Creation of wealth = when does it happen?

[Gary Allan]

quote:

---

Gary, my point about an increasing population is that "creation" of wealth is ultimately a ponzi scheme.

---

I'm not sure I totally follow your rationale here. I look at "creation" of wealth, which I assert is ONLY possible in expanding economies, as "new opportunity" with gainful results while NOT merely displacing another sector.

My expample of the industrial revolution ...... Millions of the rabble aquired gainful employment and afforded themselves a higher standard of living. This wasn't there before that event. It doesn't matter the cost or value of the invention or inovation that causes the revolution ..it's merely an "enabler". In the case of the industrial revolution, it was an effective "breeder reactor" for wealth due to the radical expansive nature of the adoption.

Wealth is not necessarily coupled with lifestyle. We haven't had a "real" increase in per capita income since the early 70s (yes folks, we've lost ground for over 30 years) ...so when we hear of "creation of wealth" in the USA ...it's easy to see that it is merely a "changing of hands". ...or to quote Danny Devito in "Other People's Money" (paraphrased)

"The last thing you want is to have an increasing share of a declining market. Slow and steady ..down the drain."

Now back to that tax thingie??

Any economics majors (or minors for that matter) who can offer an alternative view (of limited dimension, please =we're challenged here

) care to comment on my narrow view of "creation of wealth"???

 

[Gary Allan]

quote:

---

quote:Gary - Are you talking about the cooperation vs competition meme, ala Dr. Deming, some religions, and the social justice movement?

No not really. Interesting though ...(thought cloud appearing above head).

---

Revisiting this statement, toomanywheels, I think that you're describing what I'm looking for. I think that we've all seen "the pie get larger" ...but not necessarily "shared". My point is that if the pie doesn't get larger ...no wealth is created. Right now we do see the pie get larger from time to time ..with each competing member advancing.


Let's say I make cold fussion work ..invent "Mr. Fusion". Naturally I'll be wealthy. In the big picture is really doesn't matter what I charge for the magic box. Sooner or later everyone will have one and everyone can do a multitude of things that they were unable to do for lack of energy resources. I will "create wealth" ..or rather "create gainful worth" to the world (local economy, national economy, global economy).

 

[ikeepmychevytoo]

Price vs utility function? OK, wealth is -in a way- dependant on how much utility I'm getting per price... but as we see this just leads to the sharing issues.

If one area is capable of transporting all their passengers and I establish a new transport utility no wealth is created, it is just shared in another way. But if by doing this passengers in that area earns an 30 minutes average for tranportation time then I am creating wealth for those who don't enjoy the time spent in busses most. If I write a song and everyone likes it, I contribute to the natioal or universal culture or smply, people listening to feels better I create wealth again.

So in my opinion creation of wealth is one concious creative task. And it is not necessarily a price function, meaning the utiity of the idea is not necessarily dependant on how much money spent on it. It can be achieved by creations, inventions, explorations et cetera. All money transfer and political issues has to follow creative realities which possibly governs sharing but not sum of the univrsal wealth -indeed governing and monetary functions are time/wealth/energy consuming tasks. So the guy who
designs a better credit card, oa simpler way of accounting calculations also increases wealth.

 

[Gary Allan]

quote:

---

So the guy who
designs a better credit card, oa simpler way of accounting calculations also increases wealth.

---

Okay ..I don't buy the whole boat there ...but can I reduce what you just said there to "by increased utility, resources are liberated to benefit other areas of (for lack of a better term) "life" ..."????


I would assert that the "creation of wealth" is limited to more people reaching, or nearing, the state of self actualization ...while not removing or furthing others away from it. This indexes all levels of lifestyle and status.

 

[ikeepmychevytoo]

quote:

---

Originally posted by Gary Allan:

quote:

---

So the guy who
designs a better credit card, oa simpler way of accounting calculations also increases wealth.

---

Okay ..I don't buy the whole boat there ...but can I reduce what you just said there to "by increased utility, resources are liberated to benefit other areas of (for lack of a better term) "life" ..."????

