Comment Re:Psychonomics (Score 1) 421
Here's one:
Person A runs a tavern. Person B (after a few beers) drives his car into that of Person A. Person B pays $150 to Person C to fix the scratches on Person A's car. Person C uses his $150 income at Person A's tavern.
Who profited by the exchange of $150? Are all three people better off?
You sound like you are looking for an answer, so here you go: Person A is much better off than both Person B and Person C. Why? Person B lost the use of his car, lost $150 to pay for Person A's car, and has to pay for his own car. He is, however, smarter for his mistake. Person C is $150 (Converted into beer) richer, because without Person B's mistake, he would be $150 poorer. Person A is $150 (Person C's money) + New car richer. He benefits from everything. So yeah, there is more money in the system, because there is no telling what Person B would spend the $150 on (he could have left it in his mattress) unless he caused a problem. Easy question.
Here's another: Person B drinks at Person A's bar. Person A runs a farm to grow barley. The farm uses water that slightly increases (~1%) water prices for 100k other persons. Are person A and B both economically better off for their trade? (Yes). Are persons A,B, and the 100k others all better off? (They might or might not all agree, but what if their generation's children do not!). Even more interestingly, the 1% cost will manifest as slight increases in other goods. Eventually someone will be holding the hot potato...
This is a TERRIBLE example. Where do the 100k people drink? do they ALSO drink at the bar? do they use the barley in any other way? do some of those people WORK for Person A? It's tremendously unlikely that Person A can run a bar AND a farm AND brew his own beer without paying other people to help him. So yeah, that 1% increase in water price is likely funding the income for the entire population, as they benefit either directly or indirectly from the tavern, the farm, and the barely production.
In examples with larger populations, the zero-sum exists but is more blurry.
The problem right there is, in your mathematical mind, you are trying to simplify something that is not simple. We are not all Robinson Crusoe's, living in our own little macrocosm. Every aspect of your life (unless you truly live as a hermit) has implications on everyone else.
