Thursday, July 9, 2009

Personal Economics--Rule II

Personal Economics--Rule II
"The race is run by one and one and never by two and two."
"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom."
Adam Smith
The second rule stems from Adam Smith’s overall writing and is implied in the quote above. The rule is "whatever is right, true, correct, or moral for one person does not change if I add a person or a group of persons." This is the rule that divides economists. Most economists, when acting as economists and not as politicians or political yea-sayers will acknowledge rule I, i.e. judge others who you wish to deal with by their works and not in some other way, but rule II divides economists who are collectivists e. g. Keynesians, Marxists, etc from individuals e.g. Austrians and monetarist. It was a shock to me as a freshman when I read in the introduction to my Econ 101 text (Samuelson 5th ed.) That actions which are right and proper for individuals would be disastrous for the nation. Among the examples are the so-called "paradox of thrift", i. e. being frugal is a good thing for the individual, but collectivists believe it is diastrous for the nation as a whole. Because that belief is tied in with rule III to be discussed in the next essay I will chose an example directly from Adam Smith’s work.
Supposing that I work for a hardware store and my neighbor works for a grocery store. I approach my neighbor and say, "I have been checking the store receipts and I discover that I spent over 2000 dollars in your grocery store last year but you only spent about 200 dollars in my hardware store. This is an unforgiveable imbalance of trade. Unless you start spending more in my hardware store, I’m going to have the sheriff start confiscating your stuff to even out the difference so that the trade between us can be more balanced." If I actually went to my neighbor and said that, my neighbor would not be the only person who thought I was nuts.
We do not even carry on in that way about trade between cities. If the mayor of Provo called up the mayor of Salt Lake City and complained that the residents of Salt Lake only spent ten thousand dollars in Provo while the residents of Provo spent more than ten times that amount in Salt Lake and this is a wrong that I am going to call on the govenor to correct by increased taxation on the residents of Salt Lake. When we get to the state level we begin to see actions that approach this, and at the national level, of course, it becomes rampant with tariffs, import restrictions, and numerous other laws and regulations to address the "imbalance of trade".
In a hundred, probably a thousand, ways, we feel that an action that would appear wrong, even represhensible in some cases, as an individual is perfectly ok if we are part of a group that says the action is right. For another example, if I think I deserve a raise so I refuse to work until I get it, I would probably be severly reprimanded if I beat up or maimed anyone who showed up at my work to replace me, but if a union does that it is ok.
Because of this attitude we have replaced our sense of absolute morality with a statistical sense of morality. We recognize the immorality of an individual robbing another because he is convinced that the person he robs "is better off than I am". But we think nothing of forcing everyone who earns $40,000 a year to help out those who earn $20,000 or less. We begin to decide in some sort of statistic who is rich and who is poor and those statistics are used to decide who should be forced to help whom.
On a personal level the rule simply reauires that we ask outself when acting as part of a group, "would I do this if I were acting alone?" If the answer is "no", you can be pretty sure that what you are doing is wrong

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