Re: Were to put our money (was PHIL: The (im)moral state)

Dan Fabulich (daniel.fabulich@yale.edu)
Thu, 26 Mar 1998 19:29:17 -0500


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At 11:47 PM 3/26/98 +0100, Arjen Kamphuis wrote:
>If you can convince a few big investors of this I'll buy it (I'm talking
>about banks and such, they seem to know something about where to put
>money). I've always understood most investors like stabile, predictable,
>environments.

Yes, investors LOVE safety nets; but for the wrong reasons. Investors love
safety nets because it means that even if their investments don't pay for
themselves, the government will be there to fish them out again. It's like
walking into a casino and knowing that the games are fixed so you'll win
every time.

Such a policy of bailing out investors is not only fraudulent, but also bad
for the economy. Why make the people pay for some investor's lack of good
judgement? Sure, GOOD investment is good, but bad investment serves little
useful economic purpose.

As far as political stability, yes, you're right, this is also prized by
investors. Capitalists get scared if they think their privately owned
property in other countries will be seized by the government or burned by
rioting masses.

If I understand your argument correctly, however, you're concerned that if
(admittedly money-losing) welfare programs were NOT in place, violent
revolution would result. I am dubious of this argument... if we take this
argument to its logical conclusion then we must necessarily choose between
a capitalist welfare state and socialism; we could never be, for example,
libertarian, because any attempt to try it would be rejected in favor of
something more authoritarian.

If abandoning welfare DOES happen to turn out to be best for the people, I
for one have faith in the people's intelligence (yes, even the poor
people's intelligence) to understand why it's better, and therefore to not
try to revolt if such reforms take place. If welfare does turn out to be
good for the people after all, then we rightly should have to choose
between welfare-capitalism and socialism. But if it turns out to be BAD
for the poor, why shouldn't we try abandon it, rather than assume that they
will irrationally revolt, no matter how good our policies?

>(sorry to be such a pain in the butt ;-) but: we then also have to take
>into account how 'cost' is determined. People rioting in LA are causing
>cost to individuals and companies that _may_ have been avoided if their
>standard of living was better. These cost are now being paid by a limited
>selection of people (who happened to own a store in the wrong
>neighborhood). Is that fair? You seem to agree with me that stability may
>have value (even though we can't put a price-tag on it).

Uhm... I'm not exactly certain how to respond to this. Of course the
destruction of other people's property isn't fair. That's why it's
illegal. :)

Also, isn't it a little morally questionable for anyone, even the poor, to
say "Give us your money or we'll smash up your store?" I could maybe buy
this argument if they were literally starving in the streets, but in
America at least, we're in no way even close to this point. America's poor
are overweight on average.

Also, I still disagree with you about the rioting. I don't think that
violence is inevitable, but rather that the poor, being generally honest
and intelligent people, will refrain from violent upheaval if it's in their
best interests in the long run. I'm still open to the argument that
abandoning welfare may not be better for the poor in the long run... but
that's different from saying that the poor will revolt EVEN IF IT'S AGAINST
THEIR BEST INTERESTS.

You argue that if we deny the poor welfare payments, they will steal, riot
and kill to get it back, no matter how good it might be for them in the
long run. It seems to me that no rational person would do such a thing
unless it was absolutely the only way to avoid death.

>That would certainly seem to be the nicest option. I also agree with
>Dalibor den Otter that making a basic living standard freely available for
>everyone could be a nice way to keep things stable as more and more persons
>become obsolete through automation. The cost of this should become less and
>less untill it becomes insignificant.

Sadly, however, medical care is the big spender that you'll never be able
to sufficiently subsidize until we develop immortality. You can feed the
poor, you can get clothes on their backs and a roof over their heads, (at
greater cost,) but there's always some new medicine, some new expensive
form of treatment available that might keep you alive, particularly as you
grow older and organs naturally start failing. How much health is enough?
When can we say that we're done subsidizing life? How is high quality
medical care to be distributed fairly not to those who have worked to
afford it?

>Yes but who's death when?
>Two more questions (and I can only hope they're good ;-)
>
>I'm not at all sure that funds freed by abolishing welfare systems will end
>up being invested in immortality research. Won't it simply go largly into
>bigger cars, vacations and onther nice goodies?

The funds freed by abolishing welfare systems would go into everything
people buy. That's the nature of economic growth... it provides more
wealth for everything we do and want, including vacations, including
medicine, including science, including the environment. Also, don't forget
that hard working people get paid because you buy those cars, take those
vacations, and enjoy your goodies, who pay other hard working people for
their own goodies. More wealth means more wealth for everything.

>And there is the fact that advancing research is not purely an financial
>question. 'Law of diminishing returns' is the correct engglish term I
>think. Pumping twice as much funding into a program won't speed it up a
>factor two (it might but there's no guarantee). Based on what I hear from
>neurological research this seems to be especially true for medical sciences
>(as opposed to stuff like space exploration).

Maybe. But economics has another handy rule just for this purpose: the
utility maximization rule. This rule states that househoulds should
buy/invest in whatever they want most, up until the point where the cost of
buying more would outweigh the happiness it would bring you.

Economists conceptualize this with two curves on a graph of money invested
against output. The first curve is the marginal utility curve, or the
extra utility you get from each extra dollar you spend. The other curve is
the marginal cost curve, or the utility you could get by spending your
dollar on something else. This curve is usually accelerating, as it
becomes harder and harder to get more and more dollars. You have to do
more work, and you have to sacrifice more goods that are worth more and
more to you.

Anyway, the argument goes that you should buy more of good X up until the
point where you don't gain anymore happiness by buying more.

|
| marginal utility /
| | /
| | /*************
| v *****************#*
| ****** /
| *** /
$ | ** /
$ | ** /
$ | ** /
$ | * -----------
$ | * / ^
| * / |
| * / |
| * --------/ marginal cost
| *------/
|-----------------------------------------------------------

Utility

Why am I mentioning this? Because when your income increases relative to
the price of other goods, your marginal cost curve shifts to the right.
That's precisely what it means to get more income for the same work: it's
easier to get a dollar. As a result, not only does it become easier to buy
science, food, and vacations, but you also get more of whatever you want
most, which presumably makes you happier.

Now, of course, these curves don't actually exist in this form. But
economists explain that away by saying that even if people don't do THIS,
the model's predictive ability is rather good, so people are doing
something a lot LIKE this whenever they go to a store to buy something;
just like how the brain does something like differential equations whenever
it catches a ball, or something like probabilistic number theory when it
evaluates risks.

Household behavor, and the utility maximization rules, are primarily
micro-economics rather than macro. Try looking there if you want more info.

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