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November 22, 2004

Bishops and Economics.

The Bishop of Liverpool has a piece in the Guardian today. Interesting as it is conclusive proof that those in the Ministry should concentrate on saving souls, not advising us how to run the world. That might seem a little harsh for the man is well meaning, obviously has his heart in the right place and yet manages to make a complete cock-up of the economic argument.
Essentially he seems to have caught the "resources" bug.

The modern world has lost much of its connection with the earth. It is as serious as shoppers losing sight of their bank balance. For consumers of the earth's resources there is no check on our profligacy; we are so removed from the consequences of our actions that we live comfortably in denial, ignoring the prophets of doom who predict an impending environmental crisis of epic proportions.

No, no cheap jokes from me about the wisdom of paying a little more attention to Biblical prophets rather than Jonathan Porritt. I wouldn't dare. The substance of his argument is here:
The most substantial tax revenue comes from taxing income, especially labour. The time has come for all political parties to rethink fundamentally this balance. We should gradually shift from taxing labour to levying taxes on the use of original resources.
There are two reasons. First, this would exercise more of a discipline on our use of original material, which would encourage us to conserve and replenish the source. Second, it would stimulate labour and encourage us to be creative and innovative in our use of original material. Current industry and business seem to be based upon using minimum labour in relation to resources used; we urgently need to invert the ratio into the minimum amount of resources used in relation to labour.

There's three economic points that should be made here.
One, that resources are not, contrary to what the Bishop believes, something that exist in some limited quantity. Resources are created by human beings by the invention of technology. If you don't know how to make iron then that red hill over there is indeed, that red hill over there. If you do know how to make iron then it's a resource, a mountain of iron oxide from which you can make the swords with which to go and smite the infidel. If you don't know how to plough and sow (something that it appears we discovered around 10,000 years ago) then there is no such thing as arable land. It's a meadow because you don't know how to rable. As technology moves on, as we move from hand hauled ploughs to oxen drawn, to horse drawn, to iron ones, the land which is arable expands, as our advances in technology expand our ability to rable. One might think that we finished expanding this particular resource, arable land, millenia ago but it ain't so. The Brazilian Cerrado was only opened a couple of decades ago as we worked out how to breed (yes, using GM in part) crops that would grow in the acidic soil. We could also mention the idea that the steady 1% rise per year in crop yields over the past five decades has expanded the resource available to us.
The second is that he is at least partially right. The taxation of resource use is known as the taxation of land rents. Royalties on mining, charging for the use of spectrum are examples, others would be charging for, not allocating, flight slots, for use of airspace....one can go a little too far with this, Henry George being an example, but when such luminaries as Milton Friedman think it a good idea (within limits) then of course, one must take the idea seriously. However, no one suggests that only this form of taxation can pay for the glories of the modern welfare state. You might be able to raise 15%, possibly even 20% of GDP in this manner, somewhere between a third and a half of the moolah that is required. I, of course, would be all for it if that is all that the State would take...but we all know that ain't the way it would work.
Yet the real problem is in the third error. He wants us to move from the use of minimal labour and maximal resources to maximal labour and minimal resources. This is simply a prescription for making us poor. Grossly so.
It is axiomatic (meaning true beyond the possibility of discussion. When a noted leftist like Paul Krugman refers to it as blindingly obvious and other more right wing economists like the above Friedman similarly insist that it is true, well, we really do have to take note of their views.) that average wages are determined by the average productivity within an economy. What is left unsaid but should be obvious is that it is labour productivity that we are talking about. So, the good Bishop wishes us to move from a resource intensive economy to a labour intensive one. That is, more labour used to create the same level of production. It doesn't take a genius to note that this will mean less income per unit of labour used, or, if you prefer, lower wages per unit of labour. Yes, that really does mean that we become poorer.
I'm aware of the New Testament injunctions about rich men and heaven but I am a little surprised to see a Bishop trying to make us all poorer, especially when the justification does not seem to be the salvation of our eternal souls but rather that of the resources that we ourselves create.
Or perhaps, to be a little more charitable (a Christian duty after all) the Bishop has simply misunderstood the economics?
We report and you decide.

November 22, 2004 in Economics | Permalink

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Personal favorites: How well-meaning people can make unacceptably bad economic recommendations, how to apply maximin thinking to small business, and a debunking of the jobs myth (that job creation is the end-all-be-all of economic growth). [Read More]

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Comments

Nothing in quantum mechanics or advanced mathematics induces as much consternation in the average person than the idea that resorces are not finite in any meaningful sense. I have literally spent over an hour trying to drum this into the head of an eco-freak, worried about oil running out. And then you have the invincible ignorance of people like George Monbiot, who for some unfathomable reason is given a forum to spout his juvenile and illiterate views on economics.

Posted by: David Gillies | Nov 22, 2004 5:28:45 PM