You may have heard the term "Zero Sum Game" but we can almost bet that you haven’t heard "Positive Sum Game" and "Negative Sum Game". Why is so? Because from a political standpoint a seemingly neutral gobbledygook seems much better than a disaster. Even if it is pure propaganda.
THE DEFINITIONS
These terms are typically used in game theory and extended into disputes or negotiations, but what do they mean? To the definitions!
Zero-Sum Game: this means that for one party to win the other party needs to lose the exact same amount. For example, if there are two parties (Amin and Karu), for Amin to gain 34 AMD (that would be Armenian Drams) then Karu needs to lose exactly 34 AMD. If we add what Amin won and Karu lost, we get exactly zero.
Positive-Sum Game: in this case if we add up the totality of all winnings and loses, we get a total larger than zero. In our previous example, this would mean that Amin may have gained 347 AMD but Karu only lost 47 AMD. The grand total is +300 AMD. A positive outcome. How do we explain this? Because the process in which Amin and Karu were involved created or received external wealth.
Negative-Sum Game: this is the opposite of the previous one; where the totality of all winnings and loses are less than zero. Returning again to our example, if Amin gained 25 AMD and Karu lost 68, the grand total is -43 AMD. A negative outcome. How do we explain this? Because the process in which Amin and Karu were involved either destroyed wealth or transferred it out.
WHY IS THIS IMPORTANT?
Because when we talk about the economic destruction that governments impose on us (that you would be you), people tend not to believe us. This is to because their gut feeling is telling them that they are getting stuff "for free". Yes indeed. The actual worldly experience is that in many occasions we are most definitively not paying for stuff we are receiving. We are not pulling cash from our pockets and so our reality is screaming: free!
But is it so?
Well… no. The problem is that we are not looking at the big picture. We don't do this because:
- We are lazy human beings
- Because it is obsceningly difficult to calculate the big picture
- Because governments keep hiding the big picture for us
And these are not figures of speech. They are real!
But what does the "big picture" look like? Glad you asked.
THE BIG PICTURE
In order to generate a more-or-less accurate depiction, we will borrow a concept from physics; more precisely from thermodynamics. The concept is called a Closed System and it simply means that the "System" is… well… "Closed". Nothing gets in and nothing gets out. This concept is important because from an economic perspective, the world is more or less a Closed System. Whatever wealth we may be producing inside, comes from inside and stays inside. Whatever wealth we may destroy inside, stays inside, it doesn't escape from earth.
From this perspective and assuming that the world is indeed a Closed System, we will analyze what happens in different economic situations.
WEALTH
But before we begin, we must also ask ourselves, what is wealth? Wealth is simply the level of desirability that something has. Of course, this level is purely subjective but as we are all humans, we more-or-less desire the same things. Thus, things always have a similar but not exactly identical wealth level for every one of us.
But how do we create wealth? Creating wealth simply means increasing the desirability of something. For example, Apple takes metals and plastics and produces iPhones. The desirability of plain metals and plastics is far, far less than the desirability of iPhones. Presto! Apple created wealth. However, we must point out that wealth did not come from outside this world; it came from inside. Wealth was created because less desirable resources were used in a clever manner to create a more desirable product.
And how do we destroy wealth? By reversing this process. If we smash a perfectly working iPhone, we reduce it to a pile of components which are closer to simple metals and plastics than a working iPhone is. We drastically lowered the desirability of the iPhone and therefore we destroyed part of its wealth.
In addition, the manner in which wealth is created and destroyed matters.
Wealth Creators
We need to ask ourselves, who creates wealth? Not just who manipulates primordial materials but who actually creates net wealth? If you happen to look closer, you will notice that people does. People work and through their work they transform something of low wealth (potential work) into something of higher wealth (a service or a good to be sold).
Wealth Destructors
Very seldom you will find people destroying wealth on purpose. Why would anybody want to do so? This would decrease their standards of living! For example, would you take a hammer to your car and smash it on purpose because it is "too expensive" (i.e. it has too much value or wealth in it)? Would you burn your money because you have "too much" of it? Would you let your garden rot because the flowers increase the value of your house too much? Of course not. In general terms people do not destroy wealth. And yes, in certain circumstances they may. But no, in general terms they do not. But if this is the case, who or what destroys wealth? In a word? Governments.
