Thou Shalt Not Inherit

There's been a lot making the headlines recently about our (largely incompetent) coalition Government's proposals for stealthily getting more out of the taxpayer.  The dishes of the day are currently centred on inheritance tax and mansion tax, as well as gimmicky taxes like fizzy drinks tax, fatty food tax, booze tax and all that malarkey (a subject which deserves a Blog of its own one day). I emailed my local MP to ask her to speak on behalf of the coalition, and was told:

"It is not true to suggest the inheritance tax amounts to double taxation. The wealth in most houses has never been taxed because it is largely in the form of unrealised capital gains."

Who is feeding MPs this kind of nonsense?  It's simply not true. The wealth in most houses has already been taxed at least once, because taxation occurred when the money was earned to pay for the house. You can't even begin to grasp what's wrong with the Government's reasoning until you understand this simple example.  Jack earns £100, makes some fruitful investments, and leaves £100 million in unrealised capital gains tax to his progeny.  If Jack paid 50% income tax on that £100, then he invests only 50% as much, earns 50% as much, and leaves his progeny only half as much as he would have done with no taxation.  This is simple economics - taxing Jack 50% on his £100 pounds eventually costs his progeny £50 million pounds.

You see, when I probed my MP about her error, she emailed with a confused response -

"If I understand you correctly, Mr. Knight, you’re saying that if a multi-millionaire died tomorrow and left his gains to his family, they shouldn’t have to pay inheritance taxes because he already paid a few thousand on the original income?"

Here's the problem - I'm not arguing against a few thousand, I'm explaining that the taxation already amounts to a lot more than a few thousand. My MP is failing to grasp that a “few thousand” paid many years ago is the equivalent to far more than a few thousand today. If Jack has a converter machine that magically makes several thousand pounds from 1987 into several million present day pounds, then taxing him several thousand pounds in 1987 is the equivalent of taxing him a few million pounds in the present day. So it’s quite misleading to say he’s only paid a few thousand in taxes - his net contribution is much more.  Moreover, here is another damaging consequence of these kinds of taxes - savers and investors will be deterred from saving and investing, which is contrary to the ethos of the present Government.  Not all will be deterred, but some will, and those will be important players in the economy.  

The real problem with this issue is one that I haven't seen any politician addressing.  Although, I understand why - MPs are elected with mostly no prior knowledge of the kind of economic thinking needed to tackle these issues, so it's hardly surprising they (and their advisors) don't.  They may know economists who could advise on this, but I doubt they’d listen because good economic advice is often contrary to the Government's aim – which is to get as much money as possible without obtaining it at the cost of being found out and unelected. 

Here's how the situation should be looked at. The argument isn’t about how much to tax, or about who should pay those taxes - it is primarily about the most efficient way to raise those taxes. Taxing earnings once at a higher rate is more efficient than taxing it twice later at two lower rates because the latter distorts the desire to save*, it makes people circumspect about investing, and it encourages people to over-consume in the here and now.  Remember, savings now is consumption in the future.

A similar level of stability is required in the consumers’ market if the economy is to achieve the right balance in encouraging sensible consuming and mobility.  That is why consumption goods are taxed at the same rate, not different rates.  Try to imagine the kind of consumers’ world we'd live in if different products were taxed at different rates. If you tax two different goods at two different rates, you'd have a new budget line with a slope that differs from the present one. Call the optimum point X. If you tax the goods at the same rate and hold Government revenue at a fixed rate, meaning you get a new budget line with the same slope as the original, also going through point X. To avoid the crossing of these indifference curves, the optimum along this new budget line must sit on a higher indifference curve than X (you can draw the diagram yourself), which is why consumers are better off with an equal taxation consumer policy**.

Returning to efficiency – the consideration of efficiency is important.  The notion that it is more “efficient” to tax earnings than to tax investment income is ridiculous if it means mega-rich people can earn hundreds of millions on their investments and pay too little tax or no taxes at all.  That's an argument in favour of taxing investment income and labour income as two wings of the same bird that lays the golden egg.  As you can gather, either way causes problems.  At one extreme, earnings that brought the investments on which taxes are already paid (a house in an investment, don't forget) are being taxed again via the route of inheritance.  At the other extreme, a man can switch income to investment and avoid paying tax on income. Here's how that's done. Suppose there is a business that earns £100,000 per year after paying all expenses except income. The business operator could pay himself a salary of £100,000 and the business would record zero earnings, or he could pay himself zero earnings and the business would earn £100,000, which he could then distribute surreptitiously to himself as “investment income.”  Under those conditions, investment income is not double-taxed when compared with labour income.

Even if capital gains taxes were capped at 1%, income subject to those taxes would be taxed at a higher rate than off the peg compensation. That’s because capital gains taxes (as well as other taxes on capital income) are surcharge taxes, assessed on top of the tax on compensation. An illustration will explain why.  Jenny and Jack each work a day and earn £1. Jenny spends her £1 right away. Jack invests his £1, waits for it to double, and then spends the resulting £2. Let’s see how the tax code affects them. First add a wage tax - Jenny and Jack each work a day, earn £1, pay 50p tax and have 50p left over. Jenny spends her 50p right away. Jack invests his 50p, waits for it to double, and then spends the resulting £1.

What does the wage tax cost Jenny? Answer: 50% of her consumption (which is down from £1 to 50p). What does it cost Jack? Answer: 50% of his consumption (which is down from £2 to £1). In the absence of a capital gains tax, Jenny and Jack are both being taxed at the same rate.  Now add a capital gains tax, let’s say 10% - Jenny and Jack each work a day, earn £1, pay 50p tax and have 50p left over. Jenny spends her 50p right away. Jack invests his 50p, waits for it to double, pays a 5p capital gains tax, and is left with 95p to spend. What does the tax code cost Jenny? Answer: 50% of her consumption (which is down from £1 to 50p). What does the tax code cost Jack? Answer: 52.5% of his consumption (which is down from £2 to 95p).

So there you have it: A 50% wage tax, together with a 10% capital gains tax, is equivalent to a 52.5% tax on Jack’s income. In fact, you could have achieved exactly the same result by taxing Jack at a 52.5% rate in the first place: He earns £1, you take 52.5% of it, he invests the remaining 47.5p, waits for it to double, and spends the resulting 95p.

Why is this so hard for so many supposedly intelligent people running our country to understand? Just like the above observation, people tend to look for a wealthy businessman with £1 million capital gain on his investment, and they forget that were it not for wage taxes, he would have invested twice as much and earned a £2 million capital gain. In that sense, the capital gain is taxed in advance.  Who you want taxed the most is one thing – but there’s no room for rational debate about the impact of the tax code, which is a matter of simple arithmetic.  The arithmetic shows quite clearly that anyone who pays taxes on capital income is effectively paying at a higher total tax rate than anyone who doesn’t.

