Andy Rooneey Comment

BTW, all of that said, I think Rooney is completely wrong is his assertions...and outlawing gambling is patently rediculous....

I will try not to get into rant mode as I felt I was doing over in the Wizard’s blog comment section. (Later edit: I think I failed.)

There are several comments above that I agree with and several that I disagree with. Some of the disagreement may be due to the way I have used the term “wealth.”

Let it be clear that in my previous comments, I have not meant at all to disparage those who provide desired services, money-earning services, to others. Many services are necessary for our society to function, and those who perform them should be compensated properly and respected for their efforts. As I note below, I do not feel that they necessarily are actually creating wealth for society, but they deserve to receive a share of that wealth from whomever they are providing services to.

Earning a good salary or wage by doing a good job may result in a much larger bank account for you, something you may view as creating your own wealth. But that does not “create wealth” in my terminology; it just moved that wealth from someone else to you, probably deservedly so. Actually creating wealth requires that something of lasting, intrinsic value come into existence, without consuming resources that represented greater value than what was created. Each time wealth is created in this way, it is possible that there was another way that a different wealth (perhaps even more wealth) could have been created, perhaps later, using those same resources.

There is the example that boymimbo presented (and DJTeddyBear added to) about the gaming industry having created wealth through all of the tables, chips, hotel rooms and other physical assets that are now in place. No, the gaming industry did not create wealth there. If wealth was created, it was created by the individuals and companies that manufactured the chips and tables and built the hotel rooms, etc. The gaming industry provided a market demand through which different forms of wealth (cash reserves, inventory of physical goods) were exchanged. That exchange did not create wealth, no matter how much someone got paid in the process. Society as a whole still had everything it had before; it just changed hands. The thing of importance that the gaming industry did was to provide the demand that encouraged others to create wealth.

Wealth can be created, destroyed, shared, exchanged, etc. Normal inefficiencies destroy wealth. If we do not create wealth somewhere along the line, we just reallocate pieces of an ever-shrinking pie, likely among an ever-increasing number of sharers. All of the exchanges that take place, transferring wealth from one to another, do not make the pie any bigger.

My other point related to a national economy. If one nation or society tends to create wealth while another does not, the society that does the creating of wealth is likely to become the stronger and more stable. In my opinion, it is very worrisome that the U.S. economy has moved so heavily away from those practices that actually create wealth (agriculture being a notable exception), depending upon other societies to do the creating while we go deeper into debt trying to cut and rearrange the pie pieces as fast as we can.

And I disagree with Andy Rooney’s position on gambling.

Wealth

Quote: dictionary.com

1. a great quantity or store of money, valuable possessions, property, or other riches: the wealth of a city.
2. an abundance or profusion of anything; plentiful amount: a wealth of imagery.
3. Economics.
a. all things that have a monetary or exchange value.
b. anything that has utility and is capable of being appropriated or exchanged.
4. rich or valuable contents or produce: the wealth of the soil.
5. the state of being rich; prosperity; affluence: persons of wealth and standing.

By your definition, isn't wealth simply "profit"? Society does have more wealth when a company pays money (which he/she exchanges for goods and services for the value of his/her work. Wealth is grown through the conversion of human work to a tangible good. Yes, that good has to come from somewhere and the service has to be paid for, but the somewhere is the earth and the service is the cost paid to convert those natural resources to something usable.

I don't really want to get into semantics; I'm not a lexicographer. I certainly do not mean to equate creation of wealth to a company or individual making a profit. If I buy something from you for $10 and later sell it back to you for $20, I may have made a profit of $10, but I didn't create any wealth; in net, I just transferred wealth from you to me. I think from your dictionary.com definitions, I am thinking closer to 3a&b, and I am more concerned with the creation of this wealth than its exchange.

I got lost in your parenthetical phrase that didn't close, and I don't want my misunderstanding to distort your meaning. I am not sure how society has more wealth by paying money for a service. On the other hand, I completely agree that wealth is grown through conversion of human work (a resource) to a tangible good. I'm not sure I follow completely "the service is the cost paid to convert those natural resources to something usable." What I think you are describing is the production of a physical product, which (if done efficiently) can generate new "wealth". Typically, in a discussion such as this, the term "service" is used to describe those society functions that might be very important but which do not create products, such as banking, health care, insurance, transportation, communication, etc. That is, service industries as opposed to manufacturing industries.

My point has been that as important as these service functions are, it is dangerous to have a national economy based too heavily on them and let some other national economy generate the new wealth. I haven't studied the specific case, but this might be related to the fact that Chinese industry is manufacturing a lot of products (creating wealth), selling them to us, and investing their new wealth in U.S. national debt. I think this pattern will have a tendency to make their economy much stronger and more stable than ours. This is also, perhaps, why the Chinese government was so concerned recently when they thought there was a risk that the U.S. might default on or downgrade some of the debt.

Mercantilism, if anyone gets bored you should look it up. It was pretty much the dominant economic theory before Adam Smith came along and revolutionized the Western World, making it superior to the rest of the world for hundreds of years. I just wanted to throw that in, and I agree moreso with Mimbo than Doc who I believe is under-appreciating the service industry and all of its branches.

Quote: Doc

I am not sure how society has more wealth by paying money for a service.

Easy. Let's say you're a cattle rancher and want to sell 1,000 heads of cattle (that's 1,000 cows). How do you go about it?

In most modern countries, you'd pay truckers and/or a freight railroad to take the cows to a slaughterhouse. These businesses produce "nothing" but they move your cattle from ranch to slaughterhouse. Of course any production is worthless if it cannot reach market, yes?

