The Prisoner’s Dilemma is one of game theory’s all-time great puzzles. It goes like this: Two men are taken into custody for a crime. The cops have a little evidence, enough to put both men away for a few years, but if they had more to go on, the punishment could be a lot more severe. The two men in the holding cell know the cops won’t have much if they both keep quiet. All the crooks have to do is not turn on each other to both get off with a light sentence.
However, the crooks also know the first one to turn the other in will get a slap on the wrist while the other criminal is put away for good. If they keep quiet while the other one rats them out, it’ll be them in the pen for life. The temptation to be the first to confess is strong. But here’s the kicker: if both men confess, they both get a harsh sentence.
The best scenario for either crook here is to rat the other out while HOPING their partner is an idiot and stays mum. You don’t serve any time at all. But if you both do this, you are screwed. The SAFEST option is to say nothing. But then … if you know your partner isn’t saying anything, you’d be better off turning on them. But you know they know that. And if you both turn, you’re screwed. Unable to talk to each other, your brain will flip-flop on the best course of action. Cooperate with one another? Or betray the other? That’s the Prisoner’s Dilemma.
Let’s think about a slightly different scenario: There’s a magical pot placed in front of you. If you put half your annual salary into that pot, it will magically dispense money every time you need to go to the doctor, see a dentist, get in a car crash, call an ambulance, the police, the fire department. When your kids want to go to college, it spits out enough money to cover it all. If you lose your house, it generates enough rent to keep you sheltered. You can never starve, because the pot will cover your meals if you aren’t able to. Free college, free healthcare (with dental and vision!), public transportation, parks, maternal and paternal leave, new roads and bridges, public parks, and much more.
You do the math. It currently sucks up 58% of your yearly income to cover education, childcare, housing, healthcare, transportation, etc. That’s guaranteed every year. Of course, if you or anyone in your family gets cancer, or in an accident, or needs regular prescriptions, your yearly budget could easily exceed your annual income. You might go into crippling debt. Unless you use the pot.
The pot, however, only works if everyone is using it. If people cooperate. If only half of people use it, there’s not enough money for it to work. Then again, what if you can get everyone ELSE to pay into the pot while you secretly avoid doing so? What if it’s an honor system, and nobody is really enforcing the collection. Wouldn’t it be smart to keep as much as possible while still extracting whatever you can from the pot?
The Tragedy of the Commons is another little mind game similar to the scenario above. The “Commons” in this case is usually a plot of land in a village that everyone has access to. If people take a reasonable amount from the commons, while all contribute to it with their energy, time, and resources, then everyone gets enough and the commons remains healthy. However … there’s incentive here to take more from the commons before anyone else does. If you don’t do it, they surely will, right? Only a sucker would take an equal share. And why put in so much work if you can slack a little and everyone else busts their butts? Work less, take more. Those are the twin motivations that guide human behavior and on which most societies crumble.
The tragedy of the commons explains why communes typically fail. It’s easy to say that everyone will contribute what they can while everyone gets what they need, but when Nick is lounging around in the shade eating twice as much as you while you’re grinding away and doing with less — resentments build. There are documentaries about communes that show this play out. And if you’ve ever done a group project at school, you know the routine. Communism is said to be a non-starter because of the tragedy of the commons and human nature. You need the guiding hand of the efficient market to keep people in check. You need competition and supply-and-demand to counter human nature.
But let me tell you how capitalism ends up in the same place. Let’s take two giant retailers as an example: Walmart and Amazon. Pretend for a moment (it won’t take a heap of effort) that Walmart and Amazon own the vast majority of United States retail. In fact, the entire consumer economy in the country is controlled by them, and they are wrestling with each other for ever greater market share. To get more share, they need money to build more distribution centers and delivery fleets. They need advertising to rope in more customers from the other side. They need datacenters and robots and AI. All of these things are expensive. To raise money for these things, they need to seduce investors. Investors want high returns and record profits. Which means Amazon and Walmart need to sell as many goods as possible while spending as little as possible. That equal profits. That means more people buying stocks. That raises the stock price. That’s how companies borrow for capital expenditures (to build robots and AI and datacenters).
