Markets Aren't Zero Sum Games
The more I read about "Occupy Wall Street," including the pundits who apologize for it, the more I find that people still believe that market exchanges are zero-sum games wherein for someone to gain, someone must lose. But this is plain bunk, as economists since Adam Smith have shown conclusively.
But consider: Is a marathon race a zero-sum game? Does someone's running really fast make all others run slowly? Clearly not. How fast the winner runs doesn't slow down or speed up the losers. When a person buys a watch at the mall, both the merchant and the custumer are getting what they want from the other. No one is being ripped off. And the same applies to all honest deals on Wall Street. I buy some shares in a company and it is doing well with its products or services and so the monetary value of the shares increases. Those who didn't buy these shares do not make the gains I did but not because I prevented them from doing so, but only because the purchasing public didn't want the services or products of the companies in which they bought shares, unlike in the case of my choice of company.
Like marathon races, market processes do not involve what happens in a boxing ring – no one is knocked out so that another may be triumphant. Yet it seems nearly all those who sympathize with the people marching in the Occupy Wall Street parades, as well as the people who speak up for them in their midst, fail to see the difference.
Put bluntly, Bill Gates's billions do not make me or anyone else poor. In fact, his billions make it possible for a lot of folks to improve on their economic circumstances. Bill goes out and buys a lot of stuff or just gives his money away in Africa and people will then go out and make standard purchases with these funds. No one has lost anything, not a dime.
All the wealthy folks in my neighborhood who live on lakes in fancy homes and have yachts and Bentleys aren't making anyone poor. So resenting them is nothing but sheer envy, a filthy vice! It's like hating someone with a great voice when one cannot carry a tune ... or a tall basketball star when one is too short to play the game!
We are often very different from one another – indeed, we are all individuals and then gather into groups – and some of this means that we have stuff and opportunities that others do not, whether they badly want it and even need it. But those who have it aren't guilty of any wrongdoing except in the fantasy world of egalitarians, which is, being a fantasy world, a distortion of the real world in which problems need to be solved. This is, however, a welcome thing to most of us who give it but even a little thought. After all, since you aren't like me, you will want different stuff from what I will and that way we can trade quite fruitfully, with both of us ahead once the trade is done. Yes, sometimes the market value of what you get from the trade is much lower than of that which I get from it. But so what? If I badly want to have your worn out gloves and am willing to give you my fabulous sunglasses for them, some will see this as a huge rip-off but who are they to tell? In most cases they wouldn't know and in any case they have no business butting in. (They may offer some advice but that's all.)
Ever since I arrived on these shores many, many moons ago, I have had zero sympathy for people who insisted that we should all enjoy equal wealth, equal advantages, etc. Why? No reason. Maybe what such folks missed out in their education is the study of Orwell's Animal Farm, Vonegut's Harrison Bergeron, and Rand's Anthem. I sat get thee back to the classroom and off the streets, especially Wall Street.
Posted by flying_pig on 11/03/11 07:05 PM
Your comment perfectly illustrates why the choice of a marathon race was a terrible choice. The point of a race is to determine 1 unique winner (in the absence of special cases like ties).
"zero sum games" have a well defined meaning for mathematicians/ game theorists. Look it up on Wikipedia. The Wikipedia article even has a short discussion of zero sum games in the context of Economics.
With the utilities/payoffs left unspecified, it is quite pointless to argue whether a game is a zero-sum game or not. It may be that some people are just running for fun, and have different payoff functions in mind, but without making the payoff function explicit, asking whether a marathon race is or is not a zero-sum game is highly ambiguous. In fact, I even provided you one concrete example with payoffs where the marathon race is very much a zero-sum game.
Posted by jkluttz on 11/03/11 05:19 PM
"Our problems are not about "winners"; they are about cheating. "
This is only so if you assume consumers are stupid and that cheating is widespread. This simply isn't the case for the vast bulk of transactions. Well, maybe you have a point, the dumber consumers get because they think the government is protecting them, the easier cheating becomes.
