the poor. It also provides resources available to enhance the environment, efficiencies to produce more using less, and technologies to better preserve ecological values. Indeed, the Holy Father notes the “right to rejoice in these advances” and cites Pope John Paul II in acknowledging that “science and technology are a wonderful product of human creativity that is a gift from God.” (Rather incoherently, elsewhere Laudato Si mounts a brief but sharp attack on “machines” replacing workers, which logically would include all manner of beneficial advances, from motorized transport and printing presses to construction equipment and computers,)
Markets and technology are no panacea, of course, but their advantages can scarcely be overstated, including in advancing environmental values. Much thought today is being given to how to deploy new technologies and processes to reduce or counter greenhouse gas emissions through means other than draconian energy reductions.
Finally, markets should be seen as only an important subset of a free society. For instance, Laudato Si cites the importance of “cooperatives of small producers.” Such exist alongside multinationals, retail superstores, multi-billion dollar hedge funds, corporate farming, and national franchises. In these examples “local individual and groups can make a real difference,” the Pontiff writes, because there typically is no centralized economic controller to stop them. So too the lifestyle change advocated by the Pontiff, “a non-consumerist model of life, recreation and community,” which pressures business to change in response. A free society protects such choices.
Of course, markets are not perfect or enough. Property rights are not absolute. Capitalism brings no moral ethos to questions of consumption. As Pope Francis observes, “by itself the market cannot guarantee integral human development and social inclusion.” Nevertheless, while there may be a reason “to accept decreased growth in some parts of the world,” as the encyclical claims, it is not likely “in order to provide resources for other places to experience healthy growth.” Trade and commerce spread through globalization have acted as the most powerful anti-poverty forces in human history, raising hundreds of millions of people above the global poverty line in recent years.
Government must create a legal and policy framework. Even more important is the moral infrastructure, about which the church in all its varieties should be in conversation with “every person living on this planet.” Laudato Si is part of that dialogue. Perhaps the encyclical’s most important message is buried near the end of the encyclical, when Pope Francis observes that “the emptier a person’s heart is, the more he or she needs things to buy, own and consume.” Christianity seeks to fill that void. In doing so it automatically transforms the surrounding world.
Doug Bandow is a Senior Fellow at the Cato Institute and former Special Assistant to President Ronald Reagan. He is a member of the Advisory Board of the Acton Institute and author of Beyond Good Intentions: A Biblical View of Politics.