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Why Trump and Sanders See Losers Everywhere – Article by Steven Horwitz

Why Trump and Sanders See Losers Everywhere – Article by Steven Horwitz

The New Renaissance HatSteven Horwitz
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Competition and the Zero-Sum Fallacy

Donald Trump, Bernie Sanders, many political actors, too many intellectuals, and much of the general public share a false and destructive belief about the nature of exchange: that economic activity is something akin to a battle or a full-fledged war in which the goal is for one group to “defeat” another. We see this mentality across the political spectrum.

Zero-Sum Losers

Think of the ways Trump and others on the political right talk about international trade. The basic framework is to see other countries as enemies in competition with us. The goal of trade policy is somehow to “beat” them, because if they are “winning” by selling us a lot of stuff, we must be losing. The result is mistaken policies such as Trump’s proposed 45 percent tariff on Chinese imports.

We see the same us-and-them thinking on the left, where progressives perceive a persistent battle between capital and labor, each trying to defeat the other. For leftists, capital is always the winner and labor is always the loser — unless the government intervenes. The appropriate policy response, from this perspective, is either to limit capital’s gains or, if you’re a bit more radical, to help labor vanquish capital once and for all. One of the related beliefs on the left is that the wealth of capital comes at the expense of labor. That is, capital’s gains come from labor’s losses.

Both arguments share the underlying belief that the winners’ gains must come at the losers’ expense. Economic activity, and specifically wealth creation, is at best seen as what economists would call a “zero-sum game.”

In zero-sum games, the winners’ gains do, in fact, come at the losers’ expense. Think of a poker game where each person buys $100 worth of chips. If there are five players, there is $500 to be apportioned out. If the game ends with me having $250, then the remaining $250 will be split among the other four players. My gain of $150 comes from others’ losses. Playing the game creates winners and losers because it simply reallocates fixed wealth around the group.

Positive-Sum Winners

Market economies, however, are not zero-sum games. Consider the profits of entrepreneurs like Steve Jobs or Bill Gates or Mark Zuckerberg or any of thousands of lesser-known inventors who have become fabulously wealthy by providing us with products and services that we value. Their gains are not our losses. To the contrary: markets are what we call positive-sum games. Entrepreneurs make huge profits, but they can only do so by providing us with products and services we value more than what we give up to obtain them.

Every time you get something yummy from a food truck, for example, you demonstrate the mutual benefit of trade: the truck owner gets your money and you get something delicious to eat. You both gave up something you valued less than the thing you acquired. Trade is made of win.

So when people complain that the United States is “losing to China,” presumably because we have a trade deficit with them, they are falling for the zero-sum fallacy. A trade deficit simply means that we are buying more of their goods and services than they are of ours. This doesn’t mean “they” are winning. First, there’s no “they.” The winners are individual Chinese sellers and the people they employ on one side, and individual US consumers on the other. Portraying trade as a contest between countries is deceptive: trade is always among specific individuals and groups.

Second, both sides are winning. Chinese sellers get US dollars and US consumers get products they like at low prices, which frees up income to buy other goods and services, creating jobs in other sectors of the US economy. Those US dollars, it is worth noting, make their way back to the US as Chinese firms invest in US assets, funding everything from private-sector construction to a small part of our government debt. The dollars we spend on Chinese goods do not just disappear; they come back as investments in US capital goods.

It would be more accurate to see what’s happening here as Chinese sellers arriving at the US border with boatloads of cheap goods for us to buy. Under what logic are we made worse off by the “gift” of lower priced goods?

Misunderstanding “Competition”

I suspect that much of the zero-sum thinking we see with trade is based on a misplaced application of the idea of “competition.” Competition in the market does share a number of features with the sorts of competition that people are more familiar with: sports, games, and war.

All are what F.A. Hayek called “discovery procedures.” We play games as a way to discover which individual or team is best. There’s no way to know who the best hockey team is without the discovery process of the Stanley Cup playoffs. We can’t know the answer just by looking at statistics, as every major upset in sports history demonstrates. In markets, we discover who is producing the best product at the best price by letting sellers and buyers compete. One might say the same about war.

Despite these similarities, however, there’s a critical difference: athletic competition and war are zero-sum and negative-sum games, respectively. In sports, one team wins and the other loses, or there’s a tie. Both of those outcomes are zero-sum. War destroys human and physical capital, and even when one country “wins,” everyone is worse off, making it negative-sum.

Market competition, by contrast, is positive-sum. When sellers compete with other sellers to keep prices low, it’s true that some sellers will win and others will lose, but in that process, all of the buyers win, too, not to mention the other people who will receive more income because the buyers who are paying less for the original product can now buy their products. Wealth is not redistributed, as in a poker game, and there is not an offsetting loser for each winner, as in sports. Instead, additional wealth is created. That makes it a positive-sum game.

