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The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. Consider what happens with high interest rates:

The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on. Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank. > The latter as a group made more money during the pandemic from any possible source you could look at Stock prices are up because we literally stimulated the economy by giving the average person free money to spend and subsidizing their jobs. The headlines comparing net worth of wealthy people at the lowest point of the pandemic to the highest point are outrage porn. They didn’t make money by funneling it out of the poor and into their bank accounts.

dominotw 6y ago
> The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. It is obviously a zero sum game. Over last year my FAANG friends had their stocks increase by insane amounts which they sold and bought second homes, beach houses, ski condos. I am not a FAANG employee or owner or TSLA stock, we want to buy a house but we are priced out of most places. We have to move away from our family to the farthest suburbs to even be in the competition.
- zemvpferreira 6y ago
  Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could afford, but it's still true, and not because we have more wealth. Every year lots of things get cheaper compared to the money we make, and lots of new things are invented that replace much more expensive alternatives. We used to bring blocks of ice into the cities from the north (inside ships wrapped in hay I think) to act as refrigerators, for goodness sake. That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.
  - nybble41 6y ago
    That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange. Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
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    - pushrax 6y ago
      Working with the idea that value is current and future utility to people: Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value. However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears. Feels to me like most value is probably created intentionally this way. On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
- pwg 6y ago
  > > The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. > How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. If you define "get rich" as "own land" or "own water" or "own property in desirable place X" then yes, you can see it as zero-sum. But if you define "get rich" as "accumulate money", then the economy it is not zero-sum. And one of the ways it is not zero-sum is fractional reserve banking. This allows the banks (who arguably are the originators of most of the loans being discussed here) to literally "create money out of thin air". For a bank to underwrite a loan to someone for $20,000 for a car, they don't have to wait for grandma's saving account to accumulate $20,000 in order to have the funds to make that loan. They only need (example) $2,000 to be "savings" in grandma's savings account in order to be able to underwrite a $20,000 loan to the person wanting to buy the car. The $18,000 difference was simply created by fiat out of thin air. Which is how, if one defines "get rich" as "accumulate money", the economy is not zero-sum. In order for person X to gain 10,000 more dollars, person Y does not have to give up any dollars (unlike with land/water/housing/etc.).
  - esotericn 6y ago
    "Getting rich" literally does mean owning capital. You are not rich if you have ten billion Zimbabwean dollars.
  - dominotw 6y ago
    > "own water" what is owning water? I don't want to own water. I want to live in place where there is no water shortages. What is your plan to survive without 'owning water' ?
- ksdale 6y ago
  Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Now far fewer people do. (Well more absolute people, but fewer relative people) This improvement is mostly because so much more of everything is produced. Redistributing everything from the richest people of 100 years ago without producing more would leave the average modern person quite poor indeed.
  - pietrovismara 6y ago
    > Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Untrue. The world has always had problems, even today, but it's ridiculous to think that everything was bad (before capitalism, isn't that what you meant?). That is propaganda you are repeating out without even noticing. Go study history before making absolute claims like that.
    - ksdale 6y ago
      I've read plenty of history, thank you very much. I didn't say everything was bad, I said everyone lived in poverty and regularly worried about starving to death, which is objectively true for most people through most of history. (At least, they lived in what we now consider poverty.) Until sometime in the last few hundred years, the vast majority of human effort was spent on trying to make sure there was enough food, and famine was far more common than it is today. The fact that life was so hard does not mean that people didn't find meaning in it or that it was bad by any means, but what's ridiculous to me is to suggest that there is a finite amount of wealth in the world when very obviously there is more today than there was yesterday and who knows how much more than there was a thousand years ago.
- pdonis 6y ago
  > There are only limited amounts of land to own, water to drink, desirable places to live ect. It's important to note that the third of these is not like the first two. Yes, the Earth is a planet of finite size and there are only a finite amount of acres of land and molecules of H20 on the planet. Note that the actual land used by humans, and the actual H20 used by humans, are both much smaller than the total that is available. And the H20 gets recycled anyway. But yes, there are finite limits to both set by the Earth's finite size and the physical characteristics of humans. "Desirable places to live", however, is subjective. Different people have different desires. And we have the ability to create different places to live that satisfy different people's desires. In other words, "desirable places to live" is not a finite, limited resource; we can create more. Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
