The Positive Sum Outlook

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposiumhere. To see a list of all posts in the Symposium so far, click here.

By Roger Parker

Before we delve into the topic of inequality, I believe it will be fruitful to explore another fundamental difference in worldview between the various political persuasions of the League. Perhaps it is like another dimension on James Hanley’s recent survey.

Specifically, I believe progressives and libertarians view the world differently on the dimension of zero sum versus positive sum. I see this as an area of immense, yet often buried, disagreement. Let me explain.

I believe progressives lean toward what I call the Zero Sum Outlook. At its most extreme incarnation, this is the intuitive belief or operational assumption that social interactions tend to be inherently zero sum — that there is a limit to value and prosperity, and that gains for one person tend to come from losses to another.

I need to start by saying that evolutionary psychologists could probably come up with a good explanation for the origins of this cognitive outlook. The point is, 99.9% of our evolutionary history comes from a time when it was likely more true than false. For a hunter gatherer it is true that every fruit I pick, every mate I take and every rabbit I catch is one less available to others. A zero sum view of the world is probably a pretty useful heuristic for your average stone ager.

The record for agricultural communities, states and empires probably isn’t much better. For most of the past 10,000 years, the world has been divided into the productive majority that farmed, raised livestock or produced crafts and supplied labor, and those various elites and predators that skimmed from them. Natural resources have always been limited and the path to genuine prosperity for most of recorded history has been to take from the producers. The wealthy have historically tended to be exploitative.

Free enterprise has been one of the rare exceptions to this general rule. By free enterprise, I mean the freedom to produce, exchange or interact with others in a constructive way. In brief, a producer creates value, then voluntarily exchanges it with another to create even more value by trading something of lesser value for something of more value. I’ll give you my extra (lower value to me) cups of coffee for your extra (higher value to me) donuts. We both gain from the interaction. It is a win/win.

Through the benefits of specialization, economies of scale and comparative advantage, free enterprise has created huge networks of interdependent, voluntary, win/win interactions of production, employment, investment and exchange. The net result is 10 times as many people, living twice as long, with 10 to 100 times higher standards of living than in the past. People have discovered how to do good for themselves by doing good for others. The more good they do for others, the more good they can do for themselves. The social conventions of property rights and free enterprise leverage this dynamic, and it is now possible to become extremely wealthy while doing great good for others.

When a producer converts materials of low value into something of higher value, he has not violated any laws of physics, but he has created value. By specializing in a narrow area of production, producers become immensely efficient and effective at solving a human need. They then exchange that solution for another, creating even more value. This is a positive sum, value creating, problem solving system based upon voluntary interactions.

When I say someone has a zero sum outlook, I am suggesting that they are not differentiating positive sum, win/win activities and interactions from destructive, counterproductive win/lose activities. The zero sum outlook is defined as having partial or full blinders to the possibility of positive sum, value-creating actions and interactions.

The zero sum outlook logically leads to some common progressive conclusions. If you subscribe to the zero sum view, consciously or unconsciously, you will tend to believe:

  • Those that are well off probably became so at expense of the less well off.
  • Therefore, the wealthy are morally suspect and the poor are probably victims.
  • It is just to correct this imbalance by limiting or redistributing wealth.
  • Since the pie is a fixed size, we better get more for the good side (or at least our side).

In other words the zero sum outlook ignores the narrow window of positive sum possibilities inherent in economics and suggests a cure that is itself zero sum. Zero sum thinking is self defeating — it leads to the very dysfunction it assumes. Progressive thinking can and does kill progress.

Let me clarify something first; I am not saying that some of the well off didn’t get their wealth at the expense of the poor. I am sure some of them did cheat, did lie, did steal, and did seek unfair privilege. I am just suggesting that this is a question that first has to be answered. If they became wealthy via voluntary, honest economic interactions with fellow adults, they did so via a positive sum process. They made others better off while making themselves well off.

The positive sum outlook leads to some common libertarian and conservative conclusions. If you subscribe to this view, you will tend to believe:

  • It is possible to create wealth by enhancing the wealth and well being of others.
  • When taking this path, the more we do for others, the more we benefit ourselves. It is possible to be mega rich and mega beneficial.
  • The best path for the poor is to discover or engage in ways to improve the value they add to others.
  • Redistribution often reduces the incentives of this win/win system. It introduces a destructive zero sum dynamic to a positive sum process. It partially dis-incentivizes both the poor and the well-off from the positive sum path.
  • The key to prosperity is to discourage win/lose interactions (fraud/theft/enslavement/coercion/regulatory wrestling) and encourage win/win positive sum economic interactions. The key is to grow the pie.

As an example, I see Occupy Wall Street as a movement of people that are immersed in a zero sum outlook. They tend to view the one percent as inherently guilty of zero sum actions.  The OWS movement fails to separate the positive sum from the zero sum  one percent, and they offer primarily zero sum, redistributive solutions rather than seeing the hidden potential of additional positive sum arrangements and interactions. They are fighting over slices rather than focusing on how to grow the pie. Their mistaken solution actually just makes the problem worse. They are not just making bad moves, they are actually playing the wrong game.

Let me clarify that I am obviously laying out somewhat of an extreme — perhaps even straw man — portrait of these outlooks. Guilty as charged. I am attempting to make the distinction clear. I am also aware that progressives can argue that those with a positive sum outlook are just operating with rose tinted glasses. Certainly most participants on this site have substantially more nuanced opinions than I have portrayed. The point is to consider there are underlying, often implicit ways of thinking buried in our ideologies and perpetuated in our discussions.

But then again, I could be wrong…

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453 thoughts on “The Positive Sum Outlook

  1. Not bad, though to be frank I don’t see why you’re letting the Conservatives piggy back under your essentially libertarian umbrella. The tea party in part and Conservatives generally are definitely zero sum in outlook; economically and especially culturally.
    Economically they are focused on the resolution of a mutually created problem (debt) by forcing the solution to fall only on one sides priorities (social safety net programs and other liberal favored projects) while protecting their own favored projects (drug prohibition, moral crusading, wars, defense spending).
    Culturally the conservatives (and Tea Party) are even more zero sum. They view the increase of liberty for others (women, minorities, gays) as resulting in a loss of liberty for themselves; even when in many cases they can’t(or won’t) define how exactly they are losing out when others liberties are expanded.
    So I’m somewhat sympathetic to your take though I strongly disagree with you ascribing it to conservatives. Part and parcel with the general republican cultural capture of libertarianism in America I guess.

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    • North,

      Thanks, I think your criticism is apt. I added the conservatives in to the libertarian side as a last minute rewrite. I think you make a good argument that this is too generous, especially if we extend from economics to social issues. Any conservatives care to weigh in?

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      • Zero-sum thinking is not limited to liberals, it’s a natural worldview for most people, period.
        There are plenty of conservatives as well as liberals and even libertarians that espouse the zero-sum view, it’s just too easy to see transactions as following a law of conservation.

        The best example for conservatives is probably seeing immigration as if it causes the same economic pie to be divided among more people instead of an increase in capital and potential productive capacity.

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        • no, social conservatism is longing for another time. When “men knew their place” and the rich were allowed to be fucking rich, and everyone else groveled before them. When sophistry and clever words were used to control the masses, and the priests were used to justify the rich (the god-given right to be a monarch, among them).

          Do you want to be rich? My advice: don’t. It’s not worth it.

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          • Roger, just correcting a tangent and an unwarranted attack. Conservatives have no use for this entire inequality discussion:

            The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.
            —Daniel Patrick Moynihan

            The conservative believes that our society is set up fairly enough already to enable opportunity and the doorway to equality. Finish high school, don’t have children without marriage and the poverty rates plummet.

            http://capitalismmagazine.com/2005/05/how-not-to-be-poor/

            The politics part of Moynihan’s quote becomes largely not a factor.

            Now we can litigate the history of the Civil Rights Movement, and indeed that’s where Moynihan’s quote achieves its relevance. Opportunity was NOT equal before the politics of the Civil Rights Act, etc., of the 1960s. But this was 50 years ago, the laws are in place, politics has had its day. Now it’s a question of society getting its act together.

            Now we can throw racism and the whole roster of anti-conservative screed into an undifferentiated soup called “inequality,” but I don’t think that’s really the topic here, of your post or of the symposium.

            As for your question of prosperity, I suppose that’s the non-left argument, that CEOs will get paid off the scale, but they create prosperity for all, so that’s the price of doing business. Society’s concern is not that some have too much, only that everybody gets enough.

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            • Tom-

              It is simply false to say that conservatives have no use for discussions about inequality. They simply have a different perspective, different feelings, and different responses to the reality of inequality. But in your own statement, you make clear that there does exist a conservative perspective, conservative feelings, and conservative responses to inequality. Mind you, this is neither a good thing nor a bad thing… it is only a thing. The wide variety of perspectives, feelings, and responses to realities of our world such as inequality are going to be integral to finding the appropriate perspective, feeling, and response. Conservatives, just like us all, have a use for such conversations. They just might seek to have them in a very different manner. But they still have a use for them no less.

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              • Thx for the fair reading, Kazzy. I agree, this is the prism through which conservatives view the issue in 2012, far more social than political, more cultural than economic. I just wanted to set the record straight so that if people want to punk conservatism, they’re punking the genuine article and not a caricature.

                Conservatives cry at Scrooge’s conversion in A Christmas Carol the same as normal people.

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                  • No, Kaz. I don’t know if I can top Moynihan and it looks like Roger has a Part Deux coming anyway. The routine slag on conservatives rubbed me the wrong way is all, and perhaps people won’t ruin every fishing post in the symposium with that stuff. It’s fine to reject the conservative worldview, but not fine to demonize it.

                    Wm. F. Buckley found extreme CEO pay aesthetically disgusting and I’m not pleased either, but I consider any political means to rectify the problem [if it really is one] to be even more unappealing.

                    As a side note, I find it interesting that Bill Gates gets the fish-eye from very few on the left. The Nation fawns over him. I think it’s because, per Adam Smith’s Theory of Moral Sentiments, they approve of his causes. Wealth inequality, then, is not inherently bad; it’s only bad when we do not approve of those who hold the wealth.

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                    • I’m not really following the discussion below, Kaz; the signal-to-noise ratio is prohibitive. I see you wrote

                      I don’t see disparities, even great disparities, in pay between those on the top and those on the bottom as inherently problematic. What I see as problematic is when such disparities work to lessen the overall size of the pie, with the group taking the brunt of that lessening being the group least empowered to change the size of the pie and most ill-equipped to handle it shrinking.

                      I’ll try to tiptoe through the cow patties as this symposium goes on, and watch for your case for the times “such disparities work to lessen the overall size of the pie,” and your Rx for those times. Peace, I’m out for the evening. I do appreciate the lack of noise on your end of the wire.

                      ;-)

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                    • I will say this: I’m not going to pretend to have answers for what to do. Only that a long and careful look should be given. ESPECIALLY if the initial offering is that we shouldn’t look askew at pay disparities if such disparities can serve to grow the pie. If we accept that conceit, and I’m willing to, than it only seems natural that we MUST look askew at pay disparities if they serve to shrink the pie. And, of course, if’s all around.

                      I will also say that looking askew does not necessarily mean that “SOMETHING MUST BE DONE!” As I said to fellow liberal (if he identifies as such) MA elsewhere, oftentimes the solutions to problems of income and wealth disparity are far worse than the problems themselves. To this end, I agree with you, though I probably took a different fork in the road: cultural and social shifts are what will be the biggest salve. The ones I desire are when the CEO who could justify taking 15x salary because he did work to grow the pie says, “Ya know what? I don’t need that. I’ll take 10x, disburse the rest amongst the other folks, and STILL WORK JUST AS HARD to grow the pie.” That won’t happen via legislation. It will happen because folks will decide to work for something bigger.

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                    • from my limited interactions with Gates, he seems like a decent guy.
                      I think we ought to restructure our taxes to make guys like him more likely, not less.
                      Even if he were a raging racist asshole, I’d still be pro-gates, in a “he created productivity enhancements” sort of way.

