You have heard of the Seven Deadly Sins: pride, greed, lust, envy, gluttony, wrath, and sloth. Each is a natural human weakness that impedes happiness. In addition to these vices, however, there are deadly economic sins as well. They, too, wreak havoc on our lives and in society. They can seem intuitively compelling, yet they lead to waste, loss, and forgone prosperity.
Consider, for example, the question of where wealth comes from. We tend to think of wealth in what economists call zero-sum terms: if one person gained, that must mean that someone else lost. If my team wins the match, that means your team loses; if my candidate wins the election, yours must have lost. And if one person, or one society, gains in wealth, we often assume it must have been at the expense of someone else.
Throughout most of human history, that is exactly how wealth gains were achieved. Think of the Roman Empire: how did it get the wealth to build its Colosseum, its aqueducts, its military, its roads, and so on? Through slavery, conquest, and theft from other peoples and places. If you think of other “great” civilizations of the past, that is typically how they gained their wealth and territory: by forcibly taking it from unwilling others.
We can call this method of procuring wealth extraction. It moves wealth from one place to another but creates no new wealth. Subtracting wealth from one group or place and adding it to another group or place is a zero-sum transfer, not a positive-sum increase.
But there is another way to generate wealth, another way to get what one wants from another: cooperation. When you go into a coffee shop and pay $5 for your latte, you get the latte and the coffee shop gets the $5. Which of you benefited? Answer: you both did! If you didn’t think the latte was worth $5, you wouldn’t have bought it; if the coffee shop didn’t think preparing the latte for you was worth your $5, it wouldn’t have sold it to you. So, positive value for you, and positive value for the coffee shop: that is a positive-sum transaction that increases the total amount of benefit, or value, in the world—even if only by a small amount.
As such mutually beneficial transactions are executed thousands, millions, and billions of times, the small increment of increased value each represents begins to generate a lot of prosperity—and it is the key to what Nobel laureate Edmund Phelps calls “mass flourishing.”
So, increasing wealth need not be zero-sum; it can be positive-sum. And when it is based on voluntary cooperation instead of involuntary extraction, it not only produces increasing overall prosperity but is also more moral as well: mutually voluntary transactions and partnerships are more moral than involuntary.
One common economic fallacy, then, is the belief that all wealth results from involuntary, zero-sum extraction. In fact, much of it, especially in an open economy, is voluntary, cooperative, and thus positive-sum. Believing that all increasing wealth is zero-sum is thus an economic mistake, and taking steps to prevent or punish cooperative transactions is a deadly economic sin that issues in deleterious consequences, in both prosperity and morality.
But that is just one deadly economic sin. There are many others—including the idea that if a proposal would lead to good consequences, that by itself is sufficient to justify doing it (in fact, we must also consider what we are giving up to pursue the proposal, including alternative good ends we might otherwise have pursued); the idea that there exists a person or group with sufficient knowledge to know how others should allocate their limited resources or what risks they should be willing to take; and the idea that progress is inevitable regardless of our political or economic policies.
Seven Deadly Economic Sins discusses these and other central fallacies, with the goal not only of explaining the economic reasoning behind them but also of helping us achieve the growing, widespread prosperity necessary for a flourishing and ultimately happier life.