The Economy

[stealth6]

I’ve been pondering a question for a while, and quite frankly I don’t really have a good enough fundamental understanding of how “the economy” works to know the answer. Perhaps a few of you “get it” better than I do, and can help me understand.

In the simplest terms, the question is this .....Is the economy a zero-sum game?

Now I do know that it’s likely not at all a simple thing, and that diving deeper brings up all kinds of other questions and complications. Which is fine….the purpose of this thread is to start a conversation (one that is free of politics!), wherein different kinds of answers, truth, and nuance come out of it. And for myself, a better understanding.

To start off some of those “other questions”, here are some further/deeper considerations…

If someone has/gets “more”, does that inherently mean that someone else has/gets “less”?

Societies and governments often attempt to “create wealth”…. Is this actually possible to do, without ultimately “taking” it from somewhere/someone else?

Is it possible to create more wealth for EVERYONE? Is there a limit to how much we can add to the economy as a whole, and if so what functions as a control? – natural resources?, human capital?, energy from the sun?, time and space?

What exactly IS economic “wealth” anyway? Is it an inherently relative concept (ie: does it depend on someone else being less so?), or is it possible for EVERYONE to be “wealthy”.

What is the most fundamental basis of value/wealth? Is it somehow unlimited, or is it a finite resource?

Is it possible for EVERYONE to be "winners"? Or is it inherent for there to be a "winner", there has to be a "loser"?


s6

 

[Steven]

I believe the concept of money is not widely taught in school and should be mandatory. We need to create a positive cash flow where we make more money than we spend. We demonize the wealthy yet can learn from them. We blame the government and the wealthy when it is our lack of financial prowess that is the root of our problems.

 

[DocSeuss]

The economy should function like a fish tank that needs to be properly oxygenated. Water needs to flow, not remain stagnant, in order for it to be successful.

Long time ago, in India, The British government at the time decided there were too many snakes, so they said "hey, we'll pay you to kill snakes." So the people started breeding snakes so they could get more bounties. Instead of reducing the number of snakes, the perverse incentive of paying people to kill snakes led to there being more snakes than ever before.

Right now, we exist in an economy where a lot of people are focused on balance sheets and number trickery. David Zaslav kills a movie that, by all accounts, would have made Warner a lot of money, because he didn't want to pay residuals and because tax writeoffs means that making something and destroying it yourself (not through any act of god, but just going "we did all this work no one will ever see") would make the balance sheet look better than it is.

So there's 'what an economy should be' and then there's 'the economy,' which is a term people use to describe a big gambling game with a lot of rules that big rich dudes play to try to make their score get higher.

 

[Sooner Boomer]

In the simplest terms, the question is this .....Is the economy a zero-sum game?

In simplest terms, no.

The economy is based, in large part, on what people think things are worth. There is not a fixed or limited amount of money. I do not make you poor by becoming rich.

 

[cerving]

There will always be "winners" and "losers"... that's pretty much how it's been through history. Attempts throughout time to create a truly homogenous society ("communism", in the true meaning of the word, not the Marxist interpretation) have failed dismally. It's a tough pill to swallow, but not everyone is equal in terms of their ability to produce things that are economically valued by society... those who have abilities that are more economically valued by society (i.e. the ability to get 70,000 people to pay $50 a head to watch somebody swing at a baseball and hit it 1/3 of the time) get compensated more than somebody who probably has a more noble and important job in terms of society as a whole (like teaching a 6 year old to read).

 

[Bill S]

Definitely not a zero sum game. One can create wealth without having taken anything from someone else. I won't say more lest it get political.

 

[Worsaer]

In simplest terms, no.

The economy is based, in large part, on what people think things are worth. There is not a fixed or limited amount of money. I do not make you poor by becoming rich.

Agreed. ‘value’ is what drives what someone is willing to exchange for something. Two people can have equivalent wealth, but if one has something that is deemed to be more valuable to another, it may result in one of the two becoming wealthier. The hard part is determining value, and how human nature skews that. If something of value is in short supply, it is not intrinsically more valuable, but the completion for it may make it appear to be. Like toilet paper and masks became more valuable when they were needed and hard to get, thus people were willing to pay more.

