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"Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred."

Created and transferred are 2 completely different things and I think OP is against innovation that simply transfers wealth (popular example is financial industries). A more cynical example is Groupon, which transfers wealth from small businesses to them.

Creating wealth is making something more efficient like creating the airplane or the internet. Or improving the standard of living like creating a cure for a disease.

It's actually very very hard to do it, and less than 5% of tech startups probably succeed in doing it, even the ones that are successful.




The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity.

There is no "good" wealth creation, nor is there "bad" wealth creation. It just simply is. A tornado is a horrible event, but it creates wealth.

You are conflating simple wealth creation - the idea of providing value that wasn't previously there - with innovation and/or human progress. That's simply a misunderstanding of the term when used in the context of economics.


> A tornado is a horrible event, but it creates wealth.

Classic broken window fallacy.

A tornado doesn't create wealth. On net, it leaves the society poorer than before. It may create a windfall for a particular industry, but that's just moving wealth around. The money spent on rebuilding had to get pulled away from something else. It would have necessarily been spent or invested, and now that spending or investment will never happen.

Bastiat called it the seen vs the unseen. We see the builders making money. We don't see the economic activity that would have otherwise occurred if there had been no tornado.

The overall impact on economic activity is a wash, and the only net effect is the original property destruction.


A tornado doesn't create wealth.

Of course it does. It's a catalyst.

On net, it leaves the society poorer than before.

There's no basis for you to make that assertion. If a trailer park is destroyed and a regional business park is what replaces it, there's no way you can argue that there hasn't been a net growth economically. Natural disasters almost always increase GDP in the recovery phase.

We don't see the economic activity that would have otherwise occurred if there had been no tornado.

This is kind of irrelevant since economic activity can't be measured until it actually happens. It's like suggesting that going to the moon was a net loss for humanity because we could have reinvested those funds in going to Mars instead.

We don't see the economic activity that would have otherwise occurred if there had been no tornado.

Again, because said activity is completely irrelevant. The point is that there is economic activity that is a direct result of the event. Is Christmas a wealth creating event? You are suggesting it's not, after all, all the resources used for Christmas presents would have been used somewhere else, no? Using those terms, nothing is a wealth generator, and the economy is zero sum.

That is completely wrong.


"The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity."

How is that so?

Yes, creating wealth does involve transferring of wealth, but if it's simple redistribution entirely from A to B, that's not new wealth creation at all. Say I take out a loan of 100K to build a house. Did I create new wealth?

"A tornado is a horrible event, but it creates wealth."

I can see your point, if that's your definition of wealth. Divorces create wealth. Wars create wealth. I guess that shows how useless any economic indicators are: they don't tell you whether the standard of living is improving at all.


They do tell you how the standard of living is improving, because standard of living as a measurement is linked to things like purchasing power, GDP, overall wealth etc.

What you are looking for though is Quality of Life. This measurement is an attempt to do what you are looking for: harness non-economic indicators together with the empirical data to determine how people are doing.

EDIT: To your first point - If you are giving some of your wealth (often in the form of money) to someone else, you are usually doing so for a reason, in that they are producing something that you value. The very act of producing value is creating wealth.

Say I take out a loan of 100K to build a house. Did I create new wealth?

Yes. You're paying interest to the bank aren't you? Interest that wasn't there before. That's new wealth. You're also paying your realtor. That's new wealth, etc. etc.

The fact that you don't think the bank needs any more wealth is entirely besides the point.

There's a good pg essay on this that explains these concepts well: http://paulgraham.com/wealth.html


This has devolved into a semantic argument about wealth and pies. Part of the confusion isn't helped by one line in PG's essay:

People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want.

Besides this one confusing sentence PG gets wealth creation correctly: its about increasing the size of the pie, and that is what's important for the country as a whole.

Your example of the realtor and the bank is not wealth creation, but money transfer. They didn't create new wealth. They made money from you, and your "wealth" is now decreased. The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house. The realtor and bank add value in that they enable you to do your wealth-creating thing: build a house. The simple act of lending you 100k is not wealth-creation because if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.


Your example of the realtor and the bank is not wealth creation, but money transfer.

Money transfer - assuming it isn't charity - is wealth creation, you are always getting something in return in exchange for that money. That something is increased wealth.

The only wealth created in this instance is the wealth you add to the pie when you use that loan to complete your house.

First, that $100K did not exist before I asked for it. It literally was created. Second, these aren't two unrelated events. I bought money after all.

if you piss that money away or burn it, all you have done is give money to someone else. The world is not richer as a result.

Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.

If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy.

Again, conflating wealth to some sort of "good" is a near impossibility, since it devolves into opinions of value and worth.

My wealth is now decreased? Hello? I have a house that I didn't have before! It takes some strange reasoning to assume my wealth is decreased because I'm paying interest on a loan.


How about wealth of the overall economy? When a tornado happens, when a house burns down.. as mentioned, wealth is destroyed because resources are utilized that could've been used for other purposes - investment, new venture, etc.

You give the example of Christmas. Wealth is hardly ever created when you buy lots of stuff for Christmas - that's wealth distribution from your savings to Macys. Savings is still wealth. If nobody spent anything for Christmas, wealth would not decrease - because our money would remain in our savings accounts.

Technology is a good example of wealth creation. With the invention of the internet, we save time on many things like shopping, buying plane tickets, etc. Time that could be used on other things in our lives.


The definition of wealth that you are using is not the same as the one recognized by most economists.

As such, some of the things you are saying are absurd in that context, and it really makes it difficult to keep the conversation in scope. I can certainly tell you that if everyone stayed home this Christmas, the economy would come close to collapsing.

I don't take issue with what you're saying, but you have moved beyond this being a discussion regrading economics, I'm afraid.


Ok, now this is getting interesting. You raise some interesting points that make me question the deeper meaning of what wealth really is. Perhaps we simply disagree about the definition of wealth. From Wikipedia:

the meaning of wealth is context-dependent and there is no universally agreed upon definition. At the most general level, economists may define wealth as "anything of value" which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept.

So it seems a lot of the discussion in this thread revolves around semantics, mainly about what defines wealth.

So what exactly is your definition of wealth? I don't understand the logical basic behind your arguments.

For example: Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.

You exchanged your money for a car. You could now be wealthier in the sense that the car brings you happiness or functionality that you didn't have before, enabling you to be more productive. But what if you already owned a car and were simply indulging yourself? What if this was your 5th car that you didn't need? So you could keep on buying cars forever, and you'd be continually increasing your wealth? I don't understand why buying the car automatically makes you wealthier. If you give a hobo $10,000 to buy an hour of him walking in circles, you've increased your wealth of entertainment perhaps, but it is a stretch by any definition of wealth to say you've created it.

If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy."

Assuming your house was functioning and adequate then the economy is poorer without your house. That is wealth destruction not creation. For now you have to pay for a new house. Someone has to use the materials and labor to build that house. You pay him your money to do so. Now you have less. Wealth was not created here. It was shifted around from your pocket to the construction company's.




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