Game theory and capitalism
Are systems that reward greed and excess a positive force?
Game theory seems complicated until you understand the simple fact that it’s all about mapping out human choices. In the case of game theory and capitalism, the choices are about balancing individual control and societal control.
Capitalism and socialism are exponents of these two ideological opposites. Proponents of capitalism favor individual decision-making above all else, while socialists will elevate democratic decision-making; meaning, there is a preference for society or groups of people making decisions together for common good.1
Capitalism seems complicated until you boil it down to the most basic equation that it can compute: greed is the highest value. In capitalism, greed is good. Specifically, individual greed. The end game is profit, and there is no end to the end game. The end result of capitalism is the billionaire class. Billionaires are also oligarchs.
In an oligarchy, the rich can get away with anything, and average people who try to stop harm to themselves and their communities get crushed. We’re now there; the question is whether we’ll pull back from this horror show or whether it’ll continue its evolution toward a full-blown police state.
Most people do not seem to be aware of the kind of outcomes capitalism produces. The opioid epidemic is the direct result of unrestrained capitalism.2
Unrestrained capitalism always values the individual over the collective. Capitalism also produces cruelty on a massive scale. Nearly unfettered capitalism results in what we have today in the United States: the top 10% own 80% of the wealth.3 The bottom 50% of households own 1% of the wealth. This is American greed in action. The 50% at the bottom struggle desperately for the basics we all need to thrive in life: housing, healthcare, nutrition, and a stable environment with a modicum of personal and familial safety.
I will now borrow Erik Engheim's lengthy explanation of why capitalism does not work as advertised.
One of the basic tenants of free market capitalism is the idea that through individual choice in the market, we will end up with an optimal distribution of scarce resources, whether that is consumer goods or capital.
It is often contrasted with the Soviet Union, which was infamous for having long lines of consumers competing to buy goods in limited supply. In the Soviet Union, prices didn’t increase when consumer goods became more scarce. Hence, who would get a limited number of goods would be decided by whomever was willing to wait in line the longest, and not by whomever was willing to pay the most.
In a capitalist society, lines are eliminated by raising prices until people have to leave the line. That is because they can no longer afford to pay what is sold at the end of the line, or alternatively are no longer willing to pay the increased price. It is a fair system if you assume everybody has the same income and are of similar health and wellbeing. In this case, what you are willing to pay for something is just a reflection of personal preferences. John may be willing to pay more for a fishing rod than Tom because he likes fishing more, while Tom pays more for a bike because he prefers biking more. In a world with limited number of fishing rods and bikes, it means we are able to distribute these limited number of goods to the people who want them or appreciate them the most. To me, that sounds like a fair deal.
This analysis collapses once you make it more realistic by considering that people have very different incomes and physical needs. Because a rich healthy guy wants a private Jet, society allocates scarce resources to make that rather than say making medication to sick people who have lower income and thus cannot influence as strongly how society allocates resources.
Thus, it is obviously not an entirely fair system. However, one can still see how such an arrangement would cause increased production of things numerous people want and reduction in production of things people have become less interested in. In this sense, it seems like a flexible system that can adapt to changing preferences and needs of society.
The prisoner’s dilemma, however, shows something entirely different. It demonstrates how the logic of individual decision-making, far from making optimal choices for society, can cause very wasteful allocation of scarce resources.
Pollution and Global Warming
Why have we kept emitting ever more carbon dioxide to the atmosphere? We have known about the problem of global warming a long time. I am about to turn 45 years old, and I remember very well from elementary school in the 1980s that I was getting sick and tired of hearing about the greenhouse effect and global warming every week. Yet, despite being informed from childhood about this large and looming problem, my generation still failed to solve it. Emissions today are considerably higher than in the 1980s.
The underlying problem is that every factory has been making an individual decision. If you produce your products the clean way, then they will be pricier and you will lose out in the market, while the companies that chose to run on coal and oil will get the competitive advantage. In the prisoner’s dilemma terminology, we could state that the companies being powered by fossil fuel are the defectors and those trying to run on green energy are those who try to cooperate.
Without coordinated action, you cannot solve a problem such as global warming. The most optimal individual and independent decision-making is to go with fossil fuels, even if it dooms society as a whole. The optimal choice for society as a whole can only be achieved through collective decision-making. Multiple companies and countries have to commit to similar restrictions and emission cuts. A valid alternative is to heavily subsidize clean energy, as to make individuals in the market pick clean energy for pure selfish economic reasons.
Poverty Reduction
Poverty like pollution is something that negatively affects all people in society, not just those who are poor. Poverty tends to drive crime, social dysfunction and drug abuse. More money has to be spent on courts, prisons, and police. We also miss out on a potential productive citizen contributing to society through taxes and valuable work contributions.
Thus, everybody would benefit from reducing poverty, but you end up in a prisoner’s dilemma situation because it is tempting to not spend any money on poverty reduction and bank on everybody else spending money on it. The problem is that most people will think this way and thus only contribute minimal sums and efforts towards poverty reduction. Hence, highly capitalist societies always have significant difficulties with poverty, even if most citizens desire for it to not be there.
Individual decisions cannot solve the problem of poverty. One needs a coordinated effort by all of society, where everybody pledges to contribute. The normal solution is simply to use taxes to fund programs that help reduce poverty.
Consider reading the entire article on Medium - there are many more salient examples of the dysfunctions caused by capitalism in societies.
I am specifically interested in American capitalism because I currently work and live in the United States. American capitalism started brutally and continues to thrive on brutality. Remember, greed is good - that’s the mantra of capitalism. American capitalism excused chattel slavery and promoted racism. It justified the doctrine of Manifest Destiny and excused robbing the people who already lived in North America of their land, lives, and heritage.4 It is no accident that conservatives (those who cling to traditions and the supposed better days of the way things used to be) are all in on capitalism. They’re too caught up in logical fallacies to realize that the billionaire class does not care about their welfare one iota.
If Elon Musk could, I have no doubt he would welcome back chattel slavery. He is famous for using up employees and then tossing them in the trash heap. He’s been successfully sued for promoting racism at businesses he owns.5 Musk has no incentive to treat his employees well. He has no incentive to treat anyone well. When engineers point out safety issues with his Tesla vehicles, he just fires them.6
I’m not picking on Musk, though. There are no “good” billionaires. Anyone who personally controls that amount of resources is dangerous and should be watched carefully.
There is no way to be a billionaire in America without taking advantage of a system predicated on cruelty, a system whose tax code and labor laws and regulatory apparatus prioritize your needs above most people’s. Even noted Good Billionaire Mr. Buffett has profited from Coca-Cola’s sugary drinks, Amazon’s union busting, Chevron’s oil drilling, Clayton Homes’s predatory loans and, as the country learned recently, the failure to tax billionaires on their wealth.7
Billionaires in America have more than they could ever possibly need or want, but they work hard to avoid paying taxes that could help that 50% of us who have 1% of all the things. You know, the ones who have no hope, no security, and no ability to “pull themselves up by the bootstraps.” That is not how this country works. Warren Buffett is worth $25 billion and pays $25 million per year in taxes. Do the math. That is criminal. Billionaires are not doing their part for the collective.
That’s why, when given a chance, I will fight for the collective and not the individual. Greed is not good, and neither is the kind of capitalism we have in the USA in 2023.
https://financebuzz.com/us-net-worth-statistics
Excellent writing! Thank you Pen
Thank you Pen. Very well said.