Economic Fallacies: "Zero-Sum Game"

The Zero-Sum Game Fallacy views wealth as a fixed quantity meaning the only way someone gets wealthy is at someone else's expense.

There are three possible types of games in the world. First, there is the lose-lose game. There are not many examples of this one. I always think of the 1983 movie War Games starring Matthew Broderick. The military's supercomputer takes on a mind of its own and plays out all the nuclear war scenarios only to conclude that the only winning move is not to play.

Then there are win-lose games. Most athletic competition is of this type. Turn to the sports section of the newspaper and look at the standings for the teams in the National Football League. Add up every team's wins and losses, subtract the losses from the wins, and the total will be zero. If any team has more wins than losses, someone else must have more losses than wins. This is the perspective that many have about wealth and poverty. Someone's wealth is the cause of someone else's poverty. But the market economy is not a win-lose game.

The market economy is a win-win game. If you add up the Gross Domestic Product (GDP) growth for all nations in a given year, the total will not be zero. Overall, wealth is growing. Some nations are getting a greater portion of the expansion than others, and a few nations may have declined in GDP, but the world's total is a positive number. How does this happen?

In his talk on Economic Myths, Jay Richards uses the example of "The Trading Game" played in many classrooms. Richards describes his experience playing the game in the sixth grade. Each student was randomly given an item of approximately the same value. Each student was instructed to rate how much they valued what they had received from 1 to 10, with 10 being the highest value. Richards received Barbie trading cards, which he ranked as a 1. Then the students were placed in groups of five and allowed to trade with each other. Richards found a girl with a paddle ball and traded to each other's satisfaction. The students recorded their values again. Finally, they were allowed to trade with anyone else in the room. When the trading was finished, the students wrote down the value of the item now in their possession.

If you added up the students' ratings at the start of the game and compared them to the sum of the students' ratings at the end of the first trade, you would find that the sum for the class was higher than it was at the beginning. The sum would be higher still after the second round of trade. Furthermore, no one would have an item of lesser value than the one they started with at the end of the game. There were rules to these market exchanges. There was no theft or intimidation, so there was no way to go lower than the value of the starting item. Often in these games, everyone's value goes at least a little higher. "Societal wealth" has expanded through free trade in an environment with the rule of law and respect for property rights. This is without even considering the enormous impact of human and financial capital on the production and distribution of goods and services.

The Zero-Sum Game is possibly the most pervasive of the economic fallacies. Well-meaning Christians see people in poverty and decide that the answer is to shift more wealth from the rich to the poor. They look at what Americans have and conclude that the USA has more than their "share" (of a fixed amount) of wealth. Now let's be clear here. Just as with biblical ethics in the Mosaic Law, society is obligated to care for the poor and helpless. This is different from saying that redistribution should be imposed because one group has more than another or that one group's wealth is the cause of the other's poverty. The issue is not that the wealthy have taken from the poor but that the poor have nothing to trade in the economy. Robert Lupton, in the short but excellent book Compassion, Justice, and Christian Life: Rethinking Ministry to the Poor, writes:

Remember your last garage sale? Or the last antique bargain you purchased at a flea market? Or the last car you traded? How is it that when a transaction is done well both purchaser and seller come away with a sense of gain? It’s the magic of exchange. And it transcends the boundaries of age and gender, race and class. Whether the find is a rare Babe Ruth baseball card, a silk blouse reduced for quick sale or the perfect piece of land at the right price, the ecstasy of exchange is for all to enjoy.

Exchange is remarkably invigorating process. The very thought of acquiring a new treasure motivates us to calculate value, rearrange priorities, juggle finances, analyze past performance and make predictions about the future. And ultimately, it pushes us to the risky edge of letting go of something valued in the hopes of gaining that which will be of greater worth to us.

However, when the labor you offer is unneeded in the marketplace of when your abilities area worth less to employers than the amount of your welfare check, you are exchange-less. Indeed, poverty may be defined as having little of value to exchange. And when society subsidizes you for being a noncontributor, it has added insult to your already injured self-esteem. (43-44)

Well-intentioned efforts to redistribute wealth to the poor can have two negative consequences. First, the wealthy have not put their wealth in a safe at home. Most of their wealth is invested in productive enterprises like owning their own business, owning shares in other businesses, or loan instruments at lending institutions. Reducing the wealth of the wealthy through forced redistribution means fewer funds for productive economic enterprises, and if the reductions are substantial enough, it slows economic performance. Second, subsidizing "noncontribution" by the poor is dehumanizing. God has called each of us to be stewards over some corner of his creation. It is an ontological expression of our humanity. Our primary focus must be restored stewardship, equipping people with something they can trade in the marketplace and the skills to work there.