As robots and AI get better, human workers can do more work each week. That means each company can do the same amount of work with fewer employees. This saves a LOT of money. Layoffs, in this vicious cycle, are seen as a GOOD THING to investors. Layoffs mean more profits. More profits means higher stock prices. Number go up, get-rich-quick, buy buy buy.
What’s difficult to see in this scenario, but an economist will probably write a paper on someday, is that both companies are committing a different kind of tragedy of the commons. To see how, a quick sidebar about Henry Ford, who famously paid his employees a higher than average wage for the time to ensure that people working in his factory could afford one of the cars they were helping to assemble. Ford was a controversial man for his views on race and probably a thousand other outdated and awful things, but he was as progressive as they got when it came to worker compensation. In 1914, Ford DOUBLED the minimum wage at the time and REDUCED the workday to 8 hours, both of which shocked industrialists and economists. He knew his vehicles would sit on the lot unless people could afford to purchase them. He also knew assembly lines had atrocious turnover rates and wanted to stabilize his workforce. His dream was the creation of a middle class which would stimulate the economy and keep money flowing rapidly through it.
Let’s go back to Walmart and Amazon. Like two crooks in prison, they have a choice here to cooperate or betray. The ideal scenario for either company is to betray while the other cooperates (like the person who doesn’t put money in the magical pot while extracting as much as possible). Let’s say Walmart fully automates production and delivery of their goods and services so that employees are no longer needed at all. Amazon, meanwhile, decides to pay more than minimum wage and go on a hiring spree. Amazon employees now have plenty of money to spend on goods from both companies, but Amazon has higher costs because of these wages, so they need to charge higher prices. Walmart lowers prices because things are totally automated. Even Amazon employees start shopping a little at Walmart.com. You’d be a sucker not to!
Investors see the lower profits from Amazon, so they sell that stock and buy Walmart stock, whose profits have gone up because they no longer pay pesky employees. Now Walmart has more money to invest in growing their lead. Amazon enters a death spiral, losing marketshare that Walmart gobbles up gladly. Walmart wins … or so it appears at first.
As Amazon runs out of capital to pay its expenses, it starts shutting operations and laying off its workforce. Now fewer people have money to spend at Walmart. Walmart doesn’t create its own enriched consumers — they’ve been relying on Amazon to keep money circulating through the economy! Without enough sales to keep the bills paid, even Walmart has to contract. In fact, the entire economy begins contracting, since most of it was powered by consumer spending. There aren’t enough consumers left with anything to spend!
This might all sound theoretical, but it’s actually what’s happening all the time. Every company is trying to increase profits, which means doing more work with fewer costs. Driving down costs means keeping wages as low as the market will tolerate and hiring as few people as required to do all the work. But every company also relies on all the other companies to pay great wages so there are consumers with dollars to spend. Walmart and Amazon might think they are in the business of selling widgets, but they are really in the business of generating wages. Their value to shareholders is measured by profits, but their value to the economy can be measured in how much in wages they inject into the system.
They best outcome for any company is to inject zero wages while creating infinite widgets, and they are all in a race to achieve these goals. They might be impossible to attain, but they will approach them asymptotically. In so doing, they will (and have) destroy the middle class which has the purchasing power to keep them all afloat. The commons in this tragedy is the American worker/consumer.
Here’s the thing: Walmart and Amazon would be idiotic to do anything other than what they are doing. Overpaying would be suicide. Hiring too many workers would be suicide. There’s zero incentive to do either. What both of them NEED, while they both fight to prevent with union busting, is MANDATED HIGHER WAGES. They both would benefit from a federal minimum wage hike to $30 an hour. It would increase consumer spending. Their profit margins would decrease, but SO WOULD EVERYONE ELSE’S, so there wouldn’t be a better place for investor dollars. In fact, the only way to prevent this gradual gutting of the middle class and the destruction of these business models seeking greater efficiency is for the government to rescue them with higher minimum wages.