---

Sure... that is just what I was intended to express... I also gave that example to draw atention to how functions live together and how their intense ineraction may skew our perception on -indeed- very different functions. Because -IMO- we used to perceive all aspects of economy as a whole.

quote:

---

Originally posted by Gary Allan:
I would assert that the "creation of wealth" is limited to more people reaching, or nearing, the state of self actualization ...while not removing or furthing others away from it. This indexes all levels of lifestyle and status.

---

If I get right, that assertion is definitely necessary I think. In my first post I was aware that I was oversimplificating. It'is not necessarily "some guy". Indeed the "sense of industry" is very public and the creative tasks might be very sharing. Further, there is this whole school of "organizational behaviour" (e.g. invention of economy). Also due to the physical/political constrictions who achieves wealth first have the opptrunity to use it first, usually resulting in further benefits/wealth for that specific group depending on the economic "plasma".

 

[pacem]

Wealth is created when money is coined. Money is capital. Capital is essential for an evolved society.

Constrast with the current paradigm of credit-based economy, which is not capitalistic.

 

[427Z06]

quote:

---

Originally posted by Dan4510:
From all the floundering here, I guess no one on the board has a passing acquaintence with Adam Smith's "An inquiry into the Nature and Causes of the wealth of nations?"

---

Unfortunately, John F. Nash proved that Adam Smith's Theories were incomplete.

Here's one of my corollaries. Competition is good, but competition plus cooperation is better.

 

[VeeDubb]

According to economic theory, wealth is created in one of two ways:

1. Reduce inefficiency. By doing this, you can make everyone better off without making anybody else worst off.

2. Expand the production possibilities set. E.g. new innovations, increased human capital, etc. This also allows you to make everybody better off without making anybody else worst off.

(2) is irrelevant without (1) because if you aren't on the production possibilities frontier, it doesn't matter whether you increase it. Also, competition helps to promote (1) because it ensures that goods are produced by firms who can produce it at least cost and it ensures that they end up in the hands of those who value them the most.

Cooperation doesn't always guarantee better outcomes relative to competition.

For example, when there is imperfect competition (e.g. oligopolies and monopolies), then Nash equilibrium outcomes might be inefficient relative to collusion (another word for cooperation) for a specific group of firms. However, collusion, does not guarantee good outcomes for society because consumers lose. Hence, "cooperation" (i.e. collusion) by a small group of firms can allow the firms to act like a giant monopolist and reduce the size of the pie for society.

In other cases, cooperation can improve social efficiency. For example, a group of fisherman who cooperate so as not to over harvest fish, can make everybody better off in the long run.

 

[427Z06]

VeeDubb,

Like any good initial undergrad course, terminology and definitions are a good place to start. Unfortunately, we didn't have such a luxury.

You use "cooperation" and "collusion" interchangeably, where I would define them differently. If one is to move past classical freshmen level economics and understand John Nash's level of work we must redefine common 19th century misconceptions of the universe.

 

[VeeDubb]

I am familiar with Nash's work. It's not a repudiation of classic general equilibrium analysis (which formalizes Adam Smith's invisible hand), unless you want to believe the tale told in Beautiful Mind.

Nash never said general equilibrium theory is invalid. He simply gave economists a richer set of "tools" for analyzing more complex phenomenon that involve strategic interactions between decision makers. My guess is that if someone asked Nash whether he believed in general equilibrium theory or not, he would say something like, "the theory is fine but it does not apply to all real world situations," which is of course true of any theory, including the Nash equilibrium.

The difference between cooperation and collusion is a matter of perspective. Depends whether you are the beneficiary or the victim of it.

[ August 08, 2004, 06:56 PM: Message edited by: VeeDubb ]

 

[MarkC]

It began way back when all the food was put under lock and key. Try to get something to eat without money being involved somehow.

But actually, as we should all be aware, true wealth has nothing to do with money, food, or power.

 

[labman]

''You create wealth when you have more assets than debt.

Not much opportunity for wealth creation with just Adam and Eve.

War, pillage and piracy. Its not complicated Otherwise our aristocracy wouldn't be.

