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How Does the Invisible Hand Work?

Do you understand how the invisible hand works?


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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.
 
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.
 
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.
 
imagep, that's not how the invisible hand works...that's how representational democracy works (or doesn't). That you can't tell the difference between the two clearly indicates that you have no idea how the invisible hand works.

How many people does it take to answer the question of what the private sector should produce? Every single one of us. You might say...well...every single one of us votes for who should decide what the public sector produces.

Ah...there's the difference. The difference is how we contribute to the answer. Your vote does't reveal crap about you...but your spending decisions speak volumes about you. This is the key difference. This is the basis of Bastiat's opportunity cost and Hayek's partial knowledge which are the key elements in Smith's invisible hand.

If you're going to compare representational democracy to the invisible hand then you have to understand how the invisible hand works. This requires that you read both those essays as many times as it takes to understand the fundamental difference between saying that you want something and actually spending your money on something that you want. Spending your money reveals your true preferences and contributes to the efficient allocation of limited resources.
 
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.

Individuals are intelligent. When you put them together, into groups, they become less so. The larger the group, the less intelligent they become.

A shining example would be the OWS movement. Without elected leaders, those folks can't even seem to come up with a decent, cohesive list of demands for WHY they are protesting.
 
imagep, that's not how the invisible hand works...that's how representational democracy works (or doesn't). That you can't tell the difference between the two clearly indicates that you have no idea how the invisible hand works.

How many people does it take to answer the question of what the private sector should produce? Every single one of us. You might say...well...every single one of us votes for who should decide what the public sector produces.

Ah...there's the difference. The difference is how we contribute to the answer. Your vote does't reveal crap about you...but your spending decisions speak volumes about you. This is the key difference. This is the basis of Bastiat's opportunity cost and Hayek's partial knowledge which are the key elements in Smith's invisible hand.

If you're going to compare representational democracy to the invisible hand then you have to understand how the invisible hand works. This requires that you read both those essays as many times as it takes to understand the fundamental difference between saying that you want something and actually spending your money on something that you want. Spending your money reveals your true preferences and contributes to the efficient allocation of limited resources.


I know exactly how the invisible hand works. The fact that I didn't address the invisible hand in the free economy doesn't indicate that I don't understand it.

Regardless, when it comes to distributing government spending, our representative democracy does act as a defacto invisible hand. It does the same thing. It allocates resources. If our government resources were allocated by a dictator, then there would be no similarity with the invisible hand. There is much closer a parallel between the invisible hand and our government system than there would be between a the invisible hand and a totalitarian government.

I suspect that you may also have missed that in this thread and others, people have suggested that we attempt to make government allocation of resources act more like the invisible hand by allowing each tax payer to allocate his own tax money. Essentially creating a quasi invisible hand. What I was saying is that we already have a quasi quasi invisible hand because in theory our law makers are already allocating resources in a manner very similar to what we would if we all allocated our resources individually.

I also think your wrong about voting. Most certainly we vote our preferences. If one is a far right bible thumping abortion hating big oil lover you aren't likely to vote for an extreme far left liberal. Would you like me to refer you to some sources for information? Maybe you should get some book learning on voter behavior before you comment on voter behavior.

See, I can be abrasive and make you look ignorant just like you try to do to other people.
 
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imagep, nope...you really don't get how the invisible hand works. That's the problem...you think you understand but you really don't. It's easy to tell because you think that other people can represent your opportunity costs decisions.

The thing is...you can make me look ignorant in a gazillion different ways. That's because you have a ton of information that I don't have. But given that you don't understand how this is relevant to the invisible hand means that you can't make me look ignorant when it comes to the invisible hand. In this specific case you're only revealing your own ignorance.

"Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponets of such devices tend to concede that public goods will still most likley be underprovided or overprovided under government stewardship." - Patricia Kennett, Governance, globalization and public policy

"When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money?"