Developing nations need greater gradual integration into the global market economy (not the failed "extreme makeover" approach imposed by developed nations in the past) with more economic freedom circumscribed by the rule of law and property rights so they may partake of the benefits of the trading game. Our objective is not equalizing a falsely conceived fixed amount of wealth in the world.

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Comments

[Anonymous]

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[jim]

I was thinking along the same lines as anonymous, but more on a grander scale. Maybe this is not to the point of what you discuss here, but:

I think there are serious economic issues with the amount of global resources we use as a nation; isn't there an issue of stewardship there, especially regarding stripping the earth of its resources?

And now we see that playing out with a budget deficit; we can't continue to consume and spend and buy on credit and not expect it to somehow impact our economy and our position in the global economy.

[Michael W. Kruse]

Anonymous and Jim, you raise important questions. I almost went into the simplicity question here but drew back. One of the challenges is that these issues are all interconnected. I’m trying to keep them to bite-sized chunks. I’ll be getting to these issues some in the next post (probably on Friday) and the one on the environment next week. Here are three observations.

First, apart from the future resources question, what I hope is clear is that living simply today does not “free up” resources for use somewhere else. This is zero-sum thinking. Other nations could foster markets, invest in infrastructure, improve the rule of law, etc., and have just as much as developed nations. I’m not arguing the desirability of having the whole world live like Westerners but rather pointing out that the issue isn’t one of using less here so more can be used there.

Second, I prefer Richard Foster’s idea of simplicity in “Celebration of Simplicity.” He defines simplicity as single-minded focus. I think we all agree that we can idolize accumulation of wealth. However, we can also idolize asceticism. Our focus becomes directed toward being non-affluent. But there is always someone living less affluent than we are. Soon we are in a competition of conspicuous non-consumption. Simplicity is about singleness of focus on God. Our relationship to our material goods will flow from that.

Third, and I’ll be pointing this out in a later post, we are not running out of natural resources. Markets for commodities factor in present and future demand, along with estimated present and future supply (and the economic factors involved in accessing that supply.) As supply decreases relative to demand the prices will creep higher and higher. What do we see in the markets? Here is one study presented six years ago to the IMF:

“Using the longest dataset publicly available (The Economist’s index of industrial commodity prices), we analyze the behavior of real commodity prices over the period 1862-99, and have two main findings. First, while there has been a downward trend in real commodity prices of 1.3 percent per year over the last 140 years, little support is found for a break in the long-run trend decline in commodity prices. …” (The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability by Paul Cashin and John C. McDermott, International Monetary Fund.)

I understand that in the literal sense there is a fixed amount of any natural resource in the world. But societies are dynamic organisms and we can’t simply do something like take per capita use today, multiply it by the population, and then project that usage into the future to arrive at resource depletion date. More in my next post.

We need to reflect on our use of material resources and the strong inclination to worship mammon. “Living simply” may be a valid response to that. However, living simply does not help the poor today nor does it preserve resources for the future. I hope to flesh this out more in coming posts.

[Anonymous]

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[Anonymous]

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[Michael W. Kruse]

Anonymous, I love the questions you are asking. I don't feel put upon in the least by your challenges. I welcome them. This is what helps me clarify my thinking and presentaion.

Let me make this a bit more complicated. Let's say I have a net worth of $1,000,000. Am I living simply? Do I need to give that to the poor? Now, let's say that $900,000 of my net worth is invested in my Sub Chapter S Corporation where I employ 25 people making specialized medical equipment. This business sustains these people and their families as well as sustaining my family. It provides an important product. Would it be better to give $900,000 to the poor or invest it in an ongoing enterprise that provides a livelihood for people? If this is measure of living simply, and if everyone practiced it, then how would businesses exist to generate wealth that can be given to the poor?

