Chapter 4: Defining the Problem

So we know we're on a trajectory toward dystopia, but what can we do about it? What exactly are we fighting? Who is our adversary? If our adversary was another country, a criminal enterprise, or perhaps even an ideological movement things would be a lot easier. When we know our foe we can at least formulate a plan of action. How do we formulate a plan against the flawed incentives of the Scarcity Paradigm? How do we even begin to confront these? Even if we figure out a plan of action, how do we know if it's likely to succeed or not?

We’d need to first clearly define the problem we're trying to solve. Then we need to build intuitions about the dynamics of our economic system. With such intuitions in hand we’d be able to tell what's a viable solution and what appears sensible on the surface but could never work in reality. We’ll then be ready to come up with a solution to our problem (assuming a solution is even possible).

So what is the problem we're trying to solve? If we distill it to its essence, the problem is that individuals' economic interests in the market misalign with the public interest. In other words, individuals and companies in the market have a choice: they can maximize their economic interest, which sometimes comes at the expense of the public, or they can maximize their impact on the world, which often goes against their own self-interest. In the digital economy it is not possible to maximize both.

Why not? Because profitability and impact in the digital economy are inversely correlated; every step that makes producers more money necessarily reduces the impact of their goods, and vice versa.

If for example a producer requires a subscription for their digital content, that reduces access to the content. So instead of potentially billions of people having access, now only a tiny fraction of that can view it. The more the producer charges for access to increase profitability the less accessible, and less impactful, the content becomes.

With advertising you get a similar result, though the dynamics are a bit different. Since the content's impact has no value in the market, you have the economic incentive to make content that is popular instead of beneficial. We've already seen the perverse incentives such an approach produces.

Abundant goods that have the maximal impact have virtually no value in the market, and thus producers have no economic incentive to produce them. Meanwhile, they have an incentive to produce negative externalities. As the effect of negative externalities (and unrealized potential of public goods) grows in the economy, the need for a solution becomes more urgent.

What would it mean to align individuals' economic self-interest and the public interest? It means that people would have an economic incentive to produce public goods, and no incentive to produce externalities. Similarly, we would have effective feedback loops for both public goods and negative externalities.

It also means that people would not have to make a choice between economic success and living fulfilling lives. Rather, any person could prosper by making a meaningful contribution to society. By aligning the self-interest and public interest we'd not only be changing the trajectory we’re on, but also putting society on a path toward greater abundance.

But how do we do it? How do we align our economic self-interest with the public interest? This is a lot easier said than done. How do we even begin to formulate a solution? Let’s start by building some intuitions about how our economy actually works.

A useful mental model for the social dynamic within our economy is the game of Musical Chairs. If you’ve ever played this game as a kid you’re probably familiar with the rules; a number of chairs are arranged in the middle of a room and players get to walk around the chairs as the music plays. As soon as the music stops everyone must find a seat. The problem is that there is one less chair than there are players. Players then need to pay attention to the position of the chairs while the music plays so they don’t end up without a seat. A player who cannot find a seat once the music stops will be eliminated from the game.

But once a player is eliminated the game should become much less exciting. No? Now the number of chairs matches the number of players. Players then won’t need to pay much attention to the game knowing that there are enough seats for everyone. They can just wander around aimlessly while the music plays knowing that they’re guaranteed to have a chair. If those were the rules everyone involved in this game would quickly lose interest.

The way to get players focused on the game again is of course removing a chair whenever a player is eliminated. By removing a chair we’re creating scarcity in the game, which again makes it exciting. Scarcity forces players to concentrate on the game since nothing guarantees they’ll be able to secure a seat.

So how is this related to our economic paradigm? Imagine how you would play this game if there were more chairs than people, but you still wanted people to focus on getting a seat as the music played. How would you do that? You can do it by introducing one simple rule: players can occupy more than one chair.

Think about how this changes the dynamics of the game. You could have ten players and twenty chairs, and players would still have to focus on the chairs as the music plays. If they don’t they may still end up without a chair. What if there were ten players and a hundred chairs? A Thousand chairs? It doesn’t matter how many players or how many chairs there are, because players are still competing over every single chair.

So now let’s extend the analogy a bit further. Let’s consider the social dynamics in this game. Instead of having all the chairs in one room we can spread them throughout the world. Now part of the challenge in the game is also to find the chairs.

Relations in such a game are inherently adversarial. What incentive do players have to tell others where chairs are located? Perhaps if a player feels that they already have enough chairs they may help others find them. They may also help if collaborating with another player, or a group of players, allows them to find more chairs than if they were on their own. Otherwise players may actually benefit from misleading others about the location of chairs; pointing others in the wrong direction can help a player find more chairs while others are following false leads.

How can you tell if anyone is misleading you? If one player is making a claim and ten others claim the person is lying, how do you know who is lying? Based on that information alone it's impossible for you to know who is telling the truth and who isn’t. It could be that the one player is lying, but it is just as likely that the ten others are lying. The trouble is that in such a game there are no neutral players. This means that you cannot rely on anyone to tell you if someone else is telling the truth.

