moneyFYI
Financial Freedom Is Merely Organized Common Sense
Why Zero-Sum Thinking Seems To Make Sense
In economics, resources are assumed to be scarce. In zero-sum situations, the idea is the total is the sum of the parts and if you use a resource for one thing you cannot use it for anything else. If I pay the phone bill, I cannot use that money to go out for dinner. You can only spend money once.
The economy taken as whole does not work that way. It is not a zero-sum game. It is possible for the total of all winnings to be more than the total of all losses.
How can that be?
Because there is other resources added that aren’t money. The additional pieces include co-operation, innovation, and management. These too are scarce resources and they are economic resources, as well. It is just that our zero-sum thinking is confined to money, and wins or losses.
The term is synergy. Combining resources to get an answer bigger than the sum of the parts.
When you think of the economy as a zero-sum game you get it wrong, because you only see some of the factors. Think bigger and the economy will make more sense.
Can not knowing be used against you?
You bet. There are lots of people who gain status as activists against poverty. Do they ever imply that rich people have money that should belong to someone else? Just always. The winner gets what the loser doesn’t argument. The foundation of zero-sum thinking.
In this confused on purpose state, people can be lead to want things that harm the whole. And they are so lead.
Does tax the rich make sense?
Of course it does. It Sutton’s Law. Go where the money is.
Wealthy people don’t object too much to paying tax. Their acceptance is limited though.
What is wrong with activist thinking is they think in terms of rate of tax instead of amount paid. My experience has been that people will pay 49.9% without a lot of fight. At 50.1% they start looking for ways to avoid.
The economy works better if incentives remain
Which would you prefer if you were the government? A rich person who pays $450,000 on income of $1,000,000 with the next dollar taxed at 49.9% or, the same person who pays $180,000 on income of $400,000 and the next dollar taxed at 60%?
If you are working for the benefit of the people of the country $450,000 is better. If you are trying to punish rich people, you will opt for the $180,000. You do realize punishing rich people is economically irrational.
How does raising rates reduce tax revenue?
Any wealthy person has choices about how to organize and receive their income. It is not child’s play, but not impossible to change jurisdiction where income is taxed, to change the nature of the income, to change the time of receipt, and to change who receives it.
If we look at history we generally find the government gets more revenue with lower rates. There is a cost to reorganizing ones affairs and rich people are especially adept at understanding the idea that it doesn’t matter how much you make it matters how much you keep.
You must come to understand that revenue equals rate times base. It is not so hard to change the base amount. That’s how you avoid high rates.
Fair tax is an illusion
There is no such thing as a fair tax unless governments spend their money thoughtfully, efficiently, and for the benefit of the people of the country.
The idea of fair tax is good politics though. We have come to discover that there is no such thing as beneficial politics any more. Probably only a few years since about 1932.
Why the economy works
The market economy is an evolved answer. Many things have been tried and the least effective discarded. Innovation is rewarded. Risk taking can be spectacularly good or bad. Not every person is alike and the market tends to accommodate all. People are free to participate in any aspect but are not required to do so.
With bureaucracy, top down decisions enjoy few if any of the lessons learned from the markets. They especially do not evolve very well.
What it means
A top-down economy is a zero-sum situation because no one will add other values to make it work. There is no incentive to do so.
More likely it is a negative sum economy because of the cost of the government overseers.
Recall an old thought.
If you don’t learn from history you will be doomed to repeat it. If you do learn from history, you will likely be doomed to watch others, who did not learn or can take advantage of careless voters, repeat it.
Be smarter. Use information not emotion to make decisions
I help people have more income and larger, more liquid estates.
Call or email don@moneyfyi.com in Canada 705-927-4770
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