Welcome to the Hunger Games Economy

7 min readDec 5, 2020

The logical alternative to capitalism is socialism, and on its face, there is a lot to like. Socialism is rooted in altruism and humanism; it seeks to build up community rather than the atomized individual. These are noble goals. But the sacrifice in productivity is immense, especially with the compounding effects of time. Capitalism creates dramatically many more spoils, so any of those noble goals have more to work with.

The toxic cocktail, however, is to combine the worst of both systems. For the last 40 years, we’ve been doing this in the United States. We have capitalism on the way up. If you can create value in this country, you can be rewarded with spoils vastly beyond anything comparable in history. If you can’t create value — if you’re born into the wrong family or you catch a bad break — you’ll likely live on the edge and pay dearly for your mistakes. A Hunger Games economy.

Should you reach the heights of wealth (or more likely, be born into them), circumstances change. Despite our rhetoric about personal responsibility and freedom, we’ve embraced socialism — at the top and on the way down. We don’t tolerate failure here in our socialist paradise. Rather than let companies fail — a defining and essential feature of capitalism — we have bailouts. But bailouts are hate crimes against future generations, sticking our children and grandchildren with the resulting debt.

Crisis after crisis, our rationales vary: After 9/11 it was national security. In 2008 it was liquidity, and in 2020 it was protecting the vulnerable. But our response is always the same. Protect the shareholder class, protect the executive class. Keep these firms on life support so their owners and managers don’t suffer. Pay for it with debt, a burden to be borne by middle-class taxpayers and, ultimately, by our children. However, history tells us, nearly every bailout, whether it’s Chrysler or Long-Term Capital Management, only creates a moral hazard that results in a bigger failure and a more costly bailout. Every time, we’re told “this is different, historic, and requires intervention” and that taxpayers should bail out shareholders.

ut so too is an 11-year bull market a historical event. That was the unique event that accrued unprecedented wealth to a fraction of the population. And the corporations that benefited didn’t save for a rainy day — which always comes — or pay it out to their workers so they could build up a protective cushion of wealth, or invest in capital projects that would grow the economy. Instead, they poured it into dividends and stock buybacks, juicing executive compensation (from 2017 to 2019 the CEOs of Delta, American, United, and Carnival Cruises earned over $150 million in total compensation) and shareholder returns. Since 2000, U.S. airlines have declared bankruptcy 66 times. Despite the obvious vulnerability of the sector, boards and CEOs of the six largest airlines have spent 96% of their free cash flow on share buybacks. That bolstered the share price and compensation of management but left these companies dangerously exposed to a crisis.

Now that the crisis is upon us, this small population of rich people has found socialism, and they have their hand out. That hand should go back in their damn pocket.

The virtues of failure

Failure, and its consