Zero-Sum Society Essay, Research Paper

email: [email protected]: The Zero-Sum SocietyChapter 1 – An Economy That No Longer PerformsAlthough many Americans think that America’s economy is invulnerable, it is painfully obvious that America may experience the economic problems that have plagued our foreign neighbors in the past. The United States economy used to generate the world’s highest standard of living. We used to be the country that all others looked to in awe.Unfortunately, by 1978 the U.S. had slipped down into fifth position among the nations of the world in per capita GNP. The United States was ranked below Switzerland, Denmark, West Germany, and Sweden. In the 1950’s, Kuwait had surpassed the U.S. in per capita GNP, but this was ignored because many people said that Kuwait was handed their wealth by inheriting the oil in the ground. They did not work for their money. Many American’s fail to realize that we also inherited wealth through our vast mineral, energy, and climatic resources. The United States does not rank at the top as far as per capita GNP, but our standard-of-living costs are probably lower (this is difficult to measure). We have felt a false sense of security in our economy with the idea that other countries would, and should rapidly catch up to us – and then drastically slow down. This security has disappeared as we have watched our foreign neighbors catch up to us and surpass us. Our economic decline is impacting us economically, politically, and mentally. Economically, we are facing a decline in our standard-of-living. We may not be able to purchase the great number of luxury goods that are consumed today. We may have to find satisfaction in our necessities and stop taking them for granted. Politically, we will have to make sacrifices in our personal consumption of goods for the benefit of the country as a whole. If we do not take less for ourselves and give more to our government, then the United States may have to relinquish some of our political power to some richer countries and step down from our position as a superpower. This could have disastrous results, as other countries would then be imposing their non-American views on the world. We will have to withstand the mental strain of being knocked from the top of the totem pole to far beneath our neighboring countries. As our neighbors surpass our economy, we will be placed into a role that we never thought was possible. We may have to watch tourists buy things here in America that we can not afford. This thought is unthinkable for many. Our personal and foreign experience has shown us that our conflict does not lie between social expenditures or government intervention and economic success. Our declining economy is probably due to the lack of investment planning, worker participation, and social spending. Fortunately, the United States can create reforms to help improve our economic standing. The government must take a good look at the rules and regulations that are standing in the way of our government and decide which rules are hurting the economy more than they are helping it. Our problems extend far beyond slow growth. Many of our problems result from our democratic system – a system in which no one has the ability to impose solutions to our problems. We, as a nation, must agree on a solution. With the exception of a few wars, this rarely happens. Energy, inflation, unemployment, environmental decay, ever-spreading waves of regulations, and sharp income gaps between minorities and majorities are amongst a few of our persistent economic problems. Our economy is referred to as a zero-sum society because the losses of one group are equal to the winnings of another and no one is willing to accept the losses. Our nation is seeking security and protection and expects the government to provide it. But our government consists of individuals, like us, that have opposing views and goals. The government’s inability to make reforms had paralyzed our economy by the end of the 1970’s. Chapter 2 – EnergyThe high prices, shortages, and supply disruptions of energy are very serious. They threaten our future growth and are the largest cause of our accelerating inflation rate. These factors negatively effect our lives in numerous ways. We have experienced problems with energy since President Eisenhower imposed an oil import quota in 1957 to protect domestic oil producers from the inexpensive Middle Eastern oil. These higher prices for the American oil producers caused a decrease in the consumer’s real income. The larger revenues for the oil industry caused an equal amount of loss for the consumers.One solution to our energy problem is the Free Market Solution. In this scenario, the price of energy would rise in conjunction with that of imported oil. Supply and demand pricing would exist and no gas lines or shortage problems would exist. In addition, we could eliminate our often counterproductive Energy Department. The change in price would cause a tremendous change in the distribution of income. If the price of energy was raised, the American consumers would experience losses, but the American producers would experience profits. This is highly undesirable for 90 percent of the consumers and is highly profitable for the top 10 percent of the consumers. This is because the top 10 percent of all households own over 90 percent of all corporate stock. The free market solution would lead to a large income profit for a small fraction of the country and an enormous income loss for the majority of the country. The United States government can not allow such detrimental transactions to occur, so the government stepped in and stopped the change in domestic energy