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It’s a common fallacy to believe that wealth is zero sum. It’s also a common fallacy to believe that, since it’s not zero sum, gains by one group are uncorrelat

It’s a common fallacy to believe that wealth is zero sum. It’s also a common fallacy to believe that, since it’s not zero sum, gains by one group are uncorrelated to losses by another. If the rich got richer, does that mean they took from the poor? No. But it also doesn’t mean they didn’t. As usual, you have to look at the specifics. The world does have limited resources and capacity for economic growth. In your index fund example, a substantial chunk of those are being allocated to someone who already has plenty, and it would be a lot more useful if it went to someone who had less. That’s not exactly taking from the poor, but it’s not exactly not.

mikeash 7y ago
It occurs to me that there’s a simpler way to put it: wealth creation is not a zero sum game, but wealth allocation is.
- leetcrew 7y ago
  I don't think this is a very good way of putting it. if wealth creation is disconnected from allocation, the creation part isn't really a "game" at all; there's no reward function. the second part, that wealth allocation is zero sum is literally true, but only in the tautological sense that there's no way to divide a pie such that the pieces add up to more than one pie. it's not very useful to assume you already have a pie and then decide how to divide it up when the way you divide it affects the size and kind of pie you have to begin with.
  - mikeash 7y ago
    I think it's useful because it gets you thinking about which category various things fall into, and how they're connected. For example, business growth is usually wealth creation. We shouldn't think badly of successful businesses (unless they're taking advantage of externalities or similar). However, pay is wealth allocation. Pay going to executives versus workers versus charity versus taxes is a zero-sum game, but we're OK (for certain values of "we") with executives getting a huge slice of that pie because we're pretty sure it helps drive the wealth creation side of things by providing incentives. It gets you thinking about what incentives you need, what sort of behavior they drive, what sort of behavior we want to drive, etc. Far more useful and interesting than the typical story of "wealth is not a zero-sum game, rich people don't take anything away from poor people, The End."
logicprog 7y ago
I mean, it's hard to say for sure that on the large scale allocating extra money to poor people would be any more efficient in the long run. Rich people buy things, paying a lot of paychecks. They are also funding a lot of innovations and putting in investments. Things that improve more lives over time than just giving random people lump-sums. Furthermore the question is also: who gets to decide where that money goes? A sibling comment mentions money allocation. Allocation via distributed emergent system is what we have now. To try to allocate more "efficiently" you need someone to manage it. Who should do that job? Sounds like a great/horrible one.

mikeash 7y ago

It occurs to me that there’s a simpler way to put it: wealth creation is not a zero sum game, but wealth allocation is.

leetcrew 7y ago
I don't think this is a very good way of putting it. if wealth creation is disconnected from allocation, the creation part isn't really a "game" at all; there's no reward function. the second part, that wealth allocation is zero sum is literally true, but only in the tautological sense that there's no way to divide a pie such that the pieces add up to more than one pie. it's not very useful to assume you already have a pie and then decide how to divide it up when the way you divide it affects the size and kind of pie you have to begin with.
- mikeash 7y ago
  I think it's useful because it gets you thinking about which category various things fall into, and how they're connected. For example, business growth is usually wealth creation. We shouldn't think badly of successful businesses (unless they're taking advantage of externalities or similar). However, pay is wealth allocation. Pay going to executives versus workers versus charity versus taxes is a zero-sum game, but we're OK (for certain values of "we") with executives getting a huge slice of that pie because we're pretty sure it helps drive the wealth creation side of things by providing incentives. It gets you thinking about what incentives you need, what sort of behavior they drive, what sort of behavior we want to drive, etc. Far more useful and interesting than the typical story of "wealth is not a zero-sum game, rich people don't take anything away from poor people, The End."

logicprog 7y ago

I mean, it's hard to say for sure that on the large scale allocating extra money to poor people would be any more efficient in the long run. Rich people buy things, paying a lot of paychecks. They are also funding a lot of innovations and putting in investments. Things that improve more lives over time than just giving random people lump-sums. Furthermore the question is also: who gets to decide where that money goes? A sibling comment mentions money allocation. Allocation via distributed emergent system is what we have now. To try to allocate more "efficiently" you need someone to manage it. Who should do that job? Sounds like a great/horrible one.