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Sunday, August 4, 2013
I began my doctoral studies in public administration and policy at Virginia Tech in 1980. One of the first books I had to read was Massachusetts Institute of Technology economics professor Lester Thurow’s “The Zero-Sum Society.” Thurow’s thesis is simple: Advanced capitalistic societies contain a significant zero-sum element because all interest groups want government to provide economic security.
Thus, when politicians enact public policy, they increase one group’s income but simultaneously reduce another group’s income. The nation’s economic system becomes paralyzed because public policymakers — in balancing competing economic interests — can’t explain zero-sum dynamics to economic losers.
A rereading of Thurow’s book shows little has changed in three decades. The current debate over whether President Barack Obama should approve the Keystone XL pipeline is illustrative. The proposed pipeline would carry heavy Canadian crude oil through several states to refineries in Texas. Oil companies and unions want the pipeline completed. Environmentalists and many small farmers oppose the pipeline, arguing it poses significant environmental and public health risks. Obama has said he won’t approve the pipeline if it increases greenhouse emissions.
If Keystone is approved, the incomes of oil companies will increase while the incomes of both clean energy companies and builders of public transportation infrastructure will decrease. Conversely, if construction of Keystone is denied, the incomes of clean energy producers will increase at the expense of “dirty energy” industries. Regardless of the president’s decision, the economic losers will want government to protect their industry and force others to do what is in the public interest.
Zero-sum economics are embedded in the contemporary public policy process. Last January, the president signed legislation making permanent the Bush tax cuts for couples making less than $450,000 annually but raising taxes for those above that amount from 35 percent to 39.6 percent. Consequently, the policy increased the incomes of 98 percent of Americans but lowered the income of 2 percent. The tax increase on the wealthiest Americans will raise $600 billion in new revenues over 10 years. The majority of Americans feel the wealthy should reduce their income in the national interest. The wealthy continue to strongly disagree.
The fundamental difficulty in zero-sum economics is loss allocation. Historically, political and economic actors allocated losses to powerless groups — especially women and minorities — rather than spread the losses across the entire population. However, these groups now understand how to utilize the media and group identity politics to get on the public policymaking agenda. They are no longer the dumping grounds for institutional economic losses. The Lilly Ledbetter Fair Pay Act offers a good example.
Ledbetter was a supervisor at a Goodyear plant in Alabama for more than 20 years. She was always paid significantly less than her male colleagues. Six months before retiring, Ledbetter was informed of the pay disparity and filed a lawsuit alleging gender discrimination under Title VII of the Civil Rights Act.
The federal district court ruled in her favor, but the U.S. Supreme Court reversed in 2007. The court found that Ledbetter had not filed a complaint with the Equal Employment Opportunity Commission within 180 days after the discrimination initially occurred. Ledbetter unsuccessfully argued that she did not know about the pay inequity until 20 years later and could not have filed after receiving her first paycheck.
As a result of the court’s decision, Congress passed legislation in 2009 amending Title VII and allowing the filing of EEOC complaints 180 days after the most recent instance of paycheck discrimination.
James Madison’s Federalist 10 suggests the uneven accumulation of wealth is the catalyst for intense strife between various societal factions. Advanced capitalism recognizes this antagonism and uses economic security as the new social contract between government and various interest groups. The president likely tipped his hand on Keystone, and environmentalists will be upset. However, the president also recently gave approval for the Environmental Protection Agency to implement strict new standards on climate-altering gases in new power plants that will reduce the incomes of coal owners and miners. Yet, owners of newer natural gas plants — which easily meet EPA standards — will flourish economically.
Economic security successfully manages group conflict but results in temporary shifts in income. For instance, environmental threats to the coal industry will spur continued government-funded research of “clean coal” technology at Virginia Tech and the University of Kentucky. Global markets anxiously await this technology. The coal industry’s reported demise is greatly exaggerated.
Thurow’s work offers a blueprint for understanding the complexities of zero-sum economics. It is more relevant today than when first published.
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