prices as the foreign prices continued to change. Our government froze domestic energy prices in 1973-74. This action required numerous taxes and subsidies to help spread the losses. The government took the domestic oil and the imported oil and mixed it together so they could charge one price throughout the United States. This was necessary to eliminate the large loss of income experienced by consumers that were not near domestic sources (only 20 percent of consumers). An average price was calculated between the foreign and domestic oils and was then imposed on our nation. With everyone in the United States paying the same amount for oil, two new problems were produced. Producers were not motivated to look for new energy resources, and consumers were not motivated to conserve energy.In order to resolve these new problems, our government created new regulations that differentiated between oil sources. Different prices were set for different methods of extracting oil and for new wells versus older wells. This encouraged producers to find new and better ways to produce.Amazingly, the United States could easily achieve energy independence and stop allowing foreign prices to control our oil economy. Our numerous forms of energy – coal, nuclear, small-scale hydroelectric, solar, and wind – could be controlled to supply our energy needs. However, we live in the fear that some day our resources will be depleted, and so we want to use external sources and conserve some of our own resources for later use. Chapter 3 – InflationMany of our economic problems reinforce each other. One example of this fact is our energy problem. The rising prices of energy are causing the inflation rate to increase. Approximately 10 percent of our consumption goes towards the direct and indirect purchase of energy. This means that a 100 percent increase in the price of energy causes a 10 percent rate of inflation. In order to compensate for this fact, 90 percent of purchases must show a decline in price of 11 percent. Since this would result in an increase in wealth for a small group of people, and a large decrease in real income for the majority of the people, the government can not impose such policies.Most of our economic problems result from a combination of bad luck and bad government judgements. Our government consistently makes decisions and policies that will benefit some and have negative results on others while assuming that they have full control of the situation. They often forget about acts of Mother Nature and other natural problems that arise in a country’s economics. President Johnson began a long stream of severe economic problems, including inflation, in order to avoid making the Vietnam War even more unpopular than it already was. These problems were worsened when President Nixon tried to implement policies to reverse the effects of Johnson’s decisions.Inflation is seen as such a negative event in America because of “money illusion”. Instead of realizing that inflation raises our money incomes above what they would normally be, most people see an increase in money income that is negatively effected by inflation. Although in the end we still experience a money income gain from inflation, many people are fooled by the high dollar amount of their earned income and what it equals in real income. Inflation is inevitable in our modern economy where whenever an upward price shock occurs, inflation will occur unless other prices and incomes fall. Since none of us want to experience a fall in our income, inflation is the unavoidable result. This leaves the government with two options. They can let the money supply grow and confirm the rat of inflation, or they can stop the money supply from growing and cause unemployment as well as inflation. The latter of the two choices would lead to a major recession or depression. The only way to stop inflation is for someone’s income to go down, the government’s solution of tight money does not work. There are five known possible solutions, although each of them has severe drawbacks. The first option is to accept the current inflation. With this option unemployment is high, but it is concentrated amongst the young. The second option is to impose formal wage and price controls. This is a collated defense against inflation. This is a good idea, but implementing the wage and price controls is very difficult because the incentives for people and businesses not to cooperate are incredibly high. The third option is for the government to balance upward price shocks with downward price shocks. For example, if the price of oil increases, then the government would find something in the economy that they had the leverage to lower the prices of in order to counter-balance the rise in the price of oil. The major problem with this solution is that our government created programs to help raise the prices of certain goods and none of these government protected and controlled fields want to be deregulated. Our other possible solution is to balance the government budget. Unfortunately, this solution is one that does not work. We had a balanced budget in 1978 and 1979, the same years that inflation started rising. Therefore, if this solution could work, it should have stopped the inflation back then. Although there are many possible ways to help reduce our inflation rate, all of the solutions will increase someone’s economic insecurity and income. Chapter 4 – Slow Economic GrowthThe United States is experiencing a shortage in raw materials and a decline in productivity. In response the U.S. needs to accelerate our economic growth. Many government leaders have tried to tighten monetary and fiscal policies in order to