Friday, October 31, 2008

Fundamental Assumptions I: The Zero-Sum Game.

I don’t have to point out to anyone that the dialogue between the left and the right has pretty much completely broken down in this country, to the point where the two sides simply aren’t talking to one another.  When they do talk, they talk past one another, not to one another.  Each sides talk to the positions that they accuse the other side of having, which may or may not have anything to do with the positions actually held.

I don’t think this serves either side very well, because politically we have begun to find it acceptable to compromise our positions in order to prevent the “other” guys from getting into power. 

I’ve been scratching my head, trying to figure out why otherwise intelligent, rational people have such disparate ideas about how things should be run.  The only thing that I can come up with is that liberals and conservatives must be operating under completely different underlying assumptions, and aren’t aware that the other side does not share those assumptions.  Some things seem so obvious that they don’t seem worth mentioning, so when someone says something that is plainly contrary to a core assumption, our first reaction is to brand that person as an idiot.

This theory bears itself out in conversations with liberals, which I have a seemingly infinite supply of, living near Portland, Oregon.  When I have stepped back from issues that we disagree vehemently on, and questioned the assumptions which lead to these disagreements, I have invariably found that the other side has a completely different set of assumptions.  This has the potential to turn into a huge discussion, so I’m only going deal with one assumption here and save others for future installments.

The Myth of the Zero Sum Game.

One day a few years back, after martial arts practice, I was having a couple of beers with fellow martial artists.  They were all considerably younger than I was and all liberal.  I proposed the question; “Is the economy a zero sum game?”

The unanimous response was “Huh?”

Okay, if I earn a ton of money and get rich, does somebody else automatically get poorer as a result? 

There was some shuffling of feet and intent peering into half-empty beer glasses.  Those who knew me knew that I had just laid a trap.  They weren’t sure how, but they were loathe to step into it.  One brightly androgynous  young lady, confident in her idealism and confident that she had strength of numbers on her side, announced “Of course!  How could it be any other way?”

And that, boys and girls, is a fundamental postulate, one that is taken as gospel by many on the left, and one that is considered patently absurd by the right.  It is so fundamental that no one ever thinks to question it from either side.

The funny thing is that there is precedent for both sides being right.

Let’s consider basic economics.  The foundation of economics is production.  Workers produce goods, and then trade those goods for other goods or services.  Note that I started with producers of goods, not providers of services.  Service providers, although they play a valuable role, cannot exist without goods producers.  Goods producers can do just fine without service providers.

The most fundamental good of all to produce is food.  The producers of food must produce enough food so that the entire population – producer and providers and those who do neither – can eat.  Failure to do so means people die.  Let’s remember this, because we’re going to come back to it in a moment.

There are two types of goods that can be produced:  Durable and perishable.  Durable goods keep their value.  They can be traded, hoarded, and traded again.  When durable goods are consumed, the result of their consumption is other, hopefully more valuable, durable goods.  Perishable goods have a shelf life, after which they are either consumed or have no value.  Consumption of perishable goods yields nothing of value, or value that is transitory.  Consume firewood, and the resulting heat is valuable, but doesn’t last.  Consume gasoline, and the resulting motion has no lasting value.  Consume food, and the result actually costs money to dispose of.  Consume pig iron, and the result is probably a product which has value, hopefully more value than the original pig iron.  Food is perishable, pig iron is durable.

 The wealth of any community large or small may be measured in terms of the amount of goods it is capable of producing.  Now let’s back up 500  or 600 years and examine the sorts of economies extant up to that time.  Before the industrial revolution, all production was done by muscle power.  If a man or animal did not do some sort of work, nothing was produced.

Because of the phenomenal expenditure of muscle power necessary for any sorts of production, pre-industrial economies were dominated by food production.  This is where the majority of the workforce was employed, and what consumed  most of the productive capacity available.  Artisans and skilled producers of durable goods were highly valued, and ensured they kept their value by associating in exclusive guilds which jealously hoarded the secrets of their production.

Think about this for a second:  Most of the productivity of a community is going to disappear within one year, either consumed for sustenance or spoiled. 