  - jkepler 6y ago
    > .... In other words, "desirable places to live" is not a finite, limited resource; we can create more. > Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have. Agreed. Another thing many people miss is that money isn't wealth: its simply the measuring stick or common language/protocol we collectively use to measure the wealth or value people create through their work. Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.
    - pdonis 6y ago
      > Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments. Can't upvote this enough. If only most people grasped this and saw through the smoke screens that politicians and financial institutions put up to disguise what is really going on. The only thing I would add to this is that, in addition to the distortion effect you describe, creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.
- imtringued 6y ago
  >There are only limited amounts of land to own, water to drink, desirable places to live ect. I would agree if we had runaway population growth. However, we get to be wealthy simply because our population growth is going down. The amount of resources accessible to the average person is roughly staying the same or increasing. Urbanization and failure to build more housing is what is causing issues in the housing market. It's not about the availability of resources but rather their perceived value and low interest rates and job opportunities make the perceived value go up. What's zero sum isn't the economy because productivity improvements happen all the time. What's zero sum is the access to fresh money. There is an inherent imbalance in the financial markets that favors large corporations. The money is arriving in their hands and thus the hands of their owners first, at the expense of those who get the money far later, the workers. This is why Biden wants a stimulus package. He's trying to make it fair for both sides.
cmehdy 6y ago
This zero sum saying needs to die, it doesn't say anything useful. What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), because total value is not constant over time as we value human creation in a system of human beings. However at any fixed t, the total value is a constant and the sum adds up, hence why it's called a sum in the first place. Saying that the function isn't flat doesn't give us ANY useful information about the finer distribution of wealth, studies do. And those studies keep on pointing out a world where the inequality gaps are getting wider and deeper. This is exactly back to my first comment, and somehow that was populist to point that out to you.
- Aunche 6y ago
  > What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), I think they were saying that it's not zero-sum with respect to policy rather than time. Most ideas of wealth redistribution would have disastrous effects on the economy. There's a reason why even the most progressive countries primarily fund their social programs with income taxes and VATs rather than capital gains or wealth taxes.
  - oooooooooooow 6y ago
    This is a very interesting perspective, I'd love to hear more about the disastrous effects.
    - julienb_sea 6y ago
      Pretty much every functional nation is fundamentally reliant on a healthy, competitive, tax-paying and stable private sector. In order for this to exist, you need people to trust that their capital is well protected and handled in a fair manner. "Fair", when talking about the global economic perspective, is a cost/benefit analysis taking account of your tax burden. Private investment is a way of putting your money at risk in exchange for a potential reward. Wealth redistribution at scale implies that you massively reduce or eliminate the rewards associated with your capital. This is a big problem as it drastically affects the incentives to put your money at risk (i.e. in a private company). This will absolutely tank the private economy, which, as mentioned, is the backbone of a modern country. No one will want to hold capital in your country or invest it in your country because it's going to be redistributed. This is why even the most "socialist" countries from the uninformed American perspective actually have very low wealth and corporate taxes: they recognize that encouraging the private economy is fundamental to the stable function of a modern country. (Instead, they heavily tax income, which has much less economic side effects)
andrepd 6y ago
Stock prices are up because they are being artificially inflated! Quantitative easing gives money to banks, which lend cheaply to companies, which buy-back all their stock, keeping themselves inflated! It's a legalised scam it's what it is.
- imtringued 6y ago
  It's a central bank driven bubble. Just because there is a logical explanation for the bubble doesn't mean it's not a bubble.
imtringued 6y ago
>Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on. High interest rates make sure that only the most productive businesses get access to capital. This is a very important inflation moderator in an overheating economy. Right now the economy is far from overheating which is why interest rates are low. >Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank. They aren't. The theory behind low interest rates is that there are infinite investment opportunities and thus having access to cheaper loans will cause entrepreneurs to start more businesses and thus employ more people. Once unemployment is down any additional loan will cause any additional dollar to contribute to a decrease in purchasing power of the dollar because you have reached the maximum production capacity of the country. If you want to run your country at maximum production capacity demand has to just barely exceed supply. This is one reason why 2% inflation is a policy goal. In practice nobody is spending the cheap money on sensible investments with a reasonable expectation of a return based on productive work. It's because small businesses have a hard time getting a loan in the first place. A small drop in interest rates isn't enough to compensate for the increased default rate of a startup. What happens is that big companies and rich individuals essentially have a monopoly on cheap credit and they use it for dumb stuff like buying stocks or Bitcoin.