help our economy grow. This has been unsuccessful because with little profits, companies have very little motivation to find new, more efficient ways of production. In addition, workers often fear technological advancement because it eliminates some of their jobs. This causes the average worker to fight against new production methods that could help the U.S. grow economically in the long run. Our economies biggest obstacle in the way of our economic growth is our inability to disinvest in inefficient industries. We must disinvest in some areas in order to have the labor and capital to move into new, more productive areas. We have many inefficient industries in which we would benefit, as a country, by allowing foreign country’s to provide these products. We should focus our labor and capital into those products that will bring the U.S. the most revenue, and least amount of economic problems. The process of economic growth consists of a few steps. The first step is to find out what your objectives are, and the best ways to achieve these objectives. This is known as scientific research. Scientific explorations and engineering designs do not effect our economy directly. This is because even though an idea of something new may exist, it will only be created if it will benefit the economy as a whole. Some good examples of goods that were disinvested in include typewriters, black & white televisions, and horse & buggy carriages. All of these products were disinvested in as newer, more productive products were invested in. The shift of labor and capital from unpopular goods to new and improved goods made American life a little bit easy and more enjoyable.Disinvestment is even more important than investment. The elimination of low-productivity plants raises as much productivity as the opening of a high-productivity plant. However, the elimination of low-productivity plants uses fewer resources than the later and actually ends up freeing resources in the end. The freeing of labor and capital in disinvestment is what allows investment to be possible. We live in a world with limited resources and they must continually be rearranged in order for our economy to grow.We live in a society that claims to be Capitalistic. However, we are denying one of the biggest principles of Capitalism. In a Capitalistic society, the inefficient should be driven out of business by the efficient. This does not happen in the United States. As a matter of fact, we have numerous programs to protect institutions from being driven out of business even if they are inefficient. These protective programs were established as a result of America’s morals when considering the negative possible effects on the individuals within the businesses. These policies fail to recognize that resources are scarce and many people would simply find another job at a firm that was more productive.

One possible solution for making low-productivity plants into higher-productivity plants is to offer incentives to move down the learning curve. This would consist of a bonus that was reflective of the plant’s production. This causes workers to maximize production through all means necessary including learning new skills and technology. Chapter 5 – Environmental ProblemsPart of America’s problem with the slow growth rate stems from the fact that we are a nation divided by different ideas and goals. One large opposing goal is the desire to limit growth in order to preserve our environment. The goal to preserve our economy is trying to institute zero economic growth in our nation so that our natural resources would be used less rapidly and pollution would not increase, and would ideally decrease. American’s that hold this goal believe that everyone would be happier in our society if we were not constantly struggling to have more. Although this goal is not in complete opposition of the goal of economic growth, many people fail to see the similarities in the two goals. Both groups want to reduce pollution and the use of scarce natural resources. New processes resulting from growth allow us to cut the amount of pollution associated with output. In addition, if the majority of American’s wanted to stop struggling to have more goods, then we could still increase our productivity without increasing our production or consumption of goods and services. In reality, environmentalism is a demand for more goods and services. We want clean air and water just like we want a house and a car. Thus clean air and water are natural products of a rising real standard of living. These products are demanded heavily and require collective action. In order for us to achieve clean air and water, we must convince our entire society that it is very important and vital to our survival. If we, as a society can not agree on this, then the government can not impose rules and regulations that force people to produce a clean environment. These demands mostly come from the upper middle classes. Most resistance is found amongst the rich and the poor. The poor resist because the marginal satisfaction of other goods and services exceed that of a clean environment. Since they do not have enough money to obtain these higher-priority goods and services, they never seek a clean environment. The rich resist because they see environmental policies as something that would limit their ability to earn even higher incomes. Environmentalism has been limited to four major concerns. Amongst these are the pollution of air, land, and water; the exhaustion of nonrenewable natural resources; wilderness and species preservation; and the health and safety factors in industrial production.The greatest argument against pollution controls is that