The recrudescence of zero-sum thinking

President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.

Adding that this is “very unfair to the United States!”

This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US firms to sell more to it: exports are more sensitive to demand than they are to exchange rates. What’s more, insofar as expectations of low interest rates cause investors to reach for yield and buy shares they are likely to also buy some US equities thereby giving Americans the benefits of a positive wealth effect and lower cost of capital. Sure enough, the S&P did indeed rise after Draghi’s speech. Trump tweeted that the index hit an all-time high this week, but failed to connect this fact and Draghi’s words.

Yes, Draghi deserves criticism. But it is for not responding soon enough to the weak economy and low inflation rather than for belatedly talking of doing so.

This is not the only example of Trump’s zero-sum “thinking”. He also recently tweeted that:

The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars.

You don’t need me to tell you that this is also bollocks. It is like me complaining that I lose money by my trading with Lidl. I don’t, of course. I merely exchange goods for money – which is exactly what US citizens with China are doing. Free exchange benefits both buyer and seller. It’s positive sum. In believing otherwise, Trump is expressing the pre-Smithian mercantilist idea, that wealth consists in piling up money by running a trade surplus, rather than in the expansion of consumption opportunities and increased productivity that comes from trade.

Everybody who has even the foggiest notion of economics can see that Trump is spouting mindless drivel: you don’t need to be a devout free-marketeer to see that trade usually benefits both parties.

Which poses the question: how can such nonsense even be entertained?

It’s here that we Marxists are alive to a fact that centrists and rightists sometimes neglect – that ideas have a basis in real material conditions. It is surely no accident that Trumpian zero-sum thinking became accepted among many voters after years of economic stagnation: even after their recent rise, median real household incomes are now only 2.2% above 1999’s levels. If the typical person’s income is flat-lining, he will eventually be willing to believe that one person’s gain is another’s loss. As Ben Friedman argued in a 2006 book which has been vindicated by subsequent events, economic stagnation breeds intolerance.

It’s not sufficient for those who support rational economics and an open society to decry Trump’s gibberish. If they are to triumph, such values require a society which delivers the goods for most voters. Much of the ruling class in both the UK and US neglected this fact before 2016, and we are all paying the price of their failure.

Another thing: this is not to say that there are no zero-sum processes in economics. It's quite possible that the increased wealth, power and incomes of the ultra-rich have come at the expense of everybody else. Despite his fondness for zero-sum thinking, however, Mr Trump never mentions this. 

Comments

[Professologue]

Mercantilism and zero-sum thinking are indeed widespread amongst the untutored.
As far as I can see you didn’t explain why stagnation would increase those specific beliefs.

[mike]

Very Very good article I read a while ago, connecting Trump's zero sum mentality to his real estate background. In other words , premium land in places like New York is in restricted supply, so to win, another guy most always lose. Wish I 'd kept a link to it.

[Jim]

Its odd really, because if one side of the argument is about zero sum thinking, its the Left. That there's a fixed amount of economic pie and the only way to make Peter richer is to rob Paul.

[Sandwichman]

I'm afraid you are overlooking the inconvenient truth that economics is fundamentally "zero sum." Sure, Adam Smith railed against mercantilism but he adopted the "certain quantity of work to be done" premise as the basis of his invisible hand metaphor.

Supply and demand? Equilibrium mediated by price is predicated on the assumption of a closed system. Cogito ceteris paribus ergo zero-sum!

It is easy to point out zero-sum thinking in an adversary's economic logic precisely because zero-sum thinking is pervasive in "economic logic." Without the ubiquitous zero-sum assumptions, the outcomes of policy interventions are fundamentally indeterminate. But economists love their predictions.

[George Carty]

I think this is the article Mike was referring to:

https://www.nytimes.com/2016/03/20/magazine/what-donald-trump-doesnt-understand-about-the-deal.html

And isn't mercantilism these days less about money and more about unemployment, in the form of mercantilist nations stealing jobs from their trading partners?

[Christopher Herbert]

So the US built itself into an economic behemoth using tariffs and subsidies. Was that 'mercantalist?' I don't know, but it sure as heck wasn't 'free market.' Germany runs current account surpluses, while the rest of the EU stagnates. IS that mercantalist of Germany? I don't know. The US went free market and now it's a weak sister, no longer feared economically. Nukes is another matter, of course.

[Ralph Musgrave]

My only criticism of the above article is the suggestion that daft US trade policies are all down to one man, i.e. Trump. The truth surely is that Trump couldn't implement his daft policies without a large amount of support from the Republican Party in general.

[Thomas]

...wait till he sees how much QE the Fed did compared to the late-to-the-party ECB!

https://fred.stlouisfed.org/series/WALCL

[Swami]

Except the same source you linked to has a further attachment that explains why median income seems to be flatlining when it really hasn’t at all.

https://fredblog.stlouisfed.org/2016/12/the-puzzle-of-real-median-household-income/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

As someone familiar with the issue, the apparent flatlining is a result of smaller household sizes, lower marriage rates, higher immigration rates, and excluding benefits and retirement contributions. When you adjust for these, use the proper inflation rate (PCE) and consider taxes and transfers, median incomes are up between 40 and 60 percent over the past 40 years and have risen at a higher rate this century in the US than most developed countries.

Please correct your error above, so we can trust your "facts" going forward.

[Ted]

Maybe not as dumb as you think. If Draghi's stimulus increases net capital outflows to the US, which it almost certainly will do, to the extent that some (probably most) of it flows to the US, it will force the Americans into lower savings, higher debt and a bigger trade deficit:
https://carnegieendowment.org/chinafinancialmarkets/78304
https://carnegieendowment.org/chinafinancialmarkets/79261

[Ken Schulz]

Swami, the article you link did not reflect any change over the same period, of hours worked per household. A person's perception of economic stagnation may be informed by their personal history of income as well as their household history. One should look at median earnings per hour, or per FTE job, and probably within a number of quantiles, not over the entire population.