Friday, August 02, 2013

The Pope Francis and the Economy

In his first visit to Latin America, The Pope Francis, who lead the 26th World Youth festival held in Brazil, gave an homework to economists : To pursue a Human economy. It was coincidentally in Brazil a decade ago, at the First World Social Forum , the effort to build up a Human Economy began. What about it? : It deals with questioning the supremacy of free markets and command models which do not consider citizens concerns ,but only statistical parameters to draw its conclusions and policy prescriptions . The risks of this “statistical approach” ,is to give a superior stand to the outcome of these models, even above citizens needs and values, to solve critical dilemmas concerning for example socials demands or cultural preferences .Reaching such a stage means somehow that the economy lose its sight .It make people´s needs to fit economic models and policies , instead the other way around : economy policies and models to fit people demands and expectations. Markets as an impersonal tools to solve the allocation of resources problem, substitute the value of human judgment to set economy priorities. Markets solve the allocation problem based only on economic considerations. Thus, key variables of human well being ,such culture , arts, literature, sports becomes commodities with prices which make them available only to those who can afford to pay for it, therefore excluding the meaning of for example a cultural policy . It becomes self evident that what The Pope Francis request set a pressing demand for such transformation to be applied for current social and economic problems, whose scope I may suspect ,goes beyond Latin America economic policies . On the other side of the issue ,Economics is a Social science which does not have the chance to work alternatives economic policies out ,based on laboratories conditions to prove what it does works or does not . Both Mathematics and statistic ,becomes useful tools to help economics modeling to represent reality in more simplified way , but in the process it get closer to miss about the essential ,if not in some cases to forget at all: Economics is a Science like other ones, to serve the well being of mankind. It follows that the outcome of such a models ,cannot substitute human judgment.- Therefore, to rely heavily on models which do not represent but a fraction of relevant variables, with the remaining ones left outside as error terms, is a risky situation as the 2008 global financial crisis has made clear. Those who were able to predict properly such a crisis, did not based their analysis but in their own judgment.- Is Human economy necessarily self excluding with both the main stream of microeconomic framework or normative macroeconomics?. Are free markets policies, contradictory with Human Economy?.I guess that it all comes down to better institutions and policies .This means to go beyond the simplistic representation of models , to stand up above it with ethic leadership . When Adam Smith (Moral Philosopher)supposed the presence of an “Invisible hand”, to solve allocation of resources , probably did not exclude faith, trust , the value of promises and hard work, honesty and honor to do business .Human values which in modern societies , laws transformed some of them in institutions. Thus ,Pope Francis is not asking for something unusual for economics , but just to go back to its roots and not missing its focus .-