The Rich Get Richer...

I think the frequently noted "the rich get richer while the poor get poorer" is one of the biggest fallacies in modern day thinking. Let's consider the matter from an economic perspective.

When someone makes money, how did that person make it? Assuming it was a legal transaction, the money was made either in the exchange of goods (or services), or it came from a return on investment.

Let's start with an exchange of goods. Businessmen are not ripping people off. They provide a good at or near what we call "market price", which is basically the the price enough people to match the supply would be willing to pay for it, or in other words it is theoretical true value of the product. This means that the product that the businessman provides is worth the money that is paid for it. It is a fair exchange.

Why is this important? Because the buyer does not lose anything by purchasing a product. He now owns a product that is worth that value. The gain is in the fact that the producer created the product for less money than the actual market value. Thus the producer has actually created wealth. As soon as the product is finished, it becomes worth whatever market value it holds. That market value minus the cost to produce it is the amount of created wealth.

Where is the loss in that transaction? The producer makes a gain, the buyer receives a product and keeps it. His wealth remains the same in the transaction.

So you're asking yourself, well what about a car? It loses value the minute it's driven off the lot. But that's not really true. It loses its resale value, but the actual worth of the vehicle to the owner is the same as it was the minute it was bought. The only point in which it loses value to the owner is when it stops working as well as it did originally. And yet the benefit that it has produced by that time, while impossible to quantify, is worth at least the value that was paid originally. Otherwise the buyer would not have purchased it. The buyer is well aware of the guaranteed lifespan of the car. If the product was not worth the price, it wouldn't sell.

So instead you ask, what about consumed goods, like food? That's a good question. Does it lose its value when it's consumed? Tell me, what is the value of your life? What is the value of your comfort? These comsumed goods and services are as valuable to you as you are willing to pay for them. We don't typically think of life, comfort, entertainment, etc as riches. But we pay for these things all the time. You're not paying for food, you're paying for life. We typically pay extra for the enjoyment of good food. And we consider it a fair exchange. Life and comfort of living is very valuable.

So who loses when the rich get richer? The answer is nobody. It is a fallacy to think so.

In fact, let me show you how the poor get richer when the rich get richer. When the rich get richer, what do they do with the money? How many rich people do you know with all their money in a mattress? They grow their businesss, invest their money, or buy comodities. When business is prospering, new people are hired, salaries are increased, workers receive bonuses, etc. When the wealthy invest their money in other businesses, those businesses are given better opportunity to succeed, thus allowing them to grow, again creating the same results as previously noted. And when the rich build their mansions, buy their luxury cars, and all the other comodities they buy, they are buying the products of other companies, helping them to prosper.

Bottom line, the rich create employment for the unemployed, give business to the employed, and give businesses aid in their growth. They make the poor richer!

On the flip side, if you make the poor richer while making the rich poorer through redistibution, what is the effect? The poor will spend some of their new found wealth, but there is no social class that hoardes their money in a non-productive bank account or less productive assets than the low class. So, some of the new wealth will be exchanged in business, but a lot of it will be saved (note: saving is a good thing, a topic for another day). But you hurt businesses, stunting their growth and possibly even causing layoffs. Money becomes tight among those that do the most investing, disallowing further investing. How many poor people invest in research and development? How many of you have ever been employed by someone in the lower class? The poor are employed, not employers.

I am tired of hearing the jealous complaint of the lower class, crying for equality. You're not guaranteed equal property any bit as much as you're guaranteed equal happiness. It's your right to be prosperous, just like it's your right to be happy. But it's your own responsibility. Equality means that the rich has a right to earn their wealth and keep their property every bit as much as the poor. It's an unalieanable right.

Stop being jealous and let them grow the nation's wealth. A couple of weeks ago I read an interesting study that economists have been doing (http://business.theatlantic.com/2009/01/fairs_fair.php). They would give 10 $1 bills to one student, and explain to her/him and a second student that the first student should give the second student whatever the first student chose. The caveat is that if the second student doesn't accept the offer, neither gets anything. When the experiment was run on computers, the first computer would offer $1, and the second computer would accept, for $1 is more than $0. Not so with the humans. Those who would make such an offer would find the offer rejected, for the second student would rather have nothing than be treated so unfairly.

$1 is progress, it's advancement, it's wealth. Don't spit in the face of progress just because you're not progressing as quickly as another. Stop cutting off your nose to spite your face.