The Zero-sum Nature of Wealth

Economic absurdities that
Democrats must expose:

...because it's wrong to penalize success and hard work.

...therefore, we should eliminate the capital gains tax.

...After all, they came from, and understand, business.

...even though it is based on pitting the worlds' workers against each other.

...union bosses are only out for themselves.

...and the more the rich have, the more will trickle down to everyone else.

...Democrats are communists, or at least, socialists at heart. when we tax wealthy investors, we lose jobs. investors, not workers, create wealth. we should give them all the tax breaks possible.

...Democrats just want to tax and spend today.

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...It's a mountain, and a terrible defense of globalization.

...for those of Indonesia, Mexico, China and India.

...and how not to do it again.

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...Republicans' most important propaganda technique.

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Wealth is a Zero-Sum Game

     Conservative damagogues like Limbaugh have been able to convince the public that the huge incomes of the wealthiest Americans are irrelevant to those who make moderate-to-low incomes. They even suggest that the more money the wealthiest Americans make, the more wealth will trickle down to the lower classes.

     If you've swallowed this line of conservative garbage, get ready to vomit. As all conservative economists know, and deny to the public that they know, wealth is a zero-sum game. That is true at both the front end—when income is divided up, and the back end—when it is spent.


The Front End of Zero-Sum: Dividing the Loot

     There is only so much corporate income in a given year. The more of that income that is used to pay workers, the less profit the corporation makes. The less profit, the less the stock goes up. The less the stock goes up, the less the CEO and the investors make. It’s as simple as that. Profit equals income minus expenses. No more, no less. Subtract the right side of the equation from the left side and the answer is always zero. Hence the term, “zero-sum.”

     So, to the extent a corporation can keep from sharing the wealth with workers—the ones who created the wealth to begin with—investors and executives get a bigger slice of the income pie and become richer.

     To understand this aspect of the zero-sum nature of wealth, and the way many people get rich—that is, besides selling-out our workers to Third World countries—consider how Gates, Eisner, and Welch Jr. did it. It’s no mystery, and it isn’t all that hard to do.

     Although the following specific details are fictional, the scenario is accurate. Through their emissaries, Mr. Bill Gates (CEO of Micro- soft), met with Michael Eisner (CEO of Walt Disney Corp.), and John Welch Jr. (CEO of General Electric). Their discussion went like this:

Gates: “Gentlemen, you astute, wise, talented, outstanding, and morally principled managers of today—I can sell you something that cost me $10 per unit to produce for $400 each. It’s a little disk with a bunch of zeros and ones on it.”

Eisner and Welch Jr., in unison: “Why in the hell would we be stupid enough to do something like that?”

Gates: “Simple. It will enable your secretaries to produce twice as much work in half the time. In other words, you can fire half your secretaries—those who helped make your organizations successful in the first place. And the secretaries who remain will still work the same hours for the same pay. You will cut your labor costs in half, the stock of your companies will skyrocket and your grateful shareholders will reward your managerial brilliance by making you incredibly, fabulously rich. Not like me, of course, but pretty damn rich.

“Here’s another wrinkle you’ll love. When your companies start growing again, Disney will hire the experienced secretaries that GE fired, and GE will hire the secretaries that Disney fired. Since they are new employees, they’ll start out at base pay, which has hardly budged for the past 20 years—and with no benefits. Times are tough for secretaries these days, you know, with the corporate downsizing and all.

“Oh yes, with Republicans in control of Congress and Clinton ap-pointing conservative judges to the courts, you can work your secretaries’ asses off, and you don’t have to worry about them getting carpal tunnel syndrome and suing you.”

     If you think that this scenario is far-fetched, read what Barron’s had to say about “What’s Behind America’s Trend Towards Widened Income Inequality?”:

The revolution in office technology has broken the back of the market for secretaries and clerks. Robotics has destroyed whole categories of factory work. These seismic shifts have meant that millions of people who might otherwise have gotten the blue- and pink-collar positions in these sectors must now chase what jobs remain. And an in-creased labor supply generally brings a lower wage. (Oct. 26, 1998, 55)

     Two simple questions: Who got most of the benefits of all this new technology? Who made all the sacrifices? It was no accident. It was a matter of naked greed combined with raw political and economic power. When those with the power divide up the income that workers generate, it’s a totally zero-sum situation.