Posted by rossbcan on 11/03/11 04:18 PM
"one person's winning means that all other competitors lost."
how, exactly, is that? By losing, if they pay attention, they learn and adapt to be "better". They have a chance to win if they choose to learn from loss. If they choose not to try, they have chosen their fate and, such "losers" are not deserving of any "sympathy" except the faux sympathy they get from those seeking a "re-distribution commission"
Perhaps, CAREFULLY re-reading my post and the article above will clarify?
Posted by flying_pig on 11/03/11 03:43 PM
It seems odd that Tibor used the example of a marathon race as something that is not a zero-sum game. After all, only one person can win, and one person's winning means that all other competitors lost.
One can even imagine a situation where each competitor pays in a fee, and the winner takes all the collections. In this case, Tibor's comments would still apply, but we certainly do seem to have a zero-sum game here where one person wins at another's expense.
Using the term "zero-sum game" without defining the utilities/payoffs confuses things a whole lot.
Posted by sentientsam on 11/03/11 02:55 PM
From the article:
"But those who have it aren't guilty of any wrongdoing except in the fantasy world of egalitarians, which is, being a fantasy world, a distortion of the real world in which problems need to be solved."
The problem to be solved is fraud and criminality. LIes and deception. Rapacious exploitation by cheating.
The marathon analogy is not applicable to our capitalist, free market systems.
In many cases, cheaters in a marathon are obvious and disqualified.
However, blood doping and illegal pharmacological performance enhancement
are a continued problem in elite competition.
Our problems are not about "winners"; they are about cheating.
Being the smartest guy in the room does not bestow the right to violate the rule of law.
Morality is key. When one is fastest, smartest, etc., but losing to those around who cheat,
what choice does one make. That is the real race of life.
Posted by rossbcan on 11/03/11 10:16 AM
TM: "Like marathon races, market processes do not involve what happens in a boxing ring - no one is knocked out so that another may be triumphant. Yet it seems nearly all those who sympathize with the people marching in the Occupy Wall Street parades, as well as the people who speak up for them in their midst, fail to see the difference."
What is missing, in the race analogy above, by creating the structured environment of "race" with carrot / sticks incentives / disincentives, there are far more consequences than the "winner" trouncing the "loser", to all parties. A competitive environment is defined, by the "rules".
All who participate in the race have the incentive to win, by being the best they can be.
The spectators, by identifying with their "team" can get the vicarious and false pleasure of being "winners" by association with "their" team.
The "winner" wins by cumulative investment of effort in being the "best they can be". They must keep this up, else their competition will evolve by invested effort to being "better".
The "losers", are motivated to get better by coveting the prestige and carrots of the "winner" and, perhaps the shame of being "losers".
In all cases, the race participants, "losers" included "win" by getting "better" due to invested effort. The only "losers" are the spectators who wasted their time and money by choosing to vicariously "feel better" as opposed to REALLY "get better".
Any sphere of human endeavor is the same: By competing, all participants gain and, for the market, we achieve goods and services at the "best" cost possible.
The "losers lose", the market is unfair LIE is a consequence of the FALSE BELIEF that "might is right" and, winners are, as a consequence, the "mightiest", trouncing all competition by allegedly "unfair" means.
The "might is right" LIE is easily refuted, as if seeing it happen before our very eyes (fall of US MIC) is insufficient evidence:
Click to view link
In fact, this "might is right" LIE is central to the intentional destruction of justice and the "rule of law" which once defined western civilization and was the source of everything good, prosperity and wealth included that we are being forcefully coerced to "fritter away".
Justice Defined: We are all free to profit or suffer and learn (adapt to excellence) by facing the consequences of our OWN choices. Injustice is to be forced to suffer the consequences of choices of unaccountable (irresponsible) others..
"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class." ~ Lord Acton
Rule of Law:
Click to view link
... use it, or, lose EVERYTHING.
Posted by memehunter on 11/02/11 03:41 PM
DB: Why is this article dated Friday, November 4th? Am I missing something?