This is an actual story of an elementary school class election:
One of the kids running for class president gave an impassioned speech about what they would change (Maybe no hall monitors anymore, I have no idea, the detail isn’t important). Then the challenging candidate strides up to the podium and declares that if you elect him, he’ll secure the school a…rollercoaster! In the informal “exit poll”, one of the students was asked why they wanted to vote for the rollercoaster candidate and the student said, “I know it probably won’t happen, but what if it did?! That would be soooo cool”.
Surely the challenger is on their way to a lucrative career in politics.
And we are all worse off for it.
Why does it have to be this way?
For the same reason that the realtor who shouts the highest number gets the listing. The reason is…Moloch. A mythical demon that demands child sacrifice has become a metaphor for how things become terrible.
I’ll turn to Scott Alexander for an explanation:
The implicit question is – if everyone hates the current system, who perpetuates it? And Ginsberg answers: “Moloch”. It’s powerful not because it’s correct – nobody literally thinks an ancient Carthaginian demon causes everything – but because thinking of the system as an agent throws into relief the degree to which the system isn’t an agent.
Moloch is the odorless, selective pressures of evolution responding to incentives. It has no moral attribute. It just is. If you are an armchair game-theorist you see Prisoner’s Dilemmas everywhere you look. If you don’t already see them everywhere, bless your heart.
Personally, I constantly fight the resigned feeling that we cannot save ourselves from taking second-helpings of misery pie. “Moloch” is a catchy term that binds to situations known as “coordination problems”. These problems are too devilish to pin on any single individual (although this doesn’t stop anyone from trying to point fingers).
The sub-optimal equilibrium in a Prisoner’s Dilemma is not a mystery in itself. A Nash equilibrium is actually the result of choosing an action that you would have chosen even if you knew how your counterpart would act. The omnipresent Prisoner’s Dilemma is a narrow instance of what Alexander calls, a multi-polar trap — a situation where the best course of action for an individual makes the group worse off.
I dare you to resist nodding as you read this passage:
All these scenarios [described earlier] are in fact a race to the bottom. Once one agent learns how to become more competitive by sacrificing a common value, all its competitors must also sacrifice that value or be outcompeted and replaced by the less scrupulous. Therefore, the system is likely to end up with everyone once again equally competitive, but the sacrificed value is gone forever. From a god’s-eye-view, the competitors know they will all be worse off if they defect, but from within the system, given insufficient coordination it’s impossible to avoid…in some competition optimizing for X, the opportunity arises to throw some other value under the bus for improved X. Those who take it prosper. Those who don’t take it die out. Eventually, everyone’s relative status is about the same as before, but everyone’s absolute status is worse than before. The process continues until all other values that can be traded off have been – in other words, until human ingenuity cannot possibly figure out a way to make things any worse.
Read the essay. It’s one of Alexander’s best (it’s almost 6 years old now).
I’ll warn you. It’s quicksand (don’t worry, I have a plan to pull you out next Sunday). It articulates what you already sense but struggle to put your finger on.
You can find the essay as well as my commentary on it here:
Under the oppression of Baader-Meinhoff, I could not help but think the comet in Don’t Look Up should have been named Moloch.
[Beware spoilers]
Alexander even wrote a review of the movie pointing out its contradictions and never even mentions Moloch.
He instead focuses on whether the writers were advocating for “trust the science”, “trust the experts”, or “don’t trust experts”, or “don’t trust the government”. The movie is a Rorschach. Choose one of those angles if you want. But if you do that, you need to confront the glaring contradictions of those interpretations. Alexander competently explains them in his review.
Still.
It’s not the angle I would have chosen.
I found that approach to the movie too quibbling. Too object level. Sure, this movie can be politically weaponized by either side to confirm their positions (deep state, climate complacency, Covid response). The other side could wave a contradiction in their face and we’ll just talk past each other, just like we do in real life and in the movie.
The real message of this movie is…Moloch.