they lower our economic growth and as a result will lower our real standard of living. But new pollution controls can only lower our standard of living if the costs of the controls are greater than the benefits that our society reaps from a clean environment. The argument lies within the question of whether or not these controls produce costs that are higher than the benefits. The argument exists because the benefits are different for every person – depending on their income and how each pollution control would effect them personally. Economists talk of using a shadow price to help figure out how much money our nation should spend on cleaning up the environment. This figure would tell them how much money a clean environment is worth to each person and would ensure that the benefits would be greater than the costs. Each person would pay only what they feel the service of a clean environment is worth.Protecting our wilderness and species is another great debate in economics, but there really is not very much to fight about. We have allocated some of our resources to wilderness because it is important to the majority of American’s at this time. If future generations feel that they need the resources more than the wilderness, then they are free to change the laws or set new ones. Chapter 6 – Spreading Rules and RegulationsNow that we understand many of our nations economic problems, it is time to put some rules and regulations into play. Our government has grown more in the area of implementing regulations than in the area of government expenditures, but we still have fewer regulations than any other industrial country. Regulations are sometimes implemented in order to increase or decrease the income for a specified group of people. Our government imposed a price floor to help farmers increase their incomes. Price ceilings are also imposed to lower the incomes of groups. However, most regulations are brought into our society in order to accomplish a larger social objective. Almost all regulations are imposed in order to help change the distribution of income. The United States has experienced three main periods during which a large number of regulations were implemented. The first period took place around the turn of the century. During this time, antitrust laws were adopted to control both man-made and natural monopolies. These antitrust laws helped to protect the consumers. The second period occurred during the 1930’s. This period was a result of the Great Depression. Many policies were formed to help raise the prices and to give the workers some power by forming unions. The third period occurred in the late 1960’s – early 1970’s. Most of these policies were formed to help provide economic security. Externalities play a large role in deciding who should bare the cost of cleaning our environment. A company can build a factory and create a great amount of pollution in an area. They do not need permission to do this. However, a resident of the neighborhood would most likely demand that our government implement regulations to prohibit the pollution of the new company. This is a common practice in our economy today.The American people have a rising interest in economic security. Most economic policies provide additional economic security to certain groups of people. Our demand for protection has grown because our competitive, unplanned economy does not work the way we want it to. We want to have the freedom to make lots of money, but we also want to be protected from losing money. Unfortunately, we can not have it both ways because in order for someone to profit, someone else must incur a loss. We must realize that times are changing and the policies that were appropriate in the past may not be appropriate for the present and the future. Antitrust laws and regulations designed to break up monopolies can now be discarded as we continue life with new problems and concerns. As international trade is growing, the necessity for antitrust laws has practically disappeared. One company that is being hurt by the antitrust laws is General Motors Company. This company should be competing with the international market, but it is unable to because of the restrictions that the American government has placed on them. In addition, with incomes rising, what since does it make for the government to determine whether or not a firm has reached a monopolistic position. Most goods that we purchase are luxuries than can be substituted by several other goods that can bring us the same level of satisfaction.Our government should dispose of the antitrust laws and focus on placing a ban on predatory pricing and on explicit or implicit cartels that share markets or profits. The government should protect the small firms from being driven out of business by the large firms. Chapter 7 – Direct Redistributional IssuesOur problem with redistribution of incomes and policies lies mostly in the fact that our society wants to be fair and humane to those that are less fortunate. Very few of us have the ability to stand by and watch people starve to death. But even though the gap in income between the rich and the poor is very large, the majority of redistributional demands exist between ethnic or social groups.With income transfer payments, our government was able to increase the income of the poor. This was achieved through help such as food stamps. The increase totaled nearly 25 percent of the income of the poor.In order to have the money to finance government expenditures and programs, taxation must occur. Since most individuals view their income as something that reflects their hard work and productivity, they are angered by the government’s actions. The