It’s not about the currency, or money, it’s all driven by what people at that point in time value.

 

[Bravo52]

What is even more interesting is the relationship between the "economy" and "currency". Many people consider them the same thing. They really aren't. Of course they are enescapilby linked, but totally separate things. Currency used to be a "zero sum game" for the most part when currency was backed by gold, however, now...not so much.

 

[jderimig]

1.Wealth is not a zero sum game, otherwise it there would be no wealth.
2.Wealth is simply how much you have (assets, your time, your talent, your knowledge) that other people want.
3.Anyone can create stuff (assets, time, talent, knowledge) others may want, hence its not zero sum.
4.You can gain wealth by taking someone's wealth. That happens all the time and that is a zero sum game. Fortunately that is a very tiny component of wealth generation,
4.The capability of individual people to do #3 has a distribution.
5.Money is just a means to exchange (trade) #2. The items in #2 are wealth, not means of exchanging it. Think of money as a future claim on other people's stuff. But money is a depreciating asset, especially nowadays. Item's in #2 can be an appreciating asset if managed properly.

 

[stealth6]

Definitely not a zero sum game. One can create wealth without having taken anything from someone else.

In simplest terms, no.

The economy is based, in large part, on what people think things are worth. There is not a fixed or limited amount of money. I do not make you poor by becoming rich.

Both of these make sense to me in one way.

I fully understand that it is POSSIBLE to create wealth without taking it away from somewhere/someone else, and that it happens all the time. But it seems to me that examples of this are due to the fact that the whole system is large enough that in practical terms a given person can get/have "more" without it directly taken from another given person.

But taken to extremes, is that really true?
Example ...... let's take a single person who, in today's economy, who is a multi-billionaire. They have enough money/wealth/"value" that they could essentially do whatever they want. On one hand, they could live wherever they please, not have to work, buy whatever they wish to, and consume without any practical limits. Or they could live frugally, work hard, give enormous amounts to others, and produce more for the economy as whole. The point is that they could pick and choose however wish, to be a "giver" or a "taker" in whatever way strikes their fancy.

How would it be possible for every person on the planet to be this "rich", especially if they tended more to the "taker" side of the equation? Could we create enough wealth so that everyone was this "rich"? If everyone was a multi-billionaire, wouldn't it just mean that the actual value of that wealth or cash but worth a lot less? Wouldn't today's actual multi-billionaire be in fact a lot less wealthy, and have a lot less value? To me, ultimately it seems that wealth is relative, and that there has to be limits on the total amount that can exist.

s6

 

[cwbullet]

I believe the concept of money is not widely taught in school and should be mandatory. We need to create a positive cash flow where we make more money than we spend. We demonize the wealthy yet can learn from them. We blame the government and the wealthy when it is our lack of financial prowess that is the root of our problems.

Absolutely,

 

[stealth6]

1.Wealth is not a zero sum game, otherwise it there would be no wealth.
2.Wealth is simply how much you have (assets, your time, your talent, your knowledge) that other people want.
3.Anyone can create stuff (assets, time, talent, knowledge) others may want, hence its not zero sum.
4.You can gain wealth by taking someone's wealth. That happens all the time and that is a zero sum game. Fortunately that is a very tiny component of wealth generation,
4.The capability of individual people to do #3 has a distribution.
5.Money is just a means to exchange (trade) #2. The items in #2 are wealth, not means of exchanging it. Think of money as a future claim on other people's stuff. But money is a depreciating asset, especially nowadays. Item's in #2 can be an appreciating asset if managed properly.

All of this makes sense to me, and I understand the points make.......at least I think I do.

But would it be fair to say, given these points, that WEALTH is not a zero sum game, but THE ECONOMY as a whole is?

In #2 you state that your wealth is a function of what other people want. Wouldn't it be true then that for you to "cash in" or take reap the benefits of any of that wealth, someone else has to "spend" some of theirs?

s6

 

[jderimig]

All of this makes sense to me, and I understand the points make.......at least I think I do.

