Zero Sum Game (ZSG)
From The Big Picture
I am neither endorsing nor criticising zero sum; I am only acknowledging as a reality. I have found that those who refuse to acknowledge it are often trying to sell something.

Here’s the bottom line: Any finite resource is a ZSG. Even an infinite resource has only 100% of marketshare, to be divided amongst competitors. That percentage is also a ZSG.

Let’s see how some of these zero sum issues apply to different areas:

Markets: are probably the best example of a ZSG. In 2000, the Wishire 5000 was worth $1.2 trillion more than it is today. Some people bought, some people sold. Mark-to-market, there is a loss to the collective buyers from the collective sellers. Its even more specific with individual companies.

I short the SPX to you — each tick is zero sum — there’s a winner and a loser.

Stocks that always go up and never go down are exempt from this; Please let me know as soon as you find any.

Business: Marketshare is another example of zero sum: Consider all the ZSG losers who have seen their businesses hurt by the winners in competition: GM is losing to Toyota; DJ, NYT, WP, and Knight Ridder have been losing to Yahoo & Google; Sony PS is losing to MSFT XBox; Intel has been losing to AMD.

There are situations where the pie is expanding, but even there the ZSG works in percentage basis (not raw numbers). Google has been taking search share from Miscrosoft and Yahoo. But the entire pie has gotten so big so quickly that even the % share losers are still winning — short term.

Increase in gasoline prices? When Exxon Mobil, BP Amoco and Conoco Philips win because Oil goes up, Wal-Mart and Target lose. Why? There’s a finite amount of cash to be spent, and the more that goes to energy, the less there is for discretionary items. (If you have enough income, the increase is irrelevant to life style, but still comes out somewhere).

Indeed, the decrease in recorded music sales, newspaper and magazine ad sales, TV ratings, movie theater attendance — indeed, all old school non digital entertainment — is a function of a finite attention span. Video games, blogs, internet have all taken some of the pie. My colleague Dennis Kneale at Forbes was incorrect last night when he states that newspapers anbd magazines are fine; They have been the losers in the ZSG for media.

Economy: The economy is more of a zero sum game than most people realize. The Politics of the past decade has been more about capturing a bigger piece of the pie, rather than EXPANDING that pie.

That is a zero sum game.

Consider taxes: The dividend and capital gains tax cuts fell to a very narrow portion of the population (of which I am a prime beneficiary). The known costs of these — increased deficits, weaker dollar strength and buying power — are borne more by certain segments in the population than others. That is zero sum.

So too interest rates: Cutting them to half century lows was great for holders of dollar denominated hard assets: Real Estate, Oil, Gold, Industrial Commodities (Copper, lumber, etc). But the costs of these rate cuts were borne by those interest rate retirees dependent on a their bond portfolios.

Its easy to overlook the zero sum element in a rapidly growing environment. The post war United States was a classic example, as the middle class expanded enormously. Or, consider the 1990s, where there was so much cash as the pie rapidly inflated that there was lots for nearly everyone.

But do not misunderstand this: In any non-infinite system, apportionment of costs and benefits is zero sum. We have corporate profits at a 53 year record high — and the wage and income percent of GDP is at a record low. If you think that is a mere coincidence, you have not been paying much attention.

There is no free lunch. That is one of the first rules of economics.

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3 Responses to “”

  1. barry Says:

    Are you going to add anything, or just repost other people’s content?

  2. my1ambition Says:

    well in general i like pinpointing read-worthy material. But I have posted many of my own thoughts as well.

  3. my1ambition Says:

    im young. im still learning.

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