In contrast, if I take out a loan and build a successful business, my intentional actions (successful business) lead to greater money supply than if I had failed at business.
Does that make sense, or am I missing something? I'll admit, the creation of new wealth/money is very mysterious. How to know when it is growing the pie?
Your intentional action is to start a business. Whether or not it will be a successful business and actually "generate wealth" is to a large part dependant an chance.
Also, honestly, "It's not a zero-sum game" is beginning to sound like a religious mantra. Of course you can define "wealth" however your want and for the right definitions, you can certainly pull ever more of it out of nowhere. The set of natural numbers has no upper bound.
However, many extremely relevant kinds of wealth absolutely are zero-sum: There is only so much time in a day, only so much space to live in, only so many natural resources and only so much waste the planet will tolerate. If some class of people control disproportionately amounts of that, it will absolutely reduce the wealth of those who don't belong to that class.
There may be only so much time in a day, but the critical factor in wealth creation is how much you can get done in a day (productivity). You can also figure out clever ways to get more out of what you have (efficiency).
There are many random factors that can cause your business to succeed or fail.
You might have a terrible business idea that would normally fail, but a coincidental event could cause your business to become wildly successful.
You could be a terrible businessperson, but by luck of birth your family has connections that allow your business to succeed through pure nepotism.
You might have a brilliant idea that fails because of a natural disaster, or because someone doesn't like you and decides to bury you in lawsuits.
You might have a brilliant business idea but a competitor springs up and poaches your labor pool.
For example - odds are very good you're healthy. That's lucky! You live in the US - a lucky place to start a business! The internet makes it easy - lucky! You have an education - more great luck! If not, there's a free youtube video on just about anything you need to learn - what great luck!
And who decides what is valued by the marketplace?
It's:
- Politicians through regulation.
- The Federal Reserve Bank by continuously creating new money out of thin air.
- Banks by deciding who can get the newly printed Fed money through loans and who can't (typically based on the value of assets which individuals already have; the result is that rich people get most of the new money through almost 0% interest loans).
- Corporate monopolies by locking out competitors (through lobbying government for beneficial regulations or making it prohibitively expensive for other companies to compete due to price gouging, international tax arbitrage, allowing losses in some sectors to selectively wipe out competitors in other sectors, incentivizing journalists to promote the corporate agenda, etc...)
As a small startup, you can be as efficient as you like. If some corporation doesn't want you to succeed, they can easily drain your coffers and crush you without drawing any attention to themselves. It's not about productivity or cleverness; that has very little value these days. Economic value these days lies in one's ability to control the social narrative and the money supply; it doesn't matter what the reality is.
If you have unlimited money, you can literally pay people to sit on their asses and pick their noses all day; you can even convince them that this is helping the company and therefore the whole economy... The company keeps getting more money year after year so somehow all this nose-picking must be paying off right?
The massive hose of Federal Reserve cash plugged straight into the back of the company is just a minor detail.
And the farmers who feed everyone are fools for accepting this electronic play money in exchange for their useful work.
The Fed also doesn't create demand for products and services. That demand is there, all the time. Right now there is latent demand in the marketplace to extend the human lifespan to 1000 years if possible. There's demand to travel at the speed of light or faster. Whether or not these things are even possible is completely independent of the demand for them.
It's also quite absurd that on the tail end of a decade of a start up boom in the tech industry that you would assert that all these factors make it impossible to succeed today. We are on Hacker News, a site powered by YCombinator, an incubator and investor that has helped make it possible for hundreds of companies to succeed that you claim is impossible. The combined valuation of the top YC companies was over $155 billion as of October, 2019. None of these companies existed 15 years ago.
A regulation that mandates, e.g. catalytic converters, creates demand for them. Requiring car insurance, same. Examples abound.
> The Fed also doesn't create demand for products and services.
The Fed(eral reserve) sets monetary policy. It's supply side. By setting interest rates low, it increases demand for credit.
Also, Y Combinator is not popular because it is successful, it is successful because it is popular.
It's no coincidence that Y Combinator operates the most popular technology news link aggregator in the world which all the big corporate tech executives read. This significantly affects the odds of success for startups which join Y Combinator. They choose who wins and it doesn't matter who they choose. If you are selected into YC, it's like winning the lottery.
They should do an experiment; filter out all the obvious scam applications then for all remaining applications (tens of thousands of them probably) run a random number generator to select startups based on keywords that YC likes. I bet the success rate for that batch wouldn't be very different from previous batches.
The people you'd be selling to.
Not at all. I can start a business tomorrow, and if I do nothing or do stupid things with it, the odds of success are zero.
> only so many natural resources
We've literally only scratched the surface. Also, they aren't consumed. Things can always be refined and repurposed, as long as energy is available.
To say that something isn’t zero sum in this sense is a rather weak statement. If any combination of actions by people result in at least one person being worse off and no one else being better off, or in at least one person being better off and no one else being worse off, than some other combination of choices, that is sufficient to conclude that it isn’t zero sum. (This isn’t a necessary condition, only a sufficient one. But a Pareto difference (terminology?) implies a difference in the sum of utilities (assuming that there is a sensible way to add the utilities) without assuming a particular way to add utilities between persons, so I think it is easier to justify conceptually.)
That many things involving multiple people are not zero sum, in this sense, is obvious. (Punching a stranger in the face for no reason decreases the utility of the stranger without increasing one’s own. Well, for most people anyway?) It doesn’t imply that there are no limits to how good outcomes can be.
That a given thing is not zero sum is often something that would be sufficiently trivial as to not be worth saying, except that people talk about the thing as if it is zero sum.
If things were constrained to be on the Pareto frontier, then, while possibly still not zero sum, there would I think be less reason to point out that things aren’t zero sum even if they weren’t.
Pointing out that things aren’t zero sum is often, I think, effectively a call to take into account whether options would move closer to or further from the Pareto frontier, and not just pretend that things are always on the Pareto frontier and try to move along the Pareto frontier.
Now, if, within a certain context, the maximum distance it is possible to be from the Pareto frontier is negligible, then in those cases exclaiming “care more about the distance to the Pareto frontier!” wouldn’t seem to make much sense, and perhaps even sometimes justice requires putting more emphasis on where on the frontier we are closest to than how close we are to it, even if it means non-negligible difference in closeness to the frontier.
But, generally speaking, Pareto improvements are good and important, and forbidding people from taking actions that result in global Pareto improvements (I don’t just mean “if you only consider these people, then among these people it is a Pareto improvement”, but rather things that are Pareto improvements when considering everyone’s interests) is usually bad.
Zero-sum games are not limited to two player games.
Here’s a mental shortcut: as long as the objective of the game is to bankrupt all other players (i.e. to own all of the money), the game is zero-sum. No other details matter. It’s a cake-cutting game where everybody wants all the cake.
http://landlordsgame.info/rules/lg-1904p_patent.html
However:
> Borrowing: A player may borrow from the “Bank" in amounts of one hundred dollars, and for every one hundred dollars borrowed the " Bank" takes a mortgage on one or more of the borrower's lots, the total value of which must be at least ten dollars more than is borrowed. For every one hundred dollars borrowed from the "Bank" a bank mortgage is placed upon the property on which the loan is made, and the player puts his note in the "Bank," paying upon each note five dollars (interest) every time he receives his wages. One player may borrow from another, giving a mortgage on any property he may own and making the best bargain he can as to interest, terms of payments &c. The player loaning the money places his individual, mortgage on the top of the borrower's deed to show that he has a mortgage on that property, Should a loan be repaid before passing the beginning-point, the borrower saves the interest.
But there are a few variations... This one looks closer to "modern" monopoly - I can't seem to locate the "two rulesets" referenced by Wikipedia though (one "pro" one "contra" monopoly - in the second everyone supposedly benefits from created value).
http://landlordsgame.info/games/lg-1906/lg-1906_egc-rules.ht...
https://en.m.wikipedia.org/wiki/Monopoly_(game)
> Magie created two sets of rules: an anti-monopolist set in which all were rewarded when wealth was created, and a monopolist set in which the goal was to create monopolies and crush opponents.
