A short lesson on wealth creation
This morning on CBC Newsworld business reporter John Northcott was describing, in horror, a recent OXFAM report indicating that 62 of the world’s richest people have as much wealth combined ($1.76 trillion) as the poorest half of the planet (3.625 billion). Mr. Northcott and lead anchor Suhana Meharchand made comments about the unfairness of this distribution of wealth. Indeed, if only that amount of wealth could be distributed evenly, this would solve so many of the poverty problems in the world.
One of the benefits of studying economics is the insight it provides in identifying, precisely, how wealth is created and the logical consequences of legally expropriating created wealth and transferring it to other individuals.
The only way that wealth can be created in a free market is producing at profit something that satisfies the wants of your fellow man. Profit is the signal that resources are being used efficiently in production. If a person cannot produce a good or service at a profit, this reveals that costs are too high, the price consumers wish to pay is too low (they have other, more urgent priorities) or both. In other words, losses reflect that resources (including the labour of the resource owners the entrepreneurs bringing necessary inputs together) are not being put to their highest valued used as judged by consumers.
That 62 of the richest people have generated $1.76 trillion is something to be celebrated, not denigrated. A moments thought to how much poorer would be not only the 3.625 billion, but everyone else too if individuals like Bill Gates never created Microsoft. Without Bill Gate’s magnificent impact on humanity I could have been typing this on an Olympia manual typewriter. If #62 ranked Bill Li of China never developed his Chinese internet search engine, countless numbers of welfare improving transactions in China would not occur.
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