Is America a Zero-Sum Game?
Why having really rich people isn't an issue
In Oliver Stone’s 1987 movie Wall Street, corporate profiteer Gordon Gekko summed up the financial state of America, its businesses, and its citizens: “It’s a zero sum game, somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another.” It’s a sentiment embodied in the Occupy Wall Street protests: the rich have all the money. But is it true? Is the economy a zero-sum game, a financial pie from which only limited slices of money are available for the country’s 300-million-plus people?
Consider the fictional country of Gekkoland, an island nation inhabited by 100 people, each with ten one-dollar bills. The total money resources of this community are just $1,000, and as the members of the community engage in business, they shuffle the bills around. It’s wouldn’t be surprising to find some people with much more than their initial $10, while others struggle to keep just one of those bills.
Such an island economy gives a partial glimpse into why the Occupy protestors are so upset. But it is also a wholly inaccurate view of how an economy works. In a real economy, money is not limited to the individual pieces of legal tender passed between buyers and sellers. Instead, economic activity causes the net worth of a community or nation to grow beyond its limited paper money resources. Dollar bills have value, but the goods and services produced by individuals and businesses also have value, as do those natural resources that go into those produced goods and services. All of these activities and investments contribute value to the community, increasing the initial pile of money. Paper currency is simply a convenient means of transferring a portion of the total community value.
Let’s look at some actual numbers for America’s economy. In 1945, the total net worth of all American households and non-profit organizations was $664.2 billion.[1] By 2010, that value had increased to $57,778.5 billion.[2] That’s an increase of more than $57 trillion. Even if you consider the meager funds that foreign immigrants bring to the United States, it’s not possible for cash alone to suddenly increase eighty-seven times over in sixty-five years. Instead, this growth occurs through economic activity, a positive-sum game.
There’s no denying that a significant part of that $58 trillion is held by the richest one percent. But that was also true in 1945, and somehow the rest of the (constantly increasing) population was able to increase their own net worth despite the amassed resources of the wealthy.
I am all for grass-roots protests in America, and some of the issues brought up by the protestors that relate to government bailouts of Wall Street firms strike a chord in my own heart. But if the tent-dwelling “ninety-nine percent” want to be taken seriously, it’s time they start educating themselves about what wealth distribution in the United States really means for the one hundred percent.
[Image Credits: Microsoft Office clip art]
[1] Federal Reserve Bank, Flow of Funds Accounts of the United States, 1945-1954, Table B.100, “Balance Sheet of Households and Nonprofit Organizations,” Net Worth for 1945, page 97, http://www.federalreserve.gov/RELEASES/z1/Current/annuals/a1945-1954.pdf.
[2] Federal Reserve Bank, Flow of Funds Accounts of the United States, 2005-2010, Table B.100, “Balance Sheet of Households and Nonprofit Organizations,” Net Worth for 2010, page 97, http://www.federalreserve.gov/RELEASES/z1/Current/annuals/a2005-2010.pdf.
Categories: Commentary, Politics. Tags: economy, Occupy protests, Wall Street. This post has 5 comments.
Tim, you are on target when you say that members or participants in the occupy movements must educate themselves. Your illustration of the island is an excellent example. It’s easy to notice from the example that it’s not currency but human effort that creates wealth.
Can an accounting system that takes wealth, create wealth? If so, how?
We don’t necessarily need currency but it can be helpful. Barter works. And there are alternative currencies.
What would happen if we stopped using the Federal Reserve Notes, built and saved useful things, abandoned debt and stopped borrowing: would the value of human effort decrease or would it increase?
What’s in our future, usury, or alms?
Tim, I’m not sure what your article is getting at–or particularly, what your definition of GDP has to do with the “occupy movement.” I think our population has grown since 1945, so we might have a few more bodies to contribute to GDP. However, a nation can enjoy dramatic increase in total output AND wealth inequality at the same time, can’t it? I cannot define the protestors’ goals, but I can put my finger on the root motivation: I know social unrest when I see it. I also think you want to go back and read Marx again. Or maybe we, like Mdmme. Antoinette, should just let them eat cake?
Since many of the protestors haven’t come out and said what their core issue is, I admit that this article might not hit the right target. But from the public statements that I have heard, it’s clear that the most vocal protestors are confused about how money moves in an economy. This article was an attempt to clarify some of the economic realities. GDP and total output and wealth have gone up for everyone in America, rich and poor, since 1945. The protestors keep repeating the line that “the rich get richer, and the poor get poorer.” The data over the last 50-plus years simply doesn’t support such a claim. The rich do get richer (at least those that didn’t go bankrupt, which happens often), but in most cases, the poor also moved up into the middle and upper class ranks.
Core Issue: Tim’s reliance on numbers published by the government which cannot be verified independently of the government. The government is known for efforts to change the history of the past. It’s not so long ago that the public image of Native Americans was that of savages and our ancestors were seen as their victims.
Core Issue: Tim’s implication that he understands economics. No one understands economics as explained by economists. Economics is a propaganda scenario which changes with the era to support the political agenda of the current political regime. To put it simply, money is about power, not mathematics.
Core Issue: In discussing dollar amounts, Tim makes no reference to the buying power of a 1945 dollar versus the current buying power.
Core Issue: Statistics of one era cannot be compared to statistics of another era with any degree of validity. Conditions of an era are unique to that era. The greater the time and space differences between two eras, the less meaning any comparison can have. The gestalt of a space is a constantly moving target. Viet-Nam veterans cannot walk in the shoes of WWII veterans.
Core Issue: Tim has not read enough dissenting opinions.
I don’t think I have the temperament to be that cynical, Jon. While the federal government does make bad decisions, and while there have been attempts to corrupt data for political ends, to assert that all federal economic data in aggregate over the past five or six decades is intentionally invalid requires a tremendous leap of faith. Even if you assume faulty government data, there are similar data releases from private foundations and organizations that parallel the overall trend of an upswing in incomes and wealth across the board.
I never meant to imply that I understand economics, at least at the level needed to guide the future of the nation. But I have spent time studying the discipline, and at the very least I know that looking at a CEO’s salary and extrapolating from that an entire protest movement is shortsighted.
While I don’t discuss inflation-adjusted dollars or relative buying power in this article, I have discussed the same issue in those terms in prior articles. The results are the same: Americans today are richer at all levels. And they have more buying power across the board. Take a look at what we consume today compared to decades ago: more cars, more TVs, more food, more electronics and more electricity to run them. We have more square footage in our homes, but less space to move around because our homes are filled with more stuff.
Although there are other factors that you need to take into account when comparing data from different eras, it is possible to compare them. I can compare my own life back in the 1980s with my life today and draw correct conclusions. And I (or at least a skill researcher) can do the same thing at the local, state, national, or world level. Money doesn’t care about gestalt.
I have read dissenting opinions. That’s why I was able to find content with errors. But I will keep reading.