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    • “Culturally the conservatives (and Tea Party) are even more zero sum. They view the increase of liberty for others (women, minorities, gays) as resulting in a loss of liberty for themselves…”

      I’m going to have to disagree with this one. When you say ‘increase of liberty’ I don’t think the majority of conservatives oppose more rights for women, minorities and gays so long as the end-goal is a fair equality. That means affirmative action is out because we see it as unfair.

      The one exception of course is gay mariage and that opposition is because of a perceived harm (or potential for harm) – not because of sum imagined zero sum loss.

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      • it’s a real harm alright. people don’t stop and think who it is a real harm to:
        closeted homosexuals, who get through their life by remidning themselves how sinful they are.

        Now, think back to everyone you know who thinks that gay marriage might harm their marriage.

        Yup. closeted.

        America has much more of teh gayz than Asian countries. You don’t see much bitching over there about gay marriage.

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        • mostly because we haven’t progressed to the point where people are more willing to come out of the closet. Think of the difference like this. Even in th more conservative places in the US, when a person feels that he may be thrown out for being gay, there is at least a superficial consciousness about the issue. A lot of Asian societies are so conservative (with the notable exception of Thailand) that many parents don’t even consider the possibility that their children may be gay.

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  2. The only problem is that it fails to address the elephant in the room.

    Company A makes $400 dollars this year. The CEO takes $380 and puts it in his pocket giving the remaining 40 employees $0.50 each.

    Or, the CEO puts $100 in his pocket and gives each employee $7.50. He still makes an obscene amount of money compared to them, but they end up making 15 times as much.

    I think that the “solution” of telling those 40 people to just “do more to grow the pie” overlooks that neither Zero Sum ~Nor~ Positive sum paint a complete picture.

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    • Two objections from me to this.

      First you’re being badly hyperbolic. There have been some utterly loathsome CEO’s out there, one’s who’ve wrecked companies while paying themselves handsomely for instance or ones who’ve collected astonishing paychecks for unastonishing performance. That said, however, I’m unaware of any CEO that has been able to pay themselves 95% of the company’s profits (your first example) or 25% of the company’s profits (your second).

      My second objection is that this is a specific complaint against what Roger has put up which is a very vague and general philosophy (and I’ll agree a somewhat non-useful once because it’s so general). Roger can just answer that CEO pay is an agency problem, not in keeping with his premise and be done with it.

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    • The question I ask in response is, “what can the employees do with that fifty cents?” What if that fifty cents can buy a house and a car and pizza every night and an iPhone? “But! But the CEO has more! The CEO has more!” Yeah, so what? I got plenty myself. Once him having $380 stops my fifty cents buying all that stuff, then you’ll be getting somewhere.

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      • Reason #244 for Why I No Longer Consider Myself a Libertarian:

        “Bread and circuses for the poor are cheaper than ever.”

        It’s becoming pretty clear that $.50 doesn’t buy suitable access to health care and an education that would allow one’s kids to make more than $.50. And seeing all these people getting foreclosed on, it’s pretty clear that $.50 doesn’t buy a house, either.

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    • I think Teacher has illustrated zer-sum thinking in spades. Somehow we’re just supposed to know that this distribution of earnings is wrong even though there’s no explanation for why it is. And in his snark about people with only fifty cents not being able to gore the pie he doesn’t take time to consider what the CEO does with his $380, which either gets spent or invested, both of which will have positive economic effects which can help grow the pie.

      Would the workers hanging more to spend or invest also help grow the pie? Sure. The point is not that CEO spending/investing is better, but that it’s also not worse.

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      • Not worse? It’s not clear to me that the economic effects of a CEO spending his $380 on luxury consumption goods as part of a status competition with other CEOs are equivalent to the economic effects of the workers’ consumption.

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        • Mouse,

          Nor is it clear that it isn’t. Each person’s spending (or investing) puts the money back into the economy. It may be the case that different goods have different multiplier effects, but I don’t know of any evidence that luxury goods in general have lower multiplier effects. And let’s note that much of the middle and lower classes’ spending is technically luxury goods. I bought a bunch of plants at the garden shop recently…luxury. My blue collar neighbor loves to buy knickknacks to decorate her home…luxury. Do those purchases stimulate the economy more than the purchase of a yacht or a Cadillac Escalade? Maybe, maybe not. Who among us has persuasive evidence one way or the other?

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          • I invite you to watch the Nick Hanauer TED Talk.

            It’s a good start.

            Small businesses create more jobs than large businesses. Their income inequalities – the gap between what the workers are making, and what the top level are making – are much more reasonable as well.

            Part of the problem is that 30 years of Republican policies have made it harder and harder to start a small business unless you’re an under-30 white male with no kids and no medical PECs. Meanwhile constant market “deregulation” has made it so that in many industries it’s impossible for a new startup to get past the entry hurdles created by monopolists, while small businesses that do hit a certain point are bought out by multinational conglomerates, raped for IP or recipes, and then the local jobs destroyed.

            We can keep trying to encourage small businesses to start through loans, but much more effective would be to re-enact a lot of the regulations that made it feasible for small businesses to get started and compete with the monopolists in the first place.

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          • Not me.

            I’m just saying that I find the whole “Just grow the pie” solution to economic problems to be a laughable disregard for reality. There ~are~ aspects of life which are Zero Sum. I have X hours in a day. If I spend 10 minutes on LoG stuff, that’s 10 minutes I’m not, say, writing my next novel. If I spend 30 minutes on mindless chat rooms, that’s 30 minutes lost from answering fan email (unless there are fans in the chat rooms).

            Are there cases where a CEO pockets 95% of a corporations earnings? God I hope not. But many of the complaints of the OWS people (among the few complaints I agreed with) were about the difference in CEO salary and average employee salary. I don’t care what is done with the money and I won’t even ~start~ to discuss the ethics of it. I just wanted to point out that Zero Sum is very applicable in many conversations about equality.

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            • Let’s put it in simpler terms.

              When a CEO getting $1 million less in income could keep another 150 employees on full salary/benefits, and barely make a dent in the CEO’s lifestyle, something is absolutely morally wrong with the current system.

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              • That’s $6666.67 per employee. Of course, it’s *NOT* chickenfeed.

                There are, indeed, people in India for whom $6666.67/year would improve their lives substantially… indeed, substantially more than it would improve the lives of the middle class in America.

                Would it be better to send that $6666.67/year to 150 people in India?

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                • I dunno, are they working for the company in question?

                  Or are we jumping to the end of a slippery slope? Are we going to just stretch things out to ridiculous lengths and then conclude the entirety is ridiculous?

                  Because that doesn’t feel like an honest conversation, but more like someone trying to obscure things.

                  I look around a world where I’m told I can’t have raises, because I have to compete with India. But my top management takes home massive bonuses — apparently they don’t have to compete with India. And I think “if money is fungible, then ergo my CEO’s quarterly 7-figure bonus could have instead been paid as increases in wages, and the company’s bottom line and profitability would have been exactly the same”.

                  Which is, I guess, why I’m in a position where I could be outsourced to India and my boss gets 7 figure bonuses. Obviously I’m not a big picture guy. Not productive. Not a team player.

                  And then I get told I shouldn’t even WANT a raise, I should be grateful how much better off I am than my parents (I’m not, actually, but okay) and that I don’t live in 1662 and didn’t die of an infection, which makes me richer than Midas. (My boss, of course, also didn’t die of dystentary. On the other hand, I have an iPod. Truly, I am the wealthiest of men).

                  And now, apparently, even wanting a raise means that if I don’t want to be a screaming hyporcrite I have to give all my money to a guy in India. Who, I guess, also took my job.

                  But on the other hand, my boss’s bonus is even bigger this quarter and I still have an iPod. I won’t ever be able to replace it if it breaks, but I am still richer than Midas.

                  And surely the newly rich Indians, with their hundreds of dollars a year in income, will be able to buy enough things to keep the company I just got laid off from in businesss and keep my bosses’ bonuses rolling.

                  And if I had 25 bucks, I could buy a new CD for my iPod. But even uncharged, unloaded with music while I sit here trying to figure out how on earth I ended up with no job, I am still lucky to be an American and richer than Midas — as owning that iPod proves.

                  I, thankfully, can’t have my job outsourced at the moment and it’s not for many, many levels up the heirchary that my bosses start getting large bonuses, but the point still remains:

                  Why on Earth would you bring in people who don’t work for the company into the equation?

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              • MA,

                As has been pointed out already, you guys are all ear deep in the zero sum fallacy.

                You are making the assumption that a corporation has X dollars in compensation or allowable costs and is then distributing this cost somehow.

                The worker does not compete with the manager for a share of the goodies. He cooperates with the manger in the creation of the goodies. The salary paid for the manager is determined by the forces of supply and demand in competition with other potential managers and other firms interested in this skill. The salary for the worker is similarly determined based upon demand at other firms in competition with other potential workers.

                In general workers compete with other workers, and cooperate with their employers. Similarly firms compete with each other for the privilege of cooperating with the consumer.

                When firms save on management costs, or stationary costs, for that matter, they don’t increase their budgets on workers or pencils.

                There is indeed a zero sum game within the larger positive sum game. The competition is between prospective employees. That is why I referred to unions as exploitative. They rig the game against other prospective employees.

                By the way, I suspect CEOs are playing unfairly, and to the extent this is correct, I find their practice unacceptable. I could be wrong though.

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                • I’ll happily stipulate that in a perfect world, filled with perfectly rational people who work with the long-term in mind, where relocation and changing jobs was frictionless, and information was symmetrically distributed….

                  you’d have a point.

                  We don’t live in that one, though.

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                • Roger-

                  The issue, as it seems to me, is that it is highly unlikely that the $380/$.50 split is the salary structure most likely to lead to growing the pie. The issue is that folks enter such a scenario with a bevy of different, sometimes competing incentives. It is easy to point at the folks on the bottom and say, “They just want more! Why don’t they work to create more?” Why don’t we point at the man on top saying, “He just took more! But he didn’t work to create more!”

                  I don’t see disparities, even great disparities, in pay between those on the top and those on the bottom as inherently problematic. What I see as problematic is when such disparities work to lessen the overall size of the pie, with the group taking the brunt of that lessening being the group least empowered to change the size of the pie and most ill-equipped to handle it shrinking.

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                • The worker does not compete with the manager for a share of the goodies.

                  By the way, I suspect CEOs are playing unfairly, and to the extent this is correct, I find their practice unacceptable.

                  The CEOs are management. And that’s the sound of your dishonesty hitting the alarm bell yet again. This is why dealing with you is pointless; you repeat the same tired rhetoric over and over, while making false arguments.

                  You are making the assumption that a corporation has X dollars in compensation or allowable costs and is then distributing this cost somehow.

                  The corporation does in fact have X dollars in profit which is then distributed in various ways (payroll, reinvestment, stock dividends, and other miscellany). It is in fact “distributing this cost somehow.” Payroll is a budget item.

                  The question is: why over 30 years when profits have increased, has payroll to the top 1% expanded dramatically, but yet payroll to the rest of the workers not increased at all?

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                • I’m sorry.. I don’t see the fallacy.

                  I’m a math guy so maybe you need to use some numbers to splain this to me. All I ~do~ know about economics is this:

                  Company has X dollars in profit. Of X they can divide that sum into groups such as “Employee Compensation”, “Material Investments”, “Cash Investments”. Etc. But at the end if they are actually balancing their books, the sum of ALL of those still has to be X. Which means, if they buy more machines, they have less for cash investments. If they pay one guy more, that’s that much less then they have to pay someone else.

                  Grow the pie all you like but at the end of ~each~ year there’s still the single value called “Revenue” that they get to allocate around as they see fit as “Expenses” hopefully with E < R.

                  I get growing the pie. I get reinvesting. What you don't get is that we aren't looking at growing the pie. We're looking at company profits.