To be fair, it is awkward suggesting that people who inherit wealth should have the right to lifetime tax-free income, but it's also disingenuous to suggest that people are inheriting this money tax free - they are not.  If you inherit £500,000 from your relative - what is being forgot is that your relative paid tax on that £500,000 (let's say 50% for simplicity's sake). As a consequence you inherited £500,000 instead of £1 million, which means you are already paying £500,000 income tax before your capital gains even begins to be taxed.

I must end by saying, when Mr Pomsonby-Smythe leaves his £10 million fortune to his layabout son who has never worked a day in his life, I, as a caring member of society, am quite comfortable with a system that sees over £4.5 million of that money given to the Government and spent on things like health, schools, transport and social services for the elderly.  But on the other side of the coin, I dislike the sense of entitlement that Governments feel they have on people's equity, because that equity is the leftovers of a sum that has already been taxed by the Government. 

A further issue is that everyone worth, say, £500,000 is not in the same position.  In London you can find someone worth half a million who has four children to send to university, high value council tax, and generally high expenditure, and you can find someone else worth half a million who dosses about all day wasting it on drugs, booze and yuppie parties. That's why I think we shouldn't have a blanket threshold - we should assess each situation on a case by case basis.  Yes, that will require extra resources for those actuarial studies, but I have an easy way to pay for it – we can do so by drastically reducing the number of MPs and the number of local councillors who are ornaments for every district and county council in the land - that is just pure waste through and through.  I think there are at least 250 MPs too many, and 50-60% too many local councillors, all of which are sucking expenses funds out of central services and every district and county council.  Let’s drastically reduce those, and spend the money on being more resourceful with taxation.  There - problem solved.

* Incorporating a tax for consumption tax on top of a tax for earnings is equivalent to raising the tax for earnings, whereas incorporating a tax for capital gains tax or a tax for inheritance on top of a tax for earnings is not equivalent to raising the tax for earnings, since it brings about a disincentive to save.

** Point of note, though, this model relies on indifference curves and therefore applies only to consumption goods, not capital gains, income tax or other non-consumer taxes.

Freakonomics Exhumed: Making Decisions By Tossing A Coin

As many of you who've had the pleasure will know, there is an excellent book by Steven D. Levitt and Stephen J. Dubner called Freakonomics, in which the authors apply economic theory and research to many fascinating social situations.  This is the sort of book that will show, for example, how legalisation of abortion in America went on to reduce crime rates 15-20 years henceforward in the States in which it happened, due to the fact that the future criminals were being aborted instead of being born.

I noticed on the Freakonomics webpage that they are now having fun with social science by researching how people get on when they flip a coin to decide on a course of action.  Whether it's deciding to move house, switch jobs, ask a girl out, change cities, ask for a divorce, go to a concert, or take up a sport or hobby, they want to know how it will turn out for you if you made the decision by flipping a coin instead of carefully thinking it through.

When reading Freakonomics a few years ago, I seem to recall Levitt and Dubner showing that companies that hire big reputation consultants and sports teams that hire prestigious coaches get from their investments no better results than those of a random coin toss.  I guess their current coin-toss research will eventually reach fruition by giving us some indication whether or not our carefully thought out choices work out better for us than those made by the random walk of coin tossing. 

Recording whether our strategic and so-called 'well thought out' decisions return a better than 50/50 payout could turn out to be valuable, or at the very least edifying. One note of caution though - it won't be entirely random, because although one could make a lot of life decisions using a random walk model, the decisions one chooses to submit to the random walk model mostly aren't random.   Whether the protagonist flips a coin to decide whether to shout at his neighbour, as opposed to, say, flipping a coin to decide whether to buy her some flowers or lend her a copy of Freakonomics is nothing like as random as coin tossing.  

My other issue with the experiment is that in a great many cases I don't think there is a reliable way to know what constitutes a good outcome.  Good compared to what?  In such an experiment the good is being weighed against the weight of the other alternative - but one can never know how that would have turned out.  Say Mrs Jones from London flips a coin, and on landing a tails decides to go to America for her holiday instead of Canada.  She has no way of knowing whether the results of the coin toss turned out better or worse, because she doesn't have the Canada trip with which to make the comparison.  Most of your life decisions may have turned out better or worse if you'd have picked an alternative decision, but in most cases you can't know whether the grass is greener on the other side or whether it's better the devil you know, irrespective of whether you decided by coin flip or careful consideration.

I do, however, agree with the authors that many of the results of our so-called 'well thought out' decisions are, in fact, just as random as the toss of a coin (this has been shown to be true in sports, management, consultancy and the stock exchange, to name but four examples).

Hopefully, though, you won't flip a coin to decide whether or not to carrying on reading my blog - otherwise my readership might shrink by 50%.

Shrinking The 'God Of The Gaps' To Zero

When it comes to issues poured into the ‘God of the gaps’ melting pot - faith, reason, evidence, science – why is it that so many people get it wrong?  As any inveterate viewers of the BBC's Sunday morning show The Big Questions will know, it is easy to become perpetually frustrated by the poor intellectual calibre of the contributors to the debate.  But this problem extends much further.  Those contributors are only doing on a small scale what those who influence them are doing on a much wider scale.  Too many people just seem so unable to grasp a few simple notions related to knowledge, faith and gaps.  How foolish to say that science is now providing us with, or pointing us towards, knowledge that we once thought was supernatural, as if that is a point against the supernatural.  It isn’t – it is only a point against the error of not paying enough attention to the fact that scientific progress will inevitably bring fresh knowledge and understanding*.  It is obvious that a person who tries to introduce God or the supernatural into an investigation that can (and probably will) be explained in the future by science is acting foolishly and irresponsibly.  The trouble is, most theists do realise this, so the many atheists’ continual allusion to this fault only shows them to be very incapable of seeing the wider landscape.

Here’s how the landscape should be viewed, irrespective of whether you’re a theist, agnostic or an atheist.  The natural world of chemistry and biology provides no means by which one can justifiably claim with any authority that God or the supernatural exists.  Every time someone points to a good or positive part of reality and says that’s good reason to believe in God, one can switch it around and point to a cruel or negative part of reality and say that’s good reason to not believe.  Things won’t improve until people start to realise that nuanced empirical investigation gives no general indicator of God or the supernatural, much less a fait accompli justification for belief or unbelief.  That is why it comes down to personal faith – and why the poets like Blake, Eliot, Tennyson, Donne, Herbert and Rossetti express sentiments that are beautifully suggestive rather than empirically compelling. 