dominotw 6y ago

> The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. It is obviously a zero sum game. Over last year my FAANG friends had their stocks increase by insane amounts which they sold and bought second homes, beach houses, ski condos. I am not a FAANG employee or owner or TSLA stock, we want to buy a house but we are priced out of most places. We have to move away from our family to the farthest suburbs to even be in the competition.

zemvpferreira 6y ago
Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could afford, but it's still true, and not because we have more wealth. Every year lots of things get cheaper compared to the money we make, and lots of new things are invented that replace much more expensive alternatives. We used to bring blocks of ice into the cities from the north (inside ships wrapped in hay I think) to act as refrigerators, for goodness sake. That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.
- nybble41 6y ago
  That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange. Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
  - deleted 6y ago
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  - pushrax 6y ago
    Working with the idea that value is current and future utility to people: Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value. However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears. Feels to me like most value is probably created intentionally this way. On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
pwg 6y ago
> > The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population. > How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. If you define "get rich" as "own land" or "own water" or "own property in desirable place X" then yes, you can see it as zero-sum. But if you define "get rich" as "accumulate money", then the economy it is not zero-sum. And one of the ways it is not zero-sum is fractional reserve banking. This allows the banks (who arguably are the originators of most of the loans being discussed here) to literally "create money out of thin air". For a bank to underwrite a loan to someone for $20,000 for a car, they don't have to wait for grandma's saving account to accumulate $20,000 in order to have the funds to make that loan. They only need (example) $2,000 to be "savings" in grandma's savings account in order to be able to underwrite a $20,000 loan to the person wanting to buy the car. The $18,000 difference was simply created by fiat out of thin air. Which is how, if one defines "get rich" as "accumulate money", the economy is not zero-sum. In order for person X to gain 10,000 more dollars, person Y does not have to give up any dollars (unlike with land/water/housing/etc.).
- esotericn 6y ago
  "Getting rich" literally does mean owning capital. You are not rich if you have ten billion Zimbabwean dollars.
- dominotw 6y ago
  > "own water" what is owning water? I don't want to own water. I want to live in place where there is no water shortages. What is your plan to survive without 'owning water' ?
ksdale 6y ago
Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Now far fewer people do. (Well more absolute people, but fewer relative people) This improvement is mostly because so much more of everything is produced. Redistributing everything from the richest people of 100 years ago without producing more would leave the average modern person quite poor indeed.
- pietrovismara 6y ago
  > Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Untrue. The world has always had problems, even today, but it's ridiculous to think that everything was bad (before capitalism, isn't that what you meant?). That is propaganda you are repeating out without even noticing. Go study history before making absolute claims like that.
  - ksdale 6y ago
    I've read plenty of history, thank you very much. I didn't say everything was bad, I said everyone lived in poverty and regularly worried about starving to death, which is objectively true for most people through most of history. (At least, they lived in what we now consider poverty.) Until sometime in the last few hundred years, the vast majority of human effort was spent on trying to make sure there was enough food, and famine was far more common than it is today. The fact that life was so hard does not mean that people didn't find meaning in it or that it was bad by any means, but what's ridiculous to me is to suggest that there is a finite amount of wealth in the world when very obviously there is more today than there was yesterday and who knows how much more than there was a thousand years ago.
pdonis 6y ago
> There are only limited amounts of land to own, water to drink, desirable places to live ect. It's important to note that the third of these is not like the first two. Yes, the Earth is a planet of finite size and there are only a finite amount of acres of land and molecules of H20 on the planet. Note that the actual land used by humans, and the actual H20 used by humans, are both much smaller than the total that is available. And the H20 gets recycled anyway. But yes, there are finite limits to both set by the Earth's finite size and the physical characteristics of humans. "Desirable places to live", however, is subjective. Different people have different desires. And we have the ability to create different places to live that satisfy different people's desires. In other words, "desirable places to live" is not a finite, limited resource; we can create more. Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
- jkepler 6y ago
  > .... In other words, "desirable places to live" is not a finite, limited resource; we can create more. > Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have. Agreed. Another thing many people miss is that money isn't wealth: its simply the measuring stick or common language/protocol we collectively use to measure the wealth or value people create through their work. Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.
  - pdonis 6y ago
    > Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments. Can't upvote this enough. If only most people grasped this and saw through the smoke screens that politicians and financial institutions put up to disguise what is really going on. The only thing I would add to this is that, in addition to the distortion effect you describe, creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.
imtringued 6y ago
>There are only limited amounts of land to own, water to drink, desirable places to live ect. I would agree if we had runaway population growth. However, we get to be wealthy simply because our population growth is going down. The amount of resources accessible to the average person is roughly staying the same or increasing. Urbanization and failure to build more housing is what is causing issues in the housing market. It's not about the availability of resources but rather their perceived value and low interest rates and job opportunities make the perceived value go up. What's zero sum isn't the economy because productivity improvements happen all the time. What's zero sum is the access to fresh money. There is an inherent imbalance in the financial markets that favors large corporations. The money is arriving in their hands and thus the hands of their owners first, at the expense of those who get the money far later, the workers. This is why Biden wants a stimulus package. He's trying to make it fair for both sides.