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                  • Teacher, Kazzy, Morat, Kimmi and MA

                    As I mentioned, I too suspect CEOs are manipulating the system to their advantage. But this would require a whole different post. Let’s just agree to agree for a change.
                    FISH THE CEOS!

                    That is why I shifted the discussion to management in general. Let’s call it the AVP in charge of Marketing Research. This persons salary is set by supply and demand. If the company tries to pay him less than his going rate, let’s call it $350,000 a year, then he is at risk of leaving to another company. Of course their are lots of Senior Directors at various firms that would love to do his work for less. Where these all balance out is what the firm pays.

                    The same is true for all the sales reps in the AVPs division. Where supply meets demand, imperfectly, that is where firms will set their salaries. It makes no sense for them to impose a lower salary on the AVP to get a higher salary for all the sales reps.

                    They also cannot arbitrarily increase their prices to offset higher sales rep salaries. The reason is that the price of their product is set by supply and demand too. Nor can they arbitrarily lower profit margins. Doing so will lead to penalization by the stockholders, in terms of share price, which is also set by supply and demand.

                    I am stating all this based upon my experience actually involved in the setting of wages, salaries, commissions and prices. These are not theoretical issues. They are the exact issues that we dealt with and stumbled through in running businesses.

                    Furthermore, if the AVP’s all got together and decided to donate half their salary to the sales rep salary fund, the result would actually be an inefficiency in the sales rep supply and demand. Let’s say they could double the hourly wage. The result would be a surplus of people wanting that job. After all the going rate is half that amount. This means that those that missed out on the job would offer their sevices for just under the double amount. Pretty soon, the company would either have to deny the job to those hungry candidates (which is unfair to THEM), or they would just lower it to the point supply meets demand.

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                    • The same is true for all the sales reps in the AVPs division. Where supply meets demand, imperfectly, that is where firms will set their salaries. It makes no sense for them to impose a lower salary on the AVP to get a higher salary for all the sales reps.

                      I think that what Teacher is referring to what we would call an income effect if it was a utility maximizing consumer and not a cost minimizing business. If the business is budget constrained and trying to maximize output for a given budget, I’d say that’s an accurate model. If the business is trying to minimize cost at a fixed level of output, it’s not. Assuming the reduction in AVP cost makes the organization noticeably more profitable, I wouldn’t be surprised if they scaled up rather than simply paying extra dividends, but that’s an assumption.

                      I’m not sure what you mean in the second part of your post. It sounds like you’re suggesting that a reduction in the cost of AVPs would cause some sort of artificial surplus of sales reps. I’m not seeing it. It seems to me that if somebody gives you a pile of money and says, “Use all of this to hire sales reps,” demand for sales reps would shift right and increase sales rep wages and the number of sales reps. The market should clear just fine at the higher wage level.

                      If they had said, “Use this to hire sales reps at a fixed price of $1M per year,” then you’d certainly get a surplus, but that’s just assuming that it’s a price floor and not extra money. That’s not really how it would work.

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      • Mr. Hanley, “consider what the CEO does with his $380, which either gets spent or invested, both of which will have positive economic effects which can help grow the pie” is true only if the CEO is investing in things that help. There is a huge difference between venture capitalism and vulture capitalism. Consider buying oil futures that you hold only long enough to make a profit or building a plant in Kansas. Which has a better effect for a blue collar worker in Kansas. I just read where the average stock is held for 22 seconds. How does that help the middle class?
        You buying plants does more for the economy than your neighbor buying knick knacks because your plants were probably made in America where the neighbor’s stuff has a large chance of being made in another country which sends most of the profit and the taxes on that profit elsewhere.

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        • > I just read where the average stock is held for 22 seconds.
          > How does that help the middle class?

          That depends on what percentage of micro-trades is executed on behalf of investment vehicles like mutual funds or 401k programs vs. large individual investors.

          I have no idea, myself.

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        • But dexter, if you’re not a party to the transaction, why do you care what someone else trades?

          If someone has a piece of paper and someone else has $10 and they trade those things, why do you care?

          Isn’t the onus on you to explain who is hurt and how?

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          • Plinko, If investor A has a piece of paper saying he has x barrels of oil and holds it until refinery Z buys it for more than A paid for it then gas cost me more and I am losing. From my left wing perspective there is too much money in too few hands chasing too high a profit.

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            • The oil producer, investor and refinery are divvying up the difference between the cost of extracting the oil and the price the service station owner pays for the gasoline he’ll sell you later (at what’s most likely a still higher price).

              If the refiner is willing to pay more, the investor is taking money the producer could have had, not raising the price you pay. The producer sold those warrants to the investor because it wanted a certain amount of money now rather than a less-certain amount later.
              If the refiner could get the oil more cheaply by buying directly from the producer, they would just do so, if they’re buying the delivery of the oil in the warrant, it’s because it’s the best deal they think they can get.

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                • M.A., just what the fish do you mean “ghostwritten by lobbyists?”

                  The classic response to an insinuation like that is “prove it or STFU.” Seriously, what’s your evidence that the source I linked to was written by lobbyists? Just that you don’t like the conclusions?

                  I mean you could have just said, “here’s another Fed paper that suggests differently,” and you would have sounded like a decent person. Instead you went out of your way to make yourself look like an asshole.

                  As to the link you cited, please note that it says speculation played a significant role in prices between ’04 and ’08, but that “The increase in oil prices over the last decade is mainly driven by the strength of global demand.” So even your source agrees that market fundamentals are the main part of the story.

                  Good source, though. If you’d done it without the dishonesty, it would have been perfect.

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                  • The oil futures market is led about by a ring in its nose by a collection of fearful little speculators who pretend to be bolted in to the private dealings of the House of Saud and the Emir of Kuwait. That’s the reality. Anyone who says otherwise is either lying or an idiot and certainly knows nothing about the oil futures market.

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                    • Kimmi,

                      He implied that the article I linked to was written by lobbyists, even though he has not one shred of evidence that it is. That is dishonest, no ifs and or buts.

                      If I suggested the article he linked to was written by someone who’s secretly a socialist, it would be the same kind of thing, and just as dishonest.

                      I’m all for robust vigorous kick-ass and take no prisoners debate. What I’m against is dishonesty.

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                    • Blaise,

                      Doesn’t the futures market count as private agreements? I think you’re using the term differently, but I’m not sure just what you mean.

                      If you mean private agreements among OPEC countries, I’d agree that’s a large part of the story (although it’s also been set at times by the failure of those agreements).

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                    • No, James. It’s not a private contract. It’s conducted with an intermediary with a performance bond, say NYMEX.

                      There’s no real market in petroleum, any more than there is in diamonds or any other cartel-controlled commodity. The Dallas Fed would love to pretend otherwise but the Invisible Hand sometimes uncloaks like a Klingon Bird of Prey, right in front of the ol’ Starship Free Enterprise, much to the dismay and cornfuzion of these Fudgeration Orificers.

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                    • I have answered your question. There are three, not two parties to a futures contract. Furthermore, the price of that contract is public, for all to see. Thus a futures contract is not a private transaction by any definition. Just stop with trying to make the buyer and seller into private entities. They are not.

                      When the House of Saud sits down to decide how much oil to pump, they control the supply. They turn the spigots on and off as they see fit and nobody knows their minds. That’s private.

                      The Oil Futures Astrologers would tell us of that huge stage that presenteth nought but shows whereon the Saudi Stars in secret influence comment. These know-nothings are everywhere. Let Ahmedinejad fart out of key and these Oil Astrologers will run up the price of oil in no time flat. Rumours and gossip, not market fundamentals run that market. Homey don’t play dat. Now some of my friends do, but they have the patience and wit to deal with these little market panics and groundless enthusiasms. Me, I play a long game.

                      So when the Dallas Fed says speculators aren’t in control of those markets, I call bullshit. I know better and I’m pretty sure you do too: he who controls the supply controls the price. The Saudis have every reason to keep the West from collapsing in shit and ruin: we are their defenders in a nasty part of the planet and those friendships run deep. But not even the Saudis can control these Oil Astrologers on NYMEX. Stupidity and hydrogen are the two most abundant commodities in the universe and for my money, stupidity is the more durable and reliable.

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    • “Company A makes $400 dollars this year. The CEO takes $380 and puts it in his pocket giving the remaining 40 employees $0.50 each.”

      So then the employees take their value (their skills) and go somewhere else. Employment is a voluntary contract.

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      • Where else do you suggest? Looked at the employment market lately? Looked at the real, actual barriers to starting your own business lately?

        “You’re free to look for other work” is a great libertarian catcall in the FYIGM serfdom environment we’re in, but all it does is prove libertarians are out of touch with reality.

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        • Hey, M.A., can you stop this FYIGM business? Seriously. That’s not what we libertarians are all about, and you repeating it all the time doesn’t make it so; it just makes you look like someone who wants to come here and spew, rather than someone who wants to come here and have a conversation.

          I guess I could say liberals are all about FYIWY (Fish you, I want yours), but I’m pretty sure you’d recognize that’s not true and that it doesn’t get us anywhere.

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          • I’ll stop referencing it when it stops being true, but it’s still true. I have yet to see a libertarian argument regarding income inequality that amounts to anything more positive than a shrug and a statement to the effect that it would be “wrong to use the coercive force of government” to fix the worst societal problem of our era.

            Instead, libertarians wholly support the completely asymmetrical coercive economic force exerted by a class of less than 400 people who control more than half the nation’s wealth in preventing the societal problem from being addressed.

            When that sort of asymmetry exists, it becomes a pseudo-governmental force on its own. It ought to be something libertarians opposed vehemently, but they’re too blinded by animus to “government” and a worship of the deregulatory economic masturbation-fest started in the 1980s to pay attention to that entirely evident reality.

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            • In all of that there is a valuable point that gets lost:

              “Psuedo-governmental force on its own”.

              We can talk about who provides cohercive pushes and pulls and the affect they have on various groups. And the ups and downs and who controls who and what. But I think that things like:
              “Dont like it? Move.”
              “Dont like it? Get a different job.”
              “Don’t like it? Start your own business.”
              “Don’t like it? Vote someone else into office.”

              are just rhetorical conversation stoppers. They’re the intellectual equivalent of Fish You and your Cat. Reality is that nothing is as easy as people want it to be in the abstract.

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            • MA, I don’t expect this will mean much, but I’ve been down the very same road as you’re on with Hanley, and Roger, and Jason Kuznicki, and Jaybird, and all the other libertarians on this site, and I can tell you that they are not FYIGM types. That’s not to say that there aren’t libertarians roaming the wilds who are like that (there are), but Hanley and the other most definitely are not.

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      • Which only works inasmuch as there aren’t a bunch of CEO’s hanging out at the yacht club discussing how $0.50 is such a good wage and they should all offer it.

        Also as long as hat $380 goes to off shore bank accounts to sit and shore up estates, it’s not circulating in the economy and one could argue, effectively I think, that it’s doing more harm to the economy than if it were in the hands of a wider number of people ~using~ it.

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  3. I don’t think that’s a fair characterization of what progressives think. I think progressive concern with inequality is rising because inequality is rising, not because economic growth is a zero-sum competition.

    The US has among the lowest social mobility in the OECD; the bottom 4 quintiles have seen roughly no wage growth over the last thirty years; the financial industry has been deregulated and has boomed, but as Paul Volcker put it a few years ago, “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence”, before concluding that the only worthwhile financial innovation of the past twenty years was the ATM.

    As far as I can see, everyone in the Democratic Party thinks that capitalism is a great force for good. We’ve changed the rules in the last 30 years in a way that doesn’t seem to have worked all that well, progressives note, so we should see what we can do to address growing inequality, and weak social mobility.

    I think it’s a more narrow & practical concern than the cosmic perspective you offer in this post.

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    • The thing is, though, that “inequality” is only a meaningful criticism in a zero-sum game. If the amount of wealth is always increasing, then the response to “I want more pizza but Joe always grabs a second slice!” is to order the Extra-Large next time.

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      • Worsening inequality vs. previous time periods isn’t a concern that the game is zero-sum; it’s a concern that the rules of the game have changed, in a way that doesn’t seem to work. Remember, we have worse social mobility than most comparable countries.

