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‘The Pope & the Market’: An Exchange

In response to:

The Pope & the Market from the October 8, 2015 issue

Pope Francis
Pope Francis; drawing by James Ferguson

To the Editors:

Professor William D. Nordhaus [“The Pope and the Market,” NYR, October 8] writes that water in California is not scarce, but only underpriced. The snow-packs in the Sierras, however, are at a five-hundred-year low and market forces cannot make it snow. Professor Nordhaus’s argument about cap-and-trade is on the level of ways and means, a level different from Laudato Si’, which, among other things, is concerned with magical thinking and market idolatry.

Papal encyclicals are not research papers. They are intended to apply the teaching of the Church to current circumstances, so some attention to the state of scientific knowledge is appropriate, but as expressions of the moral and doctrinal tradition, their primary sources are previous encyclicals, not secular research.

The usual method is to begin with first principles (such as “God intends human beings to be stewards of creation, so it is wrong for us to wreck the common home”). Encyclicals consist mostly of more specific imperatives—called middle maxims—that apply these first principles in the current situation (such as “we ought to reduce carbon footprints and CO2 emissions”). How best to fulfill these middle maxims is a matter of prudential judgment, the appropriate prerogative of well-informed people of goodwill. This is sometimes called the “principle of subsidiarity”: the Church’s magisterium does not extend to ways and means; an encyclical is not a detailed manifesto for action.

So it is not surprising that Pope Francis “points out the need to replace fossil fuels with renewable energy and conservation” (a middle maxim), but does not try to answer prudential questions such as “who will develop the new energy technologies that will replace fossil fuels?” To ask why people would “use more expensive fuels when cheap fossil fuels are available” is like asking why people would refrain from robbing their neighbors: because it is morally wrong to behave otherwise. Of course, sometimes human law needs to incentivize right behavior, and that is where cap-and-trade policies may be useful, on the level of prudential judgments about ways and means.

In my reading of Laudto Si’, the pope does not oppose such policies, but warns against their corrupt manipulation and, above all, against the idolatrous claim that the market can solve all our problems—against thinking that the market can make it snow in the mountains.

The Rev. William J. Teska
Retired Episcopal priest
Adjunct Instructor in Ethics
Argosy University
Orange, California

To the Editors:

William Nordhaus’s thoughtful reaction to Pope Francis’s Laudato Si’ proves that the pope has achieved one of his stated purposes. He has used the world’s bulliest pulpit to spark an urgent discussion on how we can best care for “Our Common Home.” But by understandably restricting his reply to the economics, Nordhaus misses something the pope is even more concerned about, namely that we live not just in a market economy, but also a market society and culture, one that increasingly warps our deepest values. Francis is worried that we are beginning to view not just the earth but the meaning of life and death through a narrow monetary prism. But this means we miss out on the joy of living while falling prey to a “globalization of indifference.” I don’t believe Francis wants to abolish markets, but he realizes, as Nordhaus seems to as well, that we need a system that puts persons instead of profits first, and that unguided and unregulated markets can wreak havoc both with our planet and with our souls.

Harvey Cox
Hollis Research Professor of Divinity
Harvard University
Cambridge, Massachusetts

To the Editors:

William Nordhaus’s timely and eloquent review of Laudato Si’ failed to mention one of the most powerful effects of bringing market forces to bear on climate change: increasing the investment and effort into innovation in the fields of energy conservation, fuel alternatives, and methods for reducing CO2 emissions. In an age of warp-speed technological change, when new improved products hit the grocery shelves and electronics stores at an ever increasing pace, the innovation in these fields has been stymied by a lack of financial rewards for those who would come up with new ideas. As suggested, market forces are not antithetical to the solution; on the contrary they will generate the solution. We need to have a price on CO2 emissions to unlock the Lever of Riches that is human ingenuity to solve this crisis.

Rebecca Stein
Microeconomics Principles Program
University of Pennsylvania
Philadelphia, Pennsylvania

William D. Nordhaus replies:

The letters by William Teska and Harvey Cox share a common response to Pope Francis’s encyclical and my review of it. Like the pope, and like the comments I made in my review, they have deep reservations about the way that economic forces and incentives have penetrated the deepest corners of our society, even the furthest corners of the world, through the process of globalization. In Cox’s view, even “the meaning of life and death” is viewed through a narrow monetary prism. We need to put “persons instead of profits first.”

I emphasized in my review the limitations of the market, both in generating high levels of inequality and in leading to environmental degradation. But to focus my response on the environment, it is insufficient to reverse environmental degradation by relying on first principles and middle maxims (to use the language of Reverend Teska’s letter). These principles and maxims may help educate people about the goals of the Catholic Church or of different societies, but they will do little to curb the 32 billion tons of annual carbon dioxide emissions of seven billion people, each making multiple decisions about energy use 365 days a year.

To solve environmental problems, we need to move to the practical arts of economics and politics. When scientists and economists began studying climate change four decades ago, neither the scope of the problem nor the solutions were evident. After years of experiments with different approaches, it has become clear that the most reliable approach to bending the curve of emissions and slowing climate change is market-based instruments like near-universal carbon taxes or cap-and-trade policies that raise the price of carbon emissions. Voluntary measures, actions of people of goodwill, and even regulatory actions on cars and power plants will not come close to meeting the targets of governments and Pope Francis.

Perhaps what Reverend Teska calls “prudential judgments” about the environment, the ways and means, are not appropriate subjects of an encyclical. If that is so, then it would have been better to refrain from condemning market instruments (carbon credits) and leaving the subject open to “well-informed people of goodwill.” It might have been better to emphasize the morality and importance of the “polluter pay principle” and to point to possible ways that that principle can be implemented. By condemning carbon credits, Pope Francis discouraged the exploration of market-based approaches.

The letter by Rebecca Stein is by contrast right on target. We need high carbon prices to give incentives for inventors and innovators to develop and introduce low-carbon technologies. I will illustrate this with a simple example. Suppose you are in charge of research and development at a large company like General Electric, which had an R&D budget of $4 billion in 2014. You do research on energy from coal, natural gas, nuclear energy, wind, and other sources. If carbon prices are going to be very low, then gas- and coal-burning plants will continue to be an important source of profits, and you will continue to do substantial R&D on those technologies. On the other hand, if you expect carbon prices to rise sharply, zero-carbon technologies like wind, solar, and nuclear power will be the sources of energy on which to place your research bets. Market mechanisms for the environment will make carbon-rich processes unprofitable, and low-carbon sectors profitable. That is the proper role for profits in a well-regulated market economy.