There are no real shortcuts here. To find out if others are being truthful you may try to determine how much you trust other players based on how closely their claims match information you already know. Without doing this you're essentially trusting others blindly. What if they don’t have your best interests in mind?

Now what if players are proposing government policies related to distributing chairs? Nothing guarantees that these players will have your best interests in mind either. They may or they may not, you just don’t know. Even if you have experts claiming that a policy is beneficial you still cannot blindly trust such claims. You need to find out on your own.

In fact, there is no policy, action, or innovation within the structure of the game that would benefit everyone in the game. Without exception, every action will, necessarily, have winners and losers.

Is this a very cynical view of the system? Not really. There is no value judgment here. It is merely an accurate description of the dynamics in the system. That is just the nature of inherently adversarial games.

So what does this have to do with our current economic paradigm? The analogy here is that the dynamics of such a modified Musical Chairs game maps well to the social dynamics in the market economy. But instead of "access to chairs," in our case we talk about access to resources.

The point is that by having an intuition of a system’s social dynamics we can get a better sense of how it works. It would also help us quickly see whether any proposed solution actually solves the problem or fails to do so due to the dynamics of the system.

Now let’s use this mental model to gain some insights into how our economy works.

The first insight is that the Scarcity Paradigm is not merely a mechanism for distributing resources, it is also a mindset; it doesn’t matter how many resources we have, as long as we compete over every resource we’d never have enough. We would constantly be in a state where we need more – a scarcity mindset. Others getting more resources means less resources for you. The only time where someone else getting more resources would benefit you is when you’re cooperating with them (against others).

Building on this insight, we can understand why impact cannot be valued in the market economy. Scarce resources can be valued based on the price people are willing to pay for them. It is a pure competition for resources; supply and demand. That's easy, but what happens when the resources are not scarce? When you cannot compete for the resource and there is nothing to exchange?

In the absence of an exchange value, you can still value impact if people can agree on its value. If there is consensus. For instance, think of a scientific discovery that has no exchange value. If people can agree that it is valuable, and roughly estimate its expected value to society, there can be ways in the market to price it and compensate the people involved.

But can people come to consensus in an adversarial environment? The short answer is no. For a group of people to agree on the value of anything their interests need to align. If their interests don't align they won't be able to come to consensus.

Think about a team of mountain climbers trying to scale Mount Everest. The team members can come from varied backgrounds, have different areas of expertise, levels of experience and so on. But if they're all united in their mission to get to the top, they'd be able to agree on which strategies, routes or tools are more valuable to their common mission.

Now imagine if, for whatever reason, mountain climbing teams became publicly traded companies. If our mission-driven team now became Everest Incorporated. What would happen if some members of Everest Inc. were invested in the company with leverage, others were short selling the company, and yet others were mostly invested in competitor mountain climbing companies? Could members of Everest Inc. agree on strategies to climb to the peak?

Suddenly every decision the team makes has winners and losers. Everyone is pulling in a different direction. That is what happens when everyone is motivated by self-interest – by whatever stocks they own. Not only is the team unable to decide on effective strategies, now they can't even decide if they should climb the mountain at all. Maybe not climbing can financially benefit some members more than the climb itself.

The level of agreement between individuals in a system is a function of their economic alignment. If for example everyone in the Everest Inc. team was invested in the company and was not allowed to sell the stock short or invest in competitors, then the team would be able to agree on much better strategies and routes. They would also likely be much more effective climbers.

Are these not the same dynamics we have in the market economy? People throughout the economy work for, and invest in, organizations with competing interests. How can they all agree on the value of anything when their interests conflict?

Even if you have a discovery with undeniable benefit to countless people, you would still have some people who are financially harmed by it. Think about a cure to a disease that can save the lives of millions. The benefit to the people suffering from the disease and their families may be immense. But wouldn’t some people still be financially harmed by the discovery? Think about all those who provide therapeutics and care for the disease, their workers and investors. Would they benefit if their source of income disappeared? While they may be personally happy for the patients who can be cured, the cure still goes against their economic interests. Would they value the cure as much as those who were cured? Most likely not. Because people's economic interests are misaligned they cannot come to consensus.

But if we cannot even agree on the value of something that has an undeniable impact on the life of countless people, how can we agree on things that are less clear cut? What hope do we have to come to a consensus on anything in the market?

So now we've come full circle to where we started. If we want to change our trajectory toward dystopia we need effective feedback loops for public goods and externalities. To have such feedback loops we need to be able to value non-scarce goods in the economy. Since non-scarce goods don’t have an exchange value in the market, people need to come to a consensus on their value. But in order to reach a consensus, individuals' economic interests in the market need to align with the public interest. So how do we do it?

Now that we’ve built our intuitions about market dynamics we’re ready for this challenge. We’re ready to explore how we can align individuals’ self-interest with the public interest, and how we can put society on a path toward greater abundance.