It happens when the owners take the enterprise public with an Initial Public Offering (IPO), cash out, and take the small investors to the cleaners

wealth is neither created nor destroyed, merely changed in form.

Gary, my point about an increasing population is that "creation" of wealth is ultimately a ponzi scheme. Everything is ultimately zero sum.

Let's say I make cold fussion work ..invent "Mr. Fusion". Naturally I'll be wealthy.

Wealth is created when money is coined. Money is capital. Capital is essential for an evolved society. Constrast with the current paradigm of credit-based economy, which is not capitalistic.

It began way back when all the food was put under lock and key. Try to get something to eat without money being involved somehow.''

All the quotes above are wrong and reveal an appalling ignorance of how we might increase the goods and services available. There are many ways of redistributing the wealth we have, but increasing the total means work and innovation. Just showing up on the job and going through the motions does help some. Unfortunately wealth does not accumulate in apportion to value contributed. Charles Goodyear died impoverished. John Edwards and other trial lawyers get filthy rich driving doctors out of practice.

Various forms of capital investment can increase the total wealth available. It does not have to be privately owned, but often it is better deployed if it is. This can be factories and machinery, research, education, innovation, etc. I think Ebay is an interesting case. It is mostly about exchanging money for goods. However an enormous pool of good are now available for use that otherwise would be buried in closets or landfills. People may even be producing goods otherwise they wouldn't with Ebay as their sales channel.

The government is a 2 edged sword as far as wealth creation is concerned. Law and order, property rights and contract enforcement greatly facilitate wealth creation. Regulation, bureaucracy, licenses, bribes, etc. reduce it. We do gain safety. The FDA keeps our food and drugs fairly safe, but at an enormous expense. The public loses when drug approval requires a bribe.

 

[427Z06]

quote:

---

Originally posted by VeeDubb:

quote:

---

I am familiar with Nash's work. It's not a repudiation of classic general equilibrium analysis (which formalizes Adam Smith's invisible hand), unless you want to believe the tale told in Beautiful Mind.

---

Never did I state it repudiated classical general equilibrium theory. I stated it extended it.

quote:

---

Nash never said general equilibrium theory is invalid. He simply gave economists a richer set of "tools" for analyzing more complex phenomenon that involve strategic interactions between decision makers. My guess is that if someone asked Nash whether he believed in general equilibrium theory or not, he would say something like, "the theory is fine but it does not apply to all real world situations," which is of course true of any theory, including the Nash equilibrium

---

Just as Modern Physics was essential in the developement of televisions and computers, doesn't mean we throw out Newtonian Mechanics when the model in question is sufficiently simple to be satisfied by such. However, you'll never be able to describe how a black hole emits radiation using Newtonian Mechanics.

I contend that many current economic theories are incomplete since they are based on models that were too simple to describe the complexities involved and the results observed.

quote:

---

The difference between cooperation and collusion is a matter of perspective. Depends whether you are the beneficiary or the victim of it.

---

If you continue to hold that the difference between cooperation and collusion is a matter of perspective and don't allow for the redefining of terms so that we can apply different mathematical tools to seek better answers than, "all competition is good", we'll continue to be stuck with the same old school thinking that justifies many of the social and economic injustices that plague mankind today.

---

[ August 08, 2004, 10:22 PM: Message edited by: 427Z06 ]

 

[VeeDubb]

quote:

---

I contend that many current economic theories are incomplete since they are based on models that were too simple to describe the complexities involved and the results observed.

---

Well, that is the nature of mathematical modeling. It's not about capturing all complexities. We already have a model for that; it's called reality.

Mathematical models are used to strip away the complexities so we can identify the fundamental forces - this is very similar to any scientific study where the environment is controlled so that confounding factors don't confuse things.

