In a video game, once you figure out the cheat code to make yourself invincible, it may take some time, but assuming you don’t get bored, you’re going to win the game. Might not be much fun or thrilling, but you’re going to win. And hey, perhaps it can still be enjoyable if you’ve made a bet on the side for a million dollars if you beat the game and the agreement didn’t ban cheat codes.
Actually, if you had a chance to make a million dollars, given the code was allowed, and you knew the code, wouldn’t it be crazy not to use it? I mean, it’s rational to be invincible, especially when there’s a lot of money to be made. And hey, is it really a “cheat code” if you’re allowed to use it? More like a “code” that you could easily be congratulated and praised for using. You could buy all your fans drinks too, throw them Benjamins here and there…
Welcome to Modern Capitalism.
Free Markets are gone.
This is a Mixed Market defined by “mutually assured destruction” (MAD).
Capitalists take a lot of pride in reminding people that the market is rational, and I believe that’s true (assuming we don’t conflate “rational” and “best,” a common mistake). As Hayek talks about, this makes it possible for incredible amounts of information to be managed across millions of people, where even if those millions of people aren’t particularly smart, the breakup of decision-making is likely to generate results far better than a group of super-geniuses could manage from a central command post. Not that you must believe me, but I think history is on Hayek’s side on the superiority of free markets to distribute resources through price mechanisms.
But there’s a problem: it’s rational for businesses to make themselves invincible, and if it’s possible, that’s what the smart businesses will do. And to make a long story short, America made it possible by mixing the markets and government. How? Read “No Exit” — here you’ll just have to take my word for it.
This is a big problem, seeing as competition is important for Capitalism to weed out the good and the bad. Imagine if in a video game no one could lose: it would be hard to identify the master from the novice. Also, invincible businesses are ones that can do whatever they want without fear of punishment, which will likely divide “self-interest,” “negotiation,” and “non-zero-sumness,” harming everyone. Not necessarily, but where invincibility is a possibility, the effectiveness of the market is likely to be in jeopardy.
So although I won’t list out the whole argument here (again, see “No Exit”), over the last thirty years, thanks to Greenspan Puts and stuff like that, it became possible for a lot of different corporations to mix up with the government (thus “mixed market”) and make themselves “too big to fail,” structurally essential, and/or invincible. If they go down, the whole system goes down too, and so through mutually assured destruction (MAD), numerous enterprises have made themselves invincible (sort of like how America and China have entered through debt into MAD, almost as if the Cold War never ended).
Today, thanks to “rational” MAD, regardless how irresponsible enterprises are, the foolishness of their risks, and their disregard of the overall economy, the American government must save those enterprises whenever they get into trouble (meaning the taxpayer is on the line) to keep the entire economy from collapsing. The enterprises found the “video game codes” to become invincible and — seeing for one how happy it made stockholders to use — it was obviously rational to use. The self-interest and rationality of the market has thus turned from a focus on survival to a focus on invincibility, weakening the link in Capitalism between survival, competition, and evolution. Rationality has turned on itself.
This is very problematic, for Federal Reserve action keeps asset prices high, which makes it difficult for people in lower classes to advance and threatens the American Dream. Generally speaking, the rich get richer and the old benefit over the young. But if the Federal Reserve doesn’t act, the entire system can crash, taking out both the rich and poor, young and old. So it’s rational for the Federal Reserve to make the rich richer, lessen opportunity, and intensify inequality by inflating a debt bubble so large that if it were to pop, the ramifications would be apocalyptic, so surely no one would dare to pop it (and a bubble that’s always a bubble isn’t a bubble).
But hey, before you start feeling morally superior to the “too big to fail” enterprises and their CEOs, realize that you would have probably done the same thing if you were in their shoes (they did what was rational, after all, and I assume you’re not stupid). Also, these corporations became “too big to fail” by growing, which means they probably boosted their stock prices, which means they probably helped grow your 401k. You know…that 401k you freak out about when it drops. Also, they helped the stock market in general rise, which I doubt you're totally against, especially if you invest. Which reminds me that 401ks have helped corporations achieve a state of MAD: if they go down, they take you down too.
Because of short-term gains, the long-term structural consequences are easy to overlook until they approach and become “too bad to ignore.” But then it’s too late.
MAD is rational because invincibility is rational, especially when there’s money to be made, and assuming libertarians are correct, free markets keep power from overly concentrating, which means MAD isn’t possible in free markets. However, if free markets can be transformed into mixed markets where MAD becomes possible, it is rational for businesses to try to use special interest groups, political connections, doomsday prophecies, threats, etc. to move a country away from free markets to mixed markets. Thus, assuming that free markets are even possible versus an idealistic reference point, the rationality within free markets necessarily exists in a tension that is always trying to break the free market — the gas is always trying to burn — gradually converting the free market into a mixed market in which invincibility is possible. And if there’s a way to do it, it’s only a matter of time before the free market is perverted. It’s only rational: the profit incentives are too alluring.
MAD is arguably the most rational strategy of all — for a given enterprise, though perhaps not for all the other players who aren’t invincible. But what can we do? If they’re truly invincible, the game is over. Maybe they aren’t invincible? Only one way to find out: risk it all. Is that a rational risk to take? I mean, your 401k has grown over the last ten years, right? Maybe a Capitalist system with enough entities in it that are “too big to fail” is an overall system that’s invincible — don’t you want to live in a system that can’t fail? And maybe it’s a system that grows faster than other systems? Maybe it’s not all bad? I mean, perhaps today Capitalism is always on the verge of failing, but if it’s always about to fail, we’ll win, right?
Only one way to find out.
(For more on this topic, see “No Exit” by O.G. Rose.)