Every investor should become familiar with the work of Professor Walter E. Williams, the John M. Olin Distinguished Professor of Economics at George Mason University. He is the author of six books, one of which was made into the PBS documentary series Good Intentions, as well as a host of articles and publications and an ongoing syndicated column.
Recently, Professor Williams published a very insightful column entitled "Why We're a Divided Nation."
In it he notes that, while people may have passionate loyalties to various lifestyles and products, one rarely hears of conflict until government steps in to privilege one group at the expense of another.
He asks: "When's the last time you heard of rock and roll lovers in conflict with classical music lovers, or Mac lovers in conflict with PC lovers, or football lovers in conflict with golf lovers? It seldom ever happens. When there's market allocation of resources and peaceable, voluntary exchange, people have their preferences satisfied and are able to live in peace with one another. Think what might be the case if there were a political decision of whether there'd be football or golf watched on TV, whether we used Macs or PCs and whether we listened to classical music or rock and roll."
This is a profound insight, and Professor Williams follows it up by drawing the link between government's privileging one group at the expense of another and the larger concept of the "zero-sum game." We have written extensively about the zero-sum mentality, and its connection to investment questions, for example here and here.
It strikes us that this subject is incredibly important for investors to understand, particularly in light of the recent conflict in the Middle East. Much (but not all) of the conflict in the Middle East is in fact related directly to what Professor Williams is discussing, in that the doling out of "aid" by the United Nations often ends up pitting one group against another, and the doling out of wealth by autocratic regimes within countries such as Egypt tends to create the same result.
We won't go so far as to say that reducing the impact of government will turn all groups as peaceful as the situation in which PC-lovers and Mac-lovers have passionate views about their products but feel no need to kill each other. Given the opportunity, some people will always seize what belongs to others by violence, and this fact is why the rule of law is always necessary before the benefits of free enterprise can ever hope to arise.
However, Professor Williams is absolutely right about the deleterious impact of zero-sum thinking, and the potential for government interference to create zero-sum conditions where none need to exist. Free enterprise will never create a situation in which armies and police forces are not necessary to maintain the rule of law (since free enterprise cannot operate without the rule of law). With that understanding, however, reduction of government interference can go a long way towards removing zero-sum conditions and the conflict that they create.
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