The Myth of the Finite Pie
Posted on: 2012-06-27 17:08:50
by John Young
There is a disturbingly prevalent line of reasoning that goes like this: "Anyone who has substantially more material goods than me must have somehow deprived me of my fair share."
This idea is based upon what I call the Myth of the Finite Pie. The idea is that economic values are a zero-sum game such that any person's gain must necessarily come at another person's loss.
Yet, anyone with eyes can just look around and see this is not true. The material wealth available in our society has exploded. It is not unusual for people to walk around with more computing power than the space shuttle on their hips and enough storage to hold an entire library. They come home to flat-screen TVs and even if they don't work, they are given so much money for food that the #1 health problem in America isn't starvation -- it is obesity.
It should be obvious to anyone with eyes that the total available wealth in our system has increased dramatically over the years.
The reason for this increase is because wealth has its origin in the application of human intellect and labor to either produce things of greater value from things of lesser value (such as making a chair from a tree), or the creation of ideas and items that save people time or effort -- such as word processing software that makes handling documents dramatically more efficient.
In this respect, there is practically no limit to the amount of wealth that can be created.
What this means is that the pie expands. When I use a bunch of electronic parts to build a transceiver, I have created wealth. I can convert that wealth to money by selling you the transceiver, or I can keep it for myself and thereby save myself from having to spend money to have it. Either way, the total wealth in the system has grown and even though my share of it is now bigger than it was, it didn't come at anyone's expense.
Obviously, we currently have a system in which people who produce nothing of value -- predominantly the finance and insurance sectors, along with a managerial elite -- siphon off unearned wealth. This creates an economic imbalance because it keeps wages artificially low so that ultimately there are not enough wages to clear the markets and recession results.
However, it is important not to condemn those who have more across the board, because many of them have more for the simple reason that they earned it. Therefore, for them to have more is justice.
The finite pie myth draws no distinction between a banker getting rich by capturing the rounding errors in interest calculations and a person who invents a better mousetrap. The former is a parasite, and the latter is the engine that makes the economy work and grows a bigger pie for all.