But what is faith?  First I’ll tell you what it isn’t – it isn’t the silly caricature many atheists make it out to be when they say it is opposed to reason or evidence – that’s just buffoonery.  Faith is the position whereby one looks at the whole of nature and trusts that God is the Creator.  If you want to see the real gravitas of faith, it is utterly erroneous to look at nature and ask if there is any evidence for God from within that natural perspective, because all you’re doing is assessing the situation by treating God as though He shows Himself only through radical breaks in normalcy. 

 

When you hear people talking about the knowledge they have, you should realise that they are commenting on lots of links in a chain of observed instances of cause and effect.  One may easily justify believing A because of B, and B because of C, and so on, but at some point we reach a terminus where justification for that chain of beliefs halts and no further connectivity is retained.  The most logical thing to conclude is that the terminus is reached with the origins of the universe.  With our current understanding, the big bang is an obvious epistemological place at which one can plant one’s flag of ignorance in the ground.  Our epistemological trail stops dead at physics, leaving us only mathematics and our ability to imagine what, if anything, lies beyond physics (and maybe even beyond mathematics too).  Either you can find faith or not, but don’t get drawn into the world of crass distortions – it will only make you look incompetent.

To intelligent theists and atheists there should be no ‘gaps’ at all – because faith isn’t like looking for water in the Atlantic ocean, it is about trusting that the whole story is part of a grand narrative.  For me, there are no gaps – because I never tried to erroneously fill them with supernatural explanations in the first place – I was always happy to let science take care of the physical parts of reality, and at the same time have faith that that physical reality is part of a grander cosmic narrative over which God has ultimate control. 

If We’re Going To Discriminate, Let’s Do It Properly

There’s talk at the moment in Westminster, and this morning on BBC’s The Big Questions, about whether the police should recruit more black officers through positive discrimination.  This has thrown up other issues about whether minority groups (Muslims and black youths, specifically) are unfairly targeted in situations like airport searches and police stops on the street.  Naturally a few people who feel discriminated against have made a lot of noise this week.  Who is right?

It might be easier to show who is right by showing who is wrong.  When it comes to positive discrimination, it seems quite clear to me that both groups have got the situation entirely backwards.  Those who condemn discrimination and the supposed undermining of civil liberties by arguing that the police should positively discriminate in favour of more black people are missing the fact that their proposal is simply another kind of discrimination with the signs reversed.  I’m against this kind of positive discrimination because, quite simply, you cannot artificially smooth the path for one group (whether it be for more black officers in the police force or more women in Parliament, or whatever) without artificially hindering the path of the rest of the group (or groups) that fall outside of the purview of the group for whom you are trying to positively discriminate. 

What the minority groups should be asking is whether the low numbers of black police officers is due to other factors that are not being considered properly (that’s a future Blog perhaps).  That is to say, you would think someone pretty idiotic if they said that the primary reason that there are so few female garage mechanics or female bricklayers is because women are being discriminated against.  Jobs should be awarded on two things; on merit (skills, experience, personality, enthusiasm) and on the basis that certain groups of people do actually want these jobs.  If most women don’t want to be bricklayers, and if most police officers are white due to the pretext of merit, desire, or some other reason, then this needs to be acknowledged before anyone makes an automatic assumption of unfair discrimination.

What about Muslims at airports?

Now to the people who are arguing that stopping a disproportionate number of Muslims at airports or stopping a disproportionate number of black youths for police searches is discrimination – I’m afraid they have got their reasoning entirely backwards too.  I make no comment here about whether targeting Muslims and black youths is preferable to random distributions, but let’s get the facts straight – it is not unfair discrimination, it is the opposite of unfair discrimination.

When it comes to who is statistically most likely to provide the biggest terrorist threat in an airport (or any public place), you know which group it is - it is fundamentalist Muslims.  Sure, most Muslims aren’t terrorists, but that’s irrelevant – the relevant thing is that most dangerous terrorists are Muslims.  You can be politically correct and insist that people at airports are searched in an entirely random fashion, but then you are unfairly discriminating against the vast majority of groups who statistically pose virtually no terrorist threat.  Those who say that targeting one specific group (even if they are the most likely group) is undermining civil liberties have missed the most important points.  In the first place, in net terms, detaining 15 Muslim men is no more of an infringement than detaining 15 passengers randomly selected, because in each case 15 people are being detained.  But in the second place, detaining 15 randomly selected passengers instead of a high-probability group is much more of an infringement of civil liberties, because if you’re going to detain 15 people, you should at least detain 15 people who are statistically more likely to be terrorists.  If you are one of the many in the randomly selected group that is statistically almost certainly not going to be a terrorist then you have been unfairly discriminated against.  The airports will have discriminated unfairly in order to assent to a spurious adherence to political correctness, and that is not a good thing.

Now, just because you detain certain targeted people, that doesn't mean you cannot treat them fairly and with respect.  If most of the terrorists likely to blow up your plane happen to belong to the same faith as you, then being detained and questioned is a burden that Islam pays.   Not only is this inevitable, it is actually prudent if you want people to do their jobs more efficiently.  If you want to be safer on planes or in tube stations, you want the group most likely to put you and you children at risk to be the ones targeted – you don’t want the authorities to waste time detaining and searching your grandmother Betty or your aunt Doris. 

The same applies to keeping our streets safe.  Statistics show that black youths commit 65% more crimes than whites, which means that it is unfair discrimination to choose a random sample of 100 people rather than a larger proportion of black youths.  To see this logic in more explicit terms, let’s pick a really extreme hypothetical to make the point clearer (for those that need it).  Consider that around 95% of youth crime in London comes from gangs on estates in rough boroughs of London.  Suppose that in wanting to tackle youth crime with strict adherence to political correctness the police decided they would randomly search 1000 people all over London (including, say, those in Kensington, those queuing up for the London Eye, those outside Harrods, etc) rather than randomly searching 1000 people in gangs on estates in rough boroughs of London.  It is obvious that here the level of unfair discrimination would be higher not lower, because just like in the airport, in that 1000 sample space you're targeting people who are some of the least likely to be complicit in youth crimes.  If the police are spending valuable time and resources searching your grandmother Betty or your aunt Doris when they go out to the bingo and the supermarket, then they are not searching youths who are statistically more likely to be committing crimes while Betty is on her way to Bingo and Doris is on her way to buy her soup and bread at Sainsbury’s.

