Article 05: The Invisible Wrist

What is alternate self interest?

In 1776 in The Wealth of Nations Adam Smith outlined the idea that self interest (or everyone taking care of themselves and their own) would drive an economy to prosperity. This is because no one voluntary enters into a transaction unless it is to their benefit (ie you want those shoes and the sports store wants your money).

He explained that the butcher and the baker provide food for our dinner not because of their generosity, but because of their own self-interests. Smith explained that even in acting selfishly, people are often "led by an invisible hand to promote an end which was no part" of their intentions 1

This is an incredibly robust motor because consistently through history people have had a keen interest in themselves.

Some claim however the dark side of the the invisible hand is that individuals become selfish, looking only after their own wealth. I believe however, critics overlook a principle I call the invisible wrist.

As with the invisible hand people look after their own interests, with the invisible wrist people next turn to the needs of people to whom they have something in common, or to whom they can relate to. It may also be termed alternate self interest, as people feel concern for others whom they feel they are akin to.

These examples are generalities, but are true more often than not :

• people who have lost a loved-one through cancer will often support cures for cancer research
• a mother with a 3 year old will be motivated to help after seeing footage of a toddler maimed in war torn city
• a wealthy inventor donates money to a program for educating young scientists
• we vividly remember when Hurricane Katrina hit in Aug 2005 killing 1,836 people, but how many can recall the earthquake in Yogyakarta that killed 6,234 this year? (May 2006 - it was in Indonesia) 2

Why do we do this? I believe it is because we can put ourselves in their shoes, and can empathise to how they might feel.

But the invisible wrist is also a motor, much like the invisible hand is. It motives people to look after those around them, once they have looked after themselves.

The invisible hand would fail society if individuals were only concerned with accumulating wealth, but we are also creatures of emotion, and most people once they gain an excess for their own physical needs, begin to fill an emotional hole by greater charity to others.

A real beauty of the invisible wrist grows from the diversity of human connections. One person in the city can relate to another of the same religion in the country, an elderly man can relate to a struggling young teenage from the same small home town, a lover of theatre can donate to the development of it. Age, culture, locality, common tragedy or abuse are all potential bridges.

Let us not fear the invisible hand of self interest. Just because the government lets us be free to be selfish, doesn't mean we will be selfish - for attached to the invisible hand is the invisible wrist of alternate self interest.

Related Keys: 05-LIB 11-SUP 15-LIM 17-PRO

Footnotes
1. Adam Smith - Wikiquote http://en.wikiquote.org/wiki/Adam_Smith#Investments_.26_Choice
2. May 2006 Java earthquake - http://en.wikipedia.org/wiki/May_2006_Java_earthquake

Article 04: Free Market Essentials

what a free market needs to deliver the goods

I am a big believer in the free market as the best system for a prosperous society, however, I wouldn't consider the market as truly "free" without the following elements:

Justice - businesses and consumers free from physical intimidation, fraud or dishonesty

example: A retailer of fruit would be wary to set up competition against a long established supermarket if it knew there would be no protection from, or fair punishment against, death threats to them.

Equality - government to show no bias toward any entity

1. all entities free to enter a market

• when an industry has a monopoly or inflated prices, it inevitably attracts competition, due to the good chance of profits. The greater the profits margin the greater the attraction. Thus, if free entry is allowed the market will (in time) automatically correct exorbitant prices. Look at what competition such as Optus, Primus and Dodo have done for telecommunication prices.

2. any entity free to leave a market

• no company should be compelled to provide a service or to stay in an industry. Business should be free to choose what they sell, where they sell and when they sell.

3. no subsidization of industries by the government

• subsidies are basically the government taking the peoples money and using it to prop up industries that are not economically viable or have been mismanaged. It is a form of economic inequality before the law and retards business adaptation and flexibility.

4. no taxation on a specific industry except for reparation for damages (see price linking)

• this is the opposite of subsidisation - it punishes industries that are performing well.

5. no bailing out a company that goes bust

• just as business should be able to reap the rewards of a success, so also they should take the risk of failure. Why should the peoples taxes be used to fund failure, when they had no part in the decision making?

6. no investing in industries to start them up

• if a business has a chance for success and profit, investors will naturally be attracted.

Free Trade - the government not to inhibit buying, selling, deals and agreements between entities

• government and bureaucratic involvement only slows down and adds unnecessary overhead expense. (Yes, all departments come with a price tag). Businesses have incentive to work by the most profitable and direct methods - let them be reward for their ingenuity. The law is there to make sure citizens are not involuntarily harmed in the process.

He who dares not offend cannot be honest


Thomas Paine
(Attributed)

Question: Why can't so-called "sin taxes" be used as sources of general revenue?

Question from Anonymous:
Regarding price linking: would it not be fair to impose a tax simply as a disincentive, in cases of cigarette or poker machine taxes? Red light camera fines are a form of punishment, not taxes. Polution-related taxes such as petrol taxes are fair, but what kind of clean-up activity could the government perform when it comes to air polution?Why can't so-called "sin taxes" be used as sources of general revenue? Is it not better to tax the bad activities than the good ones, such as income earned?