        As Jonathan Chait pointed out a while back:

        a child born into the lowest-earning quintile who manages to attain a college degree is less likely to be in the highest-earning quintile than a child born into the top quintile who does not attain a college degree. This is all the more remarkable when you consider that making it to, and through, college is far harder for poor kids than rich kids even at a given level of aptitude. (Two thirds of the kids with average math scores and low-income parents do not attend college, while almost two-thirds of high-income kids with average math scores do.)

        So our worsening inequality problem & concurrent mobility problem is destroying social capital. Talented people with poor parents are less likely to have a chance to become inventors & entrepreneurs & whatnot, which makes us all worse off.

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        • This doesn’t follow at all. It’ always been harder for the children of the poor to succeed–that’s not something new. And widening inequality can occur while the least well off are becoming better off. That’s the important insight of the positive sum view. Bill Gates’s wealth continues to increase at a much faster rate than mine, but mine still continues to increase,albeit slowly. Why should I worry about that increasing disparity as long as my position keeps improving?

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          • Why should I worry about that increasing disparity as long as my position keeps improving?

            If indeed your position keeps improving, that’s definitely a good thing. But Benjamin Friedman argued in “The Moral Consequences of Economic Growth,” people have as their frame of reference what’s going on around them now, not how people lived 30 years ago.

            And if we have indeed changed the rules in the last 30 years such that more of the gains go to a few hundred households in ways that don’t seem to increase growth overall, we should look into the benefits of the rules in other countries, and the rules we used to have here.

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            • In fact people do tend to look at current relative position, rather than absolute gains. But Tthat they do so is not evidence that it is the right way to do so. Among other problems, it is a good route to creating needless frustration and anxiety. It also breeds exactly the type of materialistic culture leftists dislike. My position is that this sort of focus is damaging, and it’ a huge mistake to focus on it. Focusing on absolute gains is superior in every way.

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              • Well, you go into the economy with the humans you have, not the humans you wish you had.

                If we have indeed changed the rules in a way that leads to less mobility and less equality than we would have had otherwise, and we’ve gotten no benefit in terms of growth overall, it seems to me that we’d want to look into changing the rules back.

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                • That’s not a meaningful response. The humans we have also are ethnocentric and inclined to theft and violence. We Don’t treat that as the right way, but try to teach them to do better. The whole point of harping on absolute status is that same effort to try to teach people a better way.

                  Besides, you don’t get oughtn’t from ises, right?

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                  • I’m not sure why that should be considered a “not meaningful” response. Both laws and culture are designed to shape human behavior into more productive and pro-social directions. We disincent theft and violence by creating laws and social norms that discourage these behaviors.

                    I think we all proceed from some vision of an “ideal” society. Libertarians are, on the whole, relatively unconcerned about absolute differences in prosperity. Liberals, being more concerned with issues of “distributional fairness,” as they see it, want to structure society in a way that nurtures outcomes more consistent with it. To my mind, that’s the very essence of “meaningful.”

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                    • It was not meaningful because it said, well, that’s human nature, so it’s the right way to look at things. You’re exactly right about trying to shape brhavior into more productive directions; that’s actually just what I meant when I said that teaching people to focus on absolute well-being.

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              • And communism would be awesome if it weren’t for the human element, is what you’re saying?

                You’re solving for the spheroid cow in a vaccuum, but the problem is the actual cow in front of you. Actually worse — you’ve simply hand-waved away the critical detail. Whether you like it or not, whether you think it’s right or now, that is how human beings think and how they react and how they vote and how they buy and spend.

                Ignoring THAT means you’re basically talking about a fantasy universe, and projecting those policy results onto ours. It’s a really good way to screw up.

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              • Focusing on absolute gains is superior in every way.

                Suppose that at T1 there is a certain wealth distribution, income distribution, tax rate, and total societal productivity. Then, change the tax rate such that it’s increased for the middle class and lowered for the wealthy. Now suppose that at T2 the wealth and income distributions have shifted dramatically upwards even as total productivity remains the same and that in absolute terms the middle class is still better off than at T1.

                Do you find anything objectionable in that scenario?

                To repeat a bit from a previous comment: it seems to me you’re thinking of increased inequality in ceteris paribus terms. And that’s fine as far as it goes. But how far does it go?

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                • This is the part where you explain how it’s worse that the middle class is better off.

                  Bonus points if you can do it without an argument that sounds like the “lost sales” arguments we hear from the RIAA.

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                  • This is the part where you explain how it’s worse that the middle class is better off.

                    I wouldn’t do that. It’s good that the middle class is better off, but that fact is often used as a cover to justify increases in wealth and income disparities. What’s at issue is the causes of those increases, and the argument which attempts to justify them. So, as I’ve said like 3 or 4 times on this thread, if T1 and T2 are distinguished only by the tax rate imposed on the middle class and the upper class, and at T2 the middle class enjoys real gains in wealth and income even tho they’re paying higher taxes, then the argument that absolute gains in the middle class over a specific time period becomes irrelevant (to the topic at hand).

                    Or think of it this way: if absolute gains over a time frame is all that matters wrt any particular class, then why not increase taxes on the wealthy to the slimmest of margins where they’ll experience absolute gains over a time frame and radically reduce taxes on the middle class?

                    If absolute gains are the only metric worth considering here, why isn’t this a viable option?

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                    • If we imagined how the top X% of tax payers paid Y% of Federal Income Taxes collected, what numbers for X and Y would strike you as appropriate or just or whatever?

                      No googling! (I want to see if the numbers you throw out there are higher, lower, or equal to what the numbers actually are.)

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                    • “if absolute gains over a time frame is all that matters wrt any particular class, then why not increase taxes on the wealthy to the slimmest of margins where they’ll experience absolute gains over a time frame and radically reduce taxes on the middle class? ”

                      I dunno. Why not?

                      You aren’t making a complete argument as to why we should do that.

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                    • I don’t have the foggiest idea. I’m not dodging! I don’t think of things that way. It’s not like I had a baseline in mind when I wrote the above comment. Rather, it was a response to the idea that absolute gains in the middle class over a time period can be used to justify increased income and wealth inequality even if the effective tax rate on the rich has gone down. I mean, that’s pretty obvious, right?

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                    • So if the middle class income goes up but not as fast as you think it ought to do then that’s going to destroy society unless corrected by taking money away from people who have more than a certain amount which you can’t quite define except by bellyfeel.

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                    • Well, the numbers I saw showed that the top 10% paid the top 71% of income taxes collected. (Of course, this doesn’t count stuff like FICA or Social Security or whathave you and we can discuss whether that’s particularly fair or not or, at least, acknowledge that there are real reasons to not include those.)

                      The top 50% paid something like 98% of income taxes collected.

                      That number is in the ballpark of my guess (my guess was 75%), for the record.

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                    • If we imagined how the top X% of tax payers paid Y% of Federal Income Taxes collected, what numbers for X and Y would strike you as appropriate or just or whatever?

                      Honestly? Sliding scale based off the percentage of overall income (including capital gains) — utility of money and all would fudge it a bit, but if the top — say — 1% took in 30% of all income, they should pay at least 30% of all taxes.

                      That’s utterly flat, bare minimum. If the top 1% took in 50% of income, they should pay — minimum — 50% of taxes.

                      I don’t consider that optimal, however. You need either a negative income tax or some sort of subsidy/credit system — there’s no point in making people living on poverty-level income pay anything, because it’ll cost you just as much or more to make sure they’re fed and not dying on the streets. So let’s say the first X income per person is exempt.

                      After that, you’d want a marginal system (either a function or brackets) because a 10% increase in income to a guy making 30,000 a year is different in terms of real change in quality of life than a 10% gain for a man making 100,000…or one making a million.

                      So in essence, if the top 1% was making 30% of the income they should probably be paying more than 30% of all taxes — simply because the fact that each marginal dollar is worth less to them than the bottom 99%.

                      I believe that, right now, taxes (overall) are essentiall flat. Which means if the rich are paying an outsized seeming % of taxes, it’s because they’re receiving an outsized % of income.

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                • change the tax rate such that it’s increased for the middle class and lowered for the wealthy. Now suppose that at T2 the wealth and income distributions have shifted dramatically upwards even as total productivity remains the same and that in absolute terms the middle class is still better off than at T1.

                  If I read this right, the conclusion is impossible. If total productivity remains the same cumulative wealth hasn’t increased, so raising taxes on the middle class and shifting wealth/income distributions upward would mean the middle class can’t be better off.

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                  • They can’t be better off at T2 relative to the previous (lower) tax regime at T1 (all other things equal), but they can still be better off at T2 in absolute terms. Think of the increased taxes as merely slowing the growth of middle class after tax income rather than moving it into negative territory.

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            • “people have as their frame of reference what’s going on around them now, not how people lived 30 years ago.”

              Which is why it doesn’t matter that OWS has iPhones and college educations, because they’re worried that they might not be able to get a job and they heard about someone who had to sell their kidneys to pay for kidney surgery.

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          • Why should I worry about that increasing disparity as long as my position keeps improving?

            That’s a ceteris paribus claim, no? Fact is, all other things aren’t equal. Taxes on the rich have gone down. Because of that, the increase in income disparity seen lately can be attributed in part to tinkering with tax rates. It’s sortuva a redistribution upwards (born on the backs of our children).

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        • Ephemeral and various responders,

          I agree that barriers to social mobility are a problem with inequality, and am planning on writing on this. The thread then goes into the issue of relative vs absolute position.

          I would just add that the relative worldview is inherently zero sum. And there is nothing inherently incorrect in viewing it this way. Those taking this path will end up in a certain place. James points out the other path and where it ends up. I say we need to choose wisely. If life is a race, most of us are going to lose. If life is a journey, we can all thrive.

          Our world views are critical in social outcomes, and part of our socialization process includes dialogues like this.

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          • If life is a journey, we can all thrive.

            Life is a journey, but we’re not all thriving. In fact, less of us are thriving than 30 years ago, while a significantly tiny minority are thriving even more than they were 30 years ago.

            “I’d far rather be happy than right any day.”
            “And are you?”
            “No, that’s where it all falls down, of course.”
            “Pity, it sounded like quite a good lifestyle otherwise.”

            You argue that liberals/progressives view the world as a “zero sum” game. I argue that you are inherently wrong; the problem is not that interactions are seen as zero-sum, but that positive-sum benefits are apportioned in a way that creates ever-increasing gaps in purchasing and influence power. These gaps, vis-a-vis Citizens United, have become so prominent that the concept of “freedom of speech” is abridged by the ability of a very small few to shout down everyone else.

            Shannon’s Mouse, above: “Reason #244 for Why I No Longer Consider Myself a Libertarian:“Bread and circuses for the poor are cheaper than ever.””

            A rising tide that lifts all boats is meaningless if 1% of the population controls access to every pier and can decide who has permission to be on the water.

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          • Sorry, but it’s not zero sum. If you gave me $50, I’d put it towards the middle class education– and we’d have more people getting arrested for tipping in $2 bills (Wozniak). Because the middle class makes productivity enhancements. The rich do not. It is true that middle class people can become rich through their work. These people GAIN money/prestige the MORE the MIDDLE CLASS has, in general. Because they’re good at finding things taht people wanna buy.

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      • The thing is, though, that “inequality” is only a meaningful criticism in a zero-sum game.

        I disagree here, DD. I think inequality of opportunity is a positive sum game. I also think that inequalities in determining policy (one person, one vote – that type of thing) are zero sum, but can still be justified.

        I think the area where positive sum interactions have the most traction are at the level of luxury items, where the choice to spend on item X is justified on subjective utility grounds, but that it breaks down in markets where the goods and services as they get closer to necessary or essential.

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        • Still, I disagree. First, your voting example is zero sum,nso it basically supports Duck’s argument. Second, I think you’re mixing up having sufficient necessities with equality of necessities. It’ s important that everyone have adequate food and shelter, but that doesn’t mean there’s a problem with one person eating chicken in a small fixer upper while another person eats filet mignonette and caviar in their mansion.

