Zero-sum thinking

Why people instinctively oppose landlords and developers

Russil Wvong

Jun 27, 2023

On Twitter, labour economist Mikal Skuturud asks:

In interacting w/ some good people on this site, I get the impression that "economic growth" and "capitalism" are often put in the same evil bucket. What's the origin of this thinking? Why are so many people convinced that gains in GDP per capita only ever benefit the rich?

My guess is that it’s zero-sum thinking: the belief that if some people are getting richer, other people must be getting poorer. (Or as a friend of a friend puts it, "Profit means that someone's getting ripped off.")

This assumption is quite common. David Shor, talking about the 2016 US election:

Other research has shown that messaging centered around the potential for cooperation and positive-sum change really appeals to educated people, while messaging that emphasizes zero-sum conflict resonates much more with non-college-educated people.

Shor’s mention of “cooperation” suggests that zero-sum thinking will be common among low-trust voters. (It’s not just education: I think of my late parents as low-trust voters. Whenever a pollster called my father to ask who he was planning to vote for, his response would be, “I thought it was a secret ballot.”)

For low-trust voters, anyone who benefits from the housing shortage is suspect, whether it’s landlords (like Ahmed Hussen or Pierre Poilievre) who can charge high rents, or large developers who make profits from building housing. You can see this every day on r/canadahousing.

When talking to low-trust voters, my guess is that lengthy explanations about win-win outcomes aren’t particularly helpful. I try to keep it short. An example from r/vancouver:

I don't believe that companies building the housing won't do things to make sure they increase the value of housing to increase their profits. I don't trust for profit companies.

A short response:

That's fair, you don't need to trust them. The basic thing is, we have people who want to live here and other people who want to build housing for them. When we have more housing, renters and first-time homebuyers are in a better bargaining position - if they don't like what's on offer, they can look elsewhere. When housing is scarce, their bargaining position is worse: they have to take whatever they can get. Apartment hunting in Vancouver vs. Saskatoon.

George Foster, Peasant Society and the Image of Limited Good (1965). An early paper on zero-sum thinking. To quote a recent paper: “This worldview implies that one individual’s gain is invariably another’s loss, based on the underlying assumption that societal output is limited and that efforts and exchanges merely reallocate it, rather than create value.”
A striking finding by Paavo Monkeonen and Michael Manville, based on a survey of people in Los Angeles County: “Opposition to new development increases by 20 percentage points when respondents see the argument that a developer is likely to earn a large profit from the building.” Sightline, September 2018.
I suspect that for low-trust voters (or for immigrants from low-trust societies, like my parents), real estate is more appealing as an investment, compared to financial investments like stocks and bonds. It’s tangible: it’s not just a number on paper or in a database somewhere.

But as an investment, real estate has a lot of disadvantages: it’s completely undiversified, transaction costs are high (it’s “illiquid”), and you can’t spread your risk over time (“dollar-cost averaging”) because you can’t easily buy a fraction of a home (it’s not “scalable”). An alternative approach is called the “Canadian Couch Potato.” Investing as lending.
A brief explanation of why capital income exists: We need capital as well as labour. If you put up a rental building, you need to buy the land and materials and pay the workers up front - in other words, you need capital. And the lenders who provide the capital need some return.

Note that money isn’t the issue. Imagining a socialist economic system doesn’t fix the problem: the workers need to make a living, and there’s no services provided by the building under construction until it’s completed.

For a lengthier discussion of profit, see Chapter 8 of Filthy Lucre: Economics for People Who Hate Capitalism, by Joseph Heath.