3 New Additions to the Glossary! “Subsidiarity,” “Zero Economic Profit” & “Regulatory Barriers to Entry”

ap-micro-review-theory-of-the-firm-35-638Who would think that answering the oft-asked question, “What do you think of Pope Francis?” I would have to define economic terms? But honestly, I think he started it! Here you go…

Subsidiarity
According to David Bosnich writing for acton.org, “One of the key principles of Catholic social thought is known as the principle of subsidiarity. This tenet holds that nothing should be done by a larger and more complex organization which can be done as well by a smaller and simpler organization. In other words, any activity which can be performed by a more decentralized entity should be. This principle is a bulwark of limited government and personal freedom. It conflicts with the passion for centralization and bureaucracy characteristic of the Welfare State.” (This reminds me of the gospel in which Jesus tells people to handle things one-on-one or within the community if possible.)

Regulatory Barriers to Entry
Complying with government regulations costs money–sometimes big money like building a data center to store all Americans’ metadata, and sometimes small money like getting a hairdresser’s license–but it always costs money. This investment in non-productive capital increases the funding required to enter a business and that changes the calculus as to whether to risk starting a new venture or not. Some new ventures are deterred and in this way competition is reduced. Generally, obstacles to new entrants are called barriers to entry; in the case of government regulatory compliance deterring competition, they are called “regulatory barriers to entry.”

Zero Economic Profit
With perfect competition, any profit that rewards capital or labor with profits higher than their marginal cost will experience entry until all capital and labor earns risk-adjusted-returns that are consistent with their market values. This is why in a free society there is less concentration of wealth not more. As government regulates industry, it erects barriers to competition that allow incumbent firms to maintain greater than zero economic profit. (See above, regulatory barriers to entry.)

3 New Additions to the Glossary! "Subsidiarity," "Zero Economic Profit" & "Regulatory Barriers to Entry"

ap-micro-review-theory-of-the-firm-35-638Who would think that answering the oft-asked question, “What do you think of Pope Francis?” I would have to define economic terms? But honestly, I think he started it! Here you go…

Subsidiarity
According to David Bosnich writing for acton.org, “One of the key principles of Catholic social thought is known as the principle of subsidiarity. This tenet holds that nothing should be done by a larger and more complex organization which can be done as well by a smaller and simpler organization. In other words, any activity which can be performed by a more decentralized entity should be. This principle is a bulwark of limited government and personal freedom. It conflicts with the passion for centralization and bureaucracy characteristic of the Welfare State.” (This reminds me of the gospel in which Jesus tells people to handle things one-on-one or within the community if possible.)

Regulatory Barriers to Entry
Complying with government regulations costs money–sometimes big money like building a data center to store all Americans’ metadata, and sometimes small money like getting a hairdresser’s license–but it always costs money. This investment in non-productive capital increases the funding required to enter a business and that changes the calculus as to whether to risk starting a new venture or not. Some new ventures are deterred and in this way competition is reduced. Generally, obstacles to new entrants are called barriers to entry; in the case of government regulatory compliance deterring competition, they are called “regulatory barriers to entry.”

Zero Economic Profit
With perfect competition, any profit that rewards capital or labor with profits higher than their marginal cost will experience entry until all capital and labor earns risk-adjusted-returns that are consistent with their market values. This is why in a free society there is less concentration of wealth not more. As government regulates industry, it erects barriers to competition that allow incumbent firms to maintain greater than zero economic profit. (See above, regulatory barriers to entry.)

What To Make of Pope Francis?

RETRANSMISSION OF OSS102 TO PROVIDE DIFFERENT CROP - In this photo provided by the Vatican paper L'Osservatore Romano Tuesday, Jan. 7, 2014, Pope Francis is placed a lamb around his neck as he visits a living nativity scene staged at the St. Alfonso Maria de' Liguori parish church, in the outskirts of Rome, Monday, Jan. 6, 2014. The Epiphany day, is a joyous day for Catholics in which they recall the journey of the Three Kings, or Magi, to pay homage to Baby Jesus. (AP Photo/Osservatore Romano, ho)
RETRANSMISSION OF OSS102 TO PROVIDE DIFFERENT CROP – In this photo provided by the Vatican paper L’Osservatore Romano Tuesday, Jan. 7, 2014, Pope Francis is placed a lamb around his neck as he visits a living nativity scene staged at the St. Alfonso Maria de’ Liguori parish church, in the outskirts of Rome, Monday, Jan. 6, 2014. The Epiphany day, is a joyous day for Catholics in which they recall the journey of the Three Kings, or Magi, to pay homage to Baby Jesus. (AP Photo/Osservatore Romano, ho)

In the interest of full disclosure, I will tell you, I am a practicing Catholic and I raise my children Catholic, but I’m not a great Catholic. I follow the rules of the Church to the best of my ability and try to live by the spirit of Christ’s teachings, but I struggle with faith and am not versed in every nuance of the Church’s tenets. I do, however, respect those Catholics who still keep the faith in the same tradition my parents upheld and I benefit greatly from the culture they create in the Catholic community.  For this reason, I never want my skin-of-the-teeth Catholicism in any way to diminish the Catholic culture or reflect poorly on it, so I try to stay away from public discussions on religion. Recently, however, many people of different creeds and political stripes have asked me what I think of Pope Francis, and I’m happy to respond, but I must emphasize, this is, of course, only my opinion. I’m not trying to represent the Church or libertarians, or preach or criticize–I’m just recording my observations for those interested in reading them.

I always give the Pope the benefit of the doubt, but boy are my doubts mounting! Here are the main issues I have with some of the positions the Pope is reported to have taken….

Redistributing Wealth 

Not too long ago, I sifted through all the relevant writings I could reasonably assess in order to see if any Pope had openly advocated for government redistribution of wealth. From what I could tell, many had come close but no Pope had gone all the way–until now.

This alarms me. The modern state’s use of violence and the threat of violence to take property from its rightful owners (assuming there are any objective laws left in this world, there are clearly defined rightful owners at least of the fruits of their labor) and give it to someone else not only breaks the sixth and eighth commandments, but also makes it impossible for able-bodied producers to live Christ’s exhortation to charity as well as reduces the poor from a default state of virtue (assuming money really is the root of all evil), to being receivers of stolen goods.

As progressive taxation comes closer to absorbing all surplus wages and putting them at the disposal of the modern state, even the highest earners may no longer have the means to engage in meaningful charity. And with what result? The governments in the United States, for example, spend approximately 40% of the country’s production (GDP), the vast majority of which is redistribution of wealth.

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