For those who are still somewhat ill at ease that this is how the world works, and that many Muslims with no intention of terrorism will be detained at airports, the individuals in question could easily be compensated for their time.  Let me put it another way; would you pay an extra £1 added on to your plane ticket price to drastically reduce the chances of your plane having a terrorist on board?  I’ll bet most people would – I know I would.  According to the airport statistics, 68,068, 304 passengers visit Heathrow every year – so let’s round that to a simple 60 million.  If the airline (and all other airlines) added £1 to every flight ticket and called it a ‘Terrorist prevention surcharge’ then Heathrow and other airports connected to those Heathrow flights would have £60 million per year to spend on compensating the people being detained and searched, and on staff wages to employ people to do the detaining and searching.

Let’s say it would cost £10 million per year in wages and additional personnel costs - that leaves £50 million compensation money, which means you could give every detainee £25 compensation for a ten minute search, and afford to search two million people per year, which works out at nearly five and a half thousand people per day.  With such measures in place, that would act as a huge disincentive for would-be terrorists to even try to board planes, it would create £10 million worth of jobs, and it would make every passenger feel much safer on their travels.  It is better that than the current politically correct policy of pretending that Muslim men in their twenties are no less of a threat than your grandmother Betty or your aunt Doris.

What Would Happen If We Rewound Evolution?

The famous palaeontologist Stephen Jay Gould once pondered what the results would be if we wound back the clock of evolution half a billion years and observed the trajectory.  In his book Wonderful Life Gould argues that if we were given the chance to "rewind the tape of evolution and play it again" we would find ourselves living in a world populated by a different kind of animal kingdom, maybe one without primates (and as a corollary, humans).  This hypothesis (called the 'exaptation' hypothesis) is based on the observation that fitness for conditions in any current climate does not ensure long-term survival, because conditions change rapidly, and the things that had good evolvability in time x might not have good evolvability in time y. 

Arguing to the contrary, Simon Conway Morris in his Crucible of Creation propounds the view that humans are the unique yet intended goal of evolution.  While Conway-Morris does not want to imply that evolution is driven by mysterious goal-directed forces like supernatural intelligence, he appeals to the argument of 'convergence' to argue that at least in its broad outlines, the outcome of evolution is predetermined.  Convergence occurs when two lines of evolution independently develop the same or very similar structures, such as when reptiles and mammals independently evolved a fish-like body plan (as per examples like the ichthyosaur and the whale respectively).

To the greatest degree the path of evolution is one of contingency; mutations are random and cannot be predicted with foresight, and sexual reproduction is a random combination of genes.  By ‘mutations are random’, we mean that specific mutations do not arise in response to the selection needs of an organism or population. These random mutations, along with gene flow, genetic drift, and natural selection are the mechanisms that facilitate evolutionary change.  The mechanism for the fittest genes surviving is what is meant by natural selection, where natural selection is the main driving force that underpins evolution*.

To ask whether Stephen Jay Gould is right in his view that if we rewound all those mutations, migrations, genetic drifts, and natural selection, and played the tape anew, nothing close to human beings would very likely evolve again, we first need to consider the tape we are rewinding.  Stephen Gay Gould need not think of the ‘rewinding’ of evolution purely in terms of the hypothetical, because once we think of evolution as being made up of constituent parts, then in terms of replaying the tape of evolution we can observe that this has happened many times, because different species have evolved independently in similar ecological conditions.  Eyes and wings, for example, have evolved separately many times over.  So clearly we can make a reasonable estimate that a rerun evolution would bring about eyes and wings because they are such useful traits to acquire.  So we have evidence that once evolution reaches a certain level of production throughout those vast ecological niches, some traits seem highly likely to evolve again. 

In the sense being described, it is hard to justify thinking of eyes and wings as mere products of contingency; we ought to consider that the system of evolution has something more powerful underpinning it.  If understood in the right way (and there are many wrong way to understand this) the powerful underpinning It has is 'progress' through a ratchet mechanism.  People often hate the term 'progress', but if it is only taken to mean the inevitable direction that organisms tend to take, and the increased complexity that will occur with ratchet mechanisms, then (as long as we are mindful of that caveat) by progress we can mean something like “successfully surviving and reproducing”. What I think is true about evolution is that the progress is obviously not some accidental act of serendipity that keeps popping up randomly.  Why did wings evolve independently in birds, bats and insects?  Why has echolocation sprung up in bats, birds and dolphins?  Why has antifreeze evolved in independently in both the Arctic and Antarctic?  Why are eyes virtually everywhere you look (pun intended)?  It’s not just random chance – it is because progress (where progress = successfully surviving and reproducing) is built into the system.  In one sense the whole system is about survival, so through an implicitly human lens we can look at the evolutionary story and see animals getting good at surviving and reproducing.  

But here’s the most impressive thing about evolution; the constituent parts of biological evolution tend towards ratchet type progression, but not by having any direction towards better outcomes – this mechanism occurs purely through self-organising of the individual units (think of an ant colony as a great example).  Let's look at self-organisation in more detail..

Self Organisation

In self-organising systems each constituent obeys some basic rules determining its wider interaction with other constituents of the system, resulting in highly ordered behaviour in biological evolution.  The best human analogue I know is the economy, which looks after itself in a similar way, but in this case the self-organising systems are human beings obeying some basic rules of supply and demand, determining the self-organising wider economic system.  This is what Adam Smith’s term ‘the invisible hand’ means in economics.  For Adam Smith, the invisible hand acted as a social mechanism that channelled collective objectives toward meeting the needs of the people that made up a society, by ensuring competition between buyers and suppliers which channels the profit motive of individuals into providing products that society desires at prices which are rarely above cost.  What was soon observed, making the argument for laissez-faire economic philosophy strong, is that markets automatically channel self-interest toward socially desirable ends.  I don’t mean to suggest that the results of an open market economy are all due to skill – there is a lot of luck too.  But what the invisible hand does is enable people to be skilful and lucky. 

Have you ever seen the wonderful synchronicity in those birds that fly in a large flock, with each perfectly attuned to the flying patterns of the rest (see picture below)?  Like the ant colony, that is a beautiful example of self-organising structures where each individual is contributing to the whole in looking after its own interests.  I have a friend who is a computer programmer; he can use complex systems theory to simulate this flying using basic rules determining how each individual of the flock responds to its neighbours.  The most notable thing is that one doesn’t need any governing central planning principle to underpin the system – all that’s needed is the procedures for each bird to look after itself, and those beautiful flight patterns emerge in collective form. 

