Wednesday, 24 June 2015

What The Pope Doesn't Get

I wasn't going to write a Blog post on the Pope's latest perorations - but a few people have asked for my views on it, so I had a quick look at his thoughts. Where he’s going wrong can be summed up in one of his most strident statements:

“The idea of infinite or unlimited growth, which proves so attractive to economists, financiers and experts in technology is based on the lie that there is an infinite supply of the earth’s goods, and this leads to the planet being squeezed dry beyond every limit.”

Oh dear – alas, the head of an institution as grand and powerful as the Catholic Church ought to be much better informed on the basics of economics. The Pope’s argument would be okay if the predicates were correct (ditto every other anti-progress person who continually spouts green-bytes). That is, if the free market system was based on the error that we rely on an infinite supply of the earth’s resources, and that to run out of certain resources is going to put us all to hell in a hand cart, then yes the Pope’s encyclical would be right on the mark.

But the truth is, Pope Francis starts with an assumption that turns reality upside down, so his analysis is frivolous. People who understand economics don’t of course think that the earth’s goods we consume are based on an infinite supply of resources. Quite the contrary - the subject of economics is built on the reality that in a supply and demand market, resources are finite and need allocating in the most efficient way.

Because of the limitation of the earth’s resources, supply-side initiatives in the free market engender innovation, which creates value, but also brings about a change in the way we use the earth’s resources. For example, we used to burn a lot more coal than we do now. Currently the technology for electricity, gas, and solar energy has weaned us off coal dependency, which means we use less of it.

Another example is paper. We used to use a lot more paper. Currently the technology for digital interfaces (laptops, mobile phones, iPads) has weaned us off much of our paper dependency (with much more still to come), which means….. you guessed it…. we use less of it.

So when we see economic growth, and increased prosperity, as well as people continually being lifted out of poverty because of it - that growth is not defined as a calibration of any single resource we consume - it is the value created consistent with how the market most efficiently allocates the ever-changing use of varying resources.

Pope Francis has lots of good qualities – it’s such a shame his understanding of the basics of economics and human progress is meagre, and his pontificating so lacklustre here.