In this election year, we have occasionally heard the phrase "Zero Sum". What does this mean? Well, simply put, it is a term used to illustrate the concept of "people getting rich off of the backs of the poor". The people who adhere to this concept will tell you that for every dollar a man makes, especially a rich man, another person loses a dollar. Thus, if a CEO made $5 million last year, $5 million was taken away from other people and as a whole those other people are $5 million poorer. In other words, the rich keep getting richer and poor keep getting poorer.
This concept is based in nothing that resembles common sense or fact. I could try to explain on a macro level why this is not the case and how it is possible, no wait, ESSENTIAL that all economic levels of a society grow in wealth in order for an economy to grow. But I won't do that. Instead, I would like to bring it down to the simplest of levels... a garage sale transaction between two people. In fact, this very thing happened to me today.
I bought an item from a person at a garage sale today. Brand new, this item would retail for about $50, so let's say the seller paid $50 for the item. In this case, they may have thought the price was too high or too low, but that is irrelevant. The fact that they bought the item suggests that their demand for the item was high enough to justify paying $50 for it. Perhaps they had the item for 3 months or 3 years before they decided to sell it. Again, an irrelevant point. They gained everything they could from the item and no longer had any use for it and put it up for sale at a garage sale for $2. This suggests that they believed that they pretty much got their money's worth. If they didn't believe that, they may have tried to sell it a different way that would have generated more money, perhaps ebay or amazon. The fact that they were selling it at a garage sale for $2 should say to us that they just want to get rid of it, that it held VERY LITTLE VALUE TO THEM.
Here's where I come into the picture. I walk up to their sale, see the item, determine that I will be able to resell the item for $10, and then purchase the item. Does this mean that the sellers are now $10 poorer? Of course not. The item had zero value to them. They paid $50 for it, but they no longer want it. They've derived all value from it in their minds. So, they made $2. They didn't lose $10. If I had not bought the item, they may have given the item to charity or just plain thrown it away. So they benefited from the item as did I. In this situation, BOTH of our incomes grew.
Now, I will sell this item to someone for $10. This person, it turn, will turn around and sell it for $20. Does this mean that I lost $20 or that the original owner lost $30 (the combined gross income of myself and my buyer)? Of course not. As you can see, everyone gained from this. The original buyer made $2 off of what he felt was a worthless item (by virtue of throwing it in a garage sale). I made a net profit of $8 and my buyer made a net profit of $10. Ah, but what about the guy at the end who buys the item for $20? Well, he is participating in the free market system. He is buying a product he believes is worth at least $20. So he gains the product. As a result, this item, which was deemed to be nothing more than a $2 product by the original owner actually injected $18 of wealth into the economy and was put to good use by another owner who may just start that cycle all over again.
No one lost ANYTHING! I won't even go into everyone that benefited from the original purchase of the item (the manufacturer, their employees, etc.). So, the next time you are presented with the same old line, "the rich get rich off of the backs of the poor", keep this little scenario in mind. It's not a zero-sum game. Both parties benefit from a fair market transaction! Yes, people lie, cheat, and steal all the time, but that's going to happen. Do you blame the guy who over-inflates his prices or the sucker who over pays that price?
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