I asked a group of associates if they had ever heard of "Zero Sum Games" and 60% had no idea what I was talking about. One tried to come up with a definition, but failed badly. In this blog I am going to see if I can explain its significance.
The concept of "zero sum games" is important for the understanding of both economics, and political systems, but it appears that much of our population is unaware of this. A good place to start is a simple definition and example. It is a game where the prize is fixed from the beginning so that the game only determines how the prize it distributed. A good example of a zero sun game is "poker". Each play starts with table stakes and playing only determines how the stakes will be divided.
Here is why this concept is significant in economics. Many people feel that economics is only a way to divide up the wealth and for that reason, they tend to prefer socialism or communism. That is because the "promise" of both socialism and communism is to equally divide up the wealth. At first sight, this might look good, but on further consideration they discover that the promises are not kept. Even if kept, they find that the pie that is to be divided has not grown and may in fact, may have declined. Doesn't this look like a zero sum game situation?
Here is another point. Consider that our population grows at the rate of 1% per year. If the economy does not grow faster than 1%, the share of pie for each individual does not grow and thus, at best, we have a zero sum game. Why would "merit" be a consideration in such a situation since everyone is "equal"? If one is to progress upwards in this kind of economic situation it is driven by younger people replacing older workers who retire or die. Doesn't sound very inspirational does it?
There is yet another important point and that is how the economic system is organized. In prior blogs, I have pointed out that as systems grow in size and complexity they move away from central control to distributed control systems. Here again, 60% to 80% of people who I have talked with have no idea what a distributed control system is. Sad but true. What distributed means is that decisions are made at all levels of the system rather than just from the top. How those decisions are made is thus critical. As I have blogged before, those decisions need to be made on the basis of "merit"! If you are a football coach, doesn't it seem logical that you would select players on the basis of "merit". Why would you let an inferior quarterback play in place of your best quarterback? You wouldn't. If people would make decisions on the basis of merit at all levels, this would tend to optimize the productive value of the economic system. That would make the pie bigger and allow more participants to get a larger piece of pie. Isn't the the objective? It recognizes what we all really know and that we are not all equal. At the starting line we are all even, but as the race or game is played, merit determines where we will end up. Is that fair? Can you suggest a better way to produce a bigger pie and divide it up? I don't think so.
If we play a zero sum game long enough we know that all the pie is going to end up in "one" place and no one whats that kind of system. Capitalism or "Meritism" is not perfect, but it is clearly better than any other economic system that has been tried! Can we all wait for the "perfect" system that may not exist? I don't think so!
The concept of "zero sum games" is important for the understanding of both economics, and political systems, but it appears that much of our population is unaware of this. A good place to start is a simple definition and example. It is a game where the prize is fixed from the beginning so that the game only determines how the prize it distributed. A good example of a zero sun game is "poker". Each play starts with table stakes and playing only determines how the stakes will be divided.
Here is why this concept is significant in economics. Many people feel that economics is only a way to divide up the wealth and for that reason, they tend to prefer socialism or communism. That is because the "promise" of both socialism and communism is to equally divide up the wealth. At first sight, this might look good, but on further consideration they discover that the promises are not kept. Even if kept, they find that the pie that is to be divided has not grown and may in fact, may have declined. Doesn't this look like a zero sum game situation?
Here is another point. Consider that our population grows at the rate of 1% per year. If the economy does not grow faster than 1%, the share of pie for each individual does not grow and thus, at best, we have a zero sum game. Why would "merit" be a consideration in such a situation since everyone is "equal"? If one is to progress upwards in this kind of economic situation it is driven by younger people replacing older workers who retire or die. Doesn't sound very inspirational does it?
There is yet another important point and that is how the economic system is organized. In prior blogs, I have pointed out that as systems grow in size and complexity they move away from central control to distributed control systems. Here again, 60% to 80% of people who I have talked with have no idea what a distributed control system is. Sad but true. What distributed means is that decisions are made at all levels of the system rather than just from the top. How those decisions are made is thus critical. As I have blogged before, those decisions need to be made on the basis of "merit"! If you are a football coach, doesn't it seem logical that you would select players on the basis of "merit". Why would you let an inferior quarterback play in place of your best quarterback? You wouldn't. If people would make decisions on the basis of merit at all levels, this would tend to optimize the productive value of the economic system. That would make the pie bigger and allow more participants to get a larger piece of pie. Isn't the the objective? It recognizes what we all really know and that we are not all equal. At the starting line we are all even, but as the race or game is played, merit determines where we will end up. Is that fair? Can you suggest a better way to produce a bigger pie and divide it up? I don't think so.
If we play a zero sum game long enough we know that all the pie is going to end up in "one" place and no one whats that kind of system. Capitalism or "Meritism" is not perfect, but it is clearly better than any other economic system that has been tried! Can we all wait for the "perfect" system that may not exist? I don't think so!