cmehdy 6y ago

This zero sum saying needs to die, it doesn't say anything useful. What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), because total value is not constant over time as we value human creation in a system of human beings. However at any fixed t, the total value is a constant and the sum adds up, hence why it's called a sum in the first place. Saying that the function isn't flat doesn't give us ANY useful information about the finer distribution of wealth, studies do. And those studies keep on pointing out a world where the inequality gaps are getting wider and deeper. This is exactly back to my first comment, and somehow that was populist to point that out to you.

Aunche 6y ago
> What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), I think they were saying that it's not zero-sum with respect to policy rather than time. Most ideas of wealth redistribution would have disastrous effects on the economy. There's a reason why even the most progressive countries primarily fund their social programs with income taxes and VATs rather than capital gains or wealth taxes.
- oooooooooooow 6y ago
  This is a very interesting perspective, I'd love to hear more about the disastrous effects.
  - julienb_sea 6y ago
    Pretty much every functional nation is fundamentally reliant on a healthy, competitive, tax-paying and stable private sector. In order for this to exist, you need people to trust that their capital is well protected and handled in a fair manner. "Fair", when talking about the global economic perspective, is a cost/benefit analysis taking account of your tax burden. Private investment is a way of putting your money at risk in exchange for a potential reward. Wealth redistribution at scale implies that you massively reduce or eliminate the rewards associated with your capital. This is a big problem as it drastically affects the incentives to put your money at risk (i.e. in a private company). This will absolutely tank the private economy, which, as mentioned, is the backbone of a modern country. No one will want to hold capital in your country or invest it in your country because it's going to be redistributed. This is why even the most "socialist" countries from the uninformed American perspective actually have very low wealth and corporate taxes: they recognize that encouraging the private economy is fundamental to the stable function of a modern country. (Instead, they heavily tax income, which has much less economic side effects)

andrepd 6y ago

Stock prices are up because they are being artificially inflated! Quantitative easing gives money to banks, which lend cheaply to companies, which buy-back all their stock, keeping themselves inflated! It's a legalised scam it's what it is.

imtringued 6y ago
It's a central bank driven bubble. Just because there is a logical explanation for the bubble doesn't mean it's not a bubble.

imtringued 6y ago

>Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on. High interest rates make sure that only the most productive businesses get access to capital. This is a very important inflation moderator in an overheating economy. Right now the economy is far from overheating which is why interest rates are low. >Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank. They aren't. The theory behind low interest rates is that there are infinite investment opportunities and thus having access to cheaper loans will cause entrepreneurs to start more businesses and thus employ more people. Once unemployment is down any additional loan will cause any additional dollar to contribute to a decrease in purchasing power of the dollar because you have reached the maximum production capacity of the country. If you want to run your country at maximum production capacity demand has to just barely exceed supply. This is one reason why 2% inflation is a policy goal. In practice nobody is spending the cheap money on sensible investments with a reasonable expectation of a return based on productive work. It's because small businesses have a hard time getting a loan in the first place. A small drop in interest rates isn't enough to compensate for the increased default rate of a startup. What happens is that big companies and rich individuals essentially have a monopoly on cheap credit and they use it for dumb stuff like buying stocks or Bitcoin.