     The same kinds of discussions occur daily in our major corpora tions, dealing with issues from outsourcing work to temp organizations, to closing down U.S. operations and moving overseas. When Michael Eisner insists that his suppliers use sweatshop labor in third world countries like Haiti, Burma, China, and Indonesia, he’s not “creating jobs for women and children.” He’s forcing American manufacturers to abandon their communities and workers so that labor costs will go down and he will get a bigger share of Disney’s income when it is divided up at the end of the year.

     In exactly the same way, when John Welch Jr. forces his suppliers to abandon their communities and unionized American workers to go to nonunion Mexico—just like he has done with his own GE workers—he’s not “creating jobs”; he is reducing labor costs so that he will get a bigger share of General Electric’s income when it is divided up.

     The people who divide up the spoils in this class war are the CEOs, investors, investment bankers, accountants, lawyers and general hangers-on who are associated with the power centers. They negotiate among themselves over who gets how much of the available money—a finite amount. When the feeding frenzy is over, the workers get what’s left. If they’re in a third world country, and if they’re lucky, they may get subsistence wages. If they are Americans, and if they are lucky, they get an opportunity to find another job, usually at lower pay.

     The barbarians of antiquity at least had to work to earn their living. They rode horses in the snow, rain and mud, and used swords, spears, and arrows to destroy families and communities. Today’s barbarians have it much better. They destroy families and communities by pitting workers against each other, and they can do it by using their telephones—and they don’t even have to leave their comfortable air-conditioned offices.


The Back End of Zero-Sum: Spending Income

     Since we live in a society of auction markets, the more money other people have, in effect, the less you have. Even The Wall Street Journal recognized this patently obvious fact in the previously referenced article, “Wealth Gap Grows…”:

A growing disparity in affluence can hurt the less well off, even if their incomes are also on the rise. In the San Francisco Bay area, where stock-driven wealth exploded in the 1990s, a middle-class family earns about 33% more than the national average—but has to pay up to four times the national average to buy a home because of intensely competitive bidding from freshly minted millionaires.…

Cornell University economist Robert Frank argues that Silicon Valley could, as it has in so many other ways, be foreshadowing a national trend. From bigger cars to higher tuition for the best schools, the richer rich will ratchet up prices for everyone else. “Extra spending at the top,” he says, “raises the price of admission.” (Sept. 13, 1999, A1)

     It’s got to the point that even professionals like doctors and lawyers are sometimes being priced out of the kind of lifestyle they’ve grown accustomed to expect. Fortune reported that real estate prices in the San Francisco area have escalated to the point that “it has gotten so bad that well-salaried professionals without big options packages—even doctors and lawyers—simply can’t compete.”(July 19, 1999, 27) They’re being out-bid for traditional doctor/lawyer-type homes by the newly created multi-millionaires of the computer industry, who don’t even have to bother applying for a mortgage. They pay cash.

     The land-grab that the Journal and Fortune were referring to here is actually old hat. Back in 1993, Newsweek called the zero-sum nature of land and housing “Aspenization”:

A town [Crested Butte, Colorado] with such attractions is a natural target for what people in Colorado call Aspenization: the upscale living death that fossilizes trendy communities from Long Island’s Hamptons to California’s Lake Tahoe. Aspen was a splendid place, too, before it was discovered by the rich and famous—and the greedy and entrepreneurial. Now it’s a case study in over-development. Its lavish second homes sit empty for most of the year while three-quarters of the work force, who can’t afford to live there, commute from forty miles down-valley—a two-hour trek at rush hour. (Dec. 27, 1993, 45.)

     Similar situations are occurring all over the United States. People who do the service jobs along the North and South Carolina coast have to commute by bus 2˝ hours each way to work. They can’t afford the rents that have risen because the wealthy bought up available land and cheap homes, and replaced them with expensive homes, if not mansions. Even the city of Branson, in the formerly remote hills of Missouri, had to build dorms for workers, because they could no longer afford the rents in the area after it was discovered by America’s high-income earners.