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          • The first example is zero sum: I wasn’t disagreeing but saying that there are certain situations where zero sum is the correct way to understand the process. In the second, I’m suggesting that viewing the provision of essentials as positive sum is wrong. From my pov, it’s a category error, since the provision and acquisition of essentials are no longer voluntary transactions.

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            • Ok, but I think it’s been stipulated that the issue being debated isn’t provision of essentials. Roger has repeatedly said he supports a safety net; for the record, so do I. The area of disagreement has to do with wealth beyond the essentials.

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              • The area of disagreement has to do with wealth beyond the essentials.

                Then see my comment at 12:22 (currently #27).

                I think there are two issues in play right now. The first is whether there is anything inherently wrong with increased wealth/income disparities just so long as the middle class enjoys increased wealth/income in absolute terms all other things being equal. That’s in interesting topic, and probably the one you want to discuss. Frankly, I’m persuaded that on it’s own terms, those increasing disparities aren’t bad in and of themselves. The second issue is to what extent, as a matter of fact, the increasing wealth/income disparities we’ve been seeing result from a redistribution of middle class income upwards via tinkering (rather than ‘natural’ processes). (Or even if it makes sense to talk at this point about tinkering and natural processes.)

                I think the libertarian argument is conceptual: increased inequality that results from voluntary transactions is justified. I also think liberals have a real burden to meet in arguing against this view. But I also think – or tend to think – that the liberal complaint being expressed on this thread (and generally) is that increased inequality hasn’t resulted from voluntary transactions, so even if they were to concede the libertarian’s conceptual point, it doesn’t apply as an explanation or account of what’s been occurring over the last 30 years or so.

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                  • How do we go about determining that extent? Frankly, I’m a little surprised to see you suggesting our economy contains much in the way non-voluntary or non-mutually-beneficial transactions. Are you doing that? If so, where do we go to look for them?

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                    • I’m a little surprised to see you suggesting our economy contains much in the way non-voluntary or non-mutually-beneficial transactions.

                      And here I thought you’d been paying attention to we libertarians’ complaints about how many non-free market elements there are in our economy!

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                    • You’re right. For some reason (because Stillwater stipulated that he was talking about arguments made by liberals in these threads perhaps), I thought Roger was willing to begin to broach the subject of coercion in the economy apart from government and outright crime there. My mistake.

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                • Shorter version:

                  Liberals: We really don’t mind wealth. We’re all for rich people. Hooray success! However, seriously, look around. Things have kinda gone off the rails here, and we should probably address this before it gets out of hand.

                  Or hey, as a note to the rich: This is unsustainable, long-term. Fix it now, or fix it when the masses revolt. You were lucky the financial industry didn’t trigger a metaphorical day of the rope towards the rich buggers who screwed the pooch, but don’t count on being lucky twice.

                  Fix it now, of your own volition, or wait until the system collapses and it’s fixed for you. By angry, angry people.

                  But hey, that’s just me. I see the current path is unsustainable, it’s leading towards an almost fuedal system that looks like the bad old days of the Gilded Age, and I think the American middle class is not gonna roll over and accept it. Maybe it’s all boiling frogs and they’ll accept their lot in life, but I suspect there’s a breaking point and I’d prefer not to find out. I’d rather just, you know, be a bit proactive.

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                  • The response of the 1% is Tea Party astroturfing and the right wing radio networks, with a drumbeat rhetoric that attaches morality to wealth. I’ve lost track of the number of times I’ve heard it said on the radio shows – and even here on this blog – about how “immoral” it is to “take at gunpoint” wealth in the form of taxation in order to fund programs that are “wealth transfer.”

                    And by “wealth transfer” they mean adequate funding for social security, medicare, medicaid, and the rest of the safety net currently overflowing with unemployed, underemployed, and otherwise directly harmed people due to the Recession that necessarily flowed out of the last 30 years’ economic policies.

                    I’d prefer the system be fixed before the Tea Party followers finally reach the conclusion that it’s unsustainable and their current loyalty to the 1% is just getting them screwed up the pooch. Enough of them are already drunken, angry rednecks with guns that it’s are likely to turn extremely violent at that breaking point.

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                • The first is whether there is anything inherently wrong with increased wealth/income disparities just so long as the middle class enjoys increased wealth/income in absolute terms all other things being equal.

                  I don’t think there is, and I haven’t seen a compelling argument that there is.

                  The second issue is to what extent, as a matter of fact, the increasing wealth/income disparities we’ve been seeing result from a redistribution of middle class income upwards via tinkering (rather than ‘natural’ processes). (

                  That is a worthwhile question. I think it’s much harder to answer than some of our liberal colleagues here seem to think it is. I think they see it happening and assume it must be the result of nefarious behavior, that it couldn’t possibly be the result of legitimate processes. I think they beg the question, though.

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      • (Delurking after a long time… Hi everybody.)

        I don’t think the reasoning is as simplistic as it’s being described here. Trade is definitely not zero sum, but it’s easy to take that reasoning too far. If Joe grabs a larger share and leaves you with the same amount every time you order a larger pizza, you’re not benefiting from the growth. Upgrading from the medium to the large gives you X square inches of additional pizza, and how you and Joe divide that extra pizza up is decidedly zero sum.

        Economic growth is hard. It requires capital investments and new technology. We’re never going to see 900% growth in one year. Given that we get a certain amount of per-capita growth every year, the way we divide that additional income is an interesting question. When we say, “Wages are stagnating for the least skilled workers,” that could mean that growth is stagnating for everybody or that the least skilled are no longer getting the same share of the new income that they used to. They’re losing in the zero sum part of the game.

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        • “Upgrading from the medium to the large gives you X square inches of additional pizza, and how you and Joe divide that extra pizza up is decidedly zero sum.”

          Except it isn’t “zero sum” in the sense meant by the OP. You’re correct that each individual transation is zero sum because there is a finite amount of wealth involved in the transaction (eventually you haven’t got any pizza left) but that doesn’t mean that the amount can’t grow with every successive transaction (order more pizza next time). The zero sum thinking that the OP decries would say that the second part of that sentence doesn’t exist–that pizza will always and forever be one size, and the only way to ensure that everyone gets as much as they’d like is preset rules for how much everyone can eat.

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          • I totally agree that assuming a constant pizza size is broken reasoning. But that “income growth by quintile” graph is the result of a long sequence of zero sum divisions of the positive sum gains.

            I’m not concerned about growing inequality in absolute terms as long as everybody sees a slice of the new income. I just don’t want us to make the leap from, “It’s wrong to hate rich people for being rich,” to “We needn’t concern ourselves with how gains in productivity are divided up,” without thinking about it.

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            • Where DensityDuck’s argument falls flat:

              The first night, Bob and Jim order 1 medium pizza. Bob eats most of it, Jim gets only half a slice. Half a slice is an insufficient dinner.

              The second night, Bob and Jim order 2 medium pizzas. Bob again eats his fill, leaving Jim with – again – only half a slice.

              The third night, they order 3 medium pizzas. Jim gets a whole slice this time, which is barely enough to constitute a dinner, while Bob is beginning to look like this guy.

              Bob’s clearly operating in excess, Jim still nearly in famine, even though it’s been a “positive sum” and the availability of pizza – in absolute terms – has increased threefold.

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                  • Well, if you’re telling me that I need to chip in $5 to pay for Bob’s gastric bypass surgery 5 years from now, then Bob is still operating in excess even if I don’t even like pizza.

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                • We’ll stipulate:

                  – Half a slice = insufficient for a meal.
                  – Whole slice = a bare minimum, subsistence meal.
                  – Two slices = an average human meal, which will leave a normal human feeling “full” and “satisfied.”

                  It’s an analogy, and I’ll freely admit the analogy doesn’t run perfectly (it doesn’t for DensityDuck’s argument either, which was kind of my point). It’s a basic framework.

                  Where it really breaks down is the assumption – extended to the argument about “positive sum” interactions in the current economy – that there is a “positive sum interaction” that can infinitely increase availability of resources.

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              • “Bob again eats his fill, leaving Jim with – again – only half a slice.”

                Why did Jim agree to an arrangment where he pays twice as much for the second night’s dinner but doesn’t get any more pizza?

                Please answer with something other than “HURF DURF RICH PEOPLE”. Please tell me that you have something beyond that.

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                • You do realize what an “analogy” is, right? That, specifically, it is not an exact model of a problem but merely a little story used to illustrate some key point?

                  Therefore going “OMFG, what about X! If you can’t answer it YOU ARE WRONG!” is not really an argument? Heck, it doesn’t even matter WHY Jim agreed to it — only if it’s an accurate-ish analogy for the situation.

                  Which it is — That’s a pretty good analogy for how productivity gains have been divied up, if Bob is the top 1% (or really 0.1%) and Jim is everyone else, over the last few decades.

                  Which was the POINT of the analogy — show how a positive-sum game can result in massively skewed results even if everyone’s share of the pie technically grows.

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                    • The “HURF DURF RICH PEOPLE” comment really makes it difficult to take you seriously.

                      But hey, dodge the point — it doesn’t MATTER why Jim agreed to it. “Why would Jim agree to X” wasnt’ the point of the analogy. The point of the analogy was to demonstrate how a massive increase in production that makes both people better off is not necessarily super happy rainbow puppies.

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                    • It’s hard to see what was never there, Morat20. And DensityDuck’s “HURF DURF RICH PEOPLE” comment was just his usual trolling to clue everyone in that he wasn’t interested in seriously addressing the point.

                      No matter what I wrote, that would have been his response. Engaging him is meaningless.

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                • We’re looking at an analogy for what is actually going on in working conditions in America.

                  The “payment” is working hours. Bob, company owner, eats his fill. Works same hours or less. Jim, employee, works what hours he is assigned to keep his job (out of fear of unemployment in a down economy). Jim may actually be putting in more hours today in unpaid overtime just to keep the job.

                  Profits increase. Bob increases his take, but rarely if ever increases Jim’s salary, certainly not enough to keep up with inflation and the rising costs of necessities like gas and housing.

                  Do you get it yet? Income is the pizza on the table. It hasn’t increased nearly by 300%, but it’s “increased.” Jim, representing the lower and middle class, just hasn’t seen ANY of the increase actually reach him – certainly not enough to keep up with the expenses of life – because it’s all stayed in Bob’s greedy gullet.

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                  • So you’re making a power-differential argument (badly) but up-thread when I said that the answer was trade unions you freaked, and your buddy Morat20 is right there with you. So I don’t even know what you’re trying to argue anymore, other than HURF DURF RICH PEOPLE.

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                    • but up-thread when I said that the answer was trade unions you freaked

                      You’ve been the guy arguing that trade unions are bad and should be abolished.

                      While I’m happy to see the about-face, the entire point of that ought to be that policies deliberately designed to destroy trade unions, which is what the republicans have been peddling for the last 30 years, are bad for society.

                      Agree or disagree? Let’s have an honest answer from you. For once. No snark, no insults, just answer the damn question.

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                • Why did Jim agree to an arrangment where he pays twice as much for the second night’s dinner but doesn’t get any more pizza?

                  I didn’t think that paying for pizza was part of the model. I thought pizza was exogenous. That’s how I’m modeling growth here.

                  Say somebody invents shovels, causing ditch diggers to become more productive. Should ditch diggers be paid more as a result, or should the ditch digging company shareholders capture all of the surplus? Or should the surplus all go to the inventor of the shovel?

                  The real question you seem to be asking is, “Why don’t the ditch diggers demand more of the extra income the shovels are generating?” When they can get away with it, they do. But there’s always a split, and that split depends on bargaining power more than any cosmic justice or meaningful measure of worthiness.

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                  • The answer is simple: Because they’re fired if they do, because collective bargaining has become a dirty, dirty word, and because there’s absolutely NO REASON an employer would ever pay an employee more than the absolute minimum he had to. For anything.

                    Not in any business of actual size.