This is the kind of mechanism that drives evolution.  Organisms in biological evolution lock into the beneficial changes, whereby the ratchet mechanisms of natural selection facilitate successful dynamic structures that have good reproductive qualities.  These structures (like eyes, wings, and echolocation) are selected because they have the adaptable qualities needed for self-maintenance up against the tumult of a world in restless change.  This is what is meant by organisms being adapted to their ecological niche – obviously evolving antifreeze in the bloodstream is far more beneficial in the Arctic than it is in Africa.  In generalised terms, what makes this model representative in terms of complex systems theory is that it is a procedure observed in everything from physics, to information theory, right through to biological evolution and the economy.  We have mathematical systems that generate algorithms that encode successful models of the world, thereby allowing constituent parts to anticipate aspects of the wider organisation of the system but without any central planning from on high.

Prediction and Patterns

Clearly when we talk about predictability in evolution, and whether there is any inevitability in the system, the answer is; that all depends on what we’re trying to map.  Mathematical systems that are either random or chaotic on the whole can give rise to pockets of order – it just depends on the resolution of the parts on which we zoom in.  For example, here is a very evident pattern we can observe in human history.  When social and technical advance feeds population growth and population growth feeds social and technical advance, we find a kind of predictable pattern that gathers mass, size and momentum.  To see why recent progression stumbled upon us consistent with population increase, think about how the world has gone for the past 200,000 years.  For the past 199,800 years we’ve had low global populations, and humans lived in meagre conditions, with lots of primitivism, low life expectancy and frequent infant mortality.  Until recently in our 200,000 year history we have lived in pretty poor circumstances, just above the subsistence level.  Then a couple of hundred years ago something changed.  People started to become more scientific, more empirically minded, richer, and populations began to increase more rapidly (it’s still going on)**. 

But how reliable is that pattern?  Overall, not that reliable – particularly if we want indication of the supposed outcomes of replaying the tape of evolution and asking if humans will come about again.  Not only does evolution of life run concomitantly with external factors such as meteorites hitting the earth, volcanic explosions, severe droughts, and ice ages, where the fittest do not always survive – human behaviour is chaotic enough to not be predictable at a wider level.  By chaotic I don’t mean erratic (although it is erratic too) – I mean simply that (like the weather) the initial conditions of any one time do not make long term predictions conducive, because there’s no telling what technology humans will discover in the future, what global conditions will fall upon us, or which of the many possible man-made catastrophes we might engender. 

Just as people in the 17^th century couldn’t have foreseen what would emerge as the result of the industrial revolution, we cannot foresee what will happen in the next few hundred years.  Given what we’ve seen in the last century, it is perfectly reasonable to predict that humans have found the method to lock into progressive techniques, and that (save for any unforeseen catastrophes) that progression will continue to increase. But we cannot know for certain, because the broader picture is beyond the immediacy of our sphere of local and present forecasting (predicting societal change is a bit like predicting the weather. – we can only do short-term forecasts). With short term forecasts we can use economic equations to predict some economic parameters and show a tend towards short term progression (short terms can exceed our lifetime), but as is the case with the weather, the chaos makes long term predictions unlikely.

Here evolution and society follow a similar heuristic – and that can be expressed with the model of computational irreducibility devised by Stephen Wolfram.  To see what X will do, one has to "run" through the full computational nexus of the system - there isn’t a more succinct analytical method of finding out what biological evolution or a society will do other than running the full computation simulation of that society – and that will take as long as the whole thing took (in the case of evolution, over 4 billion years).

You may have heard of non-linear feedback systems.  What happens in the case of societies is this; social and technological advance and a rising population feed back off each other, whereby once the ratchet mechanisms lock into place, social and technical advance feeds population growth and population growth feeds social and technical advance.  Of course, the ratchet effects of a locking into place don’t have to come in quick fait accompli bursts – they can be gradual over time; for example, over the course of about 8000 years we had creative peaks in the form of previously unseen social and technical antecedents like the agricultural revolution, the emergence of writing, philosophy, science, the printing press, mechanical engines, electricity, all of which help bring about increasing technological accomplishments, increase in prosperity and scientific paradigm shifts. 

So what we have is a system of order and progression, but also a system of chaotic perturbation that makes the overall system pretty intractable, and not amenable to succinct equations that consistently map societal change and evolution to predictable mathematical analysis. Whether it be the Cambrian explosion, the industrial revolution, or the FOXP2 gene mutation that brought about human ability of language, one can never know when the favourable junction of conditions will came into place and bring forth new horizons and vistas of potential change – which is why I agree with Wolfram that we are dealing with computationally irreducible systems here.

So in the most important sense, Stephen Gay Gould was right that if we rewound the tape of evolution we couldn’t expect to see the same outcomes, much less believe that humans are inevitable.  But Simon Conway Morris is also right that despite the overall chaotic perturbations that underpin the system, there are framework structures that are simply the best for certain adaptive purposes.

Any animal needing to adapt by surviving a freezing climate, and any vertebrate needing to swim in the water, and any creature needing to fly, is going to evolve in the same general direction only by being successful in passing on genes that favour survival.  The reason being - the genetic constraints imposed on those developmental pathways and the demands of the environment mean that there are restrictions on the evolutionary processes.  So if we reran the tape, the details would be different, but the framework probably would be more or less the same.

 

 * Note about randomness and chance; there is a certain chance element in the process – as I said, mutation is a process of random chance - but it is only random with respect to improvement.  Mutations enrich the gene pool whose diversity natural selection acts upon.  Natural selection is the non-random survival of randomly varying genetic codes - the survival of which depends upon their phenotypic effects as regards the process of embryogenesis on phenotypes, which cause survival or non-survival.  Survival and reproduction depends upon the passing on of the genetic code of instructions that built these organisms, equipped them and made them conducive to survival and reproduction.

** This progression can be explained by a simple rule of thumb – people innovate, improve and provide answers to problems - and the more people, the more innovation, improvements and problems solved.  The more ideas and the more people to share those ideas with, the more humans prosper.  It’s no coincidence that each half century has been progressively better than the last, and that the most recent times have been the most globally prosperous than any time in history.  That’s largely because we have 7 billion people on the planet – more ideas, more innovation, better technology, improved economic freedom, peak human liberation, and more global communication and potential to help the neediest.  When the world has 8 billion people it will be even more prosperous; when it has 9 billion, yet even more prosperity.  It’s no coincidence – the recent burst in population in the past 200 years has been the primary cause of our burst in prosperity (200 years is only 0.1% of 200,000 years).  That we have a maximal population and progression dialect in 0.1% of the entire human history suggests that there is a clear pattern at work.