But would it be fair to say, given these points, that WEALTH is not a zero sum game, but THE ECONOMY as a whole is?

Economic trade is in the instance of the transaction. But the wealth pie continues to grow. Largely because resources (people) become more productive and population grows.

In #2 you state that your wealth is a function of what other people want. Wouldn't it be true then that for you to "cash in" or take reap the benefits of any of that wealth, someone else has to "spend" some of theirs?

s6

Again in this case you are talking about a trade scenario. If you exchange your stuff for someone else's cash the other party now has your stuff. Wealth wash. Depending on how the price was set, the other party could be wealthier after the transaction because he may have a market that values your stuff more than your market does.

Now there is the issue of consumption. If someone pays you to sing a song for them,that might be zero sum, or even net loss depending on what you do with the compensation. There is a fair bit of net loss transactions in a modern economy.

 

[stealth6]

I believe the concept of money is not widely taught in school and should be mandatory.

I agree with this. It certainly wasn't taught to me in my school days. Not at all. And I come from a family that has no practical history of financial knowledge or practice. Hence my ignorance on the subject. This makes it very easy for me to fall into a trap of "demonizing the wealthy", which I realize is at the very least problematic, but it also not helpful.

s6

 

[FredA]

I believe the concept of money is not widely taught in school and should be mandatory.

Along with money/finance concepts - how about teaching how to balance your checkbook. Or how to calculate a loan payment.
And maybe a bit about our nation's history, the Bill-of-Rights, the Constitution, our legal system.....
Maybe touch on what Socialism and Communism really means.
And of course, some history of past (and current) ethnic purges.

TONS of stuff that should be taught in school.
That USED to be taught.
Somehow these are considered not important, yet they are the areas where society is failing.

Seems we're too busy with sports and social media.

 

[Tyeeking]

But taken to extremes, is that really true?
Example ...... let's take a single person who, in today's economy, who is a multi-billionaire. They have enough money/wealth/"value" that they could essentially do whatever they want. On one hand, they could live wherever they please, not have to work, buy whatever they wish to, and consume without any practical limits. Or they could live frugally, work hard, give enormous amounts to others, and produce more for the economy as whole. The point is that they could pick and choose however wish, to be a "giver" or a "taker" in whatever way strikes their fancy

When a person “consumes”, be they rich or poorer, they are indirectly producing. Consumption requires production and production is employment. Employment is a path to wealth.

Consumption moves currency from one entity to another. The more movement of currency (velocity) the larger the money supply (multiplier effect) and the larger the opportunity for wealth creation.

 

[stealth6]

When a person “consumes”, be they rich or poorer, they are indirectly producing. Consumption requires production and production is employment. Employment is a path to wealth.

Consumption moves currency from one entity to another. The more movement of currency (velocity) the larger the money supply (multiplier effect) and the larger the opportunity for wealth creation.

Again, this makes sense to me, and I get it.

But, again, let's apply this to my (admittedly extreme) example of everyone in the world being a multi-billionaire, all with the capability of consuming at very high levels. Let's say they all started consuming by buying mega-mansions, building schools, driving exotic luxury cars, creating arts endowments, building casinos, providing free education, funding research into a cure for cancer, travelling the world, etc., etc. Would the overall wealth and/or the economy simply grow larger to accommodate all that movement of currency. Surely there is a limit? It can't just keep getting bigger indefinitely, can it? In crude terms of just physical resources there's only so much to go around, yes? There ARE finite limits of materials, land, and such that would come into play and at some point we can only build so many hospitals or private jets to go around, which means that the amount of my stuff would limit the amount of your stuff, yes?

Thanks everyone for engaging in this thread so far, and trying to help my brain get wrapped around all this. I am truly trying to gain a better understanding.

s6

 

[Bravo52]

Could we create enough wealth so that everyone was this "rich"?

No.

Attempting to do so would naturally devalue what society calls "rich". This is the basis of "inflation".

