Quote of the Day: From The Capitalist as the Ultimate Philanthropist

At the end of the day, there are only four things you can do with your money: You can spend it, pay it to the IRS, give it away or reinvest it. Consumption is on the receiving end of productivity—furthering personal instead of public welfare. Government spending is by definition not productive, as you realize every time you step into a DMV. Same goes for charitable giving—no profit means no measure of value or productivity.

And so the most productive thing someone can do with his money—the only thing that will increase living standards—is invest. If the Ford or Clinton foundations really wanted to help society, they’d work on lowering barriers to business formation and cutting the regulatory chains that inhibit productive hiring in the U.S. and globally. But what fun is that? Better to boast about reducing inequality, public welfare be damned.

This quote is from former hedge fund manager and author of "Eat People" Andy Kessler at the Wall Street Journal (a recommended read)

Quote of the Day: Gene Selection: Society is built on mutually beneficial co-operation

At his blog, businessman, science journalist and author Matt Ridley discusses the political implication of Gene Selection versus Group Selection:

“Group selection” has always been portrayed as a more politically correct idea, implying that there is an evolutionary tendency to general altruism in people. Gene selection has generally seemed to be more of a right-wing idea, in which individuals are at the mercy of the harsh calculus of the genes.

Actually, this folk understanding is about as misleading as it can be. Society is not built on one-sided altruism but on mutually beneficial co-operation.

Nearly all the kind things people do in the world are done in the name of enlightened self-interest. Think of the people who sold you coffee, drove your train, even wrote your newspaper today. They were paid to do so but they did things for you (and you for them). Likewise, gene selection clearly drives the evolution of a co-operative instinct in the human breast, and not just towards close kin.

It can even drive a tendency to defend fellow members of the group if the survival of the group helps to perpetuate the genes. But group selection is a theory of competition between groups, and that is generally known by another name in human affairs. We call it war. If group selection were to work properly, war would mean the total annihilation of the enemy by the victorious group.

Quote of the Day: Big Government Destroys Systems of Interaction and Help

I want collective action that is voluntary not coerced. I want people to have the incentive to come together and help others. Government takes my money and gives it to other people. Sometimes it’s good people. But sometimes it’s not. So it doesn’t just replicate what I would have done already. It distorts it. But more importantly it discourages the deeply human ways we help one another as friends and family. I don’t want to romanticize private charity or the way families work. They’re both deeply flawed and imperfect. But big government destroys those systems of interaction and help. Big government makes it cheaper to be on our own. It makes it cheaper to avoid helping others because the government is doing it already.

This is from Professor Russ Roberts at the Café Hayek, discussing a comment  skeptical of the Road to Serfdom.

Quote of the Day: The False Doctrine of Altruism

Altruism is a code of ethics which hold the welfare of others as the standard of "good", and self-sacrifice as the only moral action. The unstated premise of the doctrine of altruism is that all relationships among men involve sacrifice. This leaves one with the false choice between maliciously exploiting the other person (forcing them to be sacrificed) or being "moral" and offering oneself up as the sacrificial victim.

This is from Jeff Landauer and Joseph Rowland at the ImportanceofPhilosophy.com

The Essence of True Charity

The Wall Street Journal’s Wealth Report writes,

The 50 top philanthropists last year gave away a total of $10.4 billion – up by more than three-fold from 2010. The Chronicle of Philanthropy says that 29 people gave away more than $50 million each in 2011.

The strange thing is, you’ve probably never heard of most of them…

But what’s striking about the pantheon of top American givers is how little we know about any of them. They’re not in the news for buying giant homes, yachts or planes. They’re not funding Super-PACSs or spouting off about how they would run the country. And they don’t have reality shows.

The top rich givers are quiet, small-town patriarchs who made their riches in unglamorous industries like steel, natural gas and metal frames. They carry their wealth quietly and they honor the responsibilities that come with great wealth. They care about creating opportunities for others, not just for themselves.

My comment:

Real charity is about anonymity. So has it been written in the Bible (Matthews 6:2 New International Edition)

So when you give to the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the streets, to be honored by men. I tell you the truth, they have received their reward in full.

And importantly, true charity emanates in the absence of coercion

As libertarian economist Floyd Arthur Harper wrote,

True economic charity has three characteristics:

1. Charity requires the transfer of ownership from one person to another of something having economic worth. The receiver must get a clear title to it, or it cannot be charity. The giver must have had clear title to it, or the giving is like a gift of stolen property — which is not an act of charity. Private ownership at both ends of the transfer, never public ownership, is therefore required.
2. The transfer must be voluntary with both parties. If forced upon the receiver against his will, it is not charity. If taken from the source against the prior owner's will, it is theft rather than an act of charity.
3. True charity requires anonymity. This is difficult to attain, to be sure. But if the conditions of the transfer result in a personal obligation in any form or degree, it is a grant of credit and not an act of charity. Devices other than anonymity usually fail to prevent the creation of a personal obligation.

May the tribe of genuine philanthropists increase!

