The Invisible Hand vs Charity

One of the major problems I have with Chicano Studies is its overemphasis on altruistic ventures as opposed to “personal gain”. Becoming a community organizer, for example, is more encouraged than becoming an engineer. This was particularly important to me last year when my sister, being in her junior year of high school, was applying to colleges. Though she had already decided on engineering as her intended major, she was having doubts and was considering a profession that “makes a difference”.

I explained to her that engineering can also be used to make a difference, the two are not mutually exclusive. I also said that when you compare engineering to the highly inefficient means of “making a difference” common among chicano studies students, like community organization, one can make a very strong argument that engineering makes more of a difference – and in the process, you can make a good living doing it.  She didn’t seem convinced and I could tell that I needed to explain my point better. Unable to do so at the time I resorted to reminding her that there is a field in engineering that may allow her to design better prosthesis, and being that my dad lost his leg from the knee down in a work accident, she could possibly make his life and people like him better.

That satisfied her but I still thought I needed a better way to explain my point. The blog post I did later on the topic, titled “In Praise Of Personal Interest” did a better job, I wrote:

…if charity is your goal, with extra money [you would make by being an engineer] you can provide valuable resources, fund efficient charities, be a stronger role model to the next generation (three people in my family want to be engineers now, just because of my experience), provide a better future for your children, assist your family out, or, just as importantly, be a testament to those around you that hard work and dedication pay off, that there is a way out of the ghetto.

Lastly, unlike nonprofits, even if altruism is not your goal, capitalism works in such a way that when pursuing personal interest “you are led, as if by an invisible hand, to do things that improve the lives of others”.

Still though, I felt like I could have explained myself better. My point does not come across as clearly as I’d like it to. Well to my surprise, while riding my bicycle to work yesterday, I was listening to a bloggingheads podcast with Philosopher Peter Singer and economist Tyler Cowen about alleviating poverty when Cowen asks Peter Singer a question that I would have asked him if I was doing the podcast, namely: what advice would you give to an 18 year old in college who has read Peter Singers book, is convinced that making a difference matters, and is considering a career as an engineer in the cell phone industry because she sees what a difference cell phones are making to the poor in Africa? Would that career choice, from an altruistic perspective, make more of a difference than, say, a person who makes 40k/year and gives 15% to the poor in India? What if the engineer never gives a dime to charity?

What answer do you think Peter Singer gave? Click below to see the exchange (full video, which is highly recommended, can be found here). It is a good answer, and in the end, it moves me a step closer to finally explaining my point better.  Maybe I should forward this to my sister?

15 Responses to “The Invisible Hand vs Charity”

  • You quote:
    capitalism works in such a way that when pursuing personal interest “you are led, as if by an invisible hand, to do things that improve the lives of others”.

    And the market collapse is an excellent example of this, right? The war in Iraq? And Afghanistan? [the interest of oil industry {and the individuals within} are gonna benefit common folk?]

    To me, its a way of trying to have it both ways…Its conservatives trying to make themselves “feel” better for looking out for themselves. Let me see if I understand…rather than specializing in something that provides direct help to someone, let me focus on something that doesn’t provide that direct help, and some invisible force itself will guide me to help you in the long run…

    1) Im not arguing that all non-profits are perfect, do great service, and that people privately can make a difference…or that the only way to make a difference is through community organizing….

    Then you say:
    I also said that when you compare engineering to the highly inefficient means of “making a difference” common among chicano studies students, like community organization, one can make a very strong argument that engineering makes more of a difference – and in the process, you can make a good living doing it.

    HP, if you don’t like “RAZA” folk, its all good….but don’t hate on them for “trying to make a difference.” Let your sister do as she wishes, if she is unconvinced that you have to try to convince her…perhaps your theory of “engineers” making more change needs some slight modification (cause it seems like she is not seeing it)….Again, Im not hating on engineers, Im just saying…Just like I dont hate on Raza folk as many of them dedicate much time and energy for the service of others (regardless of market incentives…

    Explain to me how If I work to maximize my profits as the owner,how does that best help the worker (which by definition) is getting paid the least in that scenario?

    The scenario you setup is a myth…or as some would say puro pedo…

  • Gerardo,

    Where do you get the idea that capitalism is somehow tied to wars? In fact, one can make a stronger argument that true capitalism is isolationists, see here. It is no coincidence that Milton Friedman and even radical capitalists, including anarcho-capitalists, all argued against the Iraq War. If you don’t believe that big government works well at home, it’s the next logical step to doubt its wisdom overseas.

    Regarding capitalism and its “invisible hand” powers, I quote from Walter Williams, professor of economics at George Mason University who writes:

    There’s no complete explanation for why some countries are affluent while others are poor, but there are some leads. Rank countries along a continuum according to whether they are closer to being free-market economies or whether they’re closer to socialist or planned economies. Then, rank countries by per-capita income. We will find a general, not perfect, pattern whereby those countries having a larger free-market sector produce a higher standard of living for their citizens than those at the socialist end of the continuum.

    What is more important is that if we ranked countries according to how Freedom House or Amnesty International rates their human-rights guarantees, we’d see that citizens of countries with market economies are not only richer, but they tend to enjoy a greater measure of human-rights protections. While there is no complete explanation for the correlation between free markets, higher wealth and human-rights protections, you can bet the rent money that the correlation is not simply coincidental.

    In fact, if you listen to the full discussion between Peter Singer and Tyler Cowen, you will see what the greatest proven methods of alleviation of poverty are: immigration, free trade, and a general free market economy.

    In other words, personal gain, time and time again, beats out “making a difference”, atleast when put into practice.

    I’m curious, how do you reconcile that fact with your beliefs?

    Regarding my sister, no need to worry, she is convinced enough, as she starts Cal Poly’s engineering program in the fall. 😀

  • Gerardo,
    You make a common logical error in assuming that maximizing profits equals minimal pay for employees. This is a common theory that is advocated by politicians but not supported by real world facts or examples.

    First, no employee can ever be paid what they are worth to the company. It is economically impossible to do so; if the employee is not worth more than what they are paid, the company makes no profit and goes out of business.

    Between bringing in new business, maximizing efficiency, increasing quality, and taking care of customers, good employees are worth their weight in gold. If a business owner wants to maximize long-term profit, he will take care of good employees, and this includes paying them fairly. Otherwise, they will leave and work for someone who will, and the business owner will lose a valuable asset.

    A manager who pays the minimum salary for all employees fails to maximize his own profit. Not only does such a short-sighted business owner fail to take use of the skills of a good employee, but he / she also has to find, hire, and train a replacement, all of which entail risk and cost. Companies that minimize employee turnover tend also to have above-average financial performance.

    The “invisble hand” absolutely governs employment. A wise business owner who wants to maximize profit will take care of his or her employees, thereby helping them, as well.

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