A Short Piece
Is Capitalism Today Zero-Sum?
Growth Can Be When All Ships Rise Together, but What if Growth Stops?
Jobs and money are created, so it does not necessarily follow that someone takes a job or paycheck from someone else in working and gaining a raise. The rich are not necessarily rich at the expense of the poor, as the employed are not necessarily employed at the expense of the unemployed. But what if growth stagnates? What if wealth ceases to be created?
First, some terms:
Zero-Sumness: When there are winners and losers (competitive).
When someone profits, they necessarily profit at the expense of others.
Non-Zero-Sumness: When there are winners or losers (cooperative).
When someone profits, everyone profits.
Do note that economists argue that we cannot judge if an economy is non-zero-sum or zero-sum based on the presence of money alone: overall wealth and quality of life must be judged. If the middle classes of two societies are being compared, and the average household income is $40,000, they may seem equal, but in one society the middle class has a home with an average of one extra room, while also owning an extra car (with no debt). Thus, the two middle classes might have equal income, but their standards of living are different. Considering this, it is possible to have wages decrease while wealth increases, and countless other configurations. Simply put, we cannot tell if a country is getting rich just by watching annual incomes — it requires more considerations.
To cut to the chase, many pro-Capitalist economics argue that the quality of life for average people under Capitalism increases radically, citing China over the last decade as a prime example (also see Deirdre McCloskey on “The Great Leap”). And I agree with them: there’s strong evidence that overall, Capitalism increases non-zero-sumness and wealth for all.
But what if there is a point in the growth story of Capitalism where it inevitably flattens out? What if after say ten years of 10% growth, Capitalism always trickles down to 5%, then 2%, and finally 0.1%? If this pattern is essentially integrated into the structure of Capitalism, then there might be a point where Capitalism inevitably ceases to be non-zero-sum and instead becomes zero-sum.
There are a number of thinkers like Tyler Cowen, Peter Thiel, Larry Summers, and others who warn about “secular stagnation,” which is the idea that growth in American Capitalism has flatlined. There are many possible reasons for why, but regardless, I personally find it hard to deny that stagnation is happening.
If some people are cutting larger slices of pie, but the whole pie is growing (perhaps because of the very mechanisms that result in some people having larger slices of pie), then the pie is still a non-zero-sum pie. Yes, some might be receiving bigger pieces compared to others, but everyone is receiver bigger pieces overall. Thus, everyone is a winner.
On the other hand, if the pie ceases to grow, then people cannot cut larger slices for themselves without taking pie away from others. Also, if the pie isn’t growing but population continues to grow, then there will be more people looking for a slice of pie, and thus the slices of pie will get smaller. In this situation, people cannot receive bigger pieces without receiving bigger slicers comparatively and overall.
For Capitalism to remain non-zero-sum, growth seems necessary. If there is an inevitable limit to Capitalistic growth, this could be a problem. I’m not saying that there is, but it is a possibility that could complicate the simple narrative of Capitalism is “always good” or “always bad.” Perhaps Capitalism is stagnating in some areas and not others? Perhaps Capitalism isn’t entirely “all non-zero-sum” or “all zero-sum,” but varies from field to field? Perhaps Capitalism is stagnating because of State interference? Perhaps Capitalism is stagnating because there is too little State involvement? I don’t know: my goal is only to complexify the narrative.
The virtue of Capitalism has rested on the assumption that “all ships rise together,” that though the rich may get richer, at the same time, the poor are made less poor and the middle class grows. Though never equally, the quality of life for everyone is thought to rise together, and certainly, “the great enrichment” that is discussed in academia should not be ignored. But if Tyler Cowen, Larry Summers, and the similar crowd are correct about “secular stagnation theory,” the virtue of Capitalism might be fading away. Under growth, Capitalism is non-zero-sum, but under stagnation, Capitalism could be a zero-sum game, and slowly change from one to the other as growth improves or declines. Does that mean Communism or Socialism are the answer? Not necessarily — that would require addressing Friedrich Hayek and many other geniuses — but it does mean we’re going to need to think harder about things we’ve taken for granted. Active thinking is necessary.