Postive sum thinking

I came across this excellent insight from a commenter, kiwi dave, in response to this blog post on Marginal Revolution:

People often think zero-sum benefits are in fact positive sum (further education, tax credits to lure businesses, building gigantic stadia to lure professional sports team) and think that positive-sum transactions are actually zero sum (especially international trade, but more generally market transactions, especially those that make some people very rich). As bad as the former is, the latter is probably worse. And the political leadership — on both sides — openly encourage both fallacies (viz. “winning the future,” “our Sputnik moment” etc.)

As I think back, flipping my own view on this was key to moving me away from my ‘fiscal conservative, social liberal’ days of the past.

I took market trades for granted.  I had been buying stuff and working since I was young.  It’s so natural, I failed to recognize what was right under my nose — that we trade for mutual benefit, which is a positive-sum game.

Sometimes, those trades feel forced upon us and do not feel positive sum.  We probably complain about having to pay the electric bill more often than we consider what we gain from electricity.

On the other hand, arguments for “investing in education” or the economic benefits of luring a sports team seduced me with sophistication.  The rationale sounds smart, appears to be credible and are usually based on studies and projections by folks with college degrees in economics and finance.

Understanding the “full picture” of the positive sum economic argument in those cases grants you admission into a positively reinforcing echo chamber of self-congratulation (sorry about using that term twice in one day) for being able to comprehend such a seemingly sophisticated argument.  It also buys you acceptance with the special interest groups that will benefit from the spending regardless if it provides a positive overall benefit or not.

I started having doubts when I observed some of these projects miserably fail to meet projections.  As I learned more, I started seeing the holes.  Rarely did such studies consider or give proper weight to opportunity costs and they tended to treat all or nearly all activity as incremental.  They never seemed to have peers with opposing views test the assumptions, provide a critical review or identify potential unintended consequences. You shouldn’t trust a doctor that doesn’t encourage you to seek a second opinion.  Same goes for an economist.

I had long forgot about the time when I accepted such grand positive-sum arguments.  And I had been assuming that some folks just can’t see positive sum game.

Thanks to kiwi dave for reminding me of where I once stood and pointing out that it isn’t that they don’t see positive sum games, it’s just that they see them where they don’t exist and fail to recognize the positive sum games that do.