wealth creation

Capitalism is not a zero sum game

In game theory, a zero sum game is one in which the gains of one are exactly balanced by the losses of another. In economics, a zero sum game is aptly described by the saying, “As the rich get richer, the poor get poorer.” Many assume that our “economic pie” is static, so that if some take more of the pie, there is less for others to share. But capitalism increases the size of the pie, and although some may get bigger pieces than others, all gain.

Wealth is not money. In the economic sense, wealth is created from natural resources to produce capital goods and services. The more goods available to a society, the wealthier that society is. Reasonably unfettered capitalism is the best engine to produce those goods. In a capitalist society, even the poor are better off than those in non-capitalist countries; just compare the U.S. with some African countries.

Many politicians, including the current crop, think the economy is a zero sum game. Hence they attempt to “redistribute the wealth” in the name of fairness. But this attempt to make things “fair” just decreases the size of the economic pie, to the detriment of all.

The federal government, and some state governments, are hindering creation of wealth through a myriad of regulations that make creation of capital goods, and hence wealth, much more difficult than it could or should be.

About 80% of the U.S. economy is now in the service sector. While many services are valuable and may help producers of wealth; services, themselves, are not intrinsically wealth producers. In our economy, about 71% of GDP is made up of consumer spending which is highly sensitive to job creation, personal wealth, and after tax income. As the real wealth creators, the manufacturing and energy sectors decline, the service sector will feed on itself and eventually our economy will become a zero sum game.

The best way out of our economic mess is to unfetter and unleash the capitalists so that our “economic pie” becomes bigger. Government is currently a large part of the problem. It should just get out of the way.