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No. If you make $1B in a free market economy, you have also provided (at least) $1B in value to others. You need not have created it: you might simply have arr

by gjm11 15y ago

No. If you make $1B in a free market economy, you have also provided (at least) $1B in value to others. You need not have created it: you might simply have arranged for them to have it rather than other people. An obvious example would be an extraordinarily effective thief, but one needn't be so blatant. For instance, the main effect of a successful investment advisor's work may be to transfer money from people who haven't taken her advice to people who have. (There may be some benefit to the -- presumably better-than-average -- companies she suggests investing in, but there's no reason why that should be large.) I think one grievance of the OWS protestors is, roughly, that many of the richest people have got that way simply by arranging for their clients to have money at others' expense, rather than by creating value. Though they probably mostly wouldn't put it that way.

WalterBright 15y ago
The reason I mentioned "free market" was to not consider gaining money through theft, fraud, extortion, blackmail, etc. In a free market economy, one creates value and then exchanges that value for money. This means that in order for one person to get wealthy, it is not necessary for them to drain wealth from others. Equal value is exchanged. In other words, one gets wealthy by making the pie bigger, not taking other peoples' pie.
- gjm11 15y ago
  At least one of us is very confused. In a free market, of course one can get wealthy by growing the pie. But one can also get wealthy without growing the pie, even when illegal or blatantly unethical actions are not involved. For instance, consider a country with a perfectly free market, in which many of the people enjoy betting on horse races. These bets use a tote system, which means in effect that the odds are set automatically according to how betters are betting (and the owner takes a small cut from every bet, makes a steady profit, and gets rich). There are some professional betting advisors, who watch lots of races and monitor the appearance and performance of the horses. Some of them are very good at evaluating how likely a given horse is to win in a given race. They charge large fees. Clients of a very good betting advisor will win more of their bets; they will, on average, lose less money at the races. They may even gain on average, if the other people betting haven't been well advised. If you bet without such good advice (or equivalent horse-assessing skills of your own) then you will, on average, lose more at the races than if the well-advised people weren't betting. The immediate effect of the betting advisors' work, on average, is simply to transfer money from people who aren't their clients to people who are. (And to themselves.) These betting advisors certainly provide value to their clients. They may, if they're good enough and have many clients who bet a lot, be very handsomely paid and deserve every bit, in the sense that their clients gain more from the advice than they pay for it. But they have added no value at all to the world; they have not grown the pie. If the advisors' advice is very good, they charge very large fees, and extremely cheap credit is not readily available, then someone wealthy can engage a betting advisor and reap a profit at the races that exceeds the advisor's fees, while someone less wealthy can't afford to pay an advisor. This may become an appealing investment activity for the wealthy. Effectively, what the advisors are then doing is to increase the price (for the majority) of betting on the horses, while diverting some of the profits to themselves and their clients. If the effective price increase is too large, no one unadvised will bet any more, the horse-racing business will collapse, and lots of people will be in trouble. (The people who actually organize the races and the betting will probably lower their prices to maximize their profits in the new situation, which will postpone that disaster.) But as long as that doesn't happen, everyone's still reasonably content. Compared with not having the betting advisors: (1) the people who organize the races will take less profit, (2) the betting advisors and their clients will take more profit, (3) ordinary betters will lose more, and (4) the actual results of the horse races will be entirely unaltered. Again, the advisors have not grown the pie; they and their clients gain at the expense of the unadvised betters and the people who organize the races and betting (the latter being the only ones who are actually adding any value in this scenario, by providing an activity that people enjoy more than they pay for it). So, in this hypothetical scenario, betting advisors get wealthy neither by making the pie bigger nor by taking other people's pie, but by arranging for their clients to get more pie while other people get less. (You might feel inclined to draw an analogy with, say, hedge funds in the real world. But the situations are not precisely equivalent, and I am not claiming that they are.)
  - WalterBright 15y ago
    Hedge funds provide value in 1) providing liquidity and 2) more accurately setting prices. People who engage in gambling, such as on horses, do so voluntarily. This means that they believe they are getting value for their money blown, even if you don't see the point in gambling yourself. A lot of gamblers find gambling to be highly entertaining, even when losing. Personally, I find it dull.

by gjm11 15y ago

WalterBright 15y ago

The reason I mentioned "free market" was to not consider gaining money through theft, fraud, extortion, blackmail, etc. In a free market economy, one creates value and then exchanges that value for money. This means that in order for one person to get wealthy, it is not necessary for them to drain wealth from others. Equal value is exchanged. In other words, one gets wealthy by making the pie bigger, not taking other peoples' pie.

gjm11 15y ago
At least one of us is very confused. In a free market, of course one can get wealthy by growing the pie. But one can also get wealthy without growing the pie, even when illegal or blatantly unethical actions are not involved. For instance, consider a country with a perfectly free market, in which many of the people enjoy betting on horse races. These bets use a tote system, which means in effect that the odds are set automatically according to how betters are betting (and the owner takes a small cut from every bet, makes a steady profit, and gets rich). There are some professional betting advisors, who watch lots of races and monitor the appearance and performance of the horses. Some of them are very good at evaluating how likely a given horse is to win in a given race. They charge large fees. Clients of a very good betting advisor will win more of their bets; they will, on average, lose less money at the races. They may even gain on average, if the other people betting haven't been well advised. If you bet without such good advice (or equivalent horse-assessing skills of your own) then you will, on average, lose more at the races than if the well-advised people weren't betting. The immediate effect of the betting advisors' work, on average, is simply to transfer money from people who aren't their clients to people who are. (And to themselves.) These betting advisors certainly provide value to their clients. They may, if they're good enough and have many clients who bet a lot, be very handsomely paid and deserve every bit, in the sense that their clients gain more from the advice than they pay for it. But they have added no value at all to the world; they have not grown the pie. If the advisors' advice is very good, they charge very large fees, and extremely cheap credit is not readily available, then someone wealthy can engage a betting advisor and reap a profit at the races that exceeds the advisor's fees, while someone less wealthy can't afford to pay an advisor. This may become an appealing investment activity for the wealthy. Effectively, what the advisors are then doing is to increase the price (for the majority) of betting on the horses, while diverting some of the profits to themselves and their clients. If the effective price increase is too large, no one unadvised will bet any more, the horse-racing business will collapse, and lots of people will be in trouble. (The people who actually organize the races and the betting will probably lower their prices to maximize their profits in the new situation, which will postpone that disaster.) But as long as that doesn't happen, everyone's still reasonably content. Compared with not having the betting advisors: (1) the people who organize the races will take less profit, (2) the betting advisors and their clients will take more profit, (3) ordinary betters will lose more, and (4) the actual results of the horse races will be entirely unaltered. Again, the advisors have not grown the pie; they and their clients gain at the expense of the unadvised betters and the people who organize the races and betting (the latter being the only ones who are actually adding any value in this scenario, by providing an activity that people enjoy more than they pay for it). So, in this hypothetical scenario, betting advisors get wealthy neither by making the pie bigger nor by taking other people's pie, but by arranging for their clients to get more pie while other people get less. (You might feel inclined to draw an analogy with, say, hedge funds in the real world. But the situations are not precisely equivalent, and I am not claiming that they are.)
- WalterBright 15y ago
  Hedge funds provide value in 1) providing liquidity and 2) more accurately setting prices. People who engage in gambling, such as on horses, do so voluntarily. This means that they believe they are getting value for their money blown, even if you don't see the point in gambling yourself. A lot of gamblers find gambling to be highly entertaining, even when losing. Personally, I find it dull.