                    You know, there’s a question — why aren’t libertarians ridiculously pro-union? Just in general.

                    It seems like a no brainer. Without some countervailing force, employers would — and do – -start in on all the horrible coercions of power that are so derided in government.

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                    • To a Libertarian, any form of abuse is acceptable as long as the word “government” isn’t attached to it. The libertarian ideal is 14th century serfdom modified with a “right to move to a different monarchy.”

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                    • “Government is that which protects against all excesses of power except it’s own”.

                      My (generalized, not limited or aimed at specific people) issue with libertarians is that they often fail to remember that, absent government, there are other actors both quite powerful and quite capable of abuse and excess — and far less responsive than government.

                      On the one hand, I get the whole “focus on the guy currently with his boot on your face” issue. I’m sympathetic. On the other hand, when solutions re: Boot on the face of humanity are to go BACK to the previous boots on our face or neglect the previous boots on our faces, I can’t help but remember.

                      We choose government because it was better than those guys. We gave it so much power because it was better than those guys. Anything to make government “better” or “more free” or “whatever” (or replace it!) must ALSO protect from, you know, THOSE GUYS.

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                    • To a Libertarian, any form of abuse is acceptable as long as the word “government” isn’t attached to it. The libertarian ideal is 14th century serfdom modified with a “right to move to a different monarchy.”

                      [Citation needed.]

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          • Shannon,
            Gains are not distributed until they are created. The gains are realized by the producers or those mutually agreeing to the exchange. Separating the creation and exchange — which create the wealth – from the distribution confuses the issue. Recognizing that they are voluntary reveals that they are just, assuming the basic rules of the game are just.

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  4. While I think it is perfectly natural to caricature one’s political adversaries, in this case I think you have “progressives” exactly wrong. In the liberal order, better positive outcomes are achieved.

    If you compare the economic growth rates during conservative and liberal administrations, you will find that the economic growth rate is 30 – 50% higher in aggregate. Moreover, the growth is more widely spread. I think this is true, in part, because liberal ideology better understands that good economic outcomes come not from single heroic entrepreneurs, but from widespread, shared prosperity, a societal valuing of the common welfare over the individual, and a pragmatic pursuit of widespread economic opportunity.

    I can understand how, from the conservative / libertarian side, this can look like a zero-sum philosophy. But the liberal outlook does not look at Bill Gates and conclude that he is one million times more worthy, or one million times more productive than the average American (mirroring the ratio between his net worth and the median American’s). He has a set of talents–entrepreneurship, marketing, organization and technology–that has allowed him to create something giant. But Microsoft’s rise also had much more to do with the culture, time, and environment in which it arose: without the space program and the defense industry, microcomputers would not exist. Without IBM, Microsoft would never had arisen to its current position. Without some pretty shady and aggressive business tactics, Microsoft would not have wiped out its competition and come to dominate our era’s most prominent industry.

    Liberals don’t look at Gates as a Randian hero, and consider that he “earned” his $70 billion. They understand that a market economy is a pretty efficient means to growth and distributional efficiency. They also recognize that it creates incentives to pursue individual goals at the expense of societal good: and believe that modifying the incentives and outcomes of an untrammeled market will result in greater prosperity, better distributional outcomes, and a fairer, more robust outcomes for the greatest number of people.

    There’s nothing “zero-sum” about that.

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      • Stillwater,

        I believe progressive ideology shares many of the beliefs of classical liberals or libertarians but deviates in the following critical ways:

        1) Progressives are much more concerned with the importance of equality of outcome.
        2) Progressives are more trusting and dependent of top down, rational, government run solutions.

        I believe these two are related, as supplying the master plan to achieve equal outcomes requires massive governmental interaction. In the real world, people have different capacities, interests, specialties, time horizons, risk preferences and goals. To expect equal outcomes on any given dimension is simply absurd absent massive and coercive interference. I should probably do a better job though of contrasting progressivism to statism. Many conservatives are not progressives, but are statists.

        I agree that forward “progress” on the expansion of the state actually occurs while Republicans are at the helm.

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            • Is it even a question of equality of opportunities though? I suppose, if Roger’s right on both points, I’m not a progressive. So, maybe I should stay out of this particular discussion.

              But it seems to me that most people will accept some inequalities of opportunities; like maybe it was easier for you to get capital to start your company because you went to an Ivy League school and were a member of the same fraternity as the investor. Okay. What seems more unjust are inequalities of barriers (wow, that’s a bad locution!). So, if you’re a smart young person who is driven and hard working and has a brilliant idea for a company, but nobody will give you any start-up capital because you weren’t a member of Crappa Zappa Gamma at Yale, that would likely strike us as unfair. I’m not saying that’s the case but you see where it would be a problem.

              And let me be clear, I don’t mean “unfair” in some metaphysical moral sense. I just mean that all of us choose to consent to, and be embedded within, a social order. Partly, we do this because we believe that the social order affords us some avenues to live and thrive, provided we’re talented and work hard. It becomes a problem when enough people come to believe the social order is rigged. Q: Why is it a problem? A: Egypt. Since libertarians care about limiting the power of the state, they should recognize that when people start throwing trash cans through windows on a large scale, it almost always ends with some sort of military rule and put stock in social stability as well. So, in that sense, “inequality” is a concern.

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    • Thank you for pointing this out, I was planning a similar comment if none had already been offered. The facts of the matter are such that liberal policies have actually produced positive sum situations to a much greater extent than conservatives have: http://www.bloomberg.com/news/2012-02-22/stocks-return-more-with-dem-in-white-house-bgov-barometer.html . Highlights: $1000 invested only during Democratic Administrations would return 500% (5 times) more than money invested only during Republican Administrations. 7 of 8 recessions since Kennedy began with a Republican in the White House. The annualized return for 23 years of Democratic administrations is 11 percent, or four times the 2.7 percent annualized return during 28 years of Republican presidencies.

      http://www.thomhartmann.com/forum/2012/05/us-dollar-fell-92-under-republican-presidents-1929-stock-market-has-perfomed-27x-bette Highlights: using a different time period than the previous link, the New York Times reported that since 1929, $10,000 invested in the stock market under Democratic Presidents (over 40 years) had become $300,671. Meanwhile, $10,000 invested in the stock market under Republican Presidents (over 35 years) had become only $11,733.” and “Well, at least the affluent caste didn’t lose money during Republican regimes, right? Wrong. The value of the dollar dropped by 92% during that period. So in real value, $10,000 invested in the stock market under Republican Presidents actually became just $955.”

      I don’t buy the positive sum conservative/ negative sum progressive frame anyway, but even if that is the case, the reality is that progressives have produced almost infinitely better positive sum outcomes.

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      • My argument is on statist progressive ideology, not performance based upon who sits in the white house. I also agreed it was a mistake to include the word “conservative” in the argument. It was a last minute addition that I regret.

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  5. Okay, so James makes this request that people should write about their own beliefs and why they believe what they believe, instead of trying to explain what some other group believes and why they’re fundamentally wrong. His example was that progressives should tell us why they believe what they do about inequality, instead of using the occasion to bash libertarians, who they probably don’t understand anyway. So, I think to myself, “There’s no way the posters are going to be able to manage this.” So far, I’m one for one.

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  6. Great start, Roger. I thought you’d probably address the pos/zero sum issue, and I’m glad you did so I can take a different approach.

    From my perspective, two of the first three commenters have missed the point, being too quick to repeat talking points that are actually about dividing the current pie, engaging in zero-sum thinking while suggesting that they don’t actually engage in zero-sum thinking.

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    • Thanks James,

      For the record I submitted this as a suggested prequel to the dialogue. My main piece actually delves into the problem of class mobility within a specific sub segment of the poor. Erik thought this should just start the fray. Hopefully everyone allows my main piece through as well.

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    • You constantly bemoan that “liberals” are out to paint libertarians as strawmen, yet you applaud a post that says liberals and progressives are avid, greedy, narrow-sighted zero-sum thinkers, while libertarians are on the side of saints and angels and positive sum gains for everyone….

      …really?

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    • I would suggest that a system that is positive sum overall can be quite zero-sun for some of its parts.

      Suppose we have a circle of wealth of 100 wealth units. Next suppose there are 5 people who consume/produce this wealth. At the start each person controls/consumes 20 wealth units.

      Person B comes up with a way to generate 200 wealth units for the whole Society. After this method is implemented person B and person C Each have 77.5 wealth units but A, D, and E each only have 15.

      Over all a positive sum situation but he majority of the society is actually worse off.

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      • Pirate,

        I don’t actually disagree. I am espousing mutually beneficial interactions. In other words that people not harm or coercively force each other to do things against our will. Although this does prohibit direct harm, it doesn’t protect someone from what I will call “lost opportunity.” An example is 5 buggy whip producers. Two of them figure out how to manufacture cars and the other three now make zero. They were not coerced at all. The only way they were harmed is they lost an opportunity. But their kids depended on that opportunity for food on the table.

        Economics works in delivering prosperity because the incentives are there for the unemployed buggy ship makers to do something productive with their labor and ingenuity. Thus we now have cars and…. Whatever else these three can produce. At any one step it can look like a zero sum game, but it accumulates solutions and efficiencies and new ideas as it goes along.

        Your point also brings up the importance of social safety nets. Unemployment insurance for buggy whip makers in this case. Safety nets allow free enterprise to be less scary, and reduce the incentive to obstruct change. Indeed, I believe a lot of the increase in econmic progress over the last few hundred years came because those that would have gained by preventing progress were unable to find a way to stop it as they had in the past.

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  7. It’s going to be a long, hard symposium if we never establish that when we talk about inequality, we’re talking about the rate of growth of inequality — not the distribution of wealth in absolute terms. Again: this isn’t about a finite set of resources but whether the rate at which continuously growing wealth is flowing disproportionately and sub-optimally upward. As Roger’s demonstrated in this post, anyone who would argue that the issue is how what we have already is distributed isn’t likely to leave the debate victorious.

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    • Who gets to determine just what we’re talking about? I’m not sure whether you’re trying to be a dictator of focus or just clarifying what you believe liberals are focusing on. If the former, sorry, no dice. If the latter, please write apost clarifying your case. And if so, please note that my preemptive question is whether increasing rates of inequality are bad even if the least well off are still becoming better off in absolute terms. That’s not snark, but my sincere question.

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      • I’m clarifying what people who debate this seriously are arguing over. And what I’m talking about when I discuss inequality in my own work/life. I couldn’t speak to your parting question without knowing how we’re defining “better off in absolute terms.” I’m going to hold off until the end of the week to post my take on this, in part because I’d like to get into it after the parameters and particulars of the debate have come into clearer focus.

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        • Elias,

          I look forward to your post. Whether my perspective matters or not is up to you, but I really do question the “rate of growth of inequality” approach. Assume the rate of growth of inequality was 0% at T1, then increased to 1% at T2. Would that be unacceptable? That is, how would we know when the rate of growth does become unacceptable? What would be our criteria? I think it has to be something more than, “OMG, it’s really bad right now.” And honestly–and please forgive me if I’m being totally unfair here–it seems to me that this is exactly the approach that’s generally being taken by those who express concern.

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          • Arguing over whether temporary growth of inequality at 1% or 2%, which should recede in what Libertarians constantly claim are “normal market cycles”, is unacceptable is the realm of theorists and pedants.

            Failure to recognize that this is unacceptable, and that the sustained pattern over 30+ years has resulted in an abusively asymmetrical disparity, is clueless libertarianism.

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    • “this isn’t about a finite set of resources ”

      In other words, you’re quoting Jesus when he said “the poor will always be with us”. They’ll just find different things to be poor about.

      “I’m poor! I can’t afford more than a ten-by-ten room for each of my children, I’m not sure if I’m going to retire in the same job I first hired into, and if I got a rare cancer then I probably wouldn’t die but it would be really expensive!”

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    • It’s going to be a long, hard symposium if we never establish that when we talk about inequality, we’re talking about the rate of growth of inequality — not the distribution of wealth in absolute terms.

