Monday, January 02, 2012

economics 101

I'm a big fan of Bill Whittle's "Firewall" videos. One of the best is this one on economics. He explains one of the fundamental misunderstandings of Leftists: that wealth is something that is created by work, not just passed around from person to person.

This is something that I have tried and failed to explain to people who believe in "economic stimulus". Their theory is that wealth somehow magically appears just because money is moving around in the economy. The idea is that the government takes money from people and gives it back to them (or other people with better political connections) and that this makes the money get moved and spent more, thus increasing GDP.

But real wealth is created when two people engage in a voluntary transaction and both go away feeling that they are better off than they were before. They both have given up something, but they both have gained something that they value more. Wealth has been created because both people feel that they are wealthier.

Taxes don't do that. When you take taxes from one person and give the money to another person, only one person is better off and the other person is worse off. You have not created wealth, you have only transferred it from one person to another.

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