Seeing the Bigger Picture

CEOs are used to seeing this process from the narrow perspective of their firms, which often do lose in competition with other firms, leading them to believe the same principles apply between countries, or for the economy as a whole. This may explain why Donald Trump thinks he can “defeat” China in the same way he might outcompete another firm. It also explains why Sanders can believe that we are in a competition to preserve jobs. By focusing on the growth in manufacturing jobs in China, Sanders sees trade as “stealing” US jobs rather than being part of the larger competitive process responsible for the overall growth in US jobs and wealth.

Yes, markets share much with other forms of competition, but the key difference is the one that matters. Markets are positive-sum games, and they are not about one country, one group, or one class defeating another. Competition and trade are the way we produce cooperation and mutual benefit. Failing to understand this important difference easily opens the door to demagogues on both the right and the left.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Where Is Speech Most Restricted in America? – Article by George C. Leef

Where Is Speech Most Restricted in America? – Article by George C. Leef

The New Renaissance HatGeorge C. Leef
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Tolerance of speech and thought is being throttled here first

A good argument can be made that free speech is least safe on private college campuses.

At public universities, the First Amendment applies, thus giving students, faculty members, and everyone else protection against official censorship or punishment for saying things that some people don’t want said.

A splendid example of that was brought to a conclusion earlier this year at Valdosta State University, where the school’s president went on a vendetta against a student who criticized his plans for a new parking structure — and was clobbered in court. (I discussed that case here.)

But the First Amendment does not apply to private colleges and universities because they don’t involve governmental action. Oddly, while all colleges that accept federal student aid money must abide by a vast host of regulations, the Supreme Court ruled in Rendell-Baker v. Kohn that acceptance of such money does not bring them under the umbrella of the First Amendment.

At private colleges, the protection for freedom of speech has to be found (at least, in most states) in the implicit contract the school enters into with each incoming student. Ordinarily, the school holds itself out as guaranteeing certain things about itself and life on campus in its handbook and other materials. If school officials act in ways that depart significantly from the reasonable expectations it created, then the college can be held liable.

As the Foundation for Individual Rights in Education (FIRE) puts it, “There is a limit to ‘bait-and-switch’ techniques that promise academic freedom and legal equality but deliver authoritarianism and selective censorship.”

With that legal background in mind, consider a recent case at Colorado College. If Franz Kafka or George Orwell had toyed with a similar plot, they’d probably have rejected it as too far-fetched.

Back in November, a student, Thaddeus Pryor, wrote the following reply to a comment (#blackwomenmatter) on the social media site Yik Yak: “They matter, they’re just not hot.” Another student, offended that someone was not taking things seriously, complained to college officials. After ascertaining that the comment had been written by Pryor, the Dean of Students summoned him to a meeting.

Pryor said that he was just joking. What he did not realize is that there are now many things that must not be joked about on college campuses. Some well-known American comedians have stopped playing on our campuses for exactly that reason, as Clark Conner noted in this Pope Center article.

In a subsequent letter, Pryor was informed by the Senior Associate Dean of Students that his anonymous six word comment violated the school’s policy against Abusive Behavior and Disruption of College Activities.

Did that comment actually abuse anyone? Did it in any way disrupt a college activity?

A reasonable person would say “of course not,” but many college administrators these days are not reasonable. They are social justice apparatchiks, eager to use their power to punish perceived enemies of progress like Thaddeus Pryor.

For having joked in a way that offended the wrong people, Pryor was told that he was suspended from Colorado College until June, 2017. Moreover, he is banned from setting foot on campus during that time. And in the final “pound of flesh” retribution, the school intends to prohibit him from taking any college credits elsewhere.

With FIRE’s able assistance, Pryor is appealing his punishment. Perhaps the college’s attorney will advise the president to back off since its own “Freedom of Expression” policy hardly suggests to students that they will be subject to severe punishment for merely making offensive jokes on a social media site. If the case were to go to trial, there is a strong likelihood that a jury would find Colorado College in breach of contract.

Even if the school retreats from its astounding overreaction to Pryor’s comment, the administration should worry that alums who aren’t happy that their school has fallen under the spell of thought control will stop supporting it.

This incident is emblematic of a widespread problem in American higher education today: administrators think it’s their job to police what is said on campus, even comments on a social media app. Many colleges and universities have vague speech codes and “harassment” policies that invite abuse; those positions tend to attract mandarins who are not scholars and do not value free speech and unfettered debate. They are committed to “progressive” causes and will gladly use their power to silence or punish anyone who doesn’t go along.

American colleges have been suffering through a spate of ugly protests this fall. Among the demands the protesters usually make is that the school mandate “diversity training” for faculty and staff. Instead of that, what most schools really need is tolerance training, with a special emphasis on the importance of free speech. Those who don’t “get it” should be advised to find other employment.

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.