Zero Sum and the Government

A progressive said my problem was that I saw government as a zero sum game. No, it's worse than that. A progressive said my problem was that I saw government as a zero sum game: where every dollar you used to help one person, came from the pocket of someone else. I explained it is worse. Government adds overhead, waste, fraud, work rules, politics, and other things that kill efficiency, freedom, pride and value, as part of the transaction. Thus it is a negative-sum (lose-lose) game. ℹ️ Info           ~ Aristotle Sabouni Created: 2017-09-15

That isn't to say there aren't winners, there's just always far more losers: because of how the system works. If Government gives a dollar, that means they took $2 and kept $1 for themselves.

Summary

In many agreements there are 4 basic quadrants. Both win (upper right), both lose (lower right), and the zero-sum upper left and lower right: where one person wins and another loses.

When a baker sells a cake to you (for a profit), it's win-win. You got a cake for a good value (below the level where you would just make the cake yourself). And the baker sold a cake for his cost of goods and labor value (his profit).

When government makes a law, that's generally win-lose (zero-sum). If the law says the baker MUST bake that cake for a gay wedding (for example), the baker loses his liberty, while the government/recipient got to force them. The legislators and voters that won, got to feel self important. The victims and voters that loss, get to feel stepped on and enslaved. So there's a win and a loss component.

But when a government does a social program, like many things government does it is negative-sum (less than zero sum), and both sides lose. This is common in things like any prisoner's dilemma, wars or fist fights (where both sides hurt people and break things), gambling (for the players) due to the house rake, financial trading (for the investors) due to commissions, and so on. You can win in-spite of the system -- but the system itself was always a drag on the participant.

Zero-sum implies that what I take from X, gets delivered to Y.

Because government can only get money by taxing, printing or borrowing, it can only take away. Any of those burden businesses and individuals with either direct taxes, inflation, or debt. So any reward to one group, comes at the expense to everyone else: which is why government is zero sum.

But it's worse than that, because there's an overhead.

Government works that they take from X (taking freedom), and waste a bunch in overhead for doing the redistribution, then they let a bunch of unworthy people lie to get some of it (encourage fraud, that they don't stop effectively), then they give a small fraction to Y with a bunch of restrictions and stipulations (that make their fraction even less performant than it would otherwise be). Politics guarantees that X resents being stolen from and Y resents that it wasn't more -- so we get divided, resentful, and money is wasted. Everyone comes out behind.

NOTE: In theory the government can invest in infrastructure that gets you net returns in the long run. There's very very few exceptions where government might "invest" in infrastructure, which lasts long enough to eventually get a return. Bridges, dams, roads, and so on. But it only works in theory.... as long as you don't look at two things: Treasury View of economics. That government jobs usually displace private sector jobs, just less efficiently -- so it would have been much cheaper for government to buy that same infrastructure via the private sector (that to build it themselves). That the government often builds capacity you don't need. Roads to nowhere, bridges that are rarely used, and replacing smaller things with bigger (under the theory that more is better). But under-used items are just a burden on the economy (stealing opportunity costs, and costing us in maintenance). These costs usually outweigh the few things that actually return more than they cost.

This isn't made up, I used an Economist article, and their data, to show an example of exactly how much this happens.

New Jersey and the Economist

           Main article: New Jersey and the Economist

The Economist ran an oft quoted FakeNews story that blue states subsidize red states (via taxes/benefits). They did it by ignoring borrowing, compliance costs, and other inefficiencies. What it really showed is that if you spend $2.63 (in taxes, debt, etc) you get $.60 in purchasing power back, and some will see the $.60 (ignore what it cost) and think they're coming out ahead.

Conclusion

I wish there was a magic button that made centralized command economies work. But in recorded history, they rarely start out better than the alternative... and always end up worse. The larger the federal government gets, the more it displaces the more efficient state and local governments, and the even more efficient private sector -- so you get the opposite of economies of scale.

Robbing Peter to pay Paul, and keeping a cut for yourself is what progressive governments do.

