If you follow politics, you've probably seen the argument. You're reading a blog post or a comment thread or a discussion on an online forum and you see words that go something like "capitalism isn't a zero sum game." What this means is that, when we're talking about wealth, there isn't a limited amount and it isn't possible for one person or one group of people to collect it all. Wealth is created all the time -- if it weren't, a growing population would've ruined capitalism with Malthusian cannibalism long before the system of capitalism even had a name. The "zero sum game" argument is generally used defensively when someone's complaining that such-and-such a gazillionaire is making way too much money. Since wealth creation isn't a "zero sum game," we're told, it's ridiculous to say that this gazillionaire is living high on the hog at the expense of all of the non-gazillionaires among us.
But this "zero sum game" argument is only partially true. At this moment in time, there's only X dollars worth of wealth in the world. It's not an unlimited amount. It is, therefore, most definitely a zero sum game. It won't be eventually, but we live in the now. If you buy something, you're generally not going to get that money back -- eat lunch at a restaurant and someone is cash richer because you've become slightly cash poorer. At any given moment, the contents of your wallet is a fixed sum. It's possible for someone else to take it all.
This reality works both ways and a post by Dean Baker at his American Prospect blog demonstrates that. Baker is a media critic who follows economic reporting (we need a lot more of this, by the way) and his response to a Washington Post article about the market and the economy is much more interesting than the article itself.
The WaPo article freaked out about the loss of $6.9 trillion in value in U.S. stock market last year. But, as we need to be reminded more often, Wall St. isn't the economy -- as much as financial reporting makes it seem that way. "While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us," Baker tells us.
The loss of stock wealth means that stockholders have less claim to value of the country's output. The U.S. economy can produce just as much in 2009 as it did in 2008 (in fact somewhat more, because of labor force and productivity growth). If stockholders can demand less because of the reduced value of their stock, then this leaves more for the rest of us.
The most visible evidence of how the loss of stockholder wealth can benefit the rest of us was the sharp decline in consumer prices over the last three months. As a result, real wages rose at almost a 15 percent annual rate in the three months from September through November.
Grab an ad insert from your local paper to see this demonstrated. Demand has dropped prices to the consumer's favor. What you have buys more. When Baker says, "The loss of stock wealth means that stockholders have less claim to value of the country's output," he means that the immediate sum total of wealth has shifted in your favor.
But, of course, people are losing jobs. As a result, we aren't taking advantage of this de facto raise in wages. The working are afraid of joining the unemployed, so they're pinching pennies until Lincoln squeals. And it's the working -- i.e., labor -- that creates wealth, not Wall St. All the financial sector does, at its most basic, is trade money. Products and services are supplied by labor and demanded by consumers -- that's the real market and that's the real basis of the economy. It's all about consumption.
But the focus on Wall St. has served us poorly for years. As the market did better and better (even though it was a house of cards), real wages fell. The gap between rich and poor became greater and greater. If the economy wasn't a zero sum game, it was sure looking like one, with people gaining at the expense of others.
"To focus on the performance of the market... is to zero in on an economic indicator that can do well even as the country does poorly," wrote Ezra Klein in September. "In 2006, for instance, the Dow Jones industrial average hit highs. According to the just released census data, however, median earnings fell 1 percent, and millions more Americans entered the ranks of the uninsured. Indeed, from 2000 to 2007, the S&P 500 gained more than 500 points; meanwhile, the median household's income, at least as of 2006, fell by more than $900." While the media and the Bush administration were focused on the stock market, the actual economy was showing cracks. As is now being said so often as to become cliched, the focus was on Wall St., not Main St. And, as isn't being said often enough, the real economy is on Main St.
Therefore, the job isn't to fix Wall St. While important, it's not the be-all and end-all of the economy. And, if we pretend it is, we aren't going to get anywhere but in the same fix we were in -- right before it all went to hell. We need to increase demand and we need to do it where demand is strongest -- through workers.
"[I]f the loss of demand [for labor] from stockholders is effectively replaced by demand from the government or foreign sector, then the vast majority of the country will be made better off by this plunge in stock prices," Baker writes. In other words, if the demand for workers shifts and is made up, then we're going to have money that's worth more -- as we do now -- but that we also feel can be spent safely.
It's often said that the best social program in the world is a job, but it's also true that it's the best economic program. If government can create jobs through investments in our infrastructure, then there really isn't a better and more logical time to do it than now. If we can put the brakes on the constantly increasing unemployment, then people will feel easier about spending money that, as it is, has more value right now.
It's a no-brainer.