Thread: How Does the Invisible Hand Work?

There is a department is the U.S. government called the Pipeline and Hazardous Materials Safety Administration. You and 99.999% of the American populace have never even of heard of it. If they don't get funding, a natural gas line will explode and kill a lot of people. How does your proposal handle that?

rathi, ever heard of Maslow's hierarchy of needs?

Originally Posted by Xerographica

rathi, ever heard of Maslow's hierarchy of needs?

Indeed. Survival is at the very bottom and you haven't answered how your plan wouldn't result in people dying. How can people allocate tax dollars to organizations they have never heard off when those organizations are vital to keeping people alive?

rathi, I don't understand what your point is. Is your point that you would keep this information to yourself? Or is your point that you would share this information with others but they wouldn't do anything about it?

Let's review...

Did you just tell me about it? Yes
Would I allocate my taxes to it if my life depended on it? Yes

Where's the problem?

Originally Posted by Xerographica

rathi, I don't understand what your point is. Is your point that you would keep this information to yourself? Or is your point that you would share this information with others but they wouldn't do anything about it?

Let's review...

Did you just tell me about it? Yes
Would I allocate my taxes to it if my life depended on it? Yes

Where's the problem?

The problem I just demonstrated is that you have no clue what the federal government actually does. You don't know how many federal departments there are, what they do, or how much funding they need. If you read any economic textbook, you would know that the most basic requirement for the free market is making an INFORMED choice. You can't make such a choice when you lack even the most basic knowledge.

Xerographica;1

KevinKohler, I added your response to my entry...Unglamorous but Important Things.

Regarding the guy with no licence...you see that he did not spend any of his taxes on roads...but what you didn't see was that he spent his taxes on government research for a cure for cancer. The economic term for this is "opportunity cost" and it's a fundamental part of the invisible hand concept.

How many potholes would you be willing to endure for a cure for cancer? Nobody can answer that question for you. Congress just guesses what all of our answers are...and it's the equivalent of somebody that's blindfolded trying to drive you across town. When the car crashes you just vote for another blindfolded person to try and get you to your destination. How many times now have the keys to the car been passed back and forth between Republicans and Democrats?

A LOT fewer than someone dying from cancer.

It has nothing to do with which party's in charge and everything to do with the simple fact that congress tries to guess what the invisible hand knows. In other words...taxpayers should be given the keys to the car. The challenge is that you'll only appreciate this if you truly understand how the invisible hand works.

Congress does a pretty fair job of guessing, so far as infrastructure and such goes.

rathi, having worked for the federal government I know exactly what a portion of the federal government does.

Here are the two main problems that you just demonstrated...

1. You have trouble understanding the idea of a taxpayer division of labor. As a taxpayer you wouldn't have to know how many federal departments there are any more than consumers have to know how many corporations there are. You would just pick a few areas that you really care about and concern yourself with those areas. Or...you could just give all your taxes to congress if you felt overwhelmed by the prospect.

2. If you had even the basic understanding of knowledge requirements then you would know that the premier Nobel prize expert in this area was Hayek. You would have already read his essay on The Use of Knowledge in Society and understood that the market operates on the basis of partial knowledge.

Given that you lack a basic understanding of how the invisible hand works...it's clear that you don't need to know how the invisible hand works for it to work. But you do need to understand how the invisible hand works in order to understand why taxpayers should be allowed to directly allocate their taxes. Right here you have an epic opportunity to be way ahead of the curve...so why not take the time to thoroughly read Hayek's essay.

Honestly I had to carefully read through it several times before it really made sense to me. That's when I realized that he was saying pretty much the same thing as Buddha's parable of the blind men and the elephant. We all have some information but nobody has all the information. By allowing taxpayers to directly allocate their taxes we would be incorporating an infinitely greater amount of information which would produce an infinitely more efficient allocation of limited public resources.

Without understanding this concept you'll never truly grasp why socialist systems failed. If you do grasp this concept then you'll understand that socialism could totally succeed as long as taxpayers could directly allocate their taxes.

Originally Posted by Xerographica

rathi, having worked for the federal government I know exactly what a portion of the federal government does.

Here are the two main problems that you just demonstrated...

1. You have trouble understanding the idea of a taxpayer division of labor. As a taxpayer you wouldn't have to know how many federal departments there are any more than consumers have to know how many corporations there are. You would just pick a few areas that you really care about and concern yourself with those areas. Or...you could just give all your taxes to congress if you felt overwhelmed by the prospect.

2. If you had even the basic understanding of knowledge requirements then you would know that the premier Nobel prize expert in this area was Hayek. You would have already read his essay on The Use of Knowledge in Society and understood that the market operates on the basis of partial knowledge.

Given that you lack a basic understanding of how the invisible hand works...it's clear that you don't need to know how the invisible hand works for it to work. But you do need to understand how the invisible hand works in order to understand why taxpayers should be allowed to directly allocate their taxes. Right here you have an epic opportunity to be way ahead of the curve...so why not take the time to thoroughly read Hayek's essay.

Honestly I had to carefully read through it several times before it really made sense to me. That's when I realized that he was saying pretty much the same thing as Buddha's parable of the blind men and the elephant. We all have some information but nobody has all the information. By allowing taxpayers to directly allocate their taxes we would be incorporating an infinitely greater amount of information which would produce an infinitely more efficient allocation of limited public resources.

Without understanding this concept you'll never truly grasp why socialist systems failed. If you do grasp this concept then you'll understand that socialism could totally succeed as long as taxpayers could directly allocate their taxes.

You're missing one vital piece for this puzzle to work properly, and that's faith...and, as far as I'm concerned...the lack of it.

I think that the invisable hand actually works in our government already. We just don't recognize it. Thats why we call it invisable.

See, we select our leaders. Our leaders in theory study the issues and make decisions on our behaves and as our representatives. We wouldn't elect people that we didn't think were capable of representing us well. Thus, whatever government funding allocating that congress does, it is the result of the invisable hand, as each congressman individually made his/her choice, and the majority vote of those choices resulted in a specific distribution - since we chose our leaders, and since they came from our general population, most likely the distribution that they arive at is is very similar to what we have gotten if we had made informed independant distribution decisions.

Originally Posted by KevinKohler

You're missing one vital piece for this puzzle to work properly, and that's faith...and, as far as I'm concerned...the lack of it.

You either believe in the invisible hand or you believe in congress. The invisible hand is the foundation of modern economics while congress only has their job because a long time ago some barons were fed up with the king wasting their taxes on war so they fired him and took control of the power of the purse.

There is absolutely no rational or logical basis for 538 people allocating resources more efficiently than 150 million taxpayers. The only explanation for congress's control of taxes is historical. To learn more about this see my post on whether the tax allocation disparity is divine or delusional.