This is the opportunity cost concept that is completely missing from your understanding of how the invisible hand works. If you genuinely want to become knowledgeable in this area then take the time to read my lengthy blog entry on the subject...a taxpayer division of labor. Do you have better things to do than read my blog? That's the opportunity cost concept. Nobody can answer that question for you. That's the basic premise of the invisible hand.
 
KevinKohler said:
As for taxation, my answer is NO. People are illogical. They tend only to see the things right in front of them, and lack vision.

So we should leave these decisions to politicians and bureaucrats because they're not people!
 
rathi said:
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?

There is a disconnected and independent conglomeration of transportation companies called the Trucking Industry. You and 99.999% of the American populace don't realize that some 70% of our goods are moved on a daily basis using these trucks and the roughly 10 million people employed therein (which I suppose reduces the 99.999% figure a bit). They are directed by the "invisible hand" and allow each of us to enjoy our coffee in the morning, fuel to get to work, food waiting on the table at home, and virtually everything else we consume each and every day. Despite oppressive regulation they successfully transport an awful lot of goods across the nation 24 hours a day.
 
Xerographica said:
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.

So close! You're the first person I've had to "unlike" before! Sad day!

You had everything so right and then you had to go and make the enormous blunder of suggesting that "socialism could totally succeed". What happened? Do yourself a favor and read some of Hayak's mentor's works (most importantly Socialism).
 
TNAR...heh, yeah...I was surprised when you liked that post...but I did kind of suspect that you didn't read the entire thing. It's really rare for anybody on these forums to understand how the invisible hand works...but it would have been exceptionally rare for somebody who understands how the invisible hand works to go along with the last part of that post.

Ok...just like it's a challenge for people on here to understand how the invisible hand works...your challenge is to try and imagine how socialism might work with the very essential condition that taxpayers could directly allocate their taxes. Socialism failed because of the knowledge problem and the incentive problem. Why wouldn't allowing taxpayers to directly allocate their taxes solve both problems?

With 150 million taxpayers vs 538 congresspeople...the knowledge problem would be adequately addressed...so what about the incentive problem? Given a choice...nobody likes to have their hard earned money flushed down a toilet. Taxpayers would be very hesitant to give their taxes to a government organization that didn't operate as efficiently as a typical non-profit organization. So we can see that employees of government organizations would have an incentive to produce given that their jobs would depend on their productivity.

Here's another challenge...imagine what wars we would have avoided if in 1922 Mises had declared that there was a third solution.

Don't get me wrong...there's no way in hell that anybody could truly know whether the outcome of allowing taxpayers to directly allocate their taxes would be socialism or anarcho-capitalism or somewhere in between. But it really wouldn't matter though given that resources would be efficiently allocated.

If you get a chance I'd be interested to hear your thoughts on these three compromises.
 
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Xerographica said:
Should taxpayers have the option to directly give their taxes to the government organizations that they believe are underfunded?

How do you allow for taxpayers who believe departments and bureaucracies are over-funded? Are you suggesting that all taxes remain as they are today, spending processes remain as they are today, but people are simply able to give more in taxes should they desire?
 
Xerographica said:
Socialism failed because of the knowledge problem and the incentive problem. Why wouldn't allowing taxpayers to directly allocate their taxes solve both problems?

I disagree. The major flaw of socialism is the inability to make economic calculations. Since production is collectively owned you have 1) the incentive problem, which perhaps could be solved through allocating taxes and possibly deserves additional thought, and 2) the inability to make economic calculations. So I don't have to repeat myself I'll simply reference you to one of my other posts.

Overall though, you make some interesting points. I will do some additional consideration on them and get back to you.
 
TNAR...libertarians say that the private sector can do X, Y and Z better than the public sector can. If this is true...then why would any taxpayers pay the government to do X, Y and Z? If taxpayers stop paying the government to do X, Y and Z then the scope of government would narrow. If the scope of government narrows then the tax rate would decrease.