How can anyone get rich in such an economy?  The answer is easy:  you steal it.  You can either set yourself up as some sort of government, which has the right to help itself to the food production of all the populace, or you can go as far as claiming ownership of the very means of production – the people who do the producing.  The guy actually doing the production has no chance to get rich, because he simply can’t produce enough by the sweat of his brow to accumulate enough to be able to pay someone else to do it.  Those in the service industries do have a chance to get rich, if they can manage a way to market their services to enough producers to take advantage of economies of scale.  Their success is closely tied to that of the producers, and in a horse-drawn economy, economies of scale are difficult to come by.   Those in political power have the best chance of getting rich, because they have no need to give any sort of value for that which they take, and can do so by fiat and force of arms.  Often it’s politically safer if you’re in political power to go abroad and steal from someone else, so you don’t live in fear of your own people, and in fact you can buy their loyalty by paying them with plunder. 

This sort of situation gives rise to heroes like Robin Hood, who robbed from the rich and gave to the poor.  This was not deemed immoral, because in this sort of economy the rich probably got that way by robbing in one form or another from those who did the production.  Good kings were those who laid the whip of taxation lightly, and who provided service for their income, in the form of protection and justice. 

Wealth in this system is based on the quantity of recent production – typically the production of the previous year, which will be worthless within a year.  The amount of wealth in a community is therefore relatively fixed at any given period of time, and subject to consumption that usually equaled or exceeded the ability to produce.  While not precisely a zero-sum game, this agrarian based economy is close enough to a zero-sum game that the principle effectively holds:  If you’re rich, chances are you stole it from someone else.  In this economy, money is the root of all evil; or rather, the love of money is the root of all evil.  An entirely just system would punish the robbers by redistributing the wealth to ensure that the producers shared in the fruits of their labor.  This way of thinking was deeply ingrained in the justice systems developed over the centuries, and Karl Marx attempted to adapt its dynamic to the industrial revolution.

Economics changed dramatically with the industrial revolution.  The development of machinery which did not base its power on muscle power greatly magnified the productive capacity of the individual.  For the first time in history, durable goods composed the greater part of the productive capacity of a population.  As machinery became more sophisticated, and the productive power available became amplified, production of perishable goods became a relatively insignificant part of the economy. 

Now think about this: Most of the productivity of a single person may be hoarded by that person, and traded for the productivity of others.  It never disappears, it never spoils. 

The efficiency that a single person can achieve, and that person’s ability to literally reach a global marketplace, means that the producer himself can now gather wealth and become rich.  This is not simply because people have the power to produce more.  Because a person can trade their surplus production for someone else’s surplus, Efficiencies of specialization are realized.  The wealthy person does not need to steal from other people to get rich.  His productivity is such that he is capable of living a very comfortable life purely on the basis of his own production. 

The truly wealthy in this economy are not robbers, they are people who have developed ways of producing something of value to the community on a vast scale, with the most efficiency.  Because one person cannot do this alone, this person often employs other people to produce under his direction.  The ability of a person to produce for his or her employer is rewarded by the employer.  If the employee feels his compensation isn’t commensurate with his productivity, he’s free to shop his productive abilities to other employers who may value his abilities more.

In this economy, Robin Hood is not a hero, he has become an evil villain.  In this economy, wealthy people are enjoying the fruits of their own productivity, and doing so as much by trade as by production.  To take from such a person is to steal the from the best of the people who Robin Hood formerly championed.

Because the economy is predominantly durable goods, production has lasting value.  Consumption is relatively minor compared to production, so the total wealth of a community is constantly expanding.  It is not a zero-sum game.  If one person gets rich, he does so because he has mastered efficient, valuable production.  He has not taken anything from other people.  The liberal may argue that he has achieved his wealth from the production of other people who are in his employment.  This is true, and those people were compensated accordingly, in a mutually agreed upon employment contract.  The employer is obligated to compensate his employees commensurate with the value they provide for him, or they will defect to another employer who appreciates their value more.

And herein lies the fallacy of the liberal propensity to try to equalize the wealth disparity.  The urge to be Robin Hood denies the fact that industrial capitalism has a perfect mechanism for rewarding those who contribute the most to society, and penalizing those who contribute least.  The intelligent liberal should seek not to redistribute wealth by force of arms, but to work to level the field of opportunity for everyone to realize their full productive potential.  This cannot be done when non-productivity is rewarded, and the most productive are punished.

There is much more to be said on this subject, and others have said it better than I can.  Please read a critical excerpt from Ayn Rand’s Atlas Shrugged.  Take the time to read the whole passage and understand it, for in today’s economy, money is the root of all good.  To deny this is to invite certain catastrophe.

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