Doug Casey on the Morality of Selfishness

Investing guru Doug Casey on the morality of selfishness and money

let me say one more thing about the issue of selfishness – the virtue of selfishness – and the vice of altruism. Ayn Rand might never forgive me for saying this, but if you take the two concepts – ethical self-interest and concern for others – to their logical conclusions, they actually are the same. It's in your selfish best interest to provide the maximum amount of value to the maximum number of people – that's how Apple became the giant company it is. Conversely, it is not altruistic to help other people. I want all the people around me to be strong and successful. It makes life better and easier for me if they're all doing well. So it's selfish, not altruistic, when I help them.

Read the rest here

Video: Morality of Profits; Should We Give Back Wealth to the Society?

Billionaire-philanthropist Bill Gates says that the we should pursue the idea of giving back wealth to the society.

In this video the illustrious Tom Palmer explains the morality of profits by distinguishing between wealth obtained from voluntary and involuntary (pelf) exchanges.

As Ludwig von Mises once wrote,

Profit is the reward for the best fulfillment of some voluntarily assumed duties. It is the instrument that makes the masses supreme.

Knowledge Acquisition: The Importance of Information Sourcing and Quality

“The Pen Is Mightier Than The Sword”- coined by Edward Bulwer-Lytton English author, (also attributed to Dr. Jose P. Rizal)

Any serious or prudent investors in the financial markets would normally try to look for ways to improve on one’s returns. That’s if one recognizes what is workable and what isn’t. Thus, the main task of prudent investors in the financial markets is to screen information and theories and test them, and apply those that would seem as the most cogent, accordingly.

But again this isn’t true for many as returns might seem as a secondary importance. That’s because these economic agents obstinately adhere to biased or selectively chosen data (selective perception) which they interpret as applying to the whole (fallacy of composition), fixate on what is current (survivalship bias) while ignoring the rest, apply misleading definitions and embrace self contradictory and inconsistent theories.

I am just repeating what I said before. Sometimes it takes a deluge of information before the message sinks in.

Ignorance versus foolishness

Ignorance is one thing, foolishness is another. People who fail based on ignorance could be looked upon with compassion. They perhaps hardly knew of the consequences of their actions, which were most likely guided by wrong quality or sources of information.

But it’s different when people lose despite being informed or forewarned. This may be called as doggedness or practising financial religion.

For instance, when people refuse to heed of the inherent risks of conflict of interests that may arise among interacting agents[1], they are likely to fall into the Agency problem trap. Information embellished with statistics and presented as facts could mislead investors. It’s clearly an intangible or unseen risk, that’s because investors are likely to be unaware of the underlying incentives behind these presentations, which may shape or influence the way we think and how we allocate our resources.

And for non-exclusive reasons, boom-bust cycle happens because of information too. Credit fuels greed which impels people to look for information that would confirm on their preconceived notions. Bias, thereby, seeks information or analysis which performs the way dopamine functions, to serve the pleasure centers. So like drugs, misleading information will always have a market.

Also, in as much as price distortions from government policies affect the way people think, these are likewise exhibited through literatures. That’s because the mainstream usually focuses on the symptoms which are read as the cause and transmitted to the public as valid information or facts. This is also because mainstream information caters to short term orientation. In short, boom bust cycles occur also when people gorge on too much of false information.

Stakeholder’s Problem, If Birds Can Write

Most have been unwittingly seduced to the oversimplification of reading current events into market prices, for the reason that being wrong may have little consequence to them. In short, it’s usually a stakeholder’s dilemma or stakeholder’s problem[2]—where the incentives to secure knowledge are driven by the degree of stakeholdings.

Take for instance, a person who dabbles with the stock market, as sideline or for entertainment, will likely have a lesser intensity of incentives to acquire knowledge relative to an individual who lives by the stock market. The latter’s perceived risk factor is greater than the former who has other lines of revenues.

The varying situational incentives, thus, become crucial factors in determining knowledge acquisition.

Yet luck also plays a crucial role. Because no matter how wrong one’s ideas can be, for as long as such errors are made on the side of the general trend where the market is headed, market trends eventually remedies on such errors. And as a result, false ideas could lead to a self-attribution or self serving bias which according to Wikipedia.org[3], people attribute their successes to internal or personal factors but attribute their failures to situational factors beyond their control.

And this also applies even in academics, where wrong models can be seen as “workable”.

Prodigious author of the bestselling book, the Black Swan, Mr. Nassim Taleb writes of a marvellous example of in his forthcoming book[4],

Think of the following event. A collection of priestly persons from Harvard or some such place lecture birds how to fly. The bird flies. They write books, articles, and reports that in fact the bird has obeyed them, an impeccable causal link. They even believe their own theories. Birds write no such books, conceivably because they are birds, so we never get their side of the story. Meanwhile, the priests broadcast theirs.

Behind Media’s Altruisms And Biased Information

And as stated above, the quality and source of information matters.

The most likely source of information are usually the popular ones, such as mainstream media. They cater too our brain’s desire to get fed with visible, emotional, sensational, shocking or graphic linkages.

Take for instance, in the event of a disaster, media routinely appeals to the public to ask for donations. They appeal to the emotions by advocating charity work for the unfortunate victims. Media outfits create an aura where they are seen as doing purely social work. They become instantaneous heroes especially when celebrities lead them.