In terms of a socialist system where taxpayers could directly allocate their taxes...yeah...it hurts my brain. What economic calculations need to be made? You work for a government organization...which pays you $50,000 a year...and you have to pay $50,000 a year in taxes. Since there's 100% ownership of the means of production...spending your money is the same thing as paying taxes. How do you decide how to spend your money? Well...by responding to shortages of the things that you value. Everything you want within reason is free...but rather than prices...you'll concern yourself with budgets. When you order a new blanket online you'll see whether that organization has enough funds to meet the demand for blankets.

What about starting a new government organization? Well...that's what government banks would be for. If a government bank has a good record of starting successful organizations then chances are good that you'd give them your money.

Yeah...it's just a strenuous mental exercise. Like I mentioned...if taxpayers were allowed to directly allocate their taxes then there's no way we could really predict whether the scope of government would narrow or broaden. It wouldn't matter though because the invisible hand would reveal the ideal division of labor between the public and private sectors.
 
TNAR...libertarians say that the private sector can do X, Y and Z better than the public sector can. If this is true...then why would any taxpayers pay the government to do X, Y and Z? If taxpayers stop paying the government to do X, Y and Z then the scope of government would narrow. If the scope of government narrows then the tax rate would decrease.
.

No it would not, government is a strawdog of governance. Take away x y z and governance will replace it with 1a, 2b, 3c. Know what your up against for real, ideologies aren't physical, they are reflections of physical things incompletely defined for a purpose to serve a reason only those selling notions comprehend.
"Take or or leave it.", "This is a one time offer." My way or the highway, but governence rules governments." Do not fight disciples with force, tear apart their beliefs with understanding time doesn't exist as reality distorts how it exists for real."
 
So we should leave these decisions to politicians and bureaucrats because they're not people!

They are INDIVIDUALS. People, groups....are retarded.
 
There is a disconnected and independent conglomeration of transportation companies called the Trucking Industry. You and 99.999% of the American populace don't realize that some 70% of our goods are moved on a daily basis using these trucks and the roughly 10 million people employed therein (which I suppose reduces the 99.999% figure a bit). They are directed by the "invisible hand" and allow each of us to enjoy our coffee in the morning, fuel to get to work, food waiting on the table at home, and virtually everything else we consume each and every day. Despite oppressive regulation they successfully transport an awful lot of goods across the nation 24 hours a day.
Up until the point that the 99.80% (reduced slightly for the 10 million truckers) fail to allocate taxes towards interstates, to maintain them.
 
Xerographica said:
Socialism failed because of the knowledge problem and the incentive problem. Why wouldn't allowing taxpayers to directly allocate their taxes solve both problems?

Just for a refresher, the primary reason socialism fails is due to the inability to perform economic calculations within the means of production. Keep this in mind throughout this post.

Xerographica said:
In terms of a socialist system where taxpayers could directly allocate their taxes... What economic calculations need to be made? You work for a government organization...which pays you $50,000 a year...and you have to pay $50,000 a year in taxes.

You are making the same false assumptions that virtually every socialist proponent makes. How does the entity determine your salary? How does the entity determine prices? This feeds into your other post…

Xerographica said:
With 150 million taxpayers vs 538 congresspeople...the knowledge problem would be adequately addressed...so what about the incentive problem? … So we can see that employees of government organizations would have an incentive to produce given that their jobs would depend on their productivity.

Why would we assume this? You have shown that individuals would be able to give more money to those agencies which they feel are underfunded but you do not suggest how the minimum rate of taxation is determined nor do you suggest how taxes are divided among agencies. How does this work? Come tax day do we fill out a form saying how much of our taxes go to which agencies? What if we are not happy with any of the agencies; do we pay no tax?

Xerographica said:
Since there's 100% ownership of the means of production...spending your money is the same thing as paying taxes.

Here is where I think the major hang-up occurs. It seems to me that you are saying that when people purchase goods on the market a portion of the price goes towards the producer which is the government. Correct? The problem is that this does nothing to solve the problem of tax distribution. How is purchasing a watermelon from Wal-Mart.gov any different than buying one from Safeway.gov?

