Friday, March 30, 2012

The Visible Hand vs the Invisible Hand

Created this awesome (hah) picture to try and help illustrate a point that I'm struggling to make in this discussion over at the Ron Paul Forums... NAP, Utilitarianism, and Natural Law: Differentiating Morality, Practicality, and Legality.  The fellow that I'm having a discussion with, ProIndividual, wants to know what the end result would be of pragmatarianism.  How could I possibly know the end result of 150 million self-interested taxpayers determining the distribution of public funds?  

Tax choice is a means to end.  The "means" are the tax allocation decisions of 150 million self-interested, utility maximizing, purposefully acting taxpayers.  Are the "means" perfect?  Definitely not.  But they might as well be when you compare them to our current "means" of 538 congresspeople spending 150 million people's taxes.

Would allowing the invisible hand to determine the distribution of public funds drive us to pragma-socialism or anarcho-capitalism or somewhere in between?  Who knows?  Who cares?  Once you understand that perspectives matter...then you'll understand the value of allowing the perspectives of 150 million taxpayers to help shape the public sector.

So let's get this Magna Carta Movement started.


  1. I have a question, and you may have dealt with this. Actually, I will keep it even more simple: What exactly will people be able to choose? Everything like courts, roads, medicare, social security, or just some things?

    I find that you have an interesting idea for tax allocation (I briefly thought of that before) by individual citizens, but I am still trying to think it all out. If people can choose from anything, dont you think too many people will put money in things that they directly benefit from more more so than, say courts or roads? Obviously, some will allocate more for roads or courts they use but i see that these may become underfunded and many will not notice since they dont go to court or use those specific roads.

    1. Taxpayers would be able to give their taxes to any organization in the public sector.

      The bottom line is that there should never be a disparity between supply and demand. Any disparity between supply and demand means that resources are not being put to their "best" possible use. The consequence of not putting resources to their "best" possible use is diminished productivity and value lost. If you misallocate enough resources then the consequences are recessions and depressions.

      In a tax choice system, saying that a government organization is underfunded would be like saying that the Red Cross or Microsoft are underfunded. Personally, I feel like Brittney Spears is "overfunded" while many of the bands that I love are underfunded. What can I do? Promote the bands that I love. Of course...what I love is completely subjective.

      What could you do if you felt that the roads needed to be repaired and the courts needed more money? You'd have to promote them. You'd have to convince taxpayers to change their priorities. Would that be easy to do? Well, the stronger your case...and the more people impacted...the easier it would be. Personally, no matter how many Ipod/Ipad commercials I see...I'll never purchase an Apple advertising does have its limits. Not that my personal disdain for Apple makes a dent in their revenue of course.

      When I first started tossing the tax choice idea around...I had absolutely no confidence in the idea. I just liked it because I really enjoy hypothetical questions and I was also interested in the invisible hand concept. But the more people that I posed the tax choice question to...the more clearly I saw the invisible hand reflected in their concerns. The more people I asked...the more confident I became in the tax choice concept.

      There's just no way that 538 congresspeople can respond to the concerns of 150 million taxpayers as effectively or efficiently as 150 million taxpayers can.

      If you get a chance...check out all the responses to pragmatarianism that I shared on this page...Unglamorous but Important Things. You'll see that I added your concern to the list. That's 62 responses. Read over the responses...analyze them for shared concerns... and then try and imagine the concerns of 150 million taxpayers. The thing is..."concerns" only represent one aspect of people's perspectives. That was the point of this entry...Perspectives Matter - Economics in One Lesson.

      Regarding things like social security and public healthcare though...the amount of revenue those two organizations received would determine what percentage of the population qualified for coverage. In other'd be paying money into a pool...and the people in charge of those organizations would determine exactly who was qualified to receive benefits. The larger the pool...the less strict the criteria would be.