Furthermore, what is simple living? Shall we live in Section 8 housing with a poverty level income? If so, then we are at a living standard well above billions of other people in the world today. Are we living simply enough? What does living simply mean? (I see I screwed up the title of Foster’s book yet again. Thanks for the right title.)

Charity, generosity, and benevolence are central to Christian stewardship. I’m someone who gives away more than 10% of what I gross each year. Leaving below our means and disciplining ourselves to be generous with those in need is part of the Christian Life. But I would go back to my previous post and point out that our giving is not just about putting resources in the hands of others so they have more to consume. It is about investing in them as they become restored stewards. I agree that living more simply frees up more resources to invest in the poor. But that helps the poor not because it puts resources into their hands that were taken from them by me (zero-sum game) but because it empowers them to become restored stewards caring for themselves and increasing society’s wealth through exchange in the marketplace (adding more win-win relationships to the marketplace).

The next few posts will hopefully say more. The whole simplicity question is one I may do a short series on next month. I’ve been thinking about the topic a lot lately.

[RonMcK]

Anonymous
I try to live simply because I get my peace in Jesus and not in things.

However I cannot just assume that living simply will help the poor.

If a everyone buys $20 shoes, the people who make $200 shoes (who are probably poor) may find themselves unemployed, so they are worse off.

If a physician chooses to live simply and work less, some people may no longer get medical care.

If an entrepreneur decides to live simply and wind up his businesses, his employees may be made poorer.

Living simply maybe the right thing to do, but it is not necessarily a panacea for poverty. It may increase poverty.

[Anonymous]

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[Michael W. Kruse]

"...must it not lead us to economic and social justice?"

I'd say it leads us well beyond mere justice into the "injustice" of mercy, compassion and benevolence.

[Brad Cooper]

Michael,

Excellent stuff! I don't really have anything to add to the conversation, but I found an article (while looking for something completely different) that intrigued me. And having come to respect your knowledge in this area from the discussions at Jesus Creed, I thought you might be interested. Here's the link:

http://www.smh.com.au/news/business/for-a-divine-economy-follow-the-old-testament/2006/04/16/1145126005481.html

Grace and peace in our Messiah!

[RonMck]

Brad
Interesting article. I am not sure about all the conclusions, but they are drinking from the right well.

Many years ago, when I got really serious about studying political and economic issues from a Christian perspective, I started with the NT. I found some good stuff, but there was just not enough there.

I then went back to the prophets. I found that they were great at pointing out what was wrong, but when it came to understanding what should be, there was just not enough there either.

I found that I had to go back to the Pentateuch to find a complete political and economic system. It is a little hidden amongst the other stuff, but it is all there.

[Michael Kruse]

Hi Brad. Thanks for the link. I came across the Relationships Foundation recently, I think while reading about the Jubilee Manifesto that Andy mentioned in an earlier post.

I see a couple of things in the article I would pick and I see the way they frame some things at their website that I would quibble with but I like what they are trying to do here.

I think one of the big challenges in using the biblical narrative to think about economics is that I don't think most of us realize how much capitalism and industrialism has altered how we understand economic issues. Until roughly 1750, the best we could imagine was a world where everyone had just a little more than they needed to live on. Land and labor are very fixed quantities. That makes economics something very close to a zero-sum game. Trade, in the modern sense of the word, was very tiny compared to what the bulk of the economy was about. Capital and machine power has unleashed the possibility of everyone living not just above subsistance but in abundance. You've seen me remark at Jesus Creed that it took from 12,000 BCE until 1750 CE for the worldwide per captia income in real dollars to grow from $90 to $180. From 1750 to 2000 it grew to $6,600!

I going to have more to say about this after this series but I don't think we have yet fully wrestled with the ramifications of the positive side of what market capitalism has unleashed.

[Brad Cooper]

Michael,

I agree. I think that the industrial/scientific revolutions have really changed the economic situation. But given the situation as it was--and I think you'd agree--the Old Testament provides an economic system that led to a reasonable level of prosperity and equity for the people of Israel....And don't forget the free trade that was going on between Israel and other nations (thinking about the trade game that you mentioned).

Keep up the good work! Peace.

[Michael W. Kruse]

Thanks Brad.

I'm looking forward to doing some posts that process out loud about modern affluence. I have lots of thoughts going in my head and I'm still not settled on exactly what I think. Maybe others here can help me process.