When the means of production are privately owned and engaged in competition with one another your decision of which company to shop at makes an enormous difference. When the two entities are simply the same company in different makeup then the money goes to the same bank account and there is no competition. Without competition the division of labor is meaningless and economic calculation becomes impossible. More on that in a second.

Xerographica said:
Here's another challenge...imagine what wars we would have avoided if in 1922 Mises had declared that there was a third solution.

I thought this looked familiar. I suggested to you that Mises correctly identified that A1B2 and A1B1 economies are unsustainable but I didn’t really give much in the way of explanation so I don’t blame you for ignoring me. The reason Mises discounted an A1B1 economy is because it is essentially impossible. I believe it was in Socialism that he went into much detail about the why of it all. Essentially, we come full circle back to economic calculation.

So here we go…

Every individual has an infinite number of wants but only a finite amount of time and resources in which to satisfy these wants. Therefore, we all must make qualitative decisions about what is most desirable versus what we are willing to live without. This means that we attempt to maximize the “profit” in each and every transaction.

Today’s modern market economy demands that the wants of other people be satisfied first in order to gain the means necessary to fulfill your own selfish desires. As such, there is a strong incentive to discover and produce those items which will make the satisfaction of wants and needs more economical for society in general. By performing these actions before anyone else within the market, an individual has the ability to reap large benefits for himself. Thus the selfish motivator.

When the means to production is nationalized the incentive to innovate is greatly reduced. Since the “profits” of the operation are distributed among the people as a whole, there is very little incentive for an employee to work harder than is necessary to keep his job. This particular aspect experiences very few differences within private ownership companies as well. However, the exact opposite is experienced within the owners and management of the various companies.

If the company is privately owned, the individuals in charge have a very direct and personal motivation to provide services for consumers in a more economical manner than the competition. If the company is publicly owned, the profits reaped from innovation and expansion have very little effect on the positions of management because the profits go to the entire governmental structure. Even with this in mind, these are all ancillary to the problem of economic calculation itself.

When the means of production are owned en masse, the ability to set prices in a meaningful manner is eliminated. For instance, the manager of an iron mine cannot make a unilateral decision to increase or decrease ore production without the tacit approval of the owners. Since the owners of the mine are the people as a whole, they must devise a method of determining production output. Initially they could set the production output to the latest free market price levels but this would not last long. Why? Because there would be no competitive action within the market continually adjusting prices to supply and demand.

Supposing someone determined that the world needed a new type of widget, how would he go about producing this new item? Since the means of production is collectively owned, his idea would be instantaneously nationalized and a bureaucracy or some form of leadership would create a new company to produce these widgets. The first issue is what does the inventor gain from this? Since the production is collectively owned he gains no royalties, no corporate shares, no dividends, no payoff. He is essentially no better off than before.

The second issue is who determines whether or not this idea is practical and ought to be pursued? In the free market, an entrepreneur stakes his own money and reputation with the hopes that his product will be successful and he will directly benefit from the pursuit. Within socialist society, not only are the profits collectivized – and thus the incentive reduced – but the risks are collectivized which tends to increase the rate of failure and loss.

But the most fundamental issue is the reallocation of capital. Even supposing that someone decided to invent a widget at no personal gain and even if the venture was approved and success was guaranteed, how is the reallocation of production goods accomplished? Assuming this widget is composed primarily of iron, where does this iron come from? The initial investment for the widget company perhaps could come from a government coffer designed specifically for this purpose (but where would it obtain its funds?) but it can be assumed that all of the available iron on the market is already being utilized by other functions. Would it be more efficient to outbid other companies for the use of iron? How high could the company bid iron until the venture ceased to be profitable? How high could other companies bid iron until they had to reduce costs? These cannot be answered since there is no competition; without competition there can be no economic calculation; without economic calculation there can be no economic activity.

