Press "Enter" to skip to content

The Economy is Not a Zero-Sum Game

I feel a rant coming on.  My apologies but I have to get this one out as it bugs me a lot.  Quite simply, the world economy is not a zero-sum game.

Now, this post is not meant to take a political stance.  Whether you lean left or right doesn’t really matter in this case.  What matters is perspective and attitude.

The Zero-Sum Game Concept

I hear the concept of a zero-sum game in reference to the economy a lot.   The concept is that someone getting ahead means someone else cannot.  That wealth has to come at the expense of someone else.

My First Exposure to the Zero-Sum Game Fallacy

My first exposure to the zero-sum game economic model was during my MBA.    One of the required classes was diversity training.    Anyway one day they did a class enactment of what they called the economy.    So they took a bag of candy and subdivided between students.      Then they played a game of chance which redistributed the bag to where a larger portion of the spoils went to a particular group.    That group was then allowed to change the rules of the games however they liked.  The point was supposed to be that those with the power set the rules so they don’t lose it.    The secondary message was the bag is finite and those with the power take the majority of it.

The Rich Do Define the Rules and Take a Larger Raw Share of the Gains

Now the first part of the message I don’t really have an issue with.    Even as a higher income individual it’s not like I could afford to pay a lobbyist to rally a senator to pass a law on my behalf.   It’s clear some wealthy individuals can and do make these types of moves.  Nor could I afford to bribe someone with 500K to get my kid into a prestigious college. It is not fair, I get it.  I also don’t really disagree that the top tier takes most of the end bag.  Warren Buffet, after all, makes more in a day than I make in a decade.

But The Rising Tide Still Lifts all Boats

No, where I disagree is the bag itself.  The bag changes in size.    The economy is constantly growing and so are its spoils.  Those spoils may most impact the richest amongst us, but they ultimately improve everyone’s lives.    

Case in point:

  1. Raise your hand.
  2. If you currently live in a house with a TV, lower it.    
  3. If you currently live in a house with more than one car, lower it.  
  4. If you currently live in a house with electricity, lower it. 
  5. If you currently live in a house with running water lower it.  

Needless to say, there should be no one reading this with their hands still raised.    The only folks in America that I know of that would still have raised hands are the homeless and the Amish.  Yet as recently as the 40s and 50s most of the people in rural America would still have raised hands.

Rising Quality of Living, Not Zero-Sum Improvements

It’s that raised quality of living that is the growing of the bag, the economy.  30 years ago only rich people had cell phones.  These days the government considers them such a necessity free phones are provided for people in poverty.  That is progress and a growing economy.  Also 30 years ago only upper middle class and hobbyists had computers/internet.  These days you can use one for free at your local library…  Anyway, you get the point.

Innovation in society improves your quality of life.  We all benefit from it, no matter how subtly.

Class Warfare and Comparison   

These days it seems to be common to hate the rich.  Class warfare is in vogue as everyone bristles over the latest CEO multimillion-dollar payday.    The argument always seems to be that CEO makes millions thus depriving the workers of his company.    That obscene wealth of these individuals is somehow responsible for your poverty.

CEO Wealth and Worker Pay are Unrelated

Well here is the deal.  The wealth of that CEO has nothing to do with your wealth in almost all cases.  Certainly not if you are just reading about it in the paper.  But not even if you are an employee of their company.  No one is saying here I’ll pay my employees less so I can pay my CEO more.  No, they pay whatever is the right amount to attract an employee to do the work.  No more or less.  Thus your CEO’s pay has nothing to do with your pay as an employee, despite the potential optics.

CEO Pay and Shareholders, the True Issue

There are of course some exceptions where CEO pay Matters.  A CEO’s wealth does impact shareholders returns.  CEO hyper compensation is a legitimate issue when it comes to an owner deciding if they are getting value for money out of CEO pay.  That is a question beyond the scope of this post.  Also to our original diversity example, how that CEO uses their wealth may very well relate to you in a negative way.  But again that’s beyond the point of this post as well.

So what is my point?  Well, the comparison is still impossible to avoid.  It is inevitable wealth inequality will cause strife.    Also, it is obvious those that are well to do are subsidized by the poor.  The world is designed to allow people in power to stay there.  

Focus on Increasing the Size of the Bag and Less Time Worrying About Your Neighbors Bag

But on the broader scale having a fixed set of rules and some people having more than others is not inherently bad.    All else being equal we all benefit so long as technology and innovation move the world forward.    It’s important to stand up for what you believe in, after all this world has plenty of injustice to fight against.  However, remember that life is what you make it.  Have gratitude that you were born in the time period with the best quality of living thus far.  Use that gratitude and drive to make your life and the world a better place.  Spend less time worrying about what your neighbor, or CEO, has and more time worrying about what you can do to change the world.  How can you increase the size of the bag?

3 Comments

  1. Xrayvsn
    Xrayvsn July 10, 2019

    Love this post and very well illustrated.

    My daughter has in her hand enough technology to be the most advanced person only 30 years ago.

    There are some zero sum games that are present like the stock market, when someone wins by making a trade, then there has to be someone that lost. But apart from that scenario, a growing bag is indeed what is happening. Will be interesting to see what happens in a few decades.

    • FullTimeFinance
      FullTimeFinance July 10, 2019

      Very true. The stock market is a sales transaction between two people. That definitely can have a winner and a loser. That’s different then the economy or your place in it where your not strictly speaking transacting with a single other person.

  2. steveark
    steveark July 10, 2019

    Well said, the zero sum game fallacy spurs on so much jealously. The market determines what people get paid, what it takes to attract someone to the job. You could not have paid me enough to do my CEO’s job. He worked 18 hours a day and dealt with nothing but problems. Sure he made ten times what I did but I was happier.

Leave a Reply

Your email address will not be published. Required fields are marked *