Perspectives Matter - Economics in One Lesson

Discussion in 'Budget & Taxes' started by Xerographica, Mar 24, 2012.

  1. Xerographica

    Xerographica Member

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    Does your perspective matter? Your perspective represents your ideas, interests, values, desires, wants, needs, priorities, concerns, fears, hopes, dreams, goals, experiences, preferences, and partial knowledge. Does all that matter? Here are your options...

    1. No, your perspective does not matter
    2. Yes, your perspective does matter

    Let's consider both possibilities.

    1. No, your perspective does not matter

    If your perspective does not matter then one use of your limited resources is as good as any. Therefore, it shouldn't matter if congress uses your taxes to clog toilets.

    2. Yes, your perspective does matter

    If your perspective does matter, then one use of your limited resources is not as good as any. Therefore, it's entirely up to you to decide whether it matters if congress uses your taxes to clog toilets.

    Here's the paradox. You can't choose which government organizations you give your taxes to. Therefore, your perspective does not matter. In order to resolve this paradox you have to figure out why your perspective matters in the private sector but not in the public sector. Why would the "best" use of your limited resources matter in the private sector but not in the public sector? Why would economics, otherwise known as the study of scarcity, matter in the private sector but not in the public sector? Either economics matters...or it does not. Either your limited resources matter...or they do not. Either your perspective matters...or it does not.

    Too Many Eggs in One Basket

    Let's consider a situation where people's perspectives did not matter at all...socialism. A committee of government planners tried to determine the "best" uses of an entire nation's resources. The result? Epic fail. Why though? Simply because putting too many eggs in one basket minimizes rewards and maximizes risks. We all have unique perspectives...yet we all make mistakes...aka fallibilism. This is why it's not a good idea to put too many resources in the hands of government planners.

    What about our system though? Our system is a mixed economy. We have two sectors...the private sector and the public sector. In the private sector your perspective matters...you can determine the best use of your limited resources. In the public sector, however, your perspective does not matter...you cannot determine the best use of your limited resources. In essence, we follow the rules of economics in the private sector but not in the public sector. What do you think the results are of disregarding the rules of economics in the public sector? What do you think the consequences are of disregarding 150 million taxpayer's unique perspectives?

    The consequences are substantial fails, depressions and recessions, which represent the misallocation of substantial resources. Think about it on the individual level. Let's say that you make a mistake and gamble your home on a failed business idea. What are the results of putting all your eggs in one basket? What are the consequences of misallocating your resources? You lose your home. But do any of your neighbors suffer from the consequences of your mistake? Nope.

    Individuals and corporations simply do not control enough resources to cause substantial failures. On the other hand, our committee of government planners, aka congress, does. If the tax rate is 25% then we can imagine that 538 people control 1/4 of our nation's resources. That is too many eggs in one basket. Our mixed economy is part socialism...and we understand exactly why socialism fails...so why is it any surprise when our system substantially fails? Yet, what happens when substantial failures occur? Each party conveniently blames the other party. And guess what? You believe them and the pattern repeats itself.

    As long as we disregard 150 million taxpayer's unique perspectives, we will have to deal with substantial failures.

    Humility vs Conceit

    The best analogy of economics, that I know of, is Buddha's parable of the blind men and the elephant. Each blind person was touching a different part of the elephant. We all have access to an essential part of the truth...which is our own unique perspective. Economics, the study of scarcity, only has meaning in terms of our perspectives.

    The trick is understanding that our perspectives, while unique, are extremely limited. It requires humility for us to appreciate just how limited our perspectives truly are. People that fail to appreciate just how limited their perspective truly are, can be said to suffer from conceit. These conceited people erroneously believe that other people's perspectives do not matter.

    In order to understand the dynamic between humility and conceit, let's consider Frederic Bastiat's perspective and then compare it to Elizabeth Warren's perspective. Here's Bastiat's perspective...

    What difference do the results make? That depends entirely on your perspective.

    What are some good reasons for taxes? That depends entirely on your perspective.

    Which brings us to Elizabeth Warren's perspective. As I mentioned in my post on the opportunity costs of public transportation...she provides a perfect example of somebody who is conceited. Here's the famous bit from her speech...

    Do you think that Elizabeth Warren knows better than James Goodfellow what is and isn't essential for the successful operation of his business? Why would anybody want their business to fail? Why would anybody want their country to fail? If Goodfellow has to pay taxes anyways...then why wouldn't he spend his taxes on the public goods which benefit his business the most? If we have to pay taxes anyways....then why wouldn't we spend our taxes on the public goods which benefit our country the most?

    If our perspectives do not matter then our country does not matter. Value only has meaning in terms of our perspectives.

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