The Largest Transfer of Wealth!

A. Sinan Ünür
August 28, 2008

As I wait for Senator Obama’s acceptance speech tonight, T. Boone Pickens seems to be running commercials on every cable news station.

I understand he has sunk a lot of money into wind farms and natural gas, but one part of his ads simply bothers me.

He keeps harping on this phrase, “largest transfer of wealth”.

Let’s think, at the most basic level, about an economic transaction: A buyer and a seller agree on a price, the seller than gives something such as a cup of coffee or a supertanker in return for some money.

The seller agreed to the price, because the good he was selling was worth to him less than the price. Otherwise, he would not have sold the good.

The buyer agreed to the price, because the good was worth to him more than the price she had to pay for it.

That is, market transactions can only take place if they make all parties to the transaction better off.

When you buy something, you are not transferring your wealth to the seller: You are exchanging what you have with something you value more.

This fundamental nature of economic transactions is why trade is good: When you buy a flat-screen TV, neither the total number of flat-screen TVs nor the total amount of money in the world changes but both you and the seller are made better off. Trade magically increases happiness in the world.

A transfer of wealth occurs when your government taxes you and pays for your grandma’s arthritis medicine.

The fundamental nature of market transactions do not change just because the good that is being bought is oil.

Food for thought.

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