From Forbes
By Tim Worstall
Pope Francis
has told us all that we’re really very naughty indeed to allow food to
become a product like any other, a product in which people can speculate
and profit. Which leads to a rather sad observation about Il Papa‘s
understanding of basic economics: he doesn’t, essentially, he doesn’t
understand basic economics. It is indeed an outrage that there are still
800 million or more of our fellow human beings who are malnourished.
Appalling that while the world grows the calories to feed all not all
get fed. But once we’ve noted those points, decided (as we damn well
should) to do something about them, the interesting question becomes,
well, what? At which point we might note that it’s the places with well
functioning markets, subject to all that horrible speculation and profit
making, that have the people who are not malnourished and not starving.
Something Pope Francis might have considered before he said this:
The 77-year old said the world had ‘paid too little heed to those who are hungry.’
While the number of undernourished people dropped by over half in the past two decades, 805 million people were still affected in 2014.
‘It is also painful to see the struggle against hunger and malnutrition hindered by ‘market priorities’, the ‘primacy of profit’, which reduce foodstuffs to a commodity like any other, subject to speculation and financial speculation in particular,’ Francis said.
Before I go further in arguing with this distinguished and holy man
perhaps I should point out that I was brought up as a Catholic, indeed
expensively educated in an attempt to turn me into a Catholic Gentleman
(something that has obviously failed on both points), so I do understand
the background to these remarks. There’s nothing unusual about them in
the context of Catholic social teaching. However, they are still wrong:
not in the goal, of course not, we all want the hungry to be fed. But in
the understanding of the policies that are required to make this
happen.
I’ve argued this so many times that the web is littered with pieces. Here, here and here just as examples.
But just to lay it out in very simple terms in one place. Regarding
that first point, about profit. Profit is the incentive for people to do
things. If people don’t profit from their actions then they won’t do
them. Of course, we can take a wide view of what “profit” is: we could,
for example, say that the warm feeling a farmer gets from watching a
starving child eating the food he has grown is a profit. And it would be
as well. But as we’ve found out over the past century or so (looking at
those various attempts at the collectivisation of agriculture is really
most instructive) that that good feeling of having produced what others
need is not actually enough. Any and every society that has relied upon
such public feelings has had extensive malnutrition if not out and out
famine.
So, we want the producers of food to profit from their having produced it. Otherwise we just don’t get enough food.
Then on to speculation and financial speculation. These move the
prices of things through time. This is also highly desirable (as Adam
Smith pointed out 238 years ago) as by moving prices through time we
also move supplies of food through time (see the linked pieces for this
in more detail). We move food from, as Smith said, a time of plenty to a
time of dearth: thus reducing malnutrition and starvation. And yes,
again, the incentive for people to do this highly desirable thing is to
make a profit.
So we actually want both profit and speculation in food. For the end
results are desirable. We get both the production of food in the first
place and the movement of it, in both geographic and temporal, terms, to
where it is needed.
And thus the Pope is wrong in his condemnations.
That isn’t the end of the story though. It is still true that there
are those malnourished, that there are still people starving. And also
that we’ve a moral duty to do something about it. But if it’s not the
greed for profits nor speculation that causes the problem then what is?
At which point we can turn to another economist, Amartya Sen. Who has
pointed out that, for the past century at least, starvation and famine
have not been caused by an absence of food. They’re no longer supply
side phenomena and they’ll not be solved by looking at that supply side.
No, instead, famine now is an absence of purchasing power among those
who simply cannot buy the food that is available. This is such a well
known matter that even George Bush, when President, tried to get the
rules about US famine relief changed (Obama is trying again now, too,
according to reports). Instead of shipping US grain to starving people
ship US money to starving people so they can buy the food that is
already there. Or if not exactly there, then nearby. And we can rely
upon the existence of that effective demand to incentivise people
through that profit motive, through speculation, to ship the food from
where it is to where the hungry people are.
That is, modern hunger is a demand side phenomenon and will be solved
by demand side measures. Like, as above, giving poor people money to
buy food with.
This is what actually works, this is how most NGOs now see hunger,
many governments too. The problem is not that there’s no food for the
poor to buy. It’s that the poor have no money to buy food. The answer is
thus not to fiddle around with the supply side, that’s working just
fine. For there are supplies of food available. What’s going wrong is
the demand side so that’s where the solution must lie. We must turn
actual demand (empty bellies) into effective demand (people with empty
bellies with money to buy the food that exists).
And that is where I really criticise the Pope. Yes, absolutely it is a
Christian duty (and for those of us without faith, a moral one just as
strong) to feed the starving and the hungry. But there are effective
ways and ineffective ways to make this happen. And the Pope is putting
forward an ineffective one, messing with the supply system of food. When
the answer actually is messing with the demand for food: getting the
poor the money they need to buy the food that exists. What really annoys
is that most of the Catholic charities now know and acknowledge all of
this. Why is the Pope so ill informed* on the matter then?
*Yes, a possible joke here on the infallibility of the Pope. But
that does only extend to the Pope being infallible upon matters of
doctrine. And as far as I can remember it has only been asserted once,
that the assertion of the infallibility of the Pope when pronouncing
upon doctrine is infallible. It most certainly doesn’t apply to
economics any more than it insists that he gets the lottery numbers
right every week.
Tim Worstall's latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.
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