The Positive-Sum Tendency Of Market Interaction: A Point Which Bears Repeating

Economics seems to be unique among the sciences. Few lay people presume expertise in an empirical science such as mechanical engineering or neurology. If something seems universally obvious, it is said to be “not rocket science” for this reason. Likewise, other social sciences such as psychology (Cosmopolitan, et al. notwithstanding) and anthropology are generally perceived as opaque, technical minefields of jargon which require extensive formal training to navigate. Few letters to the editor offer specific explanations for the Permian–Triassic extinction event (aliens, obviously).

But everyone is an expert when it comes to economics. Or rather, everyone acts like one. Everyone seems to have an opinion about marginal tax rates, notably for the wealthy. Everyone seems to have a prediction about whether China will economically overpower the United States, whatever that means. Everyone seems to have a theory about why the financial system collapsed, blaming a wide variety of culprits including greedy bankers, unregulated bankers, corrupt bankers, stupid bankers, and central bankers. And everyone seems to have a theory about the high unemployment rate (aliens, obviously).

Most tellingly, when presented with a simple argument against trade protectionism, familiar to any diligent student who has spent two weeks in an introductory economics course, they are apt to dismiss the informed party as brainwashed, elitist, or mentally retarded (none of which I am, thank you very much, random YouTube commenter).

My best guess as to why is twofold. Economics is difficult to distinguish from the mundane happenings of daily life because its focus, the allocation of scarce resources, is the stuff of daily life. People take for granted that they know how their own lives work on a basic level. They apply the ‘logic’ of common sense from their own lives to economic issues out of a sense of familiarity. On a related note, economic issues such as taxation and regulation affect everyone. The stock market affects everyone. People have a stake in the game, and feel not only entitled but obligated to have something to say about it. And their sense of involvement makes them feel that they are right.

One of the classic point of such ignorance: The tendency of voluntary transactions to be positive-sum. A positive-sum interaction is one which makes both parties better off. A market exchange only occurs if both parties think that what they get will benefit them more than what they give would have. This expectation is usually accurate. Thus, voluntary transactions tend to be positive-sum. Special cases such as bubbles, asymmetric information, and exogenous distortions do exist, though it is not at all clear that political institutions can optimally address the problems they represent, because individuals operating within these institutions are on a basic level as self-interested and flawed as the people whose lives they wish to plan.

In digressing, the insight that free markets by their nature enrich humanity applies to many of the issues being debated in the public square at any given time. Immigration is a great example. Putting artificial limits on the human capital entering the United States does not make its citizens better off. In the long term they conceivably make the people who would lose their jobs to immigrants worse off because immigrants create businesses of their own and spark innovations and entire new industries that enrich our lives and employ our workers.

Google co-founder Sergey Brin immigrated from the Soviet Union with his family. Granted, he is an overwhelmingly brilliant individual of uncommon vision, but even unskilled immigrants make society better off by reducing the prices of the basic goods and services that make human existence as we know it possible. Every contract and transaction represents an opportunity. By shunting people who want to peacefully work and create value for themselves and others to the margins of our society or out of it completely, we are depriving ourselves of unknown opportunities for a better life.

To reiterate, immigration is just one example. It would behoove all of us to reconsider the areas in which we presume knowledge about things but have no formal training, especially economics. But do not take my word for it. I am just a Karate expert.