What AOC and Nina Turner Get Wrong about the ‘Scarcity Mindset’ – Foundation for Economic Education

“…But just because win-win transactions are possible, that doesn’t mean they are the only kind of transaction. Win-lose transactions are also very possible.

But when progressives invoke this phrase, they distort its meaning. The Scarcity Mentality, in their (improper) view, is the belief that win-lose transactions necessarily involve losers. To paraphrase AOC, if you suggest that government wealth transfers “come at the cost of something for ourselves,” that’s a “scarcity mindset” that we should “reject.”

“…let’s say Peter has money and Paul doesn’t, and I rob Peter to pay Paul. This is a win-lose transaction. Paul wins. Peter loses.

Now here’s the question. Is it a Scarcity Mentality to suggest that helping Paul “came at the cost” of hurting Peter? Is it a Scarcity Mentality to suggest that this kind of transaction is zero-sum as far as money is concerned? Is it a Scarcity Mentality to suggest that this “program” doesn’t, in fact, help everyone, but rather helps some by hurting others?”

In practice, what leftists mean by rejecting the “scarcity mindset” seems to be rejecting the idea of scarcity all together. They are basically telling us that government transfers of wealth can help people without hurting anyone.

“The government cannot give to anybody anything that the government does not first take from somebody else,” said Adrian Rogers.

“Either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation,” wrote Henry Hazlitt in Economics in One Lesson.

Government welfare is the embodiment of the win-lose paradigm that we’re supposed to avoid. Free-market transactions, by contrast, are the embodiment of a genuine abundance mindset.

As George Bernard Shaw noted, “A government that robs Peter to pay Paul can always depend on the support of Paul.”

When they point to positive externalities (spillover benefits) that would be created by the wealth transfer, we should immediately point to positive externalities that would be foregone because of the transfer.

“The issue is that making this kind of society-wide cost-benefit judgment is simply impossible.

Many people assume that if a policy helps those they consider to be relatively “needy” and hurts those who are considered relatively “well off” then that increases social welfare. But this kind of analysis is subjective, arbitrary, and ultimately untenable.”

The fact is, when we rob Peter to pay Paul, we have no way of knowing what that does for social welfare, because we can’t know (let alone measure) people’s internal mental states. There is no way of objectively comparing utility gains or losses between people (think of utility as happiness points). To use economics jargon, interpersonal utility comparisons (IUCs) are impossible.

In short, the most we can say about the impact of wealth transfers on social welfare is that some people are likely better off while other people are likely worse off. There is no objective way of proving that the benefits outweigh the costs.

” “If IUCs are impossible as you say, then you can’t definitely say that this decreases social welfare either.” Fair enough.”

“But while we are limited in what we can say with certainty, there are still general tendencies we can consider. For instance, when Peter spends his own money on himself, he has a strong incentive to make sure he’s buying something that benefits him and is getting it at a good price. For example, when students invest in their own education or borrow (and actually pay back) money from private lenders, the students and lenders have an incentive to make sure it’s a good investment, both in terms of cost and quality.”

“Win-lose transactions guarantee that there will be a loser (before considering externalities). Yes, spillover benefits could conceivably be sufficient to compensate for the loss, but this is by no means a given. With win-win transactions on the other hand, everyone is guaranteed to be better off (before considering externalities).”

“Again, it’s possible there will be spillover costs that outweigh the benefit, but this too is by no means a given. So which would you prefer? Which approach should we strive for? Win-lose or win-win?”

“If you’ve read Steven Covey, you know the answer.

So rather than giving handouts, let’s give the needy win-win opportunities. Let’s allow entrepreneurs to create jobs and let’s open up trade so people can establish more mutually beneficial arrangements. Let’s find ways to increase the wealth in society rather than simply redistribute the wealth we have.”


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