     It’s not just in resort areas that low- and middle-income persons are feeling the pinch. From the mountains of Arkansas to the deserts of New Mexico, people are finding that a massive land and property grab has accompanied the huge increase in wealth of America’s royalty. Even The Wall Street Journal expressed surprise at the rise in housing costs across the country in its article, “3BRs, 3 Baths, No Vu. Price: $500,000”:

What Can Half-Million Buy? Not Much, Even in Fargo

…Weekend Journal recently went on a cross-country house-hunting tour, and we were amazed to discover how extensive and widespread the price increases have been. It wasn’t just the usual realestate nightmares such as Manhattan and Silicon Valley. In states from Oklahoma to Minnesota, we found half-million-dollar listings that upscale buyers only recently would have viewed as “starter homes.” (Sept. 10, 1999, W1.)

     This kind of problem is going to spread in ways most people have not foreseen. In its article, “No Inflation? Look Again; It’s confined to stocks today, but it will spread,” Barron’s warned its readers that

Rising stock prices will inevitably lead to rising prices in the rest of the economy….

Since much of the newly created money has gone into the stock market, stock prices have been bid up to astronomical levels relative to prices of other goods in the economy. Consequently, by selling some shares, stockholders have a great and growing ability to buy consumer goods, such as homes and automobiles. (Nov. 15, 1998, 58.)

     This warning is not often heard by those who have been conned into believing that everyone, even those who don’t own securities, will benefit from a soaring stock market. And those who feel good about their $2,000, which grew to $4,000 in the stock market, had better get a grip on reality. By today’s standards their $2,000 gain is a minuscule amount, and they’re eventually going to lose most of it to those who really made money in the stock market—or to those who are going to inherit massive amounts of profits from the stock mar-ket. When the wealthy start seriously buying up everything in sight, especially land and homes, low- and middle-income Americans will suddenly discover what the skyrocketing stock market was really all about.

     This kind of economic reality doesn’t hurt just poor people. The Wall Street Journal reported that even some “rich” people are being priced out of the market for the summer vacation rentals they’ve been getting in the past.8 For the summer of 2000, it will cost $20,000 for two weeks in a cottage in Nantucket, a 25% increase over the previous year. In Martha’s Vineyard, it’s $3,000-5,000 a week for standard cottages. It’s been estimated that the price for vacation rentals nationwide rose 18% in 1999, after rising 11% in 1998.

     So, as the rich get a lot richer—and your increasing income doesn’t keep up—poverty trickles down to you. You get priced out of the markets you have been able to enjoy in the past.

     Similar observations could be made about college tuition, quality health care, meals at restaurants, automobiles, entertainment (from movies, plays, and concerts to professional sports events), and on and on. The same problem exists for virtually every aspect of life in which people must work in order to participate in auction markets. It even carries over into recreational opportunities and discretionary time with one’s family, since people are forced to work more hours to keep abreast of rising prices.

     Naturally, members of our new American royalty fully expect themselves and their descendants to stay ahead of the game and to continue to afford all the luxuries of modern life, and in unlimited quantity. Their supply of money will require high profits for corporations, investors and businesses—and low wages for workers—for as far into the future as we can see.

     If you now live in a $200,000 home, drive a modest car, eat at home, never take vacations and plan to send your kids to a state university—and are satisfied with your life and don’t desire any more—you may think that the inflation described above won’t affect you.

     Wrong. Remember: the writer of this book, the doctor you go to, the professor at your local college, your lawyer, the local pharmacist, your state senator, the managers and owners of your insurance company, grocery store, theater, hardware store—ad infinitum—they have been infected by the greed and materialism virus. In its article, “Amid Economic Boom, Many of the ‘Haves’ Envy the ‘Have-Mores,’” The Wall Street Journal described how our greediest Americans are driven to become even richer:

As the job market surges and the stock market has boomed, a wave of envy is gnawing at those near the top of the economic pyramid as they see others making even more….

Even some of the newly envious feel vaguely guilty about it. But they are rankled nonetheless, especially when they compare themselves to neighbors, college classmates and former coworkers making far more in high tech, Wall Street, or as entrepreneurs. (Aug. 3, 1998, A1.)

     The only way these envious people are going to realize their dreams of a royal lifestyle is by charging you more for the products and services you must have. And if they have the power to pull it off, and you are powerless to stop them—count on it—they will. And the additional income you work for in the future will buy less than your present income buys today.


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