Xerographica said:
If you get a chance I'd be interested to hear your thoughts on these three compromises.

The most glaring question I see initially is who determines the “proper” level of taxation?

Compromise A: Of all the choices available to me, I would choose A. This at least allows a small amount of competition between the non-profit sector and the public sector. However, this still leaves a lot of questions unanswered. Why can I only give tax money to non-profit companies? Is this an implicit acknowledgment of the inability of government organizations to derive a profit? How is this tax amount determined? Is this the only method of funding for government entities?

Compromise B: The only difference between this option and A is the lack of competition. While the various agencies will certainly have to compete for tax money between the various entities, they do not have to worry about direct competition to their specific activities.

Compromise C: This option lacks all competition and is only marginally better than our current system.
 
The most glaring question I see initially is who determines the “proper” level of taxation?
The taxpayer ought to determine this. They should be able to allocate funds to whatever government function they wish, including none. That, my friend, is the invisible hand at work.
 
imagep, nope...you really don't get how the invisible hand works. That's the problem...you think you understand but you really don't. It's easy to tell because you think that other people can represent your opportunity costs decisions.

The thing is...you can make me look ignorant in a gazillion different ways. That's because you have a ton of information that I don't have. But given that you don't understand how this is relevant to the invisible hand means that you can't make me look ignorant when it comes to the invisible hand. In this specific case you're only revealing your own ignorance.

"Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponets of such devices tend to concede that public goods will still most likley be underprovided or overprovided under government stewardship." - Patricia Kennett, Governance, globalization and public policy

"When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money?"

This is the opportunity cost concept that is completely missing from your understanding of how the invisible hand works. If you genuinely want to become knowledgeable in this area then take the time to read my lengthy blog entry on the subject...a taxpayer division of labor. Do you have better things to do than read my blog? That's the opportunity cost concept. Nobody can answer that question for you. That's the basic premise of the invisible hand.

I am still waiting for you to tell me something about the invisible hand, or for that matter opportunity cost, that I didn't already know.

tick tock, tick tock

I understand exactly what you are saying, you are saying that it takes every single individual's preference for the invisible and to work correctly - but you arn't listening to what I am saying. i am saying that a representative group of that same population will result with approximately the same resource allocation as the invisible hand would. Is it identical? No. Is it close enough? Probably better than close enough. At least with a representative system, where the general population chooses those representatives, each representative has time to give careful consideration and study to his decisions. personally, I have a job, and so does my wife, and neither of us can afford to devote as much time to the study of government spending allocation as the representative and senator that we selected to represent ourselves.

Think about it like this:

My wife does the grocery shopping for our family. She is essentially our representative at the grocery store. She knows I like tacos, so she buys some taco stuff, she knows that my son likes fish sticks, so she buys some fish stickes. She knows that she likes pasta, so she buys some pasta. Now even though not all of our family members actually went shopping, we were all represented to one extent or another. Now sure, there may be some distortion, like she really doesn't like the smell of fish sticks so she doesn't buy as many as she gets pasta, or maybe she knows that tacos arn't good for our health because they contain so much fat, so she doesn't buy as much taco stuff as I would like. but so what? If anything, the allocation of resources is BETTER because she represents us. She is more informed as to what we need (as opposed to what we want). She looks at the ingrediants and chooses foods that are probably a little better for us than I or my kid would have picked. She also buys the stuff that I would have never thought about. like the salt for my tacos. Or the ketchup for my kids fish sticks.

We don't make the claim that the invisible hand doesn't exist because my 12 year old doesn't do his own grocery shopping do we? It doesn't matter if every single american doesn't do his own grocery shopping - the representative system works virtually as effectively and accurately.
 
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TNAR, heh, you're sure interested in debunking a socialist system where taxpayers could directly allocate their taxes. Let me address the compromises first though and see if that doesn't help put the socialist system in context.

