Zero-Sum Game?

I absolutely LOVE Christmas.  Not just the day, but the month leading up to it and the few days after it.  I have wondered why I am the way I am, and why other people may be different.  Some decorate their houses; some don't.  Some put up fake trees; some ONLY buy live trees. Some put up white lights; others put up blinking green and red lights and blow up Santa figures in the front yard.  The differences go on and on. I am certain my traditions have something to do with how I grew up, and how my mother decorated the house, the smell of cinnamon, and the lights around town. As a kid, I learned to love it... as an adult, I demand it!

So what does Christmas have to do with the concept of the "Zero-Sum Game", you may ask?  Nothing really.  But since it is the Christmas season, indulge me for a minute and I will cram the two topics together to make it work.

Christmas is the easiest illustration I can point to of a belief system that manifests itself in all sorts of action, carries on for generations, and then over time the participants lose track (or forget, or never learned) of the belief.  Why the tree?  What does the star on top mean?  What is the significance of a candy cane?  What do the colors red and green represent?  Who is Santa? The questions go on and on, with very few people knowing the answers (not to mention the point of Christmas in the first place!)  But that is what humans do. They do because they always have and because their parents did, and so forth.  I wonder how many would still carry on the traditions if they knew what the meanings were.  I would like to think most everyone, but you never know.

Now for the s t r e t c h comparison.  Today, we see a similar dislocation of actions and their origins.  We see the evidence of a belief, but the actual belief is out of sight and out of most everyone's consciences. The "decorations" for this belief are things like political speeches about the "Income gap", articles about the unfair "transfer of wealth", pitting "Wall Street" against "Main Street", a broad brush condemnation of "capitalism", and so on.  Most people see these "traditions" and carry them on because they look good, smell good, and sound good.  Their parents or their favorite actor or their favorite TV show host has parroted them, so they do too.  And because it is Christmas, and many people are indulging while others are doing without, the rhetoric has ratcheted up a few notches.

But what do you get when you boil it all down to the core belief that spawns all of the holly and tinsel? Unlike Christmas, we don't get to truth, we get myths such as the "Zero-Sum Game."

The Zero-Sum Game concept is the idea that in our economy (and in any transaction), there are always economic winners and losers, and that in total, the losses equal the winnings so that there is no net gain - i.e. a "zero sum".  It has as its theoretical end the concept of the "Fixed Pie"; that is, that wealth is not created, it is only transferred.

As an example, take the "unfair" income gap that is the outcry of the media today.  The data shows that the difference in income between the rich and the poor is widening, and has been for years.  Sounds terrible, right?  It may be.  Are the wealthy getting wealthier and the poor getting poorer?  That is what we are led to believe.  What is implied is that the wealthy got there at the expense of the poor; that the poor would be better off if the wealthy weren't so wealthy.  What if that weren't true?  What if the two had nothing to do with one another? Or worse, what if the wealthy getting wealthier actually helped the poor?

Let's dig into it a little bit.  Say an entrepreneur invented a new widget and makes $50k, and another guy on the other side of the world making $50k loses his job?  If you believe in Zero-Sum, the consequences of the entrepreneur's success starts a chain reaction of money transferring hands that ends up creating a shortage somewhere else, causing a lack of funds to pay that guy's wage and resulting in him being let go.  Seems plausible.  That is fixed pie thinking.

The other view is that the entrepreneur invents a new widget, employs people, and creates "new wealth".  He gets wealthier at the expense of no other person.  The guy on the other side of the world loses his job because his employer is paying a higher tax bill and can't make payroll.  How plausible does that sound?  That is not fixed pie thinking.

Which do you believe, and which one is true?  If you aren't sure, think about what the economy was like in the years 1800, 1900, and today and ask yourself one simple question: Did wealth increase?  The clear answer is yes.  Population increased, and wealth increased per capita.  Don't believe it? Click here and press "play".

The natural follow up questions is "How?"  More on that in a future post, but suffice it to say that mankind has found ways to add value to everything from trees to old tires to transistors. Mankind discovers, harvests, creates, and transacts in a way that creates wealth and gives people jobs, income, and hope.

So what is the point of all this?  Seems like a strange subject to blog about and link to Christmas, doesn't it?  Actually, it isn't as much of a stretch as it sounds.  Christmas is a time when everyone is thinking about finances. Many are doing well, but many aren't and can't afford to give their kids much of anything.  And when we see people struggling and the media blames the so called "wealthy", it is a tragedy. 

As entrepreneurs, we are trying to help the economy, create jobs, and give families a hope and a future. My hope this holiday is that you would be encouraged to not accept the mush that is being fed to you from the media.  Then, go hug an entrepreneur and thank him or her for taking a risk to create wealth and jobs.  After that, go and be generous and share with those less fortunate.  That is what makes this country (and Christmas) great!

Merry Christmas and Happy New Year!