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Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could af

Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could afford, but it's still true, and not because we have more wealth. Every year lots of things get cheaper compared to the money we make, and lots of new things are invented that replace much more expensive alternatives. We used to bring blocks of ice into the cities from the north (inside ships wrapped in hay I think) to act as refrigerators, for goodness sake. That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.

nybble41 6y ago
That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange. Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
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- pushrax 6y ago
  Working with the idea that value is current and future utility to people: Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value. However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears. Feels to me like most value is probably created intentionally this way. On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
  - nybble41 6y ago
    > I think there's not that much value created on average simply due to transacting. I think if you stopped the transacting then the value of the property would deteriorate; the value that a given owner places on the property is variable and in the end must always go to zero when the owner dies. So transacting increases the value compared to not transacting but there are other factors in play with the opposite effect, resulting in little net change in value over time.
- imtringued 6y ago
  >Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade. It's net negative when the buying party is misinformed and cannot afford the financing for the property he just bought. That's how we got the 2008 crash.
  - nybble41 6y ago
    Yes, fraudulent transactions where the buying party is deliberately misinformed are not voluntary, and even in the case of voluntary transactions it is possible for either party or both parties to be wrong about their expectation of receiving a net positive value from the trade. Those who are routinely wrong in their expectations tend not to accumulate wealth, and thus make up a smaller proportion of economic activity over time—unless there is some external force at work transferring wealth from those who make good economic decisions to those who do not, thus increasing the economic influence of bad decision-makers.
- zemvpferreira 6y ago
  Thank you, I hadn't even considered that. What a great point to make on the value of commerce.

nybble41 6y ago

That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange. Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.

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pushrax 6y ago
Working with the idea that value is current and future utility to people: Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value. However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears. Feels to me like most value is probably created intentionally this way. On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
- nybble41 6y ago
  > I think there's not that much value created on average simply due to transacting. I think if you stopped the transacting then the value of the property would deteriorate; the value that a given owner places on the property is variable and in the end must always go to zero when the owner dies. So transacting increases the value compared to not transacting but there are other factors in play with the opposite effect, resulting in little net change in value over time.
imtringued 6y ago
>Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade. It's net negative when the buying party is misinformed and cannot afford the financing for the property he just bought. That's how we got the 2008 crash.
- nybble41 6y ago
  Yes, fraudulent transactions where the buying party is deliberately misinformed are not voluntary, and even in the case of voluntary transactions it is possible for either party or both parties to be wrong about their expectation of receiving a net positive value from the trade. Those who are routinely wrong in their expectations tend not to accumulate wealth, and thus make up a smaller proportion of economic activity over time—unless there is some external force at work transferring wealth from those who make good economic decisions to those who do not, thus increasing the economic influence of bad decision-makers.
zemvpferreira 6y ago
Thank you, I hadn't even considered that. What a great point to make on the value of commerce.