See also: https://www.theguardian.com/lifeandstyle/2015/apr/11/secret-...
[edit: here are the combined rules with rules for "prosperity" https://landlordsgame.info/games/lgp-1932/lgp-1932_rules.htm... ]
Yeah of course because you have full control of what happens to your business.
Your competitors, big corporate monopolies, regulators, investors, fickle cultural trends, politics, timing, your wealthy friends or family members and your own health have no impact at all on your business' chance of success.
If your health is so bad that you die, that's insurmountable.
If regulations are so rigid that the government forbids you to open your business, that's insurmountable.
If a corporation sets up shop next door and sells everything you sell at half the price, that's insurmountable.
Then also milder combinations of all of the above can be insurmountable.
Most businesses will fail, and most businesses are built on loans of some kind rather than bootstrapped.
Rent-seekers will try to profit from this because they will claw back their "investment" in the form of collateral - preferably physical, but IP as a last resort.
If businesses succeed, rent-seekers will profit from their "investment" with an aggressive term sheet that gives their return priority over returns for the people who did the work.
At the same time, rent-seekers will be investing in property. If there's a run of successful businesses in an area they will gain by increasing rents and speculating on property prices.
This is basically just asset inflation - very good for rent-seekers, very bad for people who need access to limited resources like housing and health care.
This isn't even getting into the costs of externalities.
The picture as a whole is a lot more complicated than "My business succeeded and now I'm making money, so there's no zero sum here."
For many types of businesses, option 1 isn't a tenable option. Outside of the tech industry, the margins are lower and there is not a large network of VC angels for things like restaurants, farms, retail stores, home services, etc.
The classic example would be farming equipment. Sure, you could save for 10 years to buy an International Harvester Combine. Or you could borrow money to buy the Combine today, your efficiency goes up 10x and you pay off the loan with the higher profits you reap. Then, if you want to expand your farm, you might likewise save for 10 years to buy another plot of land...or you could borrow money today and buy that land and use leverage to grow quicker. The loan created wealth by enabling the farmer to become more productive.
And if they are speculating and the market goes south, they will lose their investment.
It’s not like there isn’t risk involved.
The people working 90 hour weeks and barely able to make rent apparently aren't working hard enough.
[1] https://www.statista.com/statistics/617390/us-millionaire-ho...
What you're saying is that the majority of people have a net worth
So working harder than the majority of people will still mean you end up with a tiny net worth, the fear of bankrupcy from medical bills at any point in life, the fear of losing your home (if you're lucky enough to get a home in the first place)
America is a country where cops arrest 6 year old girls for the crime of being black. The american dream? Hah. Look at the american reality.
1 in 30 'make it'. 29 in 30 don't, and life is hell for them.
It's a probability game. The action of buying a property increases wealth proportionate to the risk of someone landing on it, hence that intentional action increases wealth as a function.
That doesn't make the game zero sum, especially when you add in the variable income bits of passing go or mortgaging properties.
Wealth is stuff that people want. You create wealth by creating stuff that other people want. http://www.paulgraham.com/wealth.html has a long version of this explanation.
The last 200 years have seen a dramatic transformation as we have found ways to efficiently create more wealth, with the result that we all have more stuff that we want than pretty much anyone used to. Both new kinds of stuff (effective medicine, gadgets like washing machines, electronic devices...) and the kinds of stuff we used to have (food, potable water, etc...).
And yet, people still emotionally fall prey to the old fallacy that more for thee means less for me. The truth is that there is no society on record that has managed to lower inequity without major disaster such as war or plague. And also no society on record that has managed to increase the prosperity of the poor without seeing income gaps rise.
(Read Enlightenment Now for a lot more detail on both of these phenomena.)
Or, as Margaret Thatcher put it, "...he would rather that the poor were poorer provided the rich were less rich." (See https://speakola.com/political/margaret-thatcher-on-socialis... for the full quote.)