Becoming A Reality Gambler

When I was a professional gambler I had to use my skills to make a living.  If you want to make money that way, it is good to be risk averse, because if you're taking big risks then you're investing in something with a minimal chance of reward.  Professional gamblers mostly have the skill to avoid such precarious situations - if they didn't they wouldn't be professional gamblers.  The primary reason that people are risk averse is that they quite naturally have an aversion to losses. Psychologists Daniel Kahneman and the sadly deceased Amos Tversky wrote well on this, with many practical examples of how we hate to lose more than we like to win.  It's obvious that you'd rather gain an extra £100 than lose £100, but it's also good to know that people place a greater emphasis on avoiding losses than making gains. In other words, your joy in gaining £100 is dwarfed by your upset at losing £100. The natural corollary of this is you're more likely to take a bigger risk in trying to avoid a loss than you are acquiring a gain. 

Kahneman and Tversky coined the term loss aversion to refer to the human tendency to become disproportionately averse to losses – so much so that we pass up significant gains in our social world to ensure that we don’t incur small losses.  The point being, these losses mostly turn out to be trivial, but the gains can be immense.  If you ask out the girl or guy you like and get turned down, you aren’t really any worse off than you started.  But if he or she says yes, and you become beloveds for the rest of your lives, your gain is huge.  Someone who has high intensity loss aversion may well choose not to ask her out – so while he avoids the tiny loss of embarrassment or rejection he may rob himself of a lifetime’s happiness.  The situation is the same for the one you asked out, of course; she won’t lose more than two or three hours by going out with you and finding you’re not the one – but she gains an awful lot if you turn out to be the one to make her happy in love. Instead of having loss aversion we might be advised to embrace its opposite – what we might call benefit keenness.

It’s a cold winter night, you’re a poet, and you see on a notice board that a new poetry group is meeting in town.  Embracing benefit keeness means you should go.  At worst you turn up and waste some of your evening – but at best you might meet some great new friends, enhance your creativity, widen your social circle, and improve your publishing prospects too.  Or it might be that you’re pondering whether to send that email to the friend with whom you’ve lost contact.  Or you might be wondering whether to try horse riding, or whether to learn the piano, or whether to visit that city you’ve always liked the look of, or whether to give a new author or music artist a look.  There are so many things that might lead you to unexpected pleasures, and onto life changing paths, with only a small cost attached if those pursuits turn out to be not for you.

Naturally, one mustn’t be frivolous either; there are many choices that can be costly if they turn out to be wrong.  The last thing you want is to find yourself committed to a lengthy study course in which you regret the subject chosen, or find that you moved in with someone you no longer want to be with, or that you left the city to find employment in a place you’ll go on to hate. 

But I fancy that life is full of potential benefits on which we often miss out by being too circumspect.  I realised recently how guilty I’ve been of this too.  And having pondered it, I like the idea grabbing hold of life with both hands and seizing every opportunity.  Sure, it might turn out that the email you send to the friend comes to nothing much; it might emerge that horse riding gives you too many aches; you may not have the dexterity for the piano; the city visited might be a big let down; and the new book or CD might end up in the charity shop.  In all probability, many of your pursuits will disappoint – but you won’t lose much by trying them.  On the plus side, grabbing life with both hands and seizing more opportunities with benefit keenness is bound to bring unexpected pleasures and rewards that those inflicted by loss aversion never discover. 

A Universe From Nothing? Forget About It!!

Why is there something rather than nothing?  It’s one of the philosophical biggies – maybe even ‘the’ biggest question we can ask.  I don’t know the answer, but then again, as I will show in a moment, neither does anyone else.  It seems that one man, though, Lawrence Krauss, thinks he has the answer, and he’s written a book to demonstrate it.

It’s not because Lawrence Krauss has got his facts wrong that I think his theory is undermined (although I do think he has got his facts wrong too, as we’ll see).  His main problem is that he is attempting to answer a question that humans aren’t primed to answer.  Let’s start with Krauss’s wrong way, and then I’ll offer a suggestion for the right way.

The Wrong Way

When Lawrence Krauss talks of the universe’s ‘beginning’, he is using a pretty shabby reductionist formula to talk of the early origins of nature being elementary, in order to offer a simple speculation about the universe’s cause. He says:

Whether there is something rather than nothing is really a scientific question, not a religious or philosophical question, because both nothing and something are scientific concepts, and our discoveries over the past 30 years have completely changed what we mean by nothing. In particular, nothing is unstable. Nothing can create something all the time due to the laws of quantum mechanics

The way Lawrence Krauss is using the term 'nothing' is as a crude off the peg concept put forward to eliminate the burden of having to run with cause and effect down its inevitable path of regression until we hit a conceptual brick wall.  In his head, up pops 'nothing', like a physical concept that just does a disappearing act right in front of his eyes, and ...voila!....we have a naturalism of the gaps, and the whole cause of existence explained – the universe came from nothing. 

 

Let me explain how Lawrence Krauss took his studies of physics and came to a misjudged inference.  The universe is really only made up of transformations of energy and matter (and information) – and at a very elemental level we see change in form and change in quantitative information in terms of existence or non-existence within (stress within) the universe*. I can say that Jack the butcher did not exist before he was conceived by his parents, but his composition did exist in the cosmos, it just existed as different transformations of energy and matter.

When Lawrence Krauss argues that “Nothing can create something all the time due to the laws of quantum mechanics” he is only saying something meaningful in relation to amounts of energy or mass which may sum to zero under a very specific kind of measuring system in the quantum world – a measuring system that when taken to its logical conclusion posits a universe of zero total energy.  But this is only the cancelling effect** in operation – zero energy has absolutely no impingement on the universe’s ability to come into being from ‘nothing’. 

Consider a wave such as we have in quantum mechanics. This wave provides information on the whereabouts of a particle. If you have seen a wave form you will know that it is additively symmetrical in that the troughs and peaks cancel completely under an additive transformation.  But in quantum mechanics the information on the probability of the whereabouts of the particle is found by squaring the troughs and peaks, and as a consequence we lose the cancelling negative terms. Hence under one system we have the additive “nothingness” of the wave, but it is meaningless ‘nothingness’ under a spurious measuring system. 

Lawrence Krauss ought to know very well (and I’m sure he does) that using a differentiated field of energy and summing up the squares of the components gives no indication of the entire universe’s origins.  Even Stephen Hawking jumped on the bandwagon recently with his own contention that there is no problem in the universe coming from nothing because current cosmological evidence points to a universe in which positive energy (among other things) is completely cancelled by negative gravitational energy (among other things) and therefore the universe could have come from nothing.  The general mistake being made by Krauss and Hawking is failing to admit that other operations are equally as important, particularly operations that reveal form and configuration rather than bulk accounting. 

