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Getty Images / Drew Angerer
- Pope Francis followed Warren Buffett in arguing that free markets cannot address growing inequality in a letter to the bishops of the Catholic Church on Sunday.
- The pontiff said “magic theories” like the trickle economy will not solve all of society’s problems.
- Buffett argued earlier this year that markets reward some skills but not others, exacerbating inequality in the absence of government intervention.
- “It’s not a diabolical plot, or anything,” the billionaire investor told Yahoo Finance. “It’s because of the market system.”
- Visit the Business Insider home page for more stories.
Pope Francis echoed Warren Buffett by blaming unfettered capitalism for growing inequality in a letter to the bishops of the Catholic Church titled “Fratelli Tutti” on Sunday.
“The market alone cannot solve all problems, no matter how much we are asked to create this dogma of neoliberal faith,” the Pope wrote.
“Neoliberalism simply reproduces itself by resorting to the magic theories of ‘spill’ or ‘drip’, without using the name, as the only solution to social problems,” he continued, referring to the “trickle economy,” or the idea that as the rich accumulate wealth, money will automatically flow into the pockets of the poor.
The Pope pointed to the consequences of the pandemic, including massive spikes in unemployment around the world, as proof that “not everything can be solved with free markets.”
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Buffett, a billionaire investor and CEO of Berkshire Hathaway, expressed a similar opinion in a Yahoo Finance interview earlier this year.
“There is no doubt that capitalism, as it advances, will widen the gap between people who have market skills, whatever the market demands, and others, unless the government does something in between,” he said.
“It’s not a diabolical plot or anything,” Buffett continued. “It’s because of the market system.”
The so-called “Sage of Omaha” proposed two ways to tackle the problem: a more generous earned income tax credit to reduce the tax burden on workers and higher taxes for the ultra-rich.
Buffett, who plans to donate more than 99% of his wealth to philanthropy, has repeatedly called on politicians to raise taxes on the super rich. Current laws allow you to pay a lower fee than your secretary.
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Buffett has mentioned the Pope several times over the years.
The Berkshire boss lamented that criticizing efficient market theory (EMT), or the idea that stock prices reflect all available information, amounted to blasphemy in his 2006 letter to shareholders.
“A finance instructor who had the gall to question EMT had as much chance of a great promotion as Galileo of being named Pope,” he joked.
Buffett also referenced the pontiff in a fable underscoring the obsessive approach of Berkshire managers in his 1986 letter.
“Our prototype of occupational fervor is the Catholic tailor who used his small savings from many years to finance a pilgrimage to the Vatican,” he said.
“When he returned, his parish held a special meeting to get his first-hand account of the Pope,” Buffett continued. “‘Tell us,’ said the eager faithful, ‘what kind of man is he?'”
“Our hero wasted no words: ‘He’s a 44, medium.'”
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