Now for the kicker: The best thing that could ever happen to Gary Rollins is for the governments of planet Earth to mandate a 90% marginal tax rate for the highest earning individuals and corporations. The 90% is only for total wealth over $5 billion. It’s 80% for wealth between $3 and $5 billion. It’s only 70% for wealth between $1 and $3 billion. It gradually scales down from the billion mark until people making under $100,000 a year are only paying 10% of their annual wages/worth in taxes.
Who the fuck is Gary Rollins? At the time of this writing, he’s the world’s 500th richest person. Why would this be a good thing for him? Because while he and everyone else with a high net worth are jumping through hoops to pay as little in taxes as possible, all the things their taxes could pay for are crumbling. Gary had to move to a gated community outside of Austin to feel safe. He doesn’t go downtown much because of the homeless panhandlers. He would love to go visit Cairo and tour Iran and see the cradle of human civilization (Gary is a history nut), but war and poverty make him feel unsafe. His country is crumbling, and however much he’d love to save it, giving away all his money wouldn’t make a dent. It wouldn’t pay for a few weeks of an epic war. No, the only way it all gets paid for is if everyone is forced to pay bigly, and if that happened, Gary would get a lot for his investment, because all the people above him would be paying a lot more.
This is true for the world’s 500th richest person (except all the personal details; I don’t know anything about Gary Rollins). It’s damn sure true about the 99% of the rest of us. There’s a magical pot that we could all pay into and get more out of than we currently get, but it requires full cooperation. The only way to get that is to make it mandatory.
Now, the feedback loop here requires a retooling of how the government spends those resources. The billionaire class is fond of pointing to government excess and saying they can’t be trusted with our tax dollars. This, despite the fact that corporations are wasteful and capitalism has a litany of abuses (The Enrons, Madoffs, industrial polluters, and medical insurance deniers are seen as outliers by pro-capitalists while every example of government waste is somehow endemic). At the same time that we double minimum wage and reduce the workweek to 30 hours, and vastly increase corporate and personal income taxes, we also need to gut military spending and reduce government waste while offering more government services.
A note about government waste: Firing national park service employees is the opposite way to go about this. The waste isn’t their wages, the waste is having gorgeous parks that aren’t being utilized to their fullest. The way to increase efficiency of this vast resource is to HIRE MORE WORKERS and expand access to these parks, which generate more revenue than they cost. We have to flip the way we think of wages and services. The point is to generate wages, as long as they aren’t completely unnecessary. We shouldn’t pay people to dig holes and fill them back in again, but we should definitely pay them to dig holes and bury power lines, water mains, fiberoptic cables and other infrastructure. We shouldn’t lay people off if they are contributing in a meaningful way, but we also shouldn’t prop up jobs just for the sake of having more jobs. Simplifying the tax code and automating payment would mean the loss of a lot of CPAs and IRS agents. We should think about how to replace what they are doing with something more meaningful and useful, so everyone saves money and headaches. What we shouldn’t do is go around firing people and expect them to adapt overnight or for the economy not to falter.
The only way any of these things get resolves is through government intervention. Someone has to protect the commons, and the commonfolk, and human nature has never been sufficient. Unfortunately, most people are getting their messaging from folks on that top 500 list. They own the airwaves, the social media algorithms, the newspapers, every single megaphone. They’ve got a third of you too brainwashed to see what’s needed, another third of you infighting over your perfect candidates, and the rest too numb to get off the couch. The result is a gutting of the middle class which was the primary cause of our prosperity, the end of unions which gave the commoner any kind of bargaining power. But the worst casualty has been the killing of our common goals and dreams, and the freedom and economic structures that once made it possible to chase both. A regular person could work a factory line and buy a car. These days, two adults can barely work full-time jobs and buy a home. It doesn’t take a genius to see where this is heading.
Communism fails because of a perversion of the system of taking more than one gives. Capitalism fails because of a perversion of the system of giving as little as one takes. The hoarding of wages today is destroying us as surely as the hoarding of wealth gutted any commune. By the time any economist wins a Nobel prize explaining how this happens, it’ll be too late.
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