When the country is ruled with a light hand,
The people are simple.
When the country is ruled with severity,
The people are cunning.
Happiness is rooted in misery.
Misery lurks beneath happiness.
Who knows what the future holds?
There is no honesty.
Honesty becomes dishonest.
Goodness becomes witchcraft.
Man's bewitchment lasts for a long time.
Therefore the sage is sharp but not cutting,
Pointed but not piercing,
Straightforward but not unrestrained,
Brilliant but not blinding.
 Both Lau and the Ma wang tui text, borne out by Wang Pi, say that this is when government is muddled and confused, or — in the next line but one — when government is alert, discriminating and clear.
 The Ma wang tui text seems clearest here:
... For there is no fixed 'correct'.
The 'correct' turns into the 'deviant'
And 'good' into 'evil'
People's state of confusion has certainly lasted a long time.
 Both texts wax fairly 'geometrical' in this section. Lau has: 'Therefore the sage is square–edged but does not scrape./ Has corners but does not jab', and the Ma wang tui text, '... Be square but don't cut./ Be sharp but don't jab'.
Wang Pi's commentary says:
In other words, one who is good at government has no identifiable form, name, purpose or procedure. Being completely muddled, he attains great government in the end... The people have no reason to wrangle or contend, and are therefore simple and pure in their generosity which is great.
A government based on meticulous scrutiny establishes punishments and names, and promulgates rewards and penalties all in order to uncover treachery. It maintains strict distinctions among the classes, which causes the common folk to harbour contention and wrangling in their heart/minds.
Who understands what is best? Good government is at its best only when it is impossible to identify any act of government or name any punishment, and when, although it is completely muddled, all under Heaven effect their own great moral transformation.
If one uses governance to govern the state, it easily reverts to perverse use of the military.
If one establishes goodness in the hope of bringing harmony to the myriad folk, this easily reverts to deviancy and disaster.
The people, in their doubt and confusion, have lost the Tao for so long now that one cannot easily make them behave correctly and with an appreciation of the good.
Using squareness (uprightness) to lead the people, one enables them to put aside their evil ways; one does not use one's squareness as a model for cutting people into shape (cf. ch. 41).
'Pointed', here, means 'honest'. To stab is to wound. Using honesty to lead the people, one enables them to quit their devious ways, but one does not use it to inflict wounds on them.
Leading the people with straightness, one may enable them to seta aside deviancy, but one does not use it to dam up or strike at them(*). This is what is meant by 'great straightness seems crooked' (cf. ch. 45).
(*) Mencius (VI A; 2) says: Certainly water has no propensity for flowing east or west, but can the same be said for its flowing up or down? The tendency in human nature toward goodness is just like the tendency of water to flow downwards. Nothing lacks this tendency to goodness, just as no water ever flows anything but downwards.. Now, one may strike at water and make it leap up above one's head, and one may dam up water and force it to move so that it can be sent up a hill, but this has nothing to do with the actual nature of water.
One uses brightness to illuminate the way out of confusion but not as a lamp to expose what the people wish to keep hidden. This is what is meant by 'the bright Tao seems dark' (cf. ch. 41 and also Wang Pi's commentaries to 49 and 52)
Professor Cheng expresses very strenuous doubts as to the many different interpretations, including his own, of Lao–tze's words which turn him into thousands and millions of different personalities and make him even weirder and more mysterious than he is (what need, then, to mention mine?). Lao–tze himself says 'My words are very easy to understand', and Cheng agrees (with the proviso: if one is sincere). He feels this chapter hardly needs interpretation at all and reluctantly adds a few pointers in the full realisation that his interpretation may not be what Grandfather Lao intended at all.
He says: If government practices non–action, how can it accomplish anything? Thus it appears muffled and subdued. Laxity and indifference indicate deficiency. Proper government is orthodox. If improper government becomes overbearingly strict and exacting, it become unorthodox and is acting from selfish motives. Furthermore, the unorthodox brings on the unnatural and general confusion sets in. Under such circumstances, whatever the people consider good fortune is actually just bad. Not cutting yet making square, not infringing yet squaring corners means that it is unnecessary to use incisive action to make things fitting and proper. Not going to extremes yet straightening, not glaring and yet glowing will let the people be simple and sincere.
As long as our hopes and fears are based on the reification of duality we are simply rearranging the pieces on the board, moving them round in the hope that one arrangement will be the arrangement — the real arrangement... the KEY. This is nonsense.
I like Gia–fu Feng's interpretation... Muddled governments don't much get my vote... Simple ones, yes, but I like them to have some idea why they're out there, don't you?
Compassion is of the essence, but dumb–ass compassion is useless — as useless, and possibly even as dangerous as an intelligence that doesn't value or understand compassion.
A question of keeping those strings perfectly in tune.
It's on the twin wings of wisdom and compassion that the buddha bird flies.