Monday, December 12, 2011

The Zero Sum Fallacy

The Occupiers are not alone. Others have fallen for what P.J. O’Rourke calls the zero-sum fallacy.

Today, the Occupiers are just the most prominent. As carriers for the aspirations of the radical left, Occupiers include liberals and progressives, socialists and communists, anarchists and Democrats.

Occupiers lure the unsuspecting into their lair with a premise that seems to be self-evidently true. Income inequality in America is out of control. The rich have too much. The poor—now called the middle class—have too little.

The Occupier solution is really the Obama solution: redistribute wealth. Take from the rich and give to the poor. Or better, take from the rich and give to the government employees whose unions supported Obama. Under Obama's redistributionist policies the poor have gotten a lot poorer.

Obama has been creating a professional nomenklatura: a class of privileged civil servants. Counties around Washington, D. C. now count as the wealthiest in the nation.

What justifies taking from the rich and giving to the poor? The belief that the rich got rich at the expense of the poor. In a mindset where people are constantly in conflict with each other, one’s person’s gain is necessarily another person’s loss.

To take an example, Palestinians continue to say that Israelis were not really successful at building a thriving free market democracy. They stole from the Palestinians.

All the talk about oppression and exploitation reduces to the argument that the Israelis are rich because they are thieves. It follows, as the night the day, that the poor Palestinians are within their rights to take back what is rightfully theirs.

No one has a good explanation for why one person should have an inalienable right to the benefits of someone else’s labor.

You can read it in a Palestinian schoolbook today: “Muslim countries need urgently jihad and jihad fighters in order to liberate the robbed lands and to get rid of the robbing Jews from the robbed lands in Palestine and in the Levant.” Link here.

As long as there are serious income disparities, there must be criminal activity. Those who champion the Palestinian cause have forgotten the importance of earning your way and of being rewarded for superior achievement. They want to take what they did not build. 

When you hear the Occupiers present their ideas, they s0und plausible and cogent. When you look a little deeper and examine the consequences that flow from it, things look a little less rosy.

As O’Rourke reminded us, it’s all based on the concept of the zero-sum game which, when, misapplied, produces the zero-sum fallacy.

Serious thinkers explain zero-sum games in terms of dividing a cake. If you take a larger piece of cake there will be that much less left for me. Or vice versa.

The argument posits a fixed amount of cake and a large number of potential consumers. If there are very few consumers then there will always be enough cake for everyone. 

The zero-summers believe that since everyone is equal, then everyone should have a reasonably equal portion. If it has not worked out that way, the fault lies with the corrupt Wall Street bankers and other capitalists. 

As you might guess, the argument ignores human status hierarchies and completely ignores the way that competition motivates people to better their performance.

The cake analogy is lame in other ways. It assumes that there is only one cake. It assumes that all consumers want or need an equal slice of cake. It assumes that when one person takes an extra-large portion, someone else is necessarily going to be deprived.

And, of course, it assumes that economy is about distributing a fixed quantity of goods. Imagining that economy is all about consumption, it ignores the role of production.

It also assumes that cake is a scarce, fixed resource, one that needs to be allocated by someone other than the market. The analogy does not offer the most obvious solution: bake more cakes.

Everyone should know that if take the entire wealth of the top 1% and divide it up among the other 99% of the people, everyone is going to end up with crumbs.

People who have money that they do not allocate to consumption might not want as much cake. Or else, they might be averse to conspicuous consumption. They might well take their money and go out to open a bakery.

If the government decides to tax away excessive capital or to make it more difficult to invest, then there will be fewer bakeries and less cake. 

If, in the name of fairness, a culture decides to tax those whose capital produces economic growth then it will be creating a situation that is more closely akin to the cake example. It will be limiting production, creating scarcity, and setting one segment of the population against the other in a conflict over who takes the cake.

Ask yourself this: is a football game a zero-sum game? Clearly, one team is going to win and the other team is going to lose. And yet, the winning team has not exploited or oppressed the losing team. And the spoils are not divided all-or-nothing.

Competition distributes goods, not equally, but based on merit. As I said above, unequal distribution motivates people to strive harder.

The team that lost the Super Bowl last year did not get nothing fort its pains. It was still the second best team in professional football. It was still, after all, the AFC champion.

When a team loses a game, it works harder to succeed the next time. It does not complain that it was robbed of a victory that rightfully belonged to it.

The class struggle narrative that makes life into a zero-sum game does not account for the fact that, for example, the 99% of Americans who are not hyper-rich do not have nothing. Most of them have been living comfortable lives.

Today, of course, too many of them are unemployed or underemployed, but the solution to that problem lies in economic growth and productivity. It is not about redistributing cake, but about opening more bakeries.

Life is not a zero-sum game. Life is a negotiation.

If a vendor receives less than he asked while a buyer pays more than he wanted to pay, neither has gotten exactly what he wanted, both have gained something. Completing the transaction serves the interests of both parties. It's a win/win proposition.

Those who believe that life is about getting exactly what you want might say that both parties have lost something in the transaction. Those who hold to that belief will not be baking cakes. They will be producing depression.

Fortunately for them and for us, life is not arranged to give you what you really, really want. It is arranged to give everyone something, in unequal proportion. It keeps aspiration alive.

1 comment:

Ari said...

Well, certain rich people got rich at the expense of the poor. These include Fidel Castro, the Soviet Politburo, Kim Jong Il, Robert Mugabe and many of the other heroes of the Left.

Those who got rich by benefiting society are hated by the Left.