Answer from Stewart:
Hello again Anon.
Moral vs Legal :
When you start to use punishment are a disincentive for things that might be bad for you, but not necessarily hurting anyone else, you start to mix the Moral and the Legal or unseparating "the church and state". The state is trying to make you do good. It is a very dangerous game. If freedom doesn't mean the right to make bad decisions for yourself what does it mean?

If you smoke, and it is not around others, what has that to do with the government?

Air Pollution Tax
A tax on air pollution is really only an intermediate solution. In reality, pollutants should not be allowed. However, we have got ourselves in a bit of a hole and need to climb out of it. A tax on pollutants is a good way for 2 reasons. One, it creates a cost disincentive. Secondly, the money generated is used specifically toward a solution (ie non-polluting technology).

Sin Taxes
Isn't the idea of society to have it full of good people? The problem with sin* taxes is that the government has a vested interest in the people continuing to do wrong things. General revenue is a bucket with holes in it - it will always spend what goes into it.

Punishment should be primarily about reparation. What do you do if the "sins" drop 50%? Are the fines doubled to keep the revenue? Justice should be even handed, not too much and not too little, and make the punishment fit the crime.

* I use sin here to mean victim-less crimes, ie where the only one hurt is a capable adult making the decision.

Question: The difference between Disassociation and Discrimination

Question from Anonymous:
Would you elaborate further on the key: "14-DSC: The right to Discriminate", and the differences between that and "12-DIS: The right to Disassociate".Can you particularly outline how government, company and individual rights/responsibilities differ in regard to 14-DSC (if at all), considering the differing degrees of power/authority that each is able to exercise over individuals (both within and without the organization) and thus over society as a whole.

Answer from Stewart:
Hi Anonymous - thanks for the question.

Discrimination is a sub-category
In the introduction of 20 Keys I mentioned that there were 2 pairs of sub-principles. Just as the rottweiller and chihuahua are sub-breeds of what we call a dog, so the right to discriminate (12-DIS) and boycott (13-BOY) fall under larger umbrella of the right to disassociate (14-DSC).

The general rule is that disassociation works both ways. (ie you can choose your employer and your boss can choose you, you can choose where you buy from and the shop should be able to choose who it sells to)


Government vs Private
With regard to disassociation, there are only 2 categories: 1. Government, and 2. Private (including citizens, businesses, associations).

Why allow discrimination for private entities, but not government? Well, it's really about choice. I can't really choose which government I am going to use, or which Police force I want. Thus the government and it's branches should treat us equally before the law (02-EQU).

The private sector is a different matter. Say a business snubs me because of my religion or culture, I have a chance for recourse. In return, I can take my shopping elsewhere, I can tell my friends to avoid them, I can write to newspapers and report what meanies they are. Just as they can disassociate from me, I can from them.

What is the difference between StewartGlass.net and The Noble Numbat?

The Noble Numbat (this blog) is primarily used as a workbook and diary. It shows you the nuts, bolts and reasoning behind how I think. Policies are up for comment, the diary is used to opinions on current issues and I also have articles to discuss principles that apply to society and government.

StewartGlass.net is my official website. After ideas have been worked over and alternative perspectives discussed the formal policy is put on StewartGlass.net.

Policy: Education

Simplify. Simplify. Simplify.

Education's very important to our society. I support the totally free education of minors in Australia. Like many of my policies, I want to see the power given back to the people.

Simply Education

The solution is incredibily simple. Take the entire education budget and divide it by the number of students (in Years 1 to 12). If my figures are correct this would currently be $7870 per student per year. ( $26 billion + 3.3 mil students 1)

Schools are then paid directly from the education department according to the students enrolled. Simple. The power is then essentially transferred from the government and bureaucracies to the parents. Schools would need to provide good service and keep trust with the parents to keep the students - and hence the funding. Schools would need to adapt to the priorities of parents to stay viable.


What are the benefits of this plan?

• the bureaucratic parts of the Education Departments are avoided
• no jumping from program to program according to new ideas from politicians or interest groups
• the money stays at grass roots level (ie via the parents)
• incredible flexibility - schools can adapt directly according to the priorities of the parents
• competition - good schools are rewarded by more students, bad schools loose students and the money that goes with them
• the parents values, rather than the States, are taught in the schools
• schools can co-operate or network with other schools, as they please, to run joint programs
• schools are directly rewarded for thier own frugality or ingenuity

What about students in remote areas?

Students or schools that require additional help due to special needs will need to be assisted from thier communities, charities or parents, as is the case with all welfare. I believe though, as there is to be a minimal government administration, there will be more money available. A lower tax regime will also mean that more discretionary money is available for citizens to donate. Remember, after the Irish, Australians are the most generous people with regards to charitable donations.

