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Monday, July 18, 2005

Not zero-sum

One of the most fundamental misconceptions about our world is that wealth is a zero-sum thing. There's only so much wealth in the world, the mistaken belief goes, and therefore if the rich are getting richer the poor must be getting poorer, and the only way we can battle poverty is if we redistribute some of that wealth. Well, Arnold Kling had recently linked to an excellent essay by Paul Rubin that explores the possible origins of what he termed "folk economics", and Warren Meyer of Coyote Blog examines the same subject in a post titled "Physics, Wealth Creation, and Zero Sum Economics". Meyer writes:
My guess is that this zero-sum thinking comes from our training and intuition about the physical world. As we all learned back in high school, nature generally works in zero sums. For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics. Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its all still there somewhere.

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started. This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society. Take folks like Paul Ehrlich (please). All of their work is about decay: Pollution getting worse, raw materials getting scarce, prices going up, economies crashing. They see human society driven by entropic decline.

So are they wrong? Are economics and society driven by something similar to the first and second laws of thermodynamics?
Read the full post, it's outstanding.

(Coyote link via email from Jim. Kunal has also blogged about it.)
amit varma, 11:38 PM| write to me | permalink | homepage

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