      I disagree. The topic was intentionally broad for a reason. For example, i’m discussing inequality in education. I don’t care about the rate of growth (which is actually a non-factor). I’m discussing the harms, possible solutions, etc.

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  8. The part of Roger in this video has been played by Count.

    Don’t you get tired of recycling the same old nonsense? “Progressives” have not argued that inequality is based on a zero-sum game. There are definite positives to be had in commerce and positive-sum interactions to be had. Inequality can easily grow in a “positive sum” environment as a result of one party taking far more of the benefit than another party.

    The zero sum outlook logically leads to some common progressive conclusions. If you subscribe to the zero sum view, consciously or unconsciously, you will tend to believe: To quote the good lady Pointercount: horseshit.

    Those that are well off probably became so at expense of the less well off.

    Inasmuch as the “positive sum” benefits of the interaction were inherently asymmetrical. “Median income” in the US has generally risen since the nation was founded. However, “Median income” in the past 30 years has risen only as a result of the top 1%’s income rising; inflation-adjusted wages for the middle and lower classes have remained virtually stagnant.

    There’s a positive sum interaction in toto, but it’s not being apportioned in a positive-sum manner. One group is taking all the benefit at the expense of the other group’s stagnation.

    Therefore, the wealthy are morally suspect and the poor are probably victims.

    If one participant in a “positive sum interaction” is playing the Red Queen’s Race, and the other party is constantly becoming wealthier, then Occam’s Razor says that the simplest explanation – that morally suspect behavior is keeping the benefit from those playing the Red Queen’s Race – is most likely correct.

    It is just to correct this imbalance by limiting or redistributing wealth.

    Ethically, given the result of the previous, this is correct. Immoral activity resulting in harm to one part and benefit to another should be addressed.

    Since the pie is a fixed size, we better get more for the good side (or at least our side).

    None of this requires that the pie be a fixed size. Your whole argument is a dishonest, bigoted fallacy.

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    • Brother, you’re making me sad.

      You seem to be fairly new to this site, and your early comments were pretty interesting, and pretty well written.

      But you seem to be becoming more snarky, hostile, bitter, and combative. I would urge you to please reconsider your tone. I think you have a lot to add, here.

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    • I’m gonna echo B-A M. here M.A.
      You started out great and then you seem to have become very terse and annoyed. Please reconsider; you clearly have lots of intelligent points to make. Letting people push you into anger obscures your useful points.
      Your heat is beginning to obscure your light and lady knows we could use the light of some more liberals about here.

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  9. To elaborate a little, Roger has been one of the most thoughtful and respectful posters here. I agree with almost nothing he says, but he engages civilly with anyone who approaches him in the same spirit. This is an interesting set of topics, and fundamental to the kind of society we want to live in. I really look forward to seeing these ideas engage with each other.

    But “horseshit,” and denouncing another’s arguments as “dishonest, bigoted fallacy” is not the kind of engagement I was looking for.

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    • I gave up on the illusion of Roger’s civility about the time he described some of my friends as “a special interest group in cahoots with politicians to siphon tax dollars into sweetheart union pensions”, which is a longwinded way of calling them leeches and insinuating that they did illegal or immoral things in bargaining for fair wages and benefits.

      He’s not civil, he’s just longwinded and flowery in his bigoted insults.

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  10. Roger:

    I think you’ve made a good distinction, and if you threw your post and mine together in a blender and threw it against the wall, we might get somewhere.

    Here’s my quibble: I think this is unfortunately framed as an either/or, when the fungible nature of money means it is a both/and. And this explains why everybody talks past each other on this point; they’re both right.

    The vast majority of luxury goods are definitely value-add, positive value creating, non-zero sum portions of the economy. Totally with you there.

    The vast majority of staple goods are definitely *not* value-add, and they are zero-sum portions of the economy. What is worse, due to our fiscal policy and market approach to both luxury goods and staple goods as being fungiblated using the same enfunginator of “money”, people who are looking at investments as “return on capital” definitely take large sums of fungible money that they made making positive-value-creating-non-zero-sum luxury goods and investing it in base good futures and whatnot.

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    • “The vast majority of staple goods are definitely *not* value-add”

      Staple goods like cars, healthcare, education, and telecommunications?

      I mean, I know I keep harping on this point, but is it truly the case that because people in 1950 had cars and people in 2012 have cars, we must pretend that a new car in 2012 is equivalent to a new car in 1950?

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      • I’m taking a much more global perspective. I’m far less concerned with inequality on the metric of fairness and far more concerned with destabilizing forces. I don’t think America is so unequal as to be unstable (compare to, say, China, Russia, India… all fairly large economic engines that are much more unequal than we are, in the sense I’m using “unequal” anyway, and yet are pretty stable).

        It’s particularly funny when we (Americans) argue about what constitutes staple goods when there are other people out there for whom the idea is essentially a completely different game. You’ll see when my post goes up.

        > Is it truly the case that because people in 1950 had cars and
        > people in 2012 have cars, we must pretend that a new car
        > in 2012 is equivalent to a new car in 1950?

        No.

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    • Good comment Patrick. That’s what I’ve been trying to get at myself in this thread. The one way I can think of the make the point is this: the positive sum theorist picks a paradigmatic example of an exchange that yields increased wealth for the manufacture and increased utility for the purchaser. The purchase of an ipod! And because the positive sum, subjective utility of this market transaction is so crystal clear and unobjectionable, they work their way outwards to say that all transactions are positive sum, subjective utility maximizers.

      I don’t think that’s the case.

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      • And because the positive sum, subjective utility of this market transaction is so crystal clear and unobjectionable, they work their way outwards to say that all transactions are positive sum, subjective utility maximizers.

        I don’t think that’s the case.

        OK, so how about some examples? Can you demonstrate that non-positive sum transactions constitute a significant proportion of market transactions?

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        • You carve out a different set of actions depending on how you define ‘voluntary transaction’, it seems to me. The positive sum theorist, as I understand their views, looks at any transaction which isn’t physically coerced (say at gun point) as constituting a voluntary action, and therefore a utility maximizing one. The argument here seems to be that since any transaction which isn’t physically coerced is voluntarily entered into, and since the agent is stipulated to be rational wrt assessing his own utility, the exchange of X for Y entails that the individual views the transaction as maximizing his utility relative to all other options.

          One of my objections is that this analysis is danger of collapsing into vacuity. If it’s the case that for all non-physically coerced transactions T, agent A maximizes his subjectively determined utility if and only if his T isn’t physically coerced, then it is impossible for agent A to have ever been motivated by irrational impulses when engaging in any transaction. All of his non-physically coerced choices are entirely (subjectively) rational. But I think this is either descriptively inaccurate (false) or vacuous (since it’s tautological: subjectively rational iff non-physically coerced).

          Considering each in turn, it seems to me descriptively inaccurate to me to identify the set of voluntarily entered into transactions with the set of non-physically coerced transactions. The purchase of luxury items might constitute a type of transaction where the sets are identical – which is the best case scenario for the positive sum theorist it seems to me – but even that is subject to troubling counterexamples. For example, advertising is based to a large degree on instilling in the target audience unconscious associations which motivate that person – irrationally! – to purchase a good or service. If so, then determinations of subjective utility are divorced from rationality in an important way (not necessarily a decisive way, but from where I’m sitting it doesn’t look good for the positive sum theorist).

          Now, that’s just one case, to be sure, but it highlights what I think is an important objection to the view: subjectively determined rationality is an epistemic concept limited to what an individual believes about his own situation even if he’s entirely wrong about matters of fact. And given that, it’s entirely possible that a person’s subjectively determined rationality can in fact be wildly irrational.

          On the other hand, if it’s the case that a person’s subjectively determined rationality cannot be irrational, then the view is vacuous. Rationality is just identified with anything a person does or believes.

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          • First, I’ll agree with you that “physically coerced” is too narrow. I was teaching a class once where we were discussing the Pledge of Allegiance in schools issue. One girl said, “nobody is holding a gun to their head.” I snapped at her, “get out of my classroom, now!” Shocked, she got up and slowly walked to the door. Just before she got there, I called her back and said, “Did I hold a gun to your head?” So, yes, psychological compulsion is possible, and is also legitimate (in fact I’m not sure what I did to the student was legitimate, although it was an effective teaching moment). Or a more serious example–rape can result from psychological coercion, not just physical force.

            But advertising just isn’t the psychological compulsion people tend to think it is. The best advertising can do is get you to try a new item once and to remind you about items you like but might otherwise not think to buy. If you try a product and don’t like it, advertising won’t make you try it again. Campbell’s Soups once tried to do without advertising, figuring that since they had such a dominant shelf space in the “red aisle” of the grocery store, advertising was superfluous. Their sales plummeted–those who went into the red aisle still bought Campbell’s, but people didn’t think about putting it on their grocery lists so they didn’t all go into the red aisle. That’s still positive sum–people like soup, and they’re willing to pay for it. And advertising frequently fails to move market share at all; it’s powerful, but just not powerful enough to overcome our ability to make our own choices.

            And from another perspective, if the advertising really has made me love product X, then–because utility is subjective–if I buy product X I really have increased my utility. Only someone standing outside substituting their own “superior” judgement for mine can say otherwise.

            I just don’t see that you’ve demonstrated that there’s any substantial set of non-positive sum interactions in the market.

            I

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            • I just don’t see that you’ve demonstrated that there’s any substantial set of non-positive sum interactions in the market.

              What I’ve done, I think, is demonstrate that a person’s perception that an exchange is utility maximizing is divorced from whether it in fact is or isn’t. For your view to make sense, the mere appearance of utility maximization isn’t enough. It has to actually be utility maximizing. And subjective determinations aren’t enough to establish that.

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              • It has to actually be utility maximizing. And subjective determinations aren’t enough to establish that.

                I don’t understand this. If utility is subjective, then only subjective determinations can establish if an exchange enhances utility. What other yardstick can there possibly be?

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                • But people can be wildly delusional – hence irrational – about how they view the world, right? People can be compelled to make purchases of items which even they don’t understand. If so, then the subjective determinations they make regarding their utility are irrational, even tho they’re viewed by the agent as (subjectively) rational. There’s a disconnect there. Rationality doesn’t reduce to the (current) beliefs we hold. If it did, no one would – or could – ever be (or act) irrational(ly).

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                  • “But people can be wildly delusional…”

                    In extreme cases we can certainly use the law to define what counts as illegitimately taking advantage of people. We already have the concept of fraud from which we can work.

                    For cases below that, well, see the comments below about who gets to choose.

                    As for rationality, no, it isn’t about the beliefs we currently hold. It’s just about being able to create a reasonable preference order and making reasonable decisions about how to pursue utility enhancements. Most people make pretty good choices for themselves–which doesn’t mean their choices necessarily impress those viewing from outside. Again, we have to be extremely careful about whether we’re substituting our own judgements on utility and choice for that of the individual.

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            • Also, if your view is tautological, then it’s impossible for me to show that there is a set of transactions that aren’t positive sum. And that’s what I’m arguing against. On your view, any transaction which isn’t coerced is by definition utility maximizing and therefore positive sum. But it seems to me that you can’t derive a metaphysical conclusion (positive sum) from an epistemic premise (subjective assessment of utility).

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              • Eh, it’s not just tautological, though. It’s based on some axioms.

                1. Utility is subjective.
                2. People are (reasonably) rational
                3. People prefer more utility to less utility.
                4. They have free will (can freely choose to enter a transaction or not).

                Conclusion, only they can determine whether a transaction will enhance their utility, and they will only enter transactions that they expect to enhance their utility.

                Violate/disprove any of those and sure, non-positive sum transactions can occur. The most obvious is violation of 4, overriding someone’s free will and the transaction can’t be expected to be positive sum. 1 and 3 seem pretty solid, hard to violate or disprove.

                2, now that’s the tricky one. Just how rational does a person need to be to ensure a transaction enhances their utility? Not perfectly so. I may think a new car will give me 10,000 utils at a cost of 5,000 util, but in fact it only gives me 7,000 utils. That could be bad, if I had foregone some other opportunity in which those 5,000 utils would have garnered me 8,000 utils, but it’s still a positive sum interaction.