government taxes the working class and redistributes their money amongst others.It is highly unfair that the working middle class is forced to pay most of the taxes. Many wealthy individuals pay very little or no taxes (And they do not usually even have to work for their money). Practically 50 percent of all fortunes held by the extremely wealthy were inherited!Another area in need of help in our society is the issue of group demand. Each situation should be judged and evaluated based upon those individual circumstances. Affirmative action claims that certain groups are receiving the short end of the economic stick because of their race or ethnic background. These groups of people consist of several individuals that are suffering from unfair treatment. It is only referred to as “groups” because each individual has more strength when joined with others that have common goals.As a whole, our society believes in “equal opportunities for all”. But how can any one know what equal opportunities are? Each institution is able to offer different amounts of income and compensation to its workers depending upon the supply and demand for their product. The costs of production that each individual institution incurs also have an effect on the level of compensation available for the labor force. Education, skills, age, and other variables that are usually considered deterministic of what income level you can obtain, truly only account for 20 to 30 percent of the difference between individual earnings. Most of the determinants are variable and inconsistent. This makes it impossible for economic analysis to determine whether or not any individual is being denied equal economic opportunities. Understanding that we can not actually determine whether or not someone is receiving unfair economic treatment, we still know that there are individuals that exist within every group in our society that are being denied equal opportunities. Unfortunately, many people are too focused on specific groups as a whole and the possible discrimination they may be facing. This makes it incredibly difficult for remedies that would benefit the individuals to be discovered.Chapter 8 – Solving the Economic Problems of the 1980’sEnergy, economic growth, and inflation effect one another in several different ways. Growing energy supplies are necessary to experience economic growth and rising energy prices causes inflation rates to increase. In return, inflation leads to public policies that slow down our economic capacity and our growth.Deregulation is one of the necessary actions that we must take to help solve the problems created above. If the energy industry is deregulated, then new and better forms of energy will be created which will help our economy grow. This will also bring about lower energy prices, which would limit inflation rates.This solution requires that our government gets more involved in our economy. Large investments in alternative energy sources are necessary in order to achieve the goal of deregulation in the energy industry. This can not be accomplished without the help of our government. These investment decisions would have such a great effect on the American population that it can not be left for the private market to decide upon. The decisions must be made in a careful and considerate manner and can not be for the benefit of one private sector or another.The elimination of protection, regulations, and subsidies would cause a large number of individuals to suffer losses. This is something that should be planned for and compensation must be provided for these individuals that will bare the burden of the losses for the good of our economy as a whole. Support should be very minimal for failing corporations and firms and should be concentrated on individuals. These compensations should be highly generous so that people are willing to except the burden of their losses. In addition, we must fully utilize the skills of all individuals that are now being kept out of most economic activity. This means that all minorities and poor must perform at full productivity levels. This is the only way that we can achieve economic growth.We must also be prepared and willing to prevent the increase of the income gaps between the rich and the poor. Active government is necessary in order to prevent an increase in the gap during the period of economic growth. Transfer payments must continue to grow since the rich become wealthier as a result of our economic growth. These funds must be acquired via fair taxes.In order for our economy to advance and then continue to advance, we must decide when losers should suffer income losses and when they should be compensated. Obviously when can not provide compensation for all losers in our capitalistic system. Economic equity may never be achieved because of the fact that individual preferences determine the market demands for goods and services. An individual’s preference is only made know to us buy the purchases and consumptions that he/she makes. Individuals with lower-incomes still have preferences and needs, but the market will never reflect these desires because no money is provided to act upon them.In order for economic equity to be achieved, we must make four major decisions. First we must decide the minimum economic floor that we will allow an individual to fall to as a result of their failure. Second, we must decide what the distribution of economic rewards will be for those that participate in the economy. Third, we must determine how the burden of taxation should be distributed. And last, we must decide what compensation should be provided to individuals who experience large income losses due to public policies.