But this is only half true, what’s not seen is that by connecting to the public’s emotions and wallets they increase viewership on their medium. And the key to their revenues—advertisement—largely depends on the number of audiences. So media’s missives have almost always been attuned towards winning the public’s viewership. It’s like politics in a private format.

Thus for media, intention can be interpreted two ways, social work to help the community or self interests camouflaged by altruism.

In covering political philosophy, this is the same manner why socialism sells, it appeals to emotional center of the brain but are bereft of how “intentions” parlay into reality.

In terms of investment, it’s also the been same. Most people are continually deceived by information aired or disseminated by the media and their cohorts of experts, which for most instances have little value or are irrelevant.

As Rolf Dobelli writes[5],

Out of the approximately 10,000 news stories you have read in the last 12 months, name one that – because you consumed it – allowed you to make a better decision about a serious matter affecting your life, your career, your business – compared to what you would have known if you hadn’t swallowed that morsel of news.

The point is: the consumption of news is irrelevant to the forces that really matter in your life. At its best, it is entertaining, but it is still irrelevant.

Bottom line: information is vital to one’s decision making process, whether applied to the financial markets or in many other vital aspects of life.

The beauty of today’s technological advances is that information is not restricted or centralized but operates from a free market competitive environment.

And I am just part of the multitude of lowly voices here in the cyberspace trying to speak out what I see as true.

And unknown to most, revolutions begins with ideas.

---

[1] See Dealing With Financial Market Information, February 27, 2010

[2] See Philippine Elections: Why I Will Vote For President "None Of The Above”, May 5, 2010

[3] Wikipedia.org, Self-serving bias

[4] Taleb, Nassim Nicolas, Birds Do Not Write Books on Birds, Chapter 8, Anti Fragility

[5] Dobelli Rolf Avoid News, Towards a Healthy News Diet Dobelli.com (hat tip Bryan Caplan)

Jay Leno's Pseudo Altruism?

Media is inherently predisposed to preach about "collectivism" (particularly in the Philippines).

For us, the implicit motivation or the reason for this is about saleability.

People buy mostly on emotions. And to generate more audience means to connect with people's emotions. And collectivist themes of 'equality', 'fairness', 'justice', 'charity' etc... greatly appeals to emotions. And more audiences translate to more ad revenues. Audience plus ad revenues equals the life of the show.

Thus, media content-whether it is news, soap opera, talk shows, movie or reality shows-are almost always scripted or produced to appeal to the emotions.

Occasionally some of these pseudo acts of altruism are unmasked, especially when they "diss" the markets.

An example is from a recent amusing incident where the popular US comedian Jay Leno brings his show to Michigan aimed at helping autoworkers and those displaced by today's recession by giving away free tickets.

Unexpected to Mr. Leno, one of the recipient attempts to sell the "donated" ticket at ebay. The donor discovers the attempt and vehemently objects!

From Mr. Leno, ``Here is something that annoys me. I look on eBay today and I see four tickets to my show for sale. ... You're out of your mind to pay $800 to see me. ... I would like to ask the people on eBay to take the tickets down. There is nothing for sale here.”

Picture from insidesocal.com

Harvard's Greg Mankiw on his blog wrote a caustic but deserving remark (bold highlights mine)...

``So I wonder: If a person down on his luck prefers the cash to the opportunity to watch Leno live, why would Leno object? Is it altruism that is really motivating Leno here? Is he really sure that the unemployed person in Detroit would be better off with an evening of laughs than $800 in his pocket? Or does Leno want to play to a live audience of unemployed workers so he will seem altruistic to his television audience?"

Ouch!

Again Mr. Mankiw, ``Absent externalities, markets improve the allocation of resources. Both the buyer and the seller of the ticket must be better off: otherwise they would not engage in the transaction. The only significant negative externality that I can see here falls on Mr Leno himself. In other words, Leno's objection to the eBay sale is an understandable and fundamentally self-interested act in that the sale impedes his abilty to appear selfless."

This reminds us of a quote from D.W. McKenzie who, in an article at the Misis.org, wrote,``Altruism alone does not harmonize social interaction. On the contrary, a world of altruistic people could easily be more rancorous than the world we know. It is not enough for people to want to promote the interests of others. We must also comprehend the interests of others, and this is impossible."

Showmanship-yes, comprehend the interests of others-no.

So much for altruism.

Private Altriusm

The markets have been charged with many forms of atrocities such as greed, materialistism and uncharitableness and many others. In short, private altruism is not possible…

chart courtesy of the Economist

From the Economist (highlights mine), ``AMERICA'S government is frequently accused of stinginess when it comes to foreign aid: the official sort is just a TINY proportion of annual GDP. But donations from INDIVIDUALS and BUSINESSES are startlingly high. American private giving to poor countries amounted to $34.8 billion in 2006, dwarfing that of other rich nations, according to the Index of Global Philanthropy published on Monday May 12th by the Hudson Institute, a think-tank. An established culture of philanthropy and charity contributes to direct aid-giving, as does a generous tax regime.”