Unemployment and Profits

It seems that the new Pope Francis fancies himself not only as a spiritual leader, but an economist as well. Yesterday, he wrote on his official Twitter account: "My thoughts turn to all who are unemployed, often as a result of a self-centered mindset bent on profit at any cost".

Pope Francis is quite right to focus on and empathize with the depression-era levels of unemployment - particularly in the peripheral European countries, and particularly among youth everywhere. It is easily the most pressing social issue of our day. To suggest, however, that (corporate) "profit" is a principal culprit, while an oft-heard complaint, is nonsense, and dangerous. One wonders if the Pope has contemplated what unemployment levels would be if the corporate sector did not seek, as its first mandate, to be profitable. He needs only to look at the tragedy of the Soviet Russia/Eastern European 20th-century experience, or the pre-Zhou Enlai era in China, or today's North Korea, or indeed his home country of Argentina ( a severe depression, growing public and external indebtedness, a dearth of corporate profits and investment, and an unprecedented bank run culminated in 2001 in the most serious economic, social, and political crisis in the country's history) to see how economies and indeed societies can virtually collapse when the profit motive is removed. It's this simple - profit allocates always scarce capital, efficiently - nothing else (such as central planning) comes close.

Instead of blaming "profit", Pope Francis might more wisely have called for politicians everywhere to summon political will, and address the many structural impediments to employment in their respective economies. Labor market rigidity, which governments can mitigate, is the core issue. More on this in a subsequent note.  ​