There's this random story I read awhile ago, and a friend mentioned it to me again lately and I remembered I wanted to talk about it. At the time it sounded believable enough, but a bit of googling has told me it's seen more as an urban legend than anything else. In any case it's an example about the 'real life' outcomes of socialism.
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan”. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little..
The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else. To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
It could not be any simpler than that.
Remember, there IS a test coming up. The 2012 elections.
These are possibly the 5 best sentences you’ll ever read and all applicable to this experiment:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
In retrospect it does sound a bit chain mail-y. I think this version was a little bit more political than the one I first read. But a depressing tale nonetheless. To be blatantly honest I'm actually a bit of a believer in this "Obama's socialism" and I thought if this actually happened there must be something else wrong.
Skip to a week
or two ago when I was for some reason reading about the wonders of deadweight loss when I spotted a term called "Pareto Optimal". In simple terms this is basically a way to measure the efficiency of a system, where the Pareto Optimum is reached by changing allocation of resources that makes at least one individual in the system better off, while not making any other individual worse off. I think an example could be something like taking a box of grapes from somebody who doesn't really care/intend to eat them and giving them to somebody who really likes grapes. Since the first person has no preference to whether they keep or lose the grapes, the only change is the increased happiness in the grapelover.Anyway keeping this in mind I now want to talk about Nash equilibrium, which is a phenomenon in game theory that describes the state where, taking into account the decisions of all the other players, the individual is making the best decision for themselves (can you see where I'm going with this o.o). A good example of this might be something like the Prisoners Dilemma where two cellmates are given a choice: if one guy turns the other in, he gets 5 of his years forgiven and the other none, if they both snitch they are forgiven one year, and if they both don't talk they each are forgiven 2 years. Assuming both prisoners are sane and aim to get out of prison ASAP, they will of course jump at the chance to rat their cellmate and consequently both end up keeping all their years, which is in fact the worst possible outcome. This last outcome is actually the Nash Equilibrium, and the globally optimal strategy of both staying silent is unstable. If this situation seems irrational, it is because it is not Pareto optimal. To logic it a bit more, if each prisoner assumes their buddy will rat them then their choice is either to be forgiven no years or be forgiven one year (by also defecting).
My point is that this is the same kind of situation as the student mentioned in the story. I think they are at Nash equilibrium, with everyone assuming everyone else will do the work, and aiming to give themselves the easiest ride. The problem is, their assumption is wrong, and the carrot of an easy A that is being dangled in front of them is only potentially possible if everyone works hard enough for it, but maybe not even then. In reality, the mean intelligence of all students might only be enough to get them to a C level, but if they all put in a bit of work and the better kids help the weaker ones out, they might raise the grade to a B. Overall, we might see this as the potential A students 'sacrificing' their higher grade for a lower one, but in the situation where everyone's grades are equal (i.e. you can't get an A if someone flunks), it looks to me like the best possible outcome.
I'm sure this has probably been the basis of a lot of utilitarian arguments in the past, but I really do believe it. Going back to Obama's socialism, it's true, in the current system potentially anyone can be rich! But not everyone can be. By striving only for personal gain, hoping to...well really wrest money from others, yes a small number will be more successful than the 'B' grade, but a whole lot more will be below that line. The problem is everyone thinks that they'll be the special ones, that they have what it takes to beat everyone else. And that's shows healthy confidence and self esteem, which is how we've been brought up, but not everyone can win.
In truth, the odds are quite stacked against you.
The point of all that was to point out that they were putting people who thought like 'capitalists' into a 'socialist' environment and using that as the proof that the system was ineffective. If the individuals in the system do not realize there is an alternative solution, then yes, they will be stuck with the worst outcome. The crux is that the system relies on everyone believing that by giving a little, they can get more; acting not completely selfishly to gain the best outcome for themselves.
Blah anyway to finish off this strange and likely flawed rant I found a video from the movie Beautiful Mind that demonstrates a simple case of the Nash equilibrium (it was about that guy actually). He's got a funny accent, acts like he's a bit high and the idea is not super amazing I guess, and you could always argue someone would actually get the girl, but if it's a new idea to you I think it's nice food for thought =]
I told you it was a fat post. =p
Post #2 of 2012
"A good character is the best tombstone. Those who loved you and were helped by you will remember you when forget-me-nots have withered. Carve your name on hearts, not on marble."
-C.H. Spurgeon
Listening to: The A Team - Ed Sheeran
6 comments:
I really want to watch a beautiful mind now. Also I pretty much agree to what you're saying here. Obviously, a society where everyone thinks for themselves will not promote the best interests of the society, and ultimately, everyone acting in their own interests means no one can fulfil that interest. Exactly why climate change on a global scale is not working. It's every country for itself. Except for Australia.
PARETO EFFICIENCY! Please come back to Melb and do second year microeconomics! Very interesting post indeedy.
Thanks Alice and Bread! Really appreciate the feedback ^_^
I love I love I LOVE that movie :)
But to the political side.
The idea that Obama's reforms equate to socialism is incorrect. To the Republicans, ANY move to the left or towards increased government control can be interpreted as a move towards socialism.
1. Yes, legislating the wealthy out of prosperty is harmful to all. But then everyone is equally poor. Otherwise, the rich get richer and the poor get poorer (in relative, if not absolute, terms).
2. This is the basis of capitalism. I must sell my labour to those who control the means of production, so that they can benefit from my labour. Then look at investment banking and stock trading and all that. The creation of money...from money. Usury, Aristotle said, is detrimental to the state.
3. Yes. Why is this a problem? You make it sound like a bad thing, but the equalisation of wealth always requires a third party to oversee it.
4. The aim of equalisation is not multiplication.
5. Unemployment allowance and dolebludgers. The foundation of any welfare system is the idea that those who are unable to work are taken care of by others. The fact is that not working always involves some sort of cost, which a cost which is insurmountable to most.
Anyway. The idea of wealth equalisation is so that everyone has the same amount of wealth. Thus, everyone is motivated to work harder, do better, so that everyone gets wealthier. Or, everyone works less, does worse, and everyone gets poorer. The story could have just as easily gone something like:
"After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little were tutored by those who had studied hard, and everyone averaged an A."
The fact that it didn't go like that can probably be put down to senioritis, student laziness, American incompetence, and the fact that the story is a work of fiction. Plus, in real socialism, the government would be exhorting everyone to work for the common good. Where was the professor in all of this? State control and direction is an integral part of socialism that simply cannot be done without.
It is impossible to change the allocation of resources so that at least one individual is better off while not making any other individual worse off. Using the grape example, the person who didn't care/intend to eat them has lost the grapes, which he could have otherwise sold to the person who really likes grapes. In terms of resources, he has lost out. He may be unhappy that some greater power has gone in and taken his grapes from him and no compensated him for it. All transactions in life are for mutual benefit, even if the benefit is not tangible. The optimum can only be reached if at least two individuals in the system are better off, because otherwise someone is always at a loss. As the original statement says, "The government cannot give to anybody anything that the government does not first take from somebody else."
Following on from that statement, "Nobody can become rich unless someone else becomes poor". In striving for wealth, you must be exploiting or taking from someone else. The richer you become, the more you exploit/take.
Very interesting post. Thank you
Lol bread I see what you did there.
But interesting phat is good phat!
Post a Comment