The comet prompts system-wide institutional failure. A massive failure to coordinate. This is a movie that showed the end-state of gamesmanship and competition that is so exhausting we accept death as mercy. An overdue rest-in-peace. That final scene at the dinner table is disturbing and poignantly stirring at the same time.
Don’t Look Up skewers a culture that has thoroughly and without self-doubt internalized the strategy “it doesn’t matter what you say, but how you say it”. Marketing, storytelling, branding, signaling, persuasion. There is so much emphasis on our ability to hack each other because attention is what is scarce.
Moloch is not moral one way or the other. There is no redemption. In the film, Jennifer Lawrence remains pure. For that, she gets to live out her days bagging groceries. Leo eats from the serpent’s sweet apple nourishing his ego with the foreign but empty calories of in-crowd flattery.
Guess what?
Their fate did not discriminate.
A personal take on Don’t Look Up:
The movie is a comedy. It’s a satire. While I watched it, it felt like a slightly above average movie, but it has lingered so much in my head, that I’m not giving enough credit to how provocative it was as a piece of art. My favorite performance was Mark Rylance playing the rich tech founder meme. (Coincidentally, the best live performance I may have seen of anything ever was Rylance on Broadway in La Bete. He has a 45-minute soliloquy in iambic pentameter that is physically hilarious and verbally brilliant. He would make a rapper proud.)
If you watch Don’t Look Up, do not turn it off before the credits start rolling. You’ll miss the most satisfying part of the film.
Money Angle
In economics, there is a trade-off between efficiency and equality. Efficiency is concerned with maximizing output, and equity is about how that output is distributed. If I give a resource, for example, an education, to 9-year-old Elon Musk that’s more optimal than handing it to Snooki if I care about efficiency. If I want to be fair, I’d split my education budget between the two of them. This trade-off is fairly self-evident when you point it out.
(I’m imagining an Orange County strip-mall landlord droning on about Reagan’s “trickle-down” economics to a YouTube influencer wearing a Che Guevara tank top at a Hollywood Hills cocktail party.)
If we look at the extreme poles of the equality-efficiency spectrum, we would find archetypes for how our activities should be coordinated. Equality, as the primary goal, leads to top-down communism and authoritarianism. Sorry, there is no benevolent dictator.
Efficiency at-all-costs would be coordinated by free markets. “Free” of course is corruptible (i.e. crony capitalism) and anti-trust is a broadly accepted guardrail to protect us from winner-take-all endgames.
As capitalists, it’s more relevant to think about the Moloch essay in the context of markets. To that end, I just wanted to share some Moloch-meets-markets musings.
On Thoughtful Rules
The logic of markets is they are a coordination mechanism to get to truth or what finance-types call “price discovery”. Price discovery provides signals to guide how we allocate our physical and human capital. It does this through the “profit incentive” pathway. Oil prices rise when people demand to fly and drive. So you should drill for more oil because the price offers you a profit.
The problem is that the system can work too well.
The profit incentive is powerful because money is fungible with everything that’s promised to satisfy any human desire. Money, of course, is incapable of that, but very few people believe they have “enough”. We expect businesses and individuals to claw for profits and, obediently, they do.
This is fine and good. But it still requires some top-down design. Why?
Because when our horns are locked in competition for that oh so sweet profit, Moloch demands we push ourselves right up to the line. The person who wins that last dollar must dispense with every other value so long as it doesn’t violate the law. Norms are not even effective restraints at the pinnacle of competition where you are likely to find sociopaths.
To keep Moloch from running wild we need the lines we draw to accommodate the fact that once we yell “go” everyone will look for every possible edge. Our lines must account for externalities. That’s what anti-pollution laws are. Our accounting laws serve similar functions. A carbon credit is an accounting term that “internalizes” an externality. It forces the emitter to own what they’ve done. They need to put it into their profit calculus.
On Flexibility
Of course, even well-considered laws will be gamed. But I couldn’t help notice that the marketplace seems to be telling us that the laws are behind the times.