Think about it.
Who makes possible and participates in wars which are wealth destructors par-excellence? Who takes our wealth at gunpoint, uses it to pay a bunch of people who will distribute the remainings to other people, whether they want it or not? Who systematically destroys the value (i.e wealth) of your currency through printing? Who steals your wealth at every purchase thus preventing you from investing it? Who wastes our wealth in idiotic projects which collapse and end up amounting to nothing? Who wastes your money spying, persecuting and prosecuting you for no reason other than your desire to be free? Who? Who? The government. Governments are the preeminent destroyers of wealth.
Debt
And what has debt got to do with wealth? Everything! Debt is nothing but wealth stolen from the future. If we use it now, we won't have it tomorrow. Remember? A Closed System.
SUM GAMES
Zero-Sum Game
This type of economic scenario is quite difficult to achieve. It would require that the exact amount of wealth that is created is destroyed at the same time. If we build a wood house (a higher wealth value) we would have to burn down an entire forest (of lower wealth value) to compensate. This kind of situation is actually a tool that mainstream economists use to study different scenarios but it has no validity in reality. Thus, we will ignore it.
Negative-Sum Game
In this type of scenario total net wealth is destroyed. But if we know that people create wealth and governments destroy it, and we know that the world is a Closed System then, inevitably, we must conclude that we, the people, are creating less wealth than governments are destroying. And we know that this is happening. How do we know? Because of the governmental world debt levels, levels which have reached a breakeven point at a minimum (see for example Happy Breakeven Year). But these debt levels are only the "formal" ones. If we add the non-sovereign levels plus all the off-book debt levels and all the pseudo-debts, this level doubles at the minimum. If to this level we add all the Derivative "instruments" (aka debt speculation) we reach levels that are at least 22 times higher than the world GDP. Why would we add derivatives to the mix owing to the fact that they are "private"? Because the ridiculous level of derivative gambling is only possible due to the creation of funny money to levels never before seen in the history of humanity. Yes. Humanity. History. Yes. Of course, comparing debt to GDP automatically assumes two things which are not true:
- The GDP is a sound index
- The GDP belongs to the state
But the point is that if we add everything that is being destroyed by governments (in the present or future) and all the destructive financial power that is getting unleashed because of government action we must absolutely come to the conclusion that more wealth is being destroyed per year (or will be destroyed in the next and upcoming collapses) than the wealth that is being created. Yes. Per year.
Positive-Sum Game
Now let's take a look at the "other" equation. In this situation we know that people are creating more wealth than what is being destroyed by governments. As such, we need to ask ourselves, which political system is the one that maximizes peoples' freedom to generate as much wealth as possible? You got it. Libertarianism and its consequence the truly free markets.
MUSINGS
It is for this reason, because free markets are positive-sum games that we are Libertarians. Precisely because free markets are the only process capable of increasing the desirability of things and also creating desirable things that we are Libertarians. These things that we desire are the ones that solve our problems. They are the ones that make our lives easier and happier. And no, we are not claiming that wealth is the only condition for happiness, but it does help (see Make Money Be Happy).
This article was written with the intention of explaining why governments tend, by definition, towards Negative-Sum Games while free markets are, by definition, Positive-Sum Games. Furthermore, any government action will, by definition, decrease the positive outcome of a Positive-Sum Game while any action by free markets will increase the positive level of Positive-Sum Games.
These concepts about Positive and Negative Sum games provide the big picture that enable us to better understand why governments are not something desirable. It is as we said many times; it is not that some governments produce some good outcomes at some times. That's not it. The problem is that in order to achieve those good outcomes we must accept the entirety of government packages… which inevitably lead towards Negative-Sum Games. Your choice is simple; you can choose to increase the size of the cake or decrease it. Yes. Your choice. You can either vote or not. You know the consequences. Now choose!
Note: please see the Glossary if you are unfamiliar with certain words.