 

[jderimig]

Again, this makes sense to me, and I get it.

But, again, let's apply this to my (admittedly extreme) example of everyone in the world being a multi-billionaire, all with the capability of consuming at very high levels.

That's a hypothetical that can never happen. If everyone was rich, then everyone would be poor.

 

[stealth6]

No. Attempting to do so would naturally devalue what society calls "rich". This is the basis of "inflation".

This.

So far, all of the other information posted DOES make sense to me....I get the points being made, and they seem "true". But they still leave me feel like I'm missing something, and that they don't really get down to the actual fundamental basis of my question.

Bravo52's comment is the only one so far that just solidly rings true to me, and make's me think, "yes, THAT feels true". But that's speaking to the current state of understanding, which I do feel is incomplete (and the reason why I started this inquiry in the first place).

Would it be fair to say therefore, with his statement taken into account, that if I was to get this "rich", those that are already that rich have had something taken away from them? (yes, I understand that it would be to such a miniscule amount as to be insignificant, but would it fundamentally be true?)

I'm getting there, but it seems like I've still got a long way to go to actually "getting it".
Thanks for your help.

s6

 

[stealth6]

That's a hypothetical that can never happen. If everyone was rich, then everyone would be poor.

Again, this makes total sense to me.
And furthers what I'm saying/asking in my previous post (#20)

s6

 

[John Kemker]

There is one theory that value is created solely by work. I used to use the analogy that in that no matter how much I polished a turd, it would not be valuable. Then I found out about Dorodango.

However, that merely made me change my definition a bit. It's not the work itself that makes a Dorodango valuable. It's a combination of the skill of the dirt polisher and the value that another person places upon the polished mud ball. If nobody wants my polished mud ball, it matters not how much work, skill, or effort I put into polishing it.

In a free market, if you and I agree upon a trade, then we both benefit. You get something that you value in return for something I value. Both are enriched by the trade. We both become wealthier as a result. The problem occurs when the market is not free, but is, instead, constrained by outside influences, whether government, guild, union, or corporate.

I bought a car one time and asked a coworker, who was a bit older than I am, what he thought of the deal. He summed it up beautifully: "Are you happy with what you got for what you paid? Then it's a good deal."

 

[Zeus-cat]

Economics is a very complicated topic. I have always liked the following saying as a good example of that: "If you laid all the economists in the world end to end, they still wouldn't reach a conclusion."

Economies, if structured properly, should never be a zero-sum game. Basically, people trade labor for money. That is where "new" money comes from. I sell my labor to you, let's say I mow your lawn and you pay me. Or, I create a painting that you buy from me. The painting cost me a few dollars in materials, but I spent my time to create it.

Charity is a wholly different topic. I'll think about it and write something up later.

 

[stealth6]

There is one theory that value is created solely by work. I used to use the analogy that in that no matter how much I polished a turd, it would not be valuable. Then I found out about Dorodango.

However, that merely made me change my definition a bit. It's not the work itself that makes a Dorodango valuable. It's a combination of the skill of the dirt polisher and the value that another person places upon the polished mud ball. If nobody wants my polished mud ball, it matters not how much work, skill, or effort I put into polishing it.

In a free market, if you and I agree upon a trade, then we both benefit. You get something that you value in return for something I value. Both are enriched by the trade. We both become wealthier as a result. The problem occurs when the market is not free, but is, instead, constrained by outside influences, whether government, guild, union, or corporate.

I bought a car one time and asked a coworker, who was a bit older than I am, what he thought of the deal. He summed it up beautifully: "Are you happy with what you got for what you paid? Then it's a good deal."

This reminds me of many years I worked in retail (managing a bike shop), and the concept of "a deal".

