Monday, 22 June 2015

The Fixed Pizza Fallacy

I love it when I happen to come across a perfect illustration like the one above that so neatly sums up why anti-austerity campaigners like Owen Jones, Russell Brand and Charlotte Church have everything still to learn. What we're seeing from them is something very similar to conspiracy theory, where economic growth and the concomitant inequality are seen as a bogey from which the government needs to rescue us.

It's unsurprising people are so cautious about economic growth - our evolution primes us to be cautious by nature. Suppose you're a distant ancestor still making sense of the world - you will gain by false positives, but you are liable to lose a lot if you get things wrong. A rustling in the bushes may be the wind, but it may be a predator. It's less costly to assume it's a predator and find out it's the wind than to assume it's the wind and find out it's a predator. So over the years we have been primed for false positives - to sense potential dangers and ascribe them to something predatory, even when such things are not there. The anti-austerity crew are like people seeing a tiger in every rustling bush - except in this case they are seeing conspiracies against the poor in every instance of economic growth.

The big fallacy that's behind so much of the left's thinking is what's called the fixed pie fallacy - the mistaken assumption that wealth is like a pie, where if I have a slice of it, it leaves less for you. But as the pizza illustration shows, the economy isn't fixed. If the economic pizza is larger, then the slice sizes increase for everyone too, even the poorest people with the smallest pizza slices.

Anyone who actually cares about the incomes of the poor would favour faster economic growth, not lament the increase in inequality that is so often a product of increased economic growth. With a growing economy everyone's absolute gains increases, even if the gains at the top increase exponentially greater. To be averse to this means you should not to be praised for being caring, you should be reproached for being envious.

It’s ironic that the richest in society bear the brunt of the left’s opprobrium, because what makes the whole of the pizza grow is primarily the top entrepreneurs and investors (usually the wealthiest) - they are the ones doing the most to make life better for everyone else in absolute terms.

Instead of the faulty fixed pie metaphor, economic growth is a bit like knowledge. Knowledge is not pie-like, because it is not zero-sum. Jack can increase his knowledge without decreasing Jill's. In fact, the more Jack increases his knowledge, the more chance Jill has of increasing hers too. The same is true of wealth - it can keep expanding - and as recent history indicates, it probably will continue to do so.