A One-Question Quiz On Economics

A simple one-question quiz on the concept that our economy is a “zero-sum game”:

You are a woodworker who decides to start a furniture business. You take out a loan from the bank, purchase some retail space, hire a couple of employees, and start your business. You are successful. Twenty years later, you have paid off the original loan with interest, increased your staff to 20, opened a branch across town, and have thousands of satisfied customers.

Economically, you came out ahead in this scenario. Who lost?

a) your customers
b) your suppliers
c) your employees
d) the bank
e) the government
f) nobody

The answer, of course, is “f” Your customers got a fair value for their money in their judgment, or else they would not have purchased your furniture. Same goes in reverse for your purchase of materials from your suppliers. You employed 20 people who may not have otherwise been employed, so they came out ahead. The bank got back more money than they lent, so they came out ahead. Even the government came out ahead, assuming that everyone involved in the process paid the various taxes involved.

So how does this happen? It’s quite simple, really: your business is one of wealth creation. You and your employees take items of a certain value (such as wood, paint, etc.), and use your expertise to combine them into items which have value greater than the sums of their parts.

Understanding this most basic concept of economics (which sadly, many people do not), is the vital ingredient to understanding how an economy prospers. The more wealth being created, the healthier the economy will be, and vice-versa. This also outlines why a smaller government is better for a healthy economy: only in rare cases does government participate in the wealth creation process. Most government jobs are bureaucratic or service-oriented in nature, and while they are certainly necessary, they are best in limited quantities. And even more government money is being transferred to people who are not participating in the wealth creation process.

Furniture stores, farms, restaurants, manufacturers of all kinds – these are the careers that make our economy go. They always have been and always will be the focal point of America’s success.