August 29, 2012

Everybody Wins

Everyone loves the Olympics. Normal human beings, through their otherworldly persistence and talent and physique, are transformed for a few weeks into a vast pantheon of gods, each lording over his or her small, specific domain. Three medals are awarded, but there is only is only one winner: the best out of billions.

That's what tournaments like the Olympics are designed to do: find the best. They do this through various designs--single elimination brackets, round robin play, point differentials. Each participant works their way towards a single goal, and after every game or match they are sorted according to strict rules for winning or losing. But regardless of the format, one winner remains. That's how tournaments are designed.

Tournaments are built to find a winner, but in terms of numbers they are much better at creating losers. And that is not even counting the "implicit losers" like you and me--and all the people around the world that don't even try to compete. Imagine if we all had to participate in the Olympics: if everyone in the world had to run the marathon, swim the 400 butterfly, and attempt to lift barbells over our head. It would be a mess.

The tournament format of the Olympics works because competing is optional. If that was you in the pool barely making it back to the wall, how excited would you be every four years?


Just like their Michael Phelpses and Dream Teams, Americans are proud of their Horatio Algers and Mark Zuckerbergs. It's great to live in a society where anyone can become rich with a bit of luck and a dabble of hard work. The word "opportunity" fills us with warm fuzzies and epic trumpets at the same time. It's so fair.

But there's a distinction that doesn't get made often enough, between anyone and everyone. Anyone can become rich, but can everyone become rich? What if you get your bit of luck and put in your dabble of hard work... but so does the other guy. What happens then? Does the wealth just split down the middle? Or does the person with the extra smidgen of luck (or the one short a few scruples) end up grabbing it all?

Sure: in a sense everyone, or mostly everyone, has become rich--relative to Americans 100 years ago or a rural farmer in India. These are absolute terms. And the bar is set rather low. In relative terms, measuring the gap between members of society, it's another story. American income is more unequal now than any time since the great depression (see this excel file); wealth is worse. Further, since the 1980s we things have been getting worse for many people even in absolute terms (see this pdf report).


The rules of our economy are far less clear than the 100m dash. We don't have to run the same direction, we are allowed to carry other people or trip them, it takes far, far longer. But the Olympic metaphor is a useful one, because it's useful to think of an economy as a system of rules that produces certain outcomes. We know this intuitively; for example, we care about how much the government levels the playing field or holds us back. Depending on how we believe certain rules work, we have different ideas about which rules should exist.

What we tend to overlook is the fact that we are all playing together, and, like a tournament, the rules of the game often dictate that our individual level of performance is irrelevant. What matters instead is how we perform relative to others. It doesn't matter if you scored 99% if everybody else got it perfect, if you broke last year's world record if everyone else breaks it more.

Sure, for some things individual performance is fine--if you are cooking your dinner for yourself, for example. But if you want to be a chef--if you want to cook for economic gain--your ability to do so is determined not solely by how good your food is but by a host of other factors as well. These factors (the number of restaurants, the number of other people competing to be chefs, the ease of opening a new restaurant) are not something you control, they are not something any other person controls directly, and they may not be something anyone even could control.

My purpose isn't to conduct a detailed analysis of the restaurant industry, however. I am arguing that our economy, like the Olympics, functions according to a set of rules. Those rules may be as immutable as the laws of physics or the amount of gold currently present on earth. They may be clearly defined but socially determined laws, like the amount of taxes you pay or the fact that you generally aren't allowed to steal things.

BUT--and this is my real point--there are also rules that we understand far less well and may not even realize exist. Causes and effects that are only dimly aware of. These rules are often complex: they depend on giant masses of people each acting in their own way. Such things are what economics tries to study--but as any economist will readily tell you, the tools and scope of economics are extremely limited.

To really understand the distinction between "every" and "any", between the Olympics and, say, a yoga retreat, we need to understand how wealth and resources move around an economic system: to "follow the money" in its weblike complexity. Does wealth spread out or concentrate? Does it flow toward or away from power? Can everybody be a winner? Or does one person's loss necessitate another's gain?

Such questions will be the subject of posts to come.

No comments:

Post a Comment