The Zero-Sum Fallacy

by Tim Harding B.Sc., B.A.

(An edited version of this article was published in
“The Skeptic” Vol 32, No. 4, December 2012)

In game theory, ‘zero-sum’ describes a game where one player’s gain is a loss to other players; and the total amount of the available money or playing chips is fixed. A logical fallacy often occurs when this particular game theory is applied to real life economic or political discussions amongst non-economists – leading to false beliefs that the amount of wealth or jobs in the economy is fixed.

This mistaken view is illustrated by expressions such as ‘a larger slice of the pie’, which imply that ‘the pie’ has a fixed size and that net welfare cannot be improved by growing a bigger pie.  That is, that people can only become richer by making others poorer; or that increasing labour productivity or immigration causes unemployment.  In economics, this is known as the ‘lump of labour fallacy’ or more generally as the ‘zero sum fallacy’.

Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated in a number of ways, thus creating a net gain or loss of value to various stakeholders. For example, if your house increases in value, it does not follow that somebody else’s house has decreased in value. It is possible for all houses to increase in value.

Specifically, all trade is by definition positive sum, because when two parties agree to an exchange each party must consider the goods or money it is receiving to be more valuable than the goods it is delivering. In fact, all economic exchanges must benefit both parties to the point that each party can overcome its transaction costs  – or the transaction would simply not take place.

As P.J. O’Rourke has ironically put it:

In this zero-sum universe there is only so much happiness. The idea is that if we wipe the smile off the faces of people with prosperous businesses and successful careers, that will make the rest of us grin.

There is only so much money. The people who have money are hogging it. The way for the rest of us to get money is to turn the hogs into bacon.[1]

On an international scale, the zero sum fallacy manifests itself in the false belief that poor countries are poor because rich countries are rich; and that poverty can only be alleviated by redistributing wealth from rich countries to poor countries. More effective and enduring  alternatives, such as increased economic development and trade, or the elimination of bad governance and corruption, are not even considered.

In informal logic, the zero sum fallacy often takes the form of a false premise. In rhetoric it is usually a hidden premise, which makes the conclusion of one’s argument a non sequitur. That means that the zero sum fallacy is usually either a subtype of a false premise fallacy, a non-sequitur fallacy, or both.

References

[1] P.J. O’Rourke, The Wall Street Journal, 27 December 2012.

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