Money is neither created nor destroyed in prediction markets. (In most cases, the collateral goes into boring money market fund like fixed-income products, as far as I understand.)
The real concern here is that, for many people, paid employment simply doesn't look like a viable way to earn a living anymore, so they feel the need to play high-risk, high-reward games in the first place. Capital markets are a great way to preserve and modestly grow one's wealth. If there's no reasonable perspective of any wealth in the first place, is it any wonder that people are looking beyond?
In other words: If your job is at most paying half of what you need to lead the life you want to live (and that, in many cases, your parents have been able to afford working the same job just fine), suddenly betting on a game that pays double or nothing doesn't seem so irrational anymore.