Thursday, January 24, 2013

The sprouting of my interest in economics

So I have become very interested in economics considering the impending crises looming in the United States.

Now I must address a fundamental fallacy held by many Americans at this time.  Some how very smart, even quantitative people succumb to this fallacy and I find that very strange.  It is the fallacy that the value held by a society is a set amount, and gaining value as seen by the currency they possess, perhaps they have millions of dollars, can only occur by taking value away from other people.   The response to this misunderstanding is the belief that value, therefore needs to be redistributed so that the people with less money, should be given some of the money of the people who have a lot, because their is a large gain for the poor people with an unimposing reduction in value for the rich.  The objective of assisting the poor is great, however as the method is based on a fallacy; the means don't reach the end.

So how society actually works, is that the rate of value creation determines the income of an individual or a group.  If a man finds himself with a stick, string and a hook worth $2, and he arranges them to form a fishing pole worth $10 as confirmed by the demand of consumers and costumer satisfaction, he created a value of $8 measured in dollars for himself, that is clear.  For the costumers who paid him $10, they received a net gain in value.  If the costumers didn't receive a net gain in value they wouldn't waste their time spending $10 of value for something in which they find a value of $10, and they certainly wouldn't spend their time to trade $10 for something they value at less than $10.   Also if someone believes a society has a limited amount of value; the collectivist view, then we should be still carrying around only what we had when humans were hunters and gatherers as the increase of value since then would have to be impossible.

A note on the Wallstreet 99% Occupyiers.  I must say I am highly impressed with the fervor, numbers, good intentions, and bravery of this group in protesting real issues in the functioning of our society.  It must be understood however, that the role of government is to essentially uphold the constitution insure justice and be wholly accountable to the citizens, the role of business is to create value for its customers, workers, and shareholders.  It is accountable to shareholders in how it manages its business, if it manages poorly it loses investment.  It is accountable to workers in treatment and pay as it may deter the best workers if it mistreats or underpays them.  It is accountable to its costumers, as they will not trade their money for the product if the product is worthless.  The government is their to step in when an individual or group of individuals infringes on others rights.  The occupiers have therefore for the most part wasted their time occupying Wall Street as it is not the job of business to be accountable to citizens.  It is the politicians job to be accountable to citizens.

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