You see, the argument from additive symmetry about x=0 gives no clue as to form and configuration, because when using cosmological principles, the WAY something manifests itself can only be measured using bulk accounting metrics, not form and configuration as Lawrence Krauss and Stephen Hawking have tried to do.  The reality of physics is the bulk accounting in this sense, and the whole of reality is mathematical and of far greater form and configuration metrics than those found in physics.

Consider a spreadsheet as an analogy. In effect, Krauss and Hawking are putting all their eggs into the total bar on the spreadsheet and overlooking the importance of the other data bars.  That’s a bit like a shopkeeper's accountant looking at the annual figures for the local corner shop, seeing a zero profit/zero loss and presuming that no goods were bought or sold throughout the year.  To make it simple, you and I could buy and sell all day and find that our income exactly matches our expenditure, meaning at the end of the day we find we've broken even.  Using that analogy for the quantum systems in the universe, Krauss and Hawking are trying to focus on the fact that we've broken even on one small transaction (zero energy) but also trying to ignore all the buying and selling that went into the process.  The spreadsheet analogy is ideal because if you take the universe as we perceive it at the quantum level as being analogous to the information contained in the spreadsheet columns, there are various formulas that underlie the cell contents, giving us our gains and losses.   In the case of the universe, those bulk accounting formulas are the entire complexity of mathematics.

Yes, it is true there is a finding in the study of physics that shows positive energy (among other things) is completely cancelled by negative gravitational energy (among other things), and that at the beginning of the universe this could give us a theoretical ‘nothing’, using only one kind of measurement.  But once we start talking of a ‘universe from nothing' in terms of what kick-started the process, we get into trouble, because clearly a configuration of any sort, even though it returns zero on one mathematical index (such as the average position of random walk or the average energy of a field of energy) is “something” in terms of the universe as a mathematical object as a whole.  So that's why I think Lawrence Krauss has got it wrong in both his philosophy and his science. Here's how I think it should be done.

 

The Right Way

The first thing I would say on this issue is that I don't think natural selection built minds to answer some of the very complex questions we have gone on to ask - it built us for hunting and gathering.  I suspect the question "Why is there something rather than nothing?", if it has an answer, is one beyond the capacity of the human mind.  It might be that we've put together the correct combination of words, but have actually generated a question that makes no sense, or is beyond our mental sphere.

When philosophers describe ideas and concepts as being true or false, we mean that they relate to facts in the natural world.  This has to flow from a reliable system of logic.  In other words, in philosophy humans created a logical system that works - but that system doesn't easily enable us to speculate about reality outside of that logical and empirical framework. Given that we humans are confined to interfacing within the physical universe (and maybe only a limited part of it, at that), our statements made within that logical framework are inextricably linked to the relationships between symbols, ideas or concepts from within our studies of facts in the natural world.  The question “Why is there something rather than nothing?” doesn’t sound a wholly unreasonable question, but I fancy that the reasonableness of the question may simply be a product of our ability to come up with seemingly consistent and logical statements related to our sensory data.  What I mean is, to the limited human mind that deals with the concepts ‘something’ and ‘nothing’ in everyday terms, it may seem reasonable to incorporate that kind of questioning into existence itself – but it may, in fact, be the case that existence itself is not amenable to the kind of conceptualisations we apply to the everyday world.

In his Enquiry Concerning Human Understanding Hume explores the concepts of cause and effect, and concludes (rightly I think) that they are only discovered through experience of the world.  This is almost trivially obvious really – it didn’t take Hume to figure that out – but to my mind Hume wrote most comprehensively on the subject.  It is through experience that we feel pain when we graze our knee, or put our hand in a fire, or have a headache after too much to drink.  Our whole range of experience is a collection of inferences where we say A causes B, and this gives us predictive power.  The problem with the “Why is there something rather than nothing?” question is that the only earthly inferences we have ever made, where we say A causes B, cannot be justifiably applied to any statement where the universe itself is the B being caused by the A.  I don’t even know if it makes sense to say that something ‘caused’ the universe with the same use of language where someone might say the vodka ‘caused’ Billy to wake up with a hangover, or the wind ‘caused’ the tree to fall to the ground.  And even if it does make sense to talk in those terms, it stands to reason that whatever is capable of causing a universe to come into being is probably beyond the understanding of a mind built within that universe by the laws of physics and biology. 

To us, the simple elementals of physical reality involve grammatical predicates where those predicates act as functions to subjects (an example of which would be ‘space is unstable’) – whereas ‘existence’ itself doesn’t logically have any function in terms of predication.  We use the term ‘exists’ to denote the appearance of X or Y (The laptop in front of me ‘exists’) but once we confront what the grand reality of ‘being’ actually is we find that the binary distinction between existence and non-existence does not hold for the whole of reality at all.  Some form of reality ‘just is’ – there is a reality completely unbounded by terms like ‘existence’ and ‘causality’ - it is a reality that ‘just is’ - no ‘time’ or ‘before and after’ or ‘changes in state’ - just an all-encapsulating ‘is’ that is beyond descriptive terminology. That is why I think all this talk of 'something coming from nothing' is, in the grand ontological terms, meaningless.

So why, then, do people come out with so many absurd statements that they have no hope of justifying, and that are quite clearly beyond the remit of our ordinary use of language?  I think it must be that they are just not very good at philosophy or rational thinking.  Lawrence Krauss has claimed that it has been shown that the universe could have conceivably come from "nothing”, so has Stephen Hawking, which just demonstrates that scientists at the top of their field are just as prone to absurdity as everyone else.  When formulated as a sentence the order of words gives form to an expression of feeling, but as we’ve seen above, it is so philosophically abstruse that it only really exposes the questioner as being unable to deal with difficult questions in the right way. 

If you were to ask them what they actually mean when they make assertions like that, most would be unable to add any qualification at all, certainly not if we insisted they elaborate on the meaning of the terms used.  Let’s break down the statement – “Physics has shown that the universe could have conceivably come from nothing”.  What do they mean “physics has shown” – what specifically has it shown, and how has it done so?  How can it show something like ‘nothing’ when ‘nothing’ is only an abstract concept?  What do they mean by ‘nothing’ – what is nothing?  It is not zero energy, or an empty set, or the number zero, so what is it other than a vague concept?  And what does ‘come from’ mean here?  Is this a causative state from one homotopy class group to a change in form?  How does nature cease from being homotopic – is it by breaking the homeomorphism between N0 and N1 where N = nature in totality?  If we have two continuous functions f and g from a topological space X to a topological space Y then how does a family of continuous functions become nothing when H : X × [0,1] → Y from X given unit interval [0,1] to Y such that, if x ∈ X then H(x,0) = f(x) and H(x,1) = g(x)?