Consider examples coming from different directions:
- Matt Levine’s “everything is securities fraud” thesis suggests that any practice that damages shareholder value, even if it’s legal can be used retroactively as the basis for a lawsuit. This forces management to consider their externalities even if stodgy laws and accounting rules cannot keep up with a rapidly changing world.
- From the other side, ESG, at least in its idealized form, is pushing to internalize the externalities by pushing our wider discarded values back onto balance sheets as more explicit liabilities. Instead of using judges, they want to use accounting laws and influence investing norms.
- Then you have crypto’s techno-libertarianism. If you love the idea of smart contracts’ black-and-whiteness, you should prefer the ESG reform to the whim of human judgments after-the-fact. If smart contract purists are more comfortable choosing the letter over the spirit of the law, they must be dead-set on demanding bright lines for every issue. (Sounds great if you hate nuance. Like religious fundamentalists. Or toddlers.)
Smart contracts are a brilliant idea. Just not for every decision context.
On Liquidity
Price discovery increases with liquidity. This is mostly uncontroversial (if there were no VCs reading this I would have ditched the word “mostly” but I do love Moontower readers, so an olive branch is in order). And if price discovery and liquidity are good, is more always better?
The amount of brainpower and resources devoted to capturing that last penny of arbitrage in markets is formidable. What is the true cost of that price being “discovered”? I don’t even know where to start with that one (Jessica, in her characteristic snark, wonders a similar question on Twitter).
Let’s consider a more tractable question from Byrne Hobart. As he thought about the proposed repeal of 1031 exchanges, he wrote (bold is mine):
The defense of 1031 exchanges is that they encourage growth, because they keep people spending money on new property developments instead of cashing out and enjoying their gains. Which embeds two assumptions:
- It’s generally better to tax consumption than investment, and
- Real estate investment is a particularly worthy kind of investment to avoid taxing.
Assumption #1 sounds true, but is circumstantial. Assumption #2, though, is hard to defend. Real estate speculation does produce jobs, but it also produces macroeconomic volatility and sometimes threatens the financial system. From a macroprudential perspective, where the goal is to reduce the odds of financial crises, it might make more sense to have 1031 exchanges for everything but real estate: sell your company, and you can roll the money into starting a new one; sell a mall or skyscraper, and you get taxed. But it’s always fiendishly hard to predict the long-term incentives created by a change in the tax code. Any tax on realizing gains, for example, is implicitly a subsidy on borrowing against appreciated assets instead of realizing those gains. If that’s true, the net effect of eliminating 1031 exchanges would be that real estate portfolios would turn over less often. If we assume that people vary in their ability to make good real estate investments, this would mean that the best such investors wouldn’t make as many discrete investing decisions, which would make prices a bit less efficient. Which might be a reasonable tradeoff: making real estate investing a less tax-optimal choice could be a fair trade in exchange for making real estate prices less reflective of their value. But it’s still a tradeoff, not a straightforward benefit. Quirks in the tax code become load-bearing over time; even if they didn’t make economic sense when they were made, the structure of the economy only makes sense in light of the tax incentives that economic actors have already responded to. If you assume that people are reasonably good at reacting to incentives—or, more plausibly, that over time the people who are good at doing this end up controlling more assets—then any change in those incentives has complicated and unpredictable results.
The trade-off is one of price discovery vs the goals of tax-policy. Would we sacrifice liquidity and price discovery for another shared value even if it’s less legible?
This is right back to the heart of the matter. Efficiency we can measure vs equality we can measure. Are we even able to measure these values in a broad context where the multitude of considerations does not give way to the grinding demands of narrow optimization?
Conclusion
I can’t answer these musings. They are just the Money Angle exhaust of reading that damn essay.
The only things I’m reasonably sure of is:
- Communism is hell. Look I had to throw Satan a bone with all this attention I’m showering on another demon.
- Capitalism’s efficiency-equality tensions remind us that it is a compromise that must be tended with care because the invisible hand is connected to Moloch’s arm.