It’s interesting how people make decisions and form beliefs. An argument could be made that people rarely think about the facts and come to a rational decision – instead, they make an emotional decision then come up with rationalizations for it after the fact.
Even if we pretend people do make decisions based on the facts, I often feel like people argue about the implications, rather than the root issues. For example, the economy and jobs are a couple of the big issues in American politics. The Democrats and Republications have big differences in how they think this should be achieved, but both claim to be pursuing the same goal. A Republican view might be that cutting taxes will stimulate the economy and encourage businesses to hire, leading to more jobs. A Democrat view might be that providing universal healthcare to low-income workers will lead to a healthier, more productive workforce, leading to a stronger economy and more jobs.
Both sides would argue that the other’s policy wouldn’t accomplish the goal – more jobs and a better economy. What is interesting to me is that they argue endlessly about the details of proposed policies, when it really isn’t the policy they disagree about. Each has a fundamentally different view of how society should run. But they never argue about that! At its core, an example of a conservative belief is that people should take responsibility for themselves, while an example of a progressive belief is that government can intervene to make life better for citizens. Imagine a political debate on either of these topics!
One core belief, that I feel is mistaken, that underlies many opinions people have is that the economy has a set amount of resources that we’re all fighting over. This is often expressed as the “economic pie”. Some people have an even more simplistic view of society and think about it in terms of money. They imagine that every time someone gets $20, that’s “less” for everyone else. From this perspective, anyone who has more money than average has taken more than their fair share. As someone becomes increasingly rich, having many times the average, they are increasingly greedy and have taken obscenely more than their share.
The pie analogy represents society as fighting over the size of everyone’s piece to divvy up a finite quantity.
Rather than thinking in terms of money, it’s better to think in terms of wealth. Wealth is simply anything people want – think cars, Big Macs, clothes, houses, etc. Money is a medium of exchange, it’s useful for changing one thing that people want into something else. And totally useless on its own. If you sold your dog to someone on Craigslist and went out and bought beer with the money you’d received, the money facilitated trading your dog for beer.
Labor is work that someone else wants to be done and can be exchanged like anything else. Many of us do this in our daily job. We work for money, then get the things we want with this money.
When we think in these terms, the pie metaphor quickly breaks down. If you pay me $20 to clean up your basement, at the end of the transaction we’re both better off. I have $20 I didn’t have, and you have a clean basement. Clearly, the clean basement is worth more than $20 to you – or you would have refused my offer. By going through this exchange, we’ve just increased the economy – it’s now bigger by 1 clean basement.
Sometimes politicians will use the phrase “grow the pie” meaning they’ll create more for everyone. EVERY economic transaction grows the pie by definition.
You might be thinking “well, when my basement gets dirty again I’ve lost out”, which is true. If you eat the Big Mac or drink the beer it’s now gone. Your life is (hopefully) better from the experience you had consuming that thing. Overall, even (especially) when we consider things that are being consumed, people live MASSIVELY more affluent lives now than they did in the past, precisely BECAUSE economic activity has grown the pie and generated abundance.
Some might say “well, all resources are finite, so we’re fighting over them!” I personally have no interest in bauxite whatsoever – you’re welcome to it! The issue to think about here is that value can be added to resources. Paper is worth more than the wood pulp that was needed to make it. The wood pulp is worth more than the lumber that was pulped. The lumber is worth more than standing trees in the middle of a forest. At each step, the same resources became something people valued more highly. A great deal of our economic activity involves increasing the value of resources (or resources that have already been processed). An iPad is worth far more than the raw materials that were used to manufacture it. Except in a highly abstract way, we’re not fighting over raw resources.
Imagine all the wealth of all humans currently alive. Compare this to the wealth of the entire human race just before the dawn of agriculture – say 10,000 BC. Which is bigger? On the one hand, we have houses, cars, jewelry, sushi, and 9 Star Wars movies. On the other, we have some flint arrowheads, animal skins, and clay urns filled with water.
CLEARLY, the modern world is HUGELY wealthier! Where has this wealth come from if we’re all fighting over a set amount of resources? If the pie stays the same size, how can we have SO many more people who are all living far richer lives?
Paul Graham has an essay called “How to Make Wealth” which covers many of the same issues as this post.
Do you believe there is a set amount of wealth in the world/society we’re all fighting over? If so, what do you think I’ve got wrong here? If you agree with me, why do you think other people disagree with this?