The Zero Sum Economy

The House Always Wins

“Zero sum” in game theory means somebody wins and somebody loses. Some people think that describes the economy.

This article chronicles current economic trends that only shift dollars from here to there, without adding value to the whole — for example workers job-hopping or companies e automating production. There are as many losers as winners, and nothing is gained.

Thomas Piketty’s classic Capital in the 21st Century extensively detailed how current economic practice is creating economic inequality at a record pace. Inequality means a tiny few at the top are the big winners while everybody else loses.

On the other hand, this explanation from Investopedia asserts that economic transactions are generally “positive sum”:

“When applied specifically to economics, there are multiple factors to consider when understanding a zero-sum game. Zero-sum game assumes a version of perfect competition and perfect information; that is, both opponents in the model have all the relevant information to make an informed decision. To take a step back, most transactions or trades are inherently non zero-sum games because when two parties agree to trade they do so with the understanding that the goods or services they are receiving are more valuable than the goods or services they are trading for it, after transaction costs. This is called positive-sum, and most transactions fall under this category.”

Similarly, this writer has an ideological bone to pick with the zero-summers — he’s frustrated that people just don’t get that every economic transaction is win-win and makes the pie bigger for everybody.

Meanwhile, this article first carefully describes the zero sum concept, then explains why you don’t want to win a zero-sum trade war.

And on it goes.

One thing is evident from all points of view:  there is no such thing as capitalism in the abstract; instead, capitalism is what economic policy makes it. As Investopedia explains:

“Nearly every proponent of capitalism supports some level of government influence in the economy. The only exceptions are anarcho-capitalists, who believe that all of the functions of the state can and should be privatized and exposed to market forces. Classical liberals, libertarians and minarchists argue that capitalism is the best system of distributing resources, but that the government must exist in order to protect private property rights through the military, police and courts.

“In the United States, most economists are identified as Keynesian, Chicago-school or classical liberal. Keynesian economists believe that capitalism largely works, but macroeconomic forces within the business cycle require government intervention to help smooth it out. They support fiscal and monetary policy, as well as other regulations on certain business activities. Chicago-school economists tend to support a mild use of monetary policy and a lower level of regulation.”

What Role Does The Government Play In Capitalism? Investopedia (June 26, 2019)

Therefore if the economy is zero sum, it’s not capitalism’s fault, it’s the capitalists’ fault. And if it’s positive sum, they should get the credit.

This article skips the debate and focuses on what the author sees as today’s biggest economic losers:

“For Millennials and the Gen Z who come after them, there are many disturbing signs of a transition to a new society, one based on wage stagnation, high debt to income levels and rising wealth inequality characterizing a capitalism that’s breaking down social economic mobility and the American dream at its core.

“It could be argued the middle class is being disrupted and the pain points of Millennials mean each subsequent generation of young Americans will feel these pains.

“These are some of the meta-trends that come to mind:

  • Wage stagnation
  • Student debt crisis
  • Part time and gig economy work imprisonment (like a glass ceiling for the lower middle class)
  • Rising costsof housing, healthcare and the affordability of the next milestone (home ownership, marriage, children)
  • Mental health issues surrounding technological addiction
  • Finding the right life-work balance while developing a career path that’s both economically and morally fulfilling
  • Loneliness epidemicwith isolation and unsubstantial support systems in place

“We are living in an era where an entire generation are ‘late bloomers’ by default, in a system that hasn’t just not just protected and empowered young people — but of a generation that suffer major disadvantages the youth of other generations didn’t even experience.

  • The affordability crisis millennials are dealing with is impacting their mental health at a time when they lack social support.
  • The affordability crisis and career uncertainty has made Millennials subject to dangerous combinations of vulnerability.
  • Financial struggles and ruthless capitalism has meant many Millennials have no hope of bettering their circumstances.
  • It’s scary but accurate to say ‘deaths of despair’ are increasing among young Americans.”

The  article has much more to say, and frankly it’s not the most carefully constructed piece of the hundreds (maybe thousands) I’ve reviewed in the past two and a half years, but I cite it because it captures the desperation of the “precariat” — a term economist Guy Standing applies to “millions of people obliged to accept a life of unstable labour and living, without an occupational identity or corporate narrative to give to their lives.”

My kids are members of the precariat, which makes them economic losers. So are their friends.

Never thought I’d see the day.

We’ll look more at the zero sum economy next time.

Author: Kevin Rhodes

Kevin Rhodes draws insight and perspective from his prior career in law, business, and consulting, from his studies in economics, psychology, neuroscience, entrepreneurship, and technology, and from personal life experience.

One thought on “The Zero Sum Economy”

  1. Thought-provoking as always Kevin. A serious discussion on the fundamental changes in capitalist economies and the negative effects these changes are having on Millennial and Gen Z workers (or wanna be workers) has been missing from the Democratic debates among contenders for President in 2020, that is other than programs directed at forgiving college debt. Entrepreneur Andrew Yang seems to be the only candidate with this as a main focus of his campaign. Thanks for continuing to inform and raise these issues for discussion.

    Liked by 1 person

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