So the compromises. My goal is to try and come up with a reasonable compromise that both you and the liberals would accept. You're willing to accept Compromise A while liberals perhaps might be willing to accept Compromise C. Therefore...my challenge is to convince both sides to consider the merits of Compromise B.

Part of the value for your side is that offering Compromise B to liberals would force them to consider how the invisible hand works. This, in my opinion, would be priceless. Many people think they understand how the invisible hand works but when asked whether taxpayers should be allowed to directly allocate their taxes then we quickly discern the truth of the matter...Unglamorous but Important Things. Given that we live in a Democracy...we should really consider the value of helping voters understand how the invisible hand really works.

Your critique of Compromise B is that it wouldn't allow competition between the public and private sectors. Is this really the case though? How could somebody's spending decisions in the private sector not influence their spending decisions in the public sector? If you donate money to the Red Cross...would you also allocate any of your taxes to FEMA? If you pay for private healthcare...would you also allocate any of your taxes to public healthcare? If you pay for private education...would you also allocate any of your taxes to public education? If you donate money to Greenpeace...would you also allocate any of your taxes to the EPA?

As I'm sure you're aware...we can't just say that Democrats would do this and Conservatives would do that. People are more complex than party stereotypes. So what would happen if more and more taxpayers allocated their taxes to public healthcare? At some point the demand for private healthcare would decrease. Let's say that for some reason private healthcare failed to compete and went out of business. This is very unlikely but we're just engaging in a mental exercise. Now...libertarians wouldn't be able to say that the government did anything wrong...given that this was an act of the invisible hand. The consumers made their decisions.

The consumers' decisions would represent a step towards socialism. In other words...the invisible hand would have led us towards a greater percentage of public ownership of the means of production. If the invisible hand also decided that the public sector, rather than the private sector, should be responsible for education then we would have taken another step towards socialism. To be clear...I'm not saying that these steps will necessarily happen...right? That's because there's no way that anybody could truly predict the outcome of allowing the invisible hand to determine the proper division of labor between the private and public sectors.

The question is...how far down this path towards socialism could the invisible hand feasibly take us?

Let's say that enough people voted for the establishment of a government organization that was dedicated to supplying free cheese. Maybe anybody who wanted to work for the Dept of Free Cheese would genuinely care about giving free cheese to people who needed free cheese the most. Maybe these employees would work longer hours for less money and fewer benefits. Maybe they would cut overhead costs as much as possible. Maybe they would hold regular fundraisers to remind the American public why free cheese is important. It's kind of hard to think of government organizations behaving like non-profits isn't it?

What if the Dept of Free Cheese happened to stumble upon a cheese formula that was even tastier, healthier and more cost effective than any cheese you could buy on the private market? The demand for free cheese would skyrocket...more and more people would allocate their taxes to the Dept of Free Cheese and less and less people would buy private cheese. This would represent another step towards socialism.

Again...we're not looking at likelihoods...we're just considering how far down the path towards socialism the invisible hand could possibly take us. Conversely...we could also consider how far down the path towards anarcho-capitalism the invisible hand could possibly take us. We could consider a scenario where more and more people donated money towards a national militia and less and less taxpayers allocated their taxes towards the Department of Defense.
 
imagep, as I've already mentioned...taxpayers would still have the option to give all their taxes to congress. If, as you claim, congress truly does a good job of representing our interests...then why would you have a problem with allowing each and every taxpayer to substantiate your claim?

It's one thing to say that your wife does a good job representing your interests...and it's another thing to give her your credit card. Which one is a more accurate reflection of the truth?
 
What if the Dept of Free Cheese happened to stumble upon a cheese formula that was even tastier, healthier and more cost effective than any cheese you could buy on the private market? The demand for free cheese would skyrocket...more and more people would allocate their taxes to the Dept of Free Cheese and less and less people would buy private cheese. This would represent another step towards socialism.
If a person is receiving free cheese from the government, why would he allocate any tax dollars to the free cheese department. He gets free cheese anyway, why not just free-ride and get the cheese that is paid for by other people?
 
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