BTW, in laboratory settings, the Nash equilibrium predicts outcomes less reliably than the "outdated" competitive equilibrium model of supply and demand. Yet, Nash's theory is a more "enlightened" theory? If it fails more often in a controlled environment, why should we believe its predictive power in more complex environments? Nash's theory sounds great, and certainly looks great as a mathematical proof. Empirically, it leaves a lot to be desired.

quote:

---

If you continue to hold that the difference between cooperation and collusion is a matter of perspective and don't allow for the redefining of terms so that we can apply different mathematical tools to seek better answers than, "all competition is good", we'll continue to be stuck with the same old school thinking that justifies many of the social and economic injustices that plague mankind today.

---

[/QB][/QUOTE]

First of all, I never said competition is always good and cooperation is no good. I said it depends..... That's why I gave two examples in a previous post - the firms colluding and the fisherman cooperating. The former leads to worst outcomes than competition and the latter leads to better outcomes. The problem is too many people do make blanket statements like "cooperation is always good" or competition is always bad. It just isn't that simple....

I grant you that cooperation and collusion are different by definition. Problem is, people often call one thing the other depending on which side they are on. The argument becomes political quickly.

[ August 08, 2004, 11:15 PM: Message edited by: VeeDubb ]

 

[427Z06]

quote:

---

Originally posted by VeeDubb:
Well, that is the nature of mathematical modeling. It's not about capturing all complexities. We already have a model for that; it's called reality.

Mathematical models are used to strip away the complexities so we can identify the fundamental forces - this is very similar to any scientific study where the environment is controlled so that confounding factors don't confuse things.

---

NSS. The key is to have the right amount of complexity in the model you're using to seek the answer you're after. If your model is to simple for the task at hand, you get garbage. If it's to complicated, the mathematics become unsolvable or are to cumbersome to use.

Well VeeDubb, I believe our points of view are actually converging as opposed to diverging, except that you have a hard-on for Adam Smith, and you like to point out the obvious.

I'd rather be discussing this over a beer since I'm not heavily into debating issues over a keyboard, but since you're no where near here, tell Adam Smith I said howdy!

 

[Gary Allan]

Whew ...I love it when heavy weight high powered rhetoric gets hurled around ...

Thanks for the demonstration

 

[VeeDubb]

quote:

---

Well VeeDubb, I believe our points of view are actually converging as opposed to diverging, except that you have a hard-on for Adam Smith, and you like to point out the obvious.

[/QB]

---

Where did this come from? I thought we were having a pretty civilized debate until this paragraph.

You want pointing out the obvious? How bout "competition is great, but competition with cooperation is even better." And then calling it a "corollary".

This is a mantra most elementary school kids are taught so I'd hardly call it a corollary to some theorem.

BTW, since you love cooperation so much and think it's such a great philosophy that will solve the ills of human kind, here is the ultimate theorem in cooperative behavior: Communism.

We know how successful that's been.

[ August 09, 2004, 07:37 AM: Message edited by: VeeDubb ]

 

[VeeDubb]

quote:

---

Originally posted by Gary Allan:
Whew ...I love it when heavy weight high powered rhetoric gets hurled around ...

Thanks for the demonstration

---

Hey, you asked about what economists would say....

 

[Gary Allan]

quote:

---

BTW, since you love cooperation so much and think it's such a great philosophy that will solve the ills of human kind, here is the ultimate theorem in cooperative behavior: Communism.

We know how successful that's been.

---

Hmmm ...I would offer (now don't for a minute think that I'd prefer the idealogy) that you're talking about a wrestler fighting a boxer in the boxer's arena.

Communism was in (admittedly self imposed) competition with capitalism. The model itself may indeed have been "better" ..but not when pitted against a "stronger" capitalism. It's like comparing a Saab Sonet vs. a 60's muscle car in 1/4 competition. It just ain't built for the playing field.

No one knows what Marxism would do if not coupled with a global expansionist drive and having to divert resources to ICBM production and whatnot.

We had a bigger wallet to start off with.

 

[Dan4510]

Communism failed for one reason: it failed to recognize and take account of basic human traits. Capitalism takes account of these traits and uses them to not only benefit the individual but society at large.

However, the US is quickly spiraling down the road to socialism/ totalitarnianism or maybe it would be better described as corportism/fascism....

Dan