Monday, June 22, 2009

Winners and losers

From Practical Economics

Capitalism allows for winners and losers in order to create incentives for productivity, innovation and excellence. Winning feels good and reinforces efficient behaviors while losing feels bad and reinforces behaviors that should not be repeated. This is a highly motivating phenomenon that moves people to change their behavior in directions that benefit everyone. The system of competition creates short term pain for some at the cost of long term happiness for many.

Remember, self-interest is not just negative in nature, it can also be seen as a positive because people working within markets will do for themselves things that benefit others. Competition in the free market is a struggle to see who can benefit others the most. As a result, the winners and losers of a competitive market create efficiencies. A system that includes pain creates a more pleasurable existence for everyone while a system that looks to create pleasure creates a more painful existence for everyone.

Economist J. A. Schumpeter used to refer to progress under capitalism as “creative destruction” or the replacement of businesses that have outlived their usefulness with businesses that carry technological and organizational creativity forward, raising standards of living in the process.

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