Question
Is capitalism a zero-sum game? Does the rich getting richer somehow mean that the poor get poorer?
Answer
Depends on whether the economy is currently in a more mercantilist (or Adam Smithian) mode or Joseph Schumpeterian mode:
At the global level, if there's a lot of comparative advantage trade, you can get a situation which looks Schumpeterian locally and Smithian globally. There has historically been a lot of debate about whether the effects of increased global integration (via better transportation or communication networks) should be viewed as Smithian or Schumpeterian. I am a conservative on this front, and view the effects as mostly Smithian (like 90%) even though global Gross Domestic Product figures may show expansion.
Historically, the global economy has varied between the two extremes. Though of course we don't have financially comparable views of long ago. But you could say that the global economy was:
We are back at Smithian now (i.e. zero-sum) and I think we'll stay there for a while.
This oscillation may actually stop in the coming decades and give way to a third kind of weird economic mode: economic contraction (i.e., nominally negative-non-zero-sum) accompanied by increased standards of living. This possible outcome is something I've labeled Coasean Growth.
- If there is very little creative destruction going on, it is zero-sum.
- If not, it can be non-zero sum (poor get richer at 1% YOY, rich at 5% YOY for example).
At the global level, if there's a lot of comparative advantage trade, you can get a situation which looks Schumpeterian locally and Smithian globally. There has historically been a lot of debate about whether the effects of increased global integration (via better transportation or communication networks) should be viewed as Smithian or Schumpeterian. I am a conservative on this front, and view the effects as mostly Smithian (like 90%) even though global Gross Domestic Product figures may show expansion.
Historically, the global economy has varied between the two extremes. Though of course we don't have financially comparable views of long ago. But you could say that the global economy was:
- more Schumpeterian around 1200 - 500 BC,
- more Smithian 500 BC - 500 AD,
- Schumpeterian again 500 - 1400 AD,
- Smithian again 1400 - 1800 AD,
- Schumpeterian again 1800 - 2000.
We are back at Smithian now (i.e. zero-sum) and I think we'll stay there for a while.
This oscillation may actually stop in the coming decades and give way to a third kind of weird economic mode: economic contraction (i.e., nominally negative-non-zero-sum) accompanied by increased standards of living. This possible outcome is something I've labeled Coasean Growth.