Written by Don Grapper
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Thursday, 23 July 2015

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Pope Francis "The Keynesian Paradigm of Aggregate Demand Causes A Misallocation of Resources"

Quito, Ecuador - Visiting a poor village in Ecuador made a powerful impression on the Pope, who returned to Quito and commented to reporters that "policy must change" and "economics must be about the people and bettering their lives".

Critics lauded the Pope for his concern for the poor but took him gently to task for his forays into economic matters, about which they say he has little expertise.

While in Quito, the Pope said that the United States needed to move to a flat tax of only 12%, which would "invite investment" from both domestic and foreign sources. He cautioned that the Federal Reserves recent history of Quantitative Easing posed dangers of inflation, so he urged also that the flat tax be accompanied by a tighter money policy.

"Ordinarily, a tight money policy is pursued when an economy is overheated, and I can hear the critics now saying that my ideas will stop growth before it starts," the Pope said. "But the flat tax will bring investment into America from abroad, which will counteract the normal contracting effects of a more restrictive Fed policy."

The Pope said also there is no underestimating the dire effects over regulation has on any economy.

"Students are brainwashed to think regulation is done for the sake of the people, but it invariably is done for the sake of existing producers of goods and services to create barriers to market entry - which raises prices."

Economists said the Pope failed to distinguish between wholesale and retail prices in his inflation analysis and did not address the impact eliminating the home interest deduction would have on the housing market.

The Pope shot back in a Sunday Sermon before thousands at Vatican Square, saying the home interest deduction grossly distorts the housing market and eliminating it would lead to steady growth in the housing sector. He said also that criticism of flat taxes as "regressive" are "hogwash" and said poor people would be more than adequately compensated for slightly higher taxes by the deflationary impact greater competition would have on prices. The Pope quipped that he was "of course not talking about monetary deflation."

The Pope also told the crowd that his current portfolio includes a balance of American, European, and emerging market stocks, though he conceded also to still holding 10% of his assets in gold as a hedge against inflation. In a more intimate late afternoon mass with Central American peasants, the Pope listened patiently to the simple tales of woe told by the humble farm families and said "God hears them" and would most likely advise buying up soybean futures and shifting ten to fifteen percent of their current Global Holdings into tax free municipal bonds.

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