You oppose tax for welfare, then why not education?

I think education for minors should be federally funded for 2 main reasons.

No 1 Education is a great equaliser. It helps break the poverty cycle. No people or minority will perpetually stay oppressed when they have access to education.

No 2 For democracy to work, literacy is required. The people cannot make informed decisions and keep the government accountable if information cannot be accessed by most of the citizenry.

Related: Key 04-EDU: Education for Minors

References:

1. Dept Education Science and Training: Budget Information 2005 at a Glance > Schools

Question and Answer

If you have a question you would like answered regarding a specific policy, please leave that question here as a comment.

I will endevour to answer it upfrontly and honestly in a future posting.
I can also be contacted via StewartGlass.net

Regards,

Stewart

not yet sufficiently fashionable

Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour; a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason


Thomas Paine
British political writer and activist
Common Sense (1776)

Policy: Environment

We only get one earth. Human habitation and nature need not be opposite sides of the spectrum. A sustainable balance is acheivable. We can respect the environment we live in and still keep civilization.

Six of the 20 keys form my environmental policy.

06-C+R - Choice and Responsibility
People and companies are responsible for their own actions (pollution, waste products, noise etc)

05-LIB - Liberty
People and companies are free to do as they wish, on the condition it does not affect others.

11-SUP - Support
By unifying, citizens can effectively support specific environmental causes. These groups can purchase lands, create sanctuaries for fauna, buy old growth forests, promote education on the environment etc.

16-JUS – Reparative Justice
Companies and people should be accountable for reparation of environmental damages. This could range from responsibility for the Exxon Valdez Oil Spill to adding a tax for petrol relative to proven damage to air quality.

17-PRO – Property Rights
Landholders, both large and small, are able to use their land as they see fit – providing it does not directly affect their neighbours. For example, a land owner could cut down a patch of trees near the edge of his property, but if this causes eroded soil to wash all over his neighbours property the first land owner would be liable to fix the problem.

20-TRN – Transition
I anticipate some measures should start immediately, with all implemented within 5 – 20 years.

Examples of policy

- Growers of Genetically Modified foods would be required to provide barriers (depending on the plant type) to ensure that neighbours crops are not infected.

- A tax on fuels that cause environmental damage. This tax should be kept separate to other revenue and be used only for the reparation of the damage. This will help fuels reflect their true cost, making other cleaner fuels more cost effective. If a company introduces measures so pollution is not created this tax should not apply.

Nature
Nature, by it’s very nature, does not require human help. It only requires us not to impose on it.

Government should not interfere with natural cycles of species.

Human Impact
Humans, just by the fact of their existence, will impact on the surrounding land. What is required is to minimize damage. You can’t have 1 million people living on the Adelaide Plains and not expect more water usage or lands to be used to grow foods. I believe though, there is a right way and a wrong way to live with the earth. The right way becomes obvious, because it is sustainable.

Property rights in agriculture are important because it holds farmers accountable. I believe most people living on the land are aware of this. They want to farm and make a profit, but they also want their grandkids to be able to do the same - on that same piece of ground. It doesn’t do them any good to kill the goose that lays the golden egg.

Waste
Bill Mollison, a co-founder of Permaculture said “You don’t have a snail problem, you have a duck deficiency!” and “waste is an unused resource”.

Businesses are adaptable by their very nature. I envision that if make industries accountable for their own waste they will find ways and partners to whom this waste is a resource. Hence businesses will develop a symbiotic relationship with other businesses.

International Obligations
Australian companies should be accountable for their overseas management in these areas.

Policy: Price Linking

All taxes should be kept within their own sphere.

For example:

• petrol taxes should be used to clean up or prevent damage to the environment (ie air pollution or the development of solar technologies). It might also be used for roads, but should not be used for welfare as this is totally external to it's sphere.
• poker machine taxes, if they must be charged, should be used solely for rehabilitation of gambling addicts
• taxes on cigarettes, if they must be charged, would be used to fund lung cancer research or treatments.
• Red Light Camera fines would be kept for victims of car crashes, or for education in safe driving

The goal of the price linking is to create more closely a user-pays system. This stops governments from profiteering with hidden tax regimes. You can only put so much into Gambling Rehabilitation before extra money will not make extra difference, thus taking away the government's incentive to approve or disapprove extra poker machines - as they are not gaining revenue from it.

The two beauties to price linking are:

1. Flexibility - a 5 % increase in driving with a particular fuel would create 5% extra revenue for roads, or cleaner fuel research etc. It self regulates.
2. Accountability - because funds are drawn from with in it's own sphere, it creates internal accountability. This prevents a "false economy". (ie cheap fuel that causes damage to the environment does not reflect it's true cost compared to another fuel slightly more expensive which is clean)

In brief, price linking means effectively that smokers pay for the possible consequences of smoking, dangerous drivers pay for the damage they cause, and so forth.

Related: Key 06-C+R, Key 16-JUS