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Insights 23: 26 June 2015

The Pope and the market
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
Pope Francis’ encyclical Laudato Si’ has been both praised and criticised for its focus on the environment. That is indeed what a large chunk of this circular letter sent to the bishops of the Catholic Church is about.

However, the pope’s tractate on the environment is just an application of his general lament on the modern world. Anthropocentrism and relativism are identified by the pope as evils of our time.

Yet reading through the encyclical, I am not sure that Francis actually understands what he is writing about. Some of his observations are so far off the mark that they would be offensive if one took them seriously.

He explains that “[w]hen human beings place themselves at the centre, they give absolute priority to immediate convenience and all else becomes relative”. This is what he means by anthropocentrism.

What Francis does not say is whether or not a practical alternative exists. Was that not where the Bible assigned humanity (Genesis 1:28)? Besides, humanity being at the centre does not mean that immediate convenience rules – otherwise there would be no long-term planning, no saving, no investment. The pope clearly confuses anarchy with property rights.

This confusion continues in his discussion of ‘relativism’, which the pope regards as any form of treating each other as objects. This leads him to claim that this “kind of thinking leads to the sexual exploitation of children and abandonment of the elderly who no longer serve our interests. It is also the mindset of those who say: Let us allow the invisible forces of the market to regulate the economy, and consider their impact on society and nature as collateral damage.”

With all due respect, this is utter, offensive nonsense. Economists favouring markets do not share the same level of morality as child molesters.

What the pope does not understand about markets becomes clear in this passage: “We need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals.”

Markets are not about increasing individual profits but about allocating scarce resources. They do so best when property rights are clearly defined. And then they effectively deal with those environmental problems that the pontiff can only preach about.

As a Catholic economist, reading this papal drivel masquerading as an encyclical is both embarrassing and infuriating. Thank God Catholics are free to disagree with this personal position of the Pope.

Elitism has its merits
Dr Eric Crampton | Head of Research | eric.crampton@nzinitiative.org.nz
Chris Berg last week made a compelling case against the tyranny of experts. In large part, I sympathise with him. Far too many bureaucrats and academics like to imagine that they are a breed apart – that they could never be subject to the kinds of behavioural foibles or bouts of irrationality they think plague other individuals in their decision-making. Worse, they have weaker incentives to fix things if they make the wrong decision. Individuals should be able to make their own choices, for better or worse.

But Berg reached too far in arguing against institutions that sometimes lean against democratic preferences in policy. People really do know less when they are shopping for governments than when they are shopping for cars, as economist Bryan Caplan points out in The Myth of the Rational Voter. When you are shopping for a car, picking one based only on aesthetics could cost you in maintenance, so you pay attention. But since you have lottery-ticket odds of changing an election outcome, feel-good voting is to be expected.

American voters regularly tell pollsters they want to balance the budget on the back of cuts to programmes that collectively make up only a tiny proportion of the budget. Kiwis seem little better. What else are we to make of things when a majority of Kiwi survey respondents favour a return to import controls and substantial minorities favour wage and price controls?

Ultimately, parliament is always supreme and cannot really bind itself through delegation even if it wanted to do so. Even central bank independence could be ended by a parliamentary vote to replace the Reserve Bank Act with something else. But placing some decisions at arm’s length is valuable – like having Pharmac decide on drug funding. It makes it harder for parliaments to make the wrong decision.

The Initiative has argued for a Fiscal Council which might guard against unsustainable policies. Rather than develop policy, it would report on whether spending delivered value for money and would watch the long-term fiscal outlook. It would be harder to pass legislation with very high long-term costs if an independent watchdog had at least issued a stern warning against it.

Independent bodies can be useful to complement democratic decision-making powers. And if it makes me elitist to say so, I am comfortable with that.

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Making sure the postman always rings twice
Khyaati Acharya | Research Assistant | khyaati.acharya@nzinitiative.org.nz
The postman used to ring at least five days a week. As of the first of July however, New Zealand Post will restrict deliveries to every second day.

But the demise of postal services is not limited to New Zealand.

In 2011, the US Postal Service estimated yearly budget cuts of $20 billion – a third of annual costs – would be necessary to return a profit. Declining demand has seen Australia, Singapore and many European countries eliminate Saturday deliveries as a preliminary cost-cutting measure.

Like record stores, newspaper classifieds and the ability to hide your past, the internet is being blamed for killing Postman Pat – while generating endless memes of his black-and-white cat.

Consequently, in a bid to boost competitiveness and gain access to private capital, Britain’s iconic state-owned postal service founded in 1516, Royal Mail, was privatised in late 2013.

Despite the deluge of controversy surrounding the choice, the privatisation has, arguably, resulted in Royal Mail becoming more innovative in creating demand for an otherwise dying service.

The company recently announced a new ‘secret’ pilot scheme in the hopes of improving revenues amid falling demand for postage stamp sales and increasing competition for parcel delivery services.

The idea seems simple enough.

It involves a collaboration between Royal Mail and an as yet unknown UK retailer. The retailer will collate data on products that customers most frequently browse, use cookies to store information on internet activity and miraculously match all this data with the customer’s postal address.

All that is required of the customer is to remain undecided about a prospective purchase by adding the item to cart, but not completing the transaction. And voila! The customer will receive a bespoke advertising catalogue within just 24-48 hours, rather than the usual email prompt or browser alert. Lucky them!

Royal Mail is confident the experiment will succeed on the basis that post makes people “feel more valued”.

Whether the scheme is a stroke of marketing genius that keeps the postman knocking remains to be seen. The catalogues could end up lining budgie cages, providing little benefit to the retailer, customer and struggling postal operator in the long run.

Either way, the innovation behind the idea is something to be admired, particularly as there is little evidence of this out-of-the-box thinking in Royal Mail’s 500 year history as a state-owned company.
 
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