They usually try to get round this by smuggling in the multiverse argument, which in relation to the above, basically contends that we have an infinite number of universes which eventually would produce one like ours.  But this is just an example of trying to have it both ways.  Which is it – does the N continuity of functions break to nothing or does it continue N1, N2, N3 to NX where X = infinity of universes?  An infinity of universes suggests one giant mathematical nexus that has sub-nexuses whose space-time manifolds cannot overlap  So how are they homotopically related – and if they are not, how does multiverse solve the problem? Whether we have one universe or an infinite number, the problem of positing ‘nothing’ as the cause doesn’t go away.  Once they ask why such a complex nexus exists at all, it leads them full circle to ask whether it can possibly be ‘something from nothing’ - and that, of course, leads them to question what ‘nothing’ actually is, so they are back to where they started, because if they cannot define ‘nothing’, they have no business claiming it can bring about a universe.  And if there are an infinite number of universes then how did the mathematics come about?  The upshot is, I think, questions like why is there something instead of nothing? are questions the human brain has not evolved the capacity to answer. 

* On top of this, we have the law of conservation of mass, which translates as mass can neither be created nor destroyed, but it can be reconstituted into rearrangement in the closed system of our universe.

** You can even see this on a two-way mirror reflection, in which two frequencies of light create physical regions in which that frequency of light cannot travel, due to repetition of internal structures, amounting to an almost entire cancellation of energy.

The Government's Home-Made Fallacy

I don’t know how much longer we are going to have to keep hearing from politicians that they plan to appease the electorate (they never use those words, of course) by artificially creating industrial jobs in Britain (particularly in the north of England).  When they tell you this, you know they are either lying, or they don’t understand how industry works.  Industries and services are effective for one reason – the economy has a price system that almost perfectly balances the interests of the buyer and seller.  Consequently, it cannot be interfered with artificially with any predictable success because the competitive marketplace aligns private and public interests (and prices) far more effectively than any Government can by means of artifice (some forms of regulation excepted, but they are not important here). 

I do admit, though, this self-governing system is quite rare; in most areas of life the needs of the individual and the greater good are not ideally matched.  In a football stadium when an exciting incident occurs everyone stands up for a better view, which means nobody succeeds in improving the greater good.  At busy house parties, every individual talks louder than they need to, due to everyone else talking louder than they need to – so all guests strain their voice boxes more than they would need to if attendees were mindful of the greater good.  In a fuel crisis the majority over consume, leaving many with no means of consumption.  The economy is the rare exception to the rule; if you invent a brand new product, and have no idea how much to sell it for, the system of supply and demand will soon put your product at a rate that matches the value the consumers place on it.  So despite what you are frequently told, MPs cannot easily interfere with the supply and demand balance of the market economy.  That’s the first mistake made, or lie told, by too many politicians.

The second is even greater – they make mistakes, or tell lies, about our own industry.  As much as it rankles people in Britain (particularly those outside of London), there is one simple reason why British manufacturing has gone downhill; manufactured goods acquired from other countries makes Britain richer (by the way, it also makes the exporting countries richer too).  How do I know that things would be worse if anyone tried to change Britain’s manufacturing exports artificially?  I know because in the vast majority of cases the price system in the competitive marketplace couldn’t have favoured the companies that are no longer manufacturing in Britain – quite simply because consumers started to buy from cheaper manufacturers abroad.

This is the essence of a global trade system that ideally aligns supply and demand.  Amazingly there are people who deny this is true.  I can offer a schoolboy example that shows the logic is correct.  Pretend that instead of two countries we have two schools – School A and School B, neither of which is permitted to trade with the other.  Johnny at School A has a monopoly on pencil cases.  Johnny can sell Billy a pencil case for £5.  Now because of a new policy which enables School A to trade with School B, Billy can now buy a pencil case from Charlie in School B for £3.  Johnny has two choices, he can match Charlie’s £3 selling price or he can find something else to trade in.  If he chooses the latter he will ensure he is no worse off than a £2 loss, otherwise he might as well choose to match Charlie’s £3.  So the worst case scenario is that Johnny carries on trading, losing £2 per unit. Billy’s £2 gain matches Johnny’s £2 loss, so there is no net gain or loss.  But now consider Freddy at School A.  Freddy, who was never willing to pay £5 for a pencil case, buys one for £3 from Charlie in School B, and goes home happy (as does Charlie with another sale). 

Billy’s gain and Johnny’s loss cancel each other out, but Charlie’s gain amounts to a net gain.  The logic is compelling and simple – in net terms both School A and School B benefit from being able to trade with each other.  Instead of two schools, relate that model to every country in the world, multiply that simple pencil case model by factors of billions to allow for an open and competitive market, and different countries’ resources, strengths and geographical positions, and it is obvious that each country benefits from unconstrained trade potential. 

But that’s not the whole story; I have only said why free international trade is good for economies.  There is another important factor in this picture – impeding the process of free international trade actually harms the people the Government wants to protect – its own industry (and thus, its own citizens).  Here’s how it happens.  Let’s use a simple and extreme illustration to explain what is a more complex but no less valid truth about why Government interference is bad.  Let’s suppose there is a car factory in Newcastle that isn’t doing as well as the Executives or the Government would like, due to consumers’ preference for cars in Japan.  The Government introduces a policy that favours car production in Newcastle over car imports from Japan.  How on Earth could that not be good for the British economy – Britain’s gain is Japan’s loss, right?  Wrong.  Quite simply, what you put into the pockets of the car factory in Newcastle you take out of someone else’s pockets elsewhere in Britain (as well as having people probably paying more for their cars).  Consider Slough’s boiler factory; what you don’t see is an almost invisible chain of events; the boilers made in Slough are shipped off to Japan and sold to a company that makes its money producing nuclear reactors, the buyers of which are companies who trade in mineral oils, and those companies deal with companies who make cars in Japan and ship them to Britain. 

In other words, there is a complex economic process that is going on outside of your peripheral vision, whereby both the car factory in Newcastle and the boiler factory in Slough are both bringing cars into Britain.  That is to say, if you protect the car factory in Newcastle from competition you must damage Slough’s boiler factory because somewhere down the line they are the competition.  So the next time you hear a politician announcing how much he or she wants to do to protect British producers in one industry from foreign competition, be aware that he or she is unknowingly proposing an action that hurts other industries in Britain, and amounts to a net loss in economic efficiency.