Everyone of course wants a deal. Unfortunately what a large percentage of customers considered a "deal" was in fact a steal. MY concept of a deal was what you are describing....that being a transaction where both parties walked away satisfied, feeling that they both were "enriched by the trade", and that both benefitted. The way it should be, and how this type of commerce and retail can actually be (and often is) a beautiful thing. However, many folks at their core really wanted to feel that they got something more, that they benefitted more than the other did, that in fact the other party somehow lost out on the transaction or that were forced into giving something they didn't want to. Their satisfaction was in part knowing that the other party got a "bad deal". I know that sounds pessimistic and harsh, but it is absolutely true far too often, and if you don't believe me, I bet you never worked in retail. A lot of customers (not most) are just ****** this way, and it really makes it a hard environment to be in.

s6

 

[mh9162013]

Yes, the economy, as we currently run it, is a zero-sum game. If every person (or concerned party) gains from the economy, then something has to lose.

I would say that as a whole, compared to a thousand years ago, the average person is better off in terms of wealth, resources, health, etc. However, I wouldn't say the Earth is better off in terms of animals and nature.

So, eventually, someone or something will lose, unless we change how are economy works. But given human nature, I don't know if that's going to happen anytime soon...or at all.

This is why space exploration is so important for the survival of the human race. We need more resources to utilize so we can "improve" ourselves.

 

[TALON]

Along with money/finance concepts - how about teaching how to balance your checkbook. Or how to calculate a loan payment.
And maybe a bit about our nation's history, the Bill-of-Rights, the Constitution, our legal system.....
Maybe touch on what Socialism and Communism really means.
And of course, some history of past (and current) ethnic purges.

TONS of stuff that should be taught in school.
That USED to be taught.
Somehow these are considered not important, yet they are the areas where society is failing.

Seems we're too busy with sports and social media.

Balancing a checkbook is simple, especially now with the internet. I check my accounts at least 2 times a day. Teaching basic finances would be good. Teaching prime rates, the different interest rates. Most importantly the difference between a fixed and adjustable mortgage rate! Public schools do not teach these days. They in doctorate!

 

[ThirstyBarbarian]

When we talk about “the economy”, we aren’t just talking about the wealth of people in the economy or the value of all the goods and property in the economy — we are talking about the production of goods and services. The economy is measured in units like the GDP (gross domestic product), a measure of production. It’s not a zero sum game. It’s always dynamic, with the amounts of goods and services constantly changing.

The idea of economic winners and losers has to do with who benefits from the creation of goods and services in the economy — who can extract a portion of the created wealth for themselves. It might not be “zero sum”, but there can be “winners and losers” in the sense that some people usually benefit more from the process of production than others, and that has a lot to do with how the economy is structured.

Our system is a mostly capitalist economy with some controls on it — it’s not a pure free-market capitalist system. Capitalism is a system where owners and investors control most of the production and trade and gain most of the benefits of the economy. People who own capital (money) are in a position to start businesses or invest in them, and if those businesses make money, it’s the owners and investors who own those profits. (Mo’ money! Mo’ money! Mo’ money!)

Of course, if the business loses money, owners and investors lose the invested capital. And in our system, others do make money too in the form of wages paid to workers and the money the business spends on goods and services provided by others that allow the business to operate.

In our system, the biggest winners are generally the owners and investors. They own the profits.

Next are people with very marketable skills — people who can do work that creates a lot of value and is not something that many other people can do. Owners will pay those people a lot.

Below that are people who can work, but the kind of work they can do is something that many other people can do too. Owners won’t pay those people very much, because they can often find someone to do that work for less — in the game of winners and losers, these people can end up economic losers.

And the biggest economic losers are those who are locked out of most opportunities in the economy — no capital, no marketable skills, no ability (or sometimes willingness) to do unskilled labor, physical or mental disability, victims of discrimination, or those who live in regions cut off from economic opportunity.

Without getting into specific political arguments, a big part of politics is about how to distribute the wealth produced by the economy.

 

[Steven]

Money equates to freedom. The freedom to live our lives the way we have always wanted to. Joanne and I had both retired in our early 50's. We are financially comfortable in spite of any economic downturns throughout the years. It is here that Americans are denying themselves more freedom than we believe the government and the wealthy have been. The lack of financial knowledge is the culprit. The original movie "Spartacus" with Kirk Douglas and Tony Curtis exemplifies the concept of freedom: "I would rather die a free man than live as a slave." We don't want to go to our graves with regrets. We've understood how to treat ourselves like our best friend, not our worst enemy.
It is not the fault of external sources that are responsible for our less than satisfactory lives. It's us. We need to stop feeling sorry for ourselves, put our big boy pants on and do the work to make our own future. If you don't deserve it, who does?

