When people think of "karma," they automatically think of reincarnation. This isn't to say that karma only applies in conjunction with reincarnation; many people believe in reincarnation but reject karma. It works just as well in the Christian paradigm of life in the world and an eternal Heaven or Hell afterward. The thing is, you'd have to explain why some people just don't have a good lot in life from birth very differently. When you believe in reincarnation and karma, you can blame karma for that, as well as for the other good and bad things within your life that don't seem to come from anything you yourself have done.
A major criticism of karma is that it reduces our choices, decisions, and actions to a mechanical input-output equation. It's like how people don't like to believe that emotions are caused by physiological and chemical changes. Not that I'm saying they are (correlation is not causation), but I'm just pointing out how people often don't like to believe that. Behaviorism in psychology is another example. Things become too mechanical. The reality is that while these things do have an effect on things, they don't necessarily cause them, nor are they the sole cause of things. In practice, things are much to complicated to be reduced to a very simplistic definition.
That's exactly what the concept of karma has been reduced to. You can't just say that someone got murdered because they murdered someone else in a past life. You can't just assume that if you do good, you'll get good in return. It's not simple and straightforward like that. Sure, sometimes it presents itself that way, and you'll always hear people say things like that. I think that's a dangerous way to look at things though. You run the risk of reducing a very potent concept to something that you have to either take on faith or throw away. karma is not a catch-all explanation of things, as some may believe.
As we experience things in our lives, we learn how to act and respond, and what kind of responses we can expect. We get biases in our judgements. In this way, we can say that karma lingers on. Things that we've experienced directly in a negative way, for example, often outweigh negative things that we haven't experienced but know to be horrible. In the same way, we strive for things we know to be good instead of things we accept as good but haven't experienced. It takes a lot of effort to rise above and beyond this type of behavior.
It really pisses me off when people call "karma" when something that was bound to happen happens. Yes, it is karma, but no one calls karma when someone gets away with something. karma is so disjointed from its real use (and along with this, one day I'll post why I hate what Buddhism has become), and it's annoying how people say things without ever really knowing what they're talking about, or what they mean. My karma is that my own words get so miscontrued so often that I can't help being annoyed. Some good karma would be to learn to not get annoyed.
But, the idea of karma as "points" in some sort of cosmic game lingers on and placates some. It's a great teaching for lay people, those who don't know about, care about, or have time to learn the intricacies of deeper religious thought or spiritual experience. It's easy for someone who's wrapped up in other things to accept simpler explanations for why bad things happen to good people, and maybe that's all they need. That doesn't mean there's not more there, however.
karma is important in understanding action as a whole. Many descriptions of mokSa (deva: मोक्ष, "liberation" and often used to denote the goal of various mystical practices) include the idea that once it is attained, a person no longer creates karma. karma binds us to life and its woes and joys, and to the cycle of lives and afterlives (beforelives?). The Jain doctrines even consider it to be physical, the weight of which holds us down to life (literally). In fact, many paths teach that to stop karma is to stop the grip of saMsaara. Reminiscent of an old Taoist movement that misinterpreted wu wei, they attempt to create no karma by doing nothing at all, good nor bad. But, as the adage goes, "indecision is a decision." You can assume, as some do, that doing nothing creates neutral karma, but the bigger point is that doing nothing is missing the point. And, as we know from statistics, correlation does not mean causation.
If we see karma as something that binds us to life, then someone who is liberated cannot create karma, otherwise he/she would be bound to life. But, that could also just be a by-product of being liberated. It could also be an assumption based on that particular definition of karma. Dangerous assumptions from dangerous simplifications, and again, karma isn't so simple.
The bigger focus is how we receive actions, how we act, and how we feel we should act and react. Just because we feel a certain way doesn't mean we're justified in doing so. And, when we can choose to receive things differently, why not do so? What's so wrong with doing good? Even if it's for our own sake, the bottom line is that good is being done. And, if it's selfish, at least the karmic equation will account for that...
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