Next the slaughterhouse will ship sides of beef to a meat-packing plant, where various cuts are made and packaged.

Next they make their way to wholesale distributors who have the capital to buy large quantities of meat, and the facilities (capital goods) to safely store it and deliver it. The distributor will sell the meat to retail distributors like supermarkets and butcher shops, or to large consumers such as hotels, restaurants or commissary departments of large businesses.

You can argue the shipping companies involved and the wholesaler don't produce anything, but they do provide a service that is valuable to all involved.

As to casinos, why do you go to a casino? Do you think you get value for your money? If so, then what is the question?

As I read them, Doc's comments don't show a lack of respect for the "services" part of the economy. They do show a concern for the lack of the "production/manufacturing" side.

Nareed's example shows a good relationship between the "production/manufacturing" side and the "services" side. The rancher produces 1,000 new head of cattle with his 1,000 cows and some bulls. That product is sent along the chain and many "services" are used.

I think there needs to be a balance between the two. We can't just have someone else produce everything. What if they decide they don't need to use their money from production to buy our services? I know that is overly simplistic, but I think we need both. We can't just let all production go offshore.

Nareed, ahiroumu, and RonC: Thank you for your comments. I enjoy this kind of discussion, and I didn’t really expect to encounter it on a Vegas forum.

I guess I didn’t actually say it in this thread, but I believe I did in the comments section of the Wizard’s blog. Service industries can contribute to the generation of new wealth to the extent that they enable or improve the efficiency of the manufacturing/production sector. The examples that I gave were communications and information services.

I have already noted that I consider agriculture a production industry, and the cattle ranching and meat processing industries are included. Nareed’s example of transportation to enable and improve the efficiency of this industry is indeed another example of a service industry contributing to the increase of society wealth. On the other hand, I don’t know that trading of cattle futures actually generates society wealth, although one could potentially make a personal fortune at it (while perhaps destroying someone else’s).

There are other examples where the issue becomes quite fuzzy. Consider the generation of electrical power. Converting the chemical energy of coal to electrical energy is an inefficient process, but it converts this resource to a much more usable form, not unlike the refining of ores. The issue becomes fuzzy for electrical power because the “product” is rather transient – we don’t store it very well for future utility the way a physical product lasts. Did the generation of electricity by this service industry generate wealth or not? I think it at least has a potential for that.

If the electricity is used to power machinery at a manufacturing plant, I would expect it to aid in generating wealth (though it doesn’t always.) On the other hand, if the electricity is used to power the recording, transmission, and viewing of my favorite television shows, I don’t really consider it as generating society wealth in the same manner; it just makes my life (and perhaps yours) a little more enjoyable. I don’t fault this second application at all, but I wouldn’t want our nation’s economy to be based too heavily on this type of venture. That is what I have been trying to say.

Gambling, when it is a form of entertainment, may make our lives more enjoyable (or more frustrating), and I don’t think at all that it warrants legal prohibition the way Mr. Rooney suggests. But I do not have any delusions that it is generating new net wealth for our society. Since it consumes resources without generating wealth, it has those inefficiencies that make it a drag on the overall, long-term economy, no matter how much we may enjoy it and no matter how many dollars change hands many times. That doesn’t necessarily mean it is a bad thing, but I wouldn’t want our national economy based on it.

Just a follow up on what I think Doc is getting at when using the term "wealth". The traditional economist's version of the term "wealth" means that there are more things in the economy after some economic activity.

Let's say it's just Doc and I in the entire world -- me, Doc, and natural resources. Doc's a carpenter and I'm an iron worker. Doc cuts down trees and makes some lumber. I dig up some ore and make iron ingots. Our economy has grown -- our total wealth is lumber and iron ingots. Now I take some of that iron and make some nails. Doc and I agree to make two houses with his lumber and my nails. Again our economy has grown. We now have ore, lumber, nails, and two houses. Wealth has increased -- there's more things in our economy.

Let's go back to the beginning again where it's just Doc and I. This time I'm an accountant and Doc is a lawyer. I can do Doc's books and Doc can make up some laws to govern accountants sensibly. We provided services to each other, but if I look at the economy as a whole all I see is just Doc and myself. We haven't created any wealth -- from an economist's perspective.

Quote: helpmespock

The traditional economist's version of the term "wealth" means that there are more things in the economy after some economic activity.

That would be a very traditional view which most economists wouldn't use anymore. All of the wealthiest men in this country before WWI built there fortunes in production or transportation. Almost all of the wealthiest men now built their money in organizations or organizing principles. By which I include media, retailing and distribution of goods WALMART, or software (MICROSOFT), chips (INTEL), or computers (DELL). I would also include finance in that list.

But there is a dichotomy sometimes expressed as money makes you poor. It's pretty obvious from classical times that the easiest way to make money is to make money. From the issuance of silver coins which could be shaved a little for the seignor, to the times of the Spanish Empire when they controlled all of the gold in the world. If you go to Seville, you see what an amazing city they built in a few decades after Colombus. Nearly all the gold would arrive via Seville.

Nowdays, of course with fiat money you just have to print it. The $100 bill is by far the most valuable export of the US economy, far exceeding airplanes (the most often cited super export of the USA). But the reality that we learned from Spain in the 15th and 16th century, that the presence of most of the money in the world meant that the society completely changed. The acquisition of money became the central occupation, and most people lost their ability to work trades. As the world broadened the country of Spain quickly went from the wealthiest nation ever known to civilization to one of the poorest ones.