                It seems to me that for the most part the only non-positive sum interactions among normal people (setting aside those with severe mental/psychological problems, including drug addicts, where condition 2 doesn’t necessarily hold) is when we’re trying new things. My mom loves McDonald’s McRib sandwich. OK, I’ll give it a try–$4 ain’t much money and I like ribs. Hmm, that sandwich sucked the big one. OK, contrary to my expectations, that transaction was not positive sum. But that’s unavoidable because we’re making predictions about an inherently unknowable future. Technically rationality doesn’t even come into play here, just lack of information.

                Those transactions happen. Buyer’s remorse also happens, because some people have a tendency to irrationally overvalue prospective transactions. So in fact I think non-positive sum transactions can and do occur. But I think they’re a very small proportion of the total transactions that take place, and many of them take place in the context of experimentation with new products, where the net outcome of experiments is positive sum (well, at least it has been for me–presumably a person for whom it isn’t stops experimenting, like that friend whom you just can’t persuade to put anything except pepperoni on their pizza).

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                • Number 4 is a stickier wicket than you’re letting on it seems to me. There’s a class of free-market types, usually the generic libertarian (sorry! I’m not intentionally trying to lump you in, just relating my experience) that wants to reduce all of economic activity to the satisfaction of “desires”. But clearly there are things that go beyond just “desire” into what most of us would consider “needs”. The classic “glass of water for the guy dying of thirst in the desert” sort of thing. It doesn’t need to be the case that any particular person, let alone the person offering the transaction, is actually coercing you for you to experience a kind of situational coercion. Yes… technically you have a choice. But the alternative is pretty awful (like dying) and so it’s more than a little facile to say the choice isn’t coerced.

                  And it doesn’t have to get that extreme. Say you have to drive to work every day. Let’s say further that there really is no alternative to driving; it’s too far to walk, the route doesn’t lend itself to cycling, no mass transit at one or both ends, and there’s no one to car-pool with. I’ve been in exactly that situation a number of times. You’re gonna pay whatever Exxon fishin’ decides to charge for gas, like it or not.

                  I don’t know if any of that takes it out of the category of “positive sum transaction” but if non-coercion is part of the formula it at least raises the question.

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                  • Rod,

                    I’d say if it’s non-coercive, it’s almost definitionally positive sum. (There is, of course, the chance that we make a mistake about just how much we’ll enjoy that licorice flavored ice cream (worked in an ice cream shop one summer–stuff looked like modeling clay; we could hardly give it away), and of course I just might have been wrong about how much I would benefit from that 5th glass of scotch.)

                    There’s a range where it’s hard to make a clear statement about coercion, but I’d say if the person actually can walk away from the transaction but decides not to because he’s just that desperate, then he’s decided the transaction is the better option, so it must be positive sum.

                    Now if you purposely put me in that situation, tie me up and drop me in the desert for a few days, then it’s not really a positive sum transaction for you to offer me a glass of water in exchange for all my wealth because the transaction involves more than just my need for water–it involves what you coercively did to me before offering me the water.

                    In your commuting situation (I’ve been there, too), it’s non-ideal for you, but positive sum doesn’t mean ideal; it just means both sides actually do gain from the status quo ante, or compared to the next best option. Say you’ve been hiking in the desert all day and out of pure foolishness didn’t take any water. When you hike out you reach my store, where I sell sulphurous well water for 2 bucks a glass. You can easily afford it, but you sure wish there was an alternative. In fact given the option you’d pay 5 bucks for a glass of really good clean water, but it’s just not available right there right then. That’s pretty far from ideal for you, but you decide you need water badly enough to pony up the dough for the nasty stuff–you must have decided it’s better than hanging onto the money and waiting to get water later, so you must have gained by the transaction, even if just barely.

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            • Stillwater,

              Interesting points as usual. Let me add on to James…

              I am fine with allowing courts and precedent to establish what counts as coercion or duress. It won’t be perfect, but what is?

              This really strikes at the heart of the matter. An important issue in economic systems is “who gets to decide?” In command economies it is of course the person in charge and whoever they delegate to. In the jungle, it is might makes right. The strong decide. In free markets, the answer to the question is that everybody directly involved in the transaction gets to decide. Property rights just further extend this logic by assigning who gets to decide for what physical or intellectual property.

              I agree completely that rational adults make mistakes. Free enterprise will thus be imperfect. But the question is who could decide better? Who better knows the values, goals, context, tradeoffs than the individual involved? Just as important who gains if they decide right and receives feedback when the decision is wrong. The individual involved.

              In some cases, society has determined it is not acceptable to let even rational adults decide. It is illegal to voluntarily buy crack cocaine or to sell yourself into slavery.

              Last week we got a sub thread going on how we define “acceptable harm.” I suspect liberals and libertarians work with different lists.

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              • An important issue in economic systems is “who gets to decide?”

                That’s a crucial point. Let’s assume humans actually are irrational and can’t reliably make utility enhancing choices for themselves. Would they then be able to reliably make utility enhancing choices for others?

                Let’s assume further that there is an elite class of super-rational people who actually are competent to make utility enhancing choices for others–how could we possibly devise a reliable selection system to bring them into influence in a society where most people actually are irrational?

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                • As a general rule, I know I lost an argument when I can’t remember what I was arguing to begin with. And I’ll be damned if I can recall…

                  James, this is an especially good comment. And Roger, your above comment was equally forceful. {{{lots to think about here}}}

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                  • Well, I can’t take credit for the idea, either its origin or its first presentation here. ;) But for what it’s worth, it’s one of the ideas that really re-shaped my outlook on the world some 15-20 years ago when I first ran across it. I think the form it took was a conversation with one of my political science profs:

                    Hanley: “This econ class is pretty interesting, but I just don’t buy that people are that rational. Somebody really needs to control the markets.”

                    Prof: “So which of those irrational people are you going to put in charge of controlling the markets?”

                    Hanley: “Uh…” [brain locks up]

                    Still my favorite prof ever. He had a way of posing questions, to which he didn’t really expect an immediate answer, that would leave the serious student pondering it for a long time–in my case, sometimes years.

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    • Patrick,
      In what way are staple goods such as food, shelter and such not positive sum goods? If we gathered these things from the wild I would agree with you. In general we produce them. This involves division of labor, specialization, economies of scale and comparative advantage. These are all positive sum processes that apply to staple goods.

      Or am I just not following?

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      • There is a definite zero-sum aspect to shelter, insofar as wealthy people can cost non-wealthy people out of their homes. I mean, if you happen to own one of those homes getting bought out, you benefit. But if you want to live there, despite being able to afford the materials and labor for the house you would buy, and can’t because the cost of the land itself is so expensive… get my meaning?

        Your ability to get *a* house may not be zero-sum, but your ability to be able to get a house near your work, with a good school system, and so on… has a definite zero-sum element.

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        • This is part of it.

          Since money is a proxy measurement, it’s not precise. This is an advantage in many ways; I don’t have to care what Roger wants to do with this dollar I’m about to pay him for that lollipop.

          However, it matters when the value of the dollar is significantly different to the agents who possess them.

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        • Will,

          There is always a zero sum component to economics buried within the larger positive sum game. Consumers bid against each other for goods, employers bid for employees and do forth. If I had more space I would have added this to my piece.

          Markets do respond to this though by attempting to increase production or to create new alternatives. Scarcity drives up prices, and higher prices signal profit opportunities by finding new solutions or efficiencies. Markets are complex adaptive problem solving systems designed around serving the needs of the consumer.

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          • yeah. drop me some stats on where the memory infrastructure for Iphones has gone in the year past the tsunami. ain’t gone nowhere has it? yeah, these markets are solving problems so well, ain’t they?

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              • An ideal market (one without startup or localization costs (that’s the whole “electronics work best in temperate climates”) would react to a disaster (that destroyed supply) by creating new sources of supply.
                We don’t live in an ideal world. Supply and demand still hold, but economies of scale, startup costs, and governmental shenanigans distort our market.

                Also, disasters tend to be short-term supply disruptions (5 years tops)

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  11. I’m fascinated by the idea of a kind of rupture that occurred where there’s an expansion of positive sum interactions and a dramatic reduction in zero sum interactions – particularly encountering this, “Those that are well off probably became so at expense of the less well off.” In very many instances, isn’t this a historical fact? There a lot of former subjects of the British Empire and Native Americans who can attest to the fact that an awful lot of dispossession occurred to yield the world as we see it today (taking the grand historical view).

    Therefore, the wealthy are morally suspect and the poor are probably victims.

    You present one particular avenue for arriving at similar conclusions, but an alternative is to say that there’s a dispute about desert. Personally, I tend to be sympathetic to the luck egalitarian view. So instead of putting it the way you have, I’d say the wealthy are lucky and the poor are unlucky (to vastly oversimplify a particular distributive justice outlook for the sake of a comment box). What flows from that proposition, lucky or unlucky, is quite a great deal of effort in interrogating and assessing inequality. What ways it reproduces itself and what knock-on consequences it has for the community (health disparities, inequalities of opportunity, and capability deprivation).

    Progressive thinking can and does kill progress.

    I think part of the reason you may get intemperate replies – and this is not to excuse them – is that this sort of statement requires a lot of teasing out that I don’t really see here. That and James Hanley’s complaint that those unsympathetic to an outlook aren’t doing their best to contend with strong cases/instances. Crude egalitarianism, tall poppy syndrome, is not the way to go – ok, point proven. But that argument tells us less about the accounts of justice, desert, inequality that are on offer here. I mean, we could take a poll of how many progressives/liberals think your account represents them fairly or accurately. I can tell you for my part you’re minus one vote.

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    • Creon,

      I agree that zero sum, win lose interactions have been the historic norm, especially on the part of elites. That is why humanity never progressed; we just stole from each other, losing ground in the process. As we learned to do more mutually beneficial interactions, world prosperity exploded like never before. Virtually all human economic progress has occurred since Adam Smith. Whatever advances we had before that were offset by Malthusian factors. To the extent we continue stealing from each other, I believe we will continue to limit prosperity.

      Lucky how? In free markets they are lucky to have added value to others in ways which people are willing to reward them handsomely. I am absolutely sure luck is a matter of importance. But it isn’t something I recommend. Instead I recommend trying to understand your customer, or think of more efficient ways to meet their needs, or changing tactics when the current one seems to fail. In other words, markets tend to reward those that solve problems best for others.

      Because the threat of bad luck is real, I also believe we should build safety nets. It is in the best interest of all players to agree to safety nets before they start playing the game. Don’t overbuild though, or their is no point in playing the game. If you rig the game ahead of time to get fairly equal results, you will tend to suppress the incentives to solve problems and produce solutions.

      I do have more to say on the problems of equality, which I do believe are real. This was more of a stage setting piece.

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      • Do you really believe that a Walmart cashier is worth half as much as a Costco cashier? Because I’ll stand and stay right now, that’s not true. The Waltons are getting rich/er by not paying their employees full value. Thing is? Most rich people are like that. Take debtors prisons, and forced free labor. Both are becoming fads in the south.

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        • Kimmi,

          People are not paid what they are worth any more than we buy things for what they are worth. This line of thinking assumes there is an objective worth to start with that economics can discover.

          Cashiers are paid what supply and demand dictate in a free market. Supply meets demand where no equal potential employee will take the same job for less and where no potential employer will entice them away for more. The same is true of managers, investment dollars and fritos.

          If two firms pay vastly different amounts for the exact same resource, then you have a distorted market, probably due to the union. The effect of the union distortion is to prevent someone who would be willing to do the same job for less from doing so. The prevented worker is the injured party. Of course a person not being hired is invisible to everyone. Even the unemployed person. They know they are unemployed, but they do not know the union rule put them out of a job. It is totally opaque.

          The effect of union increases of wages above the going market rate is higher prices, more unemployment, lower returns and less efficient economy. This is what I mean by zero sum thinking.

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