The encyclical by Pope Francis, Laudato Sí, on climate change, requires better economic analysis and a clear policy prescription. Although it is primarily a theological statement, the encyclical includes the Pope’s thought on the sources of the problem, and therefore has an economic dimension with policy implications. As stated in the title of an article in the 10 June 2015 Wall Street Journal by Francis Rocca, “Pope Blames Markets for Environment’s Ills.”

The Pope does recognize that reducing pollution is a political problem. In paragraph 57, he declares that “powerful financial interests prove most resistant to this effort, and political planning tends to lack breadth of vision.”

The Pope also believes that all human beings are owners of natural resources. In paragraph 93, he states, “the earth is essentially a shared inheritance, whose fruits are meant to benefit everyone.” However, he needs to more carefully analyze the moral basis of property. He states, in paragraph 93, “The principle of the subordination of private property to the universal destination of goods, and thus the right of everyone to their use, is a golden rule of social conduct.... The Christian tradition has never recognized the right to private property as absolute or inviolable, and has stressed the social purpose of all forms of private property.”

The equality of human beings does not imply that people be forced to share the gains from their own labor, and the property due to their labor, with all others, but rather the deeper equality of each person owning his own life, labor, and products, so long as they do not invade others. The products of labor should indeed be inviolable private property. To the creator belongs the creation. The problem occurs when production trespasses and invades others’ property, including our common property, the atmosphere and the oceans.

The Pope examines policy remedies in paragraph 170: “Some strategies for lowering pollutant gas emissions call for the internationalization of environmental costs, which would risk imposing on countries with fewer resources burdensome commitments to reducing emissions comparable to those of the more industrialized countries. Imposing such measures penalizes those countries most in need of development.”

All countries could enact a prosperity-enhancing tax shift by replacing their taxes on wages, enterprise, value added, and goods, with levies on pollution and land value. This tax shift would reduce environmental destruction while boosting their economies, and reducing inequality and poverty.

Economists have mostly agreed since the analysis of Arthur Pigou in 1920 that the generally efficient way to prevent pollution and other negative external effects is a payment of the social cost by the firm and its customers. A global pollution charge would not add an economic penalty to the less wealthy developing economies, because they are already self-penalizing themselves with taxes that hurt their economies. All countries could enact a prosperity-enhancing tax shift by replacing their taxes on wages, enterprise, value added, and goods, with levies on pollution and land value. This tax shift would reduce environmental destruction while boosting their economies, and reducing inequality and poverty.

I agree with the Pope that trading in pollution permits and carbon credits “can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide.” The price of pollution permits can be different from the cost of the damage.

Regarding markets, the Pope does not differentiate between a truly free market and today’s intervention-hampered bazaars. He writes, “the market tends to promote extreme consumerism in an effort to sell its products, people can easily get caught up in a whirlwind of needless buying and spending.” Transactions today are distorted by taxes, subsidies, mandates, and prohibitions. Consumption is objectively excessive when buyers do not pay the full cost of the products, because the sellers and producers do not pay that cost, and are therefore implicitly subsidized. When the social costs of pollution and congestion are paid, and when there are no other distortive interventions, then we should respect the free choices of consumers.

It is too sweeping to blame consumption, private property, and markets, for environmental destruction, when it is the pollution subsidies that distort markets and generate excessive consumption and pollution. This encyclical would have been a good opportunity to focus on the key source of the problem, the absence of pollution charges as an international environmental standard.

The recognition that all human beings are properly the owners of natural resources, whose benefits should benefit everyone equally, points to the most effective policy solution: a globally enacted sharing of natural benefits as measured by land rent, and a globally enacted levy on all environmental destruction, including emission into the atmosphere and the destruction of oceans and forests.

The recognition that all human beings are properly the owners of natural resources, whose benefits should benefit everyone equally, points to the most effective policy solution: a globally enacted sharing of natural benefits as measured by land rent, and a globally enacted levy on all environmental destruction, including emission into the atmosphere and the destruction of oceans and forests.

While one can understand the Pope’s hesitancy to declare specific policy proposals, his statements on the source of the problems - markets and consumption - have policy implications, and if he instead identified the sources as pollution subsidies, along with the equal right of all people to environmental benefits, then the policy implication would be levies on land value and on pollution, and so they may as well be stated explicitly.

Source: The Vatican | May 24, 2015

© Text Copyright Fred Foldvary, Ph.D. rights reserved.
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