Who is getting the real benefits?


Free economic exchange is not as one-sided as some claim.
Matt McIntosh writes a great column on mutual exploitation at TCS Daily.

Let us say that I am poor and you are wealthy. I live a harsh life of bare subsistence farming, while you make several thousand dollars per day as a business owner in the widget industry. One day you hire me to make widgets for you at a rate of $1 per widget, which you then sell to make a profit of $2 per widget. Which of us has benefited the most from this exchange?

If you answered that it must be you, this is wrong. It's true that you are still much, much better off than I am in absolute terms, and that in dollars, you have gained more than I have. But considering our relative starting points and the basic fact of diminishing marginal utility, this transaction has benefited me more than it has benefited you. Simply put, the principle of diminishing marginal utility states that each extra unit of a good provides less subjective benefit to an individual than the last one did: an extra dollar means much, much more to a pauper than to a millionaire. Thus I get much more subjective utility from the extra dollars I now have than you do from the extra dollars you have.

Worth reading.

Heck, worth studying if someone starts lecturing on the perils of globalization.

— NeoWayland

Posted: Mon - May 8, 2006 at 04:45 AM  Tag


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