 

[les]

Personally, I believe no one really understands the economy. You can see that by the various conflicting theories on the economy. There are too many variables, some "scientific" and others based on "human beliefs". In many ways predicting the economy it is like the weather forecasts, but less accurate.
So any thoughts on how the economy "should be" or how it works are just opinions.

As others mentioned, money is just a means to exchange things - basically a step up from the barter system.
Instead of I'll give you 5 fish for a pair of shoes, the fisherman sells his fish for $25 and then uses the $25 to buy the shoes. The advantage of money over direct barter is instead of using the $25 for shoes, the fisherman can instead buy $5 of item A, $3 of item B, etc. It greatly simplifies and diversifies the selling/buying vs a direct barter. And the value of money more is dependent on what people believe in and want. Various examples are items that used to be common becoming collectors items, but then people lose interest and the value of that collector's item becomes worthless. Why? It is the same item! But whether people want to spend X amount of money for it or not depends on each person's desires and wants and not some scientific determination of value.

And WEALTH is a relative term. When our company did some work with a foreign company, I was surprised how little the engineers got paid. But during a visit I also saw most basic items (food, clothing) were significantly cheaper than here in the US. A person could be wealthy with only $50,000 where here they would need $500,000. And wealth also gets into feelings. Some people feel they need more and more to try to be #1. Others are more willing to share their wealth to help less fortunate people. They get emotional "wealth" via the good feelings related to helping someone. But there is no good way to value those feelings.

This also feeds the question "Can everyone be rich?". Not really. First of all, the world is full of opposites; for Hot there is Cold, for Good there is Evil, for Wet there is Dry, for Rich unfortunately there has to be Poor. If everyone had the exact same amount of money, then there is no Rich nor Poor, because everyone is equal. But even if something happened to universally distribute all the money equally to every person, how long would that last? Some people will be happy with their amount and do nothing. Others are going to want to be better and invent that better mousetrap to get more. Hence due to human nature, some will move ahead while others remain static (or even decline) creating again the Rich and Poor. If the person working harder gets no benefit, at what point do they give up and no one ever invents the next better mousetrap. That was actually part of the issue with communism. Work levels degraded to the least useful worker. With the ideal concept that "everyone is equal" means the brain surgeon is worth no more than a person doing nothing. So why spend years learning to be the surgeon? There was no incentive to work harder because you would get nothing extra for it.

And in terms of people doing nothing, for most people that is their ultimate goal....
- I'm going to play the lottery to win enough money so I don't have to work.
- I'm going to take vacation so I have a break from work.
- I'm retiring so I don't have to work anymore

And for some, even when young they don't really want to work. But work is a means to get money so they grudgingly "work" but try to do as little as possible. Or get to a position where they can just live on handouts. Not true for everyone, some people truly have circumstances that require help, but others are happy to just sit back and do nothing. I know of a family (unfortunately) that actually has family members that accepts being in jail for the free room and board they get rather than having to work. Whenever they get released they immediately commit a crime so they break probation and can return.......

 

[Jmhepworth]

The law of comparative advantage makes the economy an infinite game, not zero sum. Assume Adam can grow 2 bushels of wheat and 3 bushels of rice on his land each year. Then assume Brian can grow 3 bushels of wheat and 2 bushels of rice in the same time. The reason for the difference could be anything, from a difference in skill or a difference in resources. If they both grow the maximum amount of each, the result is 5 bushels of each. But if each acts in his self interest and grows only what he is best at, Adam could grow 6 bushels of rice and Brian could grow 6 bushels of wheat, resulting in a total of 6 of each rather than 5. Each would be better off because they could trade 3 of one grain for three of another, and the overall economy would be larger.