Say Anything Blog

John Stossel makes a point that, well, makes a lot of sense:

How many times have you paid $1 for a cup of coffee and after the clerk said, “thank you,” you responded, “thank you”? There’s a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.

Economists have long understood that two people trade because each wants what the other has more than what he already has. In their respective eyes, the things traded are unequal in value. But this means each comes out ahead, having given up something he wants less for something he wants more. It’s just not true that one gains and the other loses. If that were the case, the loser wouldn’t have traded. It’s win-win, or as economists would say, positive-sum.

We experience this every time we have that double thank-you moment in a store or restaurant.

What Stossel is arguing against here is the idea that the free market is somehow predicated upon transactions where one side loses while the other gains.  That just isn’t true.  In nearly all transactions entered into by people allowed to make free decisions both sides gain in that each side wants what the other has.  Mostly money and/or a product or service.

What’s more, these sort of transactions have a habit of actually creating more wealth.  Our economy is not a zero-sum game where the rich get rich by taking it from the poor as many on the left believe.

As an explanation, consider this scenario: I have $100,000.  With that $100,000 I decide to build a house.  I pay an architect, building contractors, roofers, plumbers, electricians, landscapers and inspectors and get myself a house built.  So now I’ve lost $100,000 right?  Wrong.  Now I have an asset that should be, if the home was built right, worth at least $100,000.  Or more, probably, as a completed home has more value than one that hasn’t been built yet.

But far from just creating wealth for myself, I also created wealth for all the people involved in the project.  Like the contractors, electricians, plumbers, roofers, landscapers, inspectors, etc.  They have my original $100,000 and I have an asset that they helped me create worth more than that.

It’s a win-win-win situation.  Now, granted, I could make a bad decision and choose the wrong contractors to build my home, or build it in a bad area, and lose money on the proposition.  And there’s also transactions that don’t really gain us any wealth in the form of assets (if I buy a burger I’m fed, but I’m also out that $2.50), but on a larger scale our free economy makes everyone in this country more prosperous.

The only thing we have to do to keep that prosperity is avoid hindering the free market with unnecessary restrictions and taxes.