• In the micro-economists view, it's great if you're the government -- but it sure sucks to be Peter.
• Some think that Paul is coming out ahead -- but not really. It often robs him of self-esteem and holds him down from being productive and self-reliant. A net loss for his character, self esteem, and certainly for the economy, since it turns him from producer to moocher.
• More than that, in the macro-economics view, there's no way to come out ahead. You lose money in every transaction: you can't make that up in volume.

Socially: everyone loses:

• Peter is resentful that he was stolen from (and was robbed the chance to learn voluntary charity)
• Paul is resentful, because it's never enough (and he was robbed self-esteem)
• Everyone else saw that Peter has less to invest (because it was taken from him) and grow the economy, Paul turned from being forced to work/produce into being more a moocher, and government took it's waste and cut and grew to be a bigger burden on everyone

No one comes out ahead.

This problem is obvious in all of recorded history. If it wasn't centralized command economies like Communists USSR or China, would have outperformed the western democratic ones. North Korea would be the industrialized utopia compared to South Korea (not the other way around). Cuba, Venezuela, Vietnam and a hundred other countries that tries socialism, would be outperforming their more free market neighbors or the world: yet the opposite is always the case. This was discussed and proven by Hayek (who got the nobel prize in Economics) for his work on Dispersed Knowledge, and the inefficiencies of larger and more command economies. He basically showed how more layers in a bureaucracy create inefficiency (and waste), and the more things required to go through the bureaucracy, the worse things get overall.

NOTE: This doesn't mean there isn't waste or corruption at State and Local level. They're often both embarrassingly bad. But at least at local level it takes far less attention and momentum to throw the bums out and fix it. And the size of potential corruption or abuse is smaller. With smaller incentives, you get less of it. With it being easier to fix, the abuse lasts less long. It doesn't hold up in every case, but on average, it certainly does. The same with private sector. Things are often bad in private companies. But it takes less attention to get change, it's easier to gain momentum against problems (the population is smaller, as is the number of people required to notice and fix a problem). So on scale and scope, the largest business is a fraction the size of government (and there's better rules for transparency) -- so it's harder to hide corruption, there's less scale of the corruption, it's easier to find, and easier to fix. Statistically.

Related

Why can't Keynesianism work? (or) Treasury View (or) Dispersed Knowledge (or) Keynesian failures • [4 items]

Dispersed Knowledge

In the battle between Keynes and Hayek, history has shows Keynes wrong and Hayek the winner. Keynes models broke with Stagflation, Post WWII economy, Japans Lost Decades, China and Russian growth by privatizing. Hayek won the noble prize for explaining why: Dispersed Knowledge. Leaders don't know more than everyone else combined, then the more decisions you make from the top, the less efficient those decisions will be.

Keynesian failures

It would be great if Keynesianism worked. But history shows it has failed every time it has been tried. Examples: the new deal, the new new deal, post WWII boom (cutting military should have caused depression), 1970's Stagflation broke the models, Japan's lost decades (Abenomics), every Communist economy that failed, every one that opened up and grew (N. Korea, Russia, China, Vietnam). All went the opposite of Keynes predictions.

Treasury View

"government spending crowds out private investment", is widely accepted as at least partly true. Keynesians want perfect efficiency, and thus bubbles and bursts are examples of inefficiency, and an opportunity for government to step in and spend (stimulate/destimuate) to where politicians think perfection should have been. However, once a program starts, it will soon crowd out private investment, and prove the Treasury view correct.

Why can't Keynesianism work?
The idea is that during recessions markets overreact to fear and government spending can offset that loss. It asssumes (1) an information vacuum (2) we know where spending should be (3) they will cut spending into the recovery (4) they're replacing like jobs (5) equal efficiency between public and private sector. None of those things is true, so Keynesian promises have never been realized.

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🔗 More

Economics The study of choice, scarcity, Social reactions to policies, and unseen consequences.

Government This is looking at Government from an American, Libertarian, and idealistic PoV, that many foreigners will not understand.

🔗 Links

• https://en.wikipedia.org/wiki/Zero-sum_game
• https://en.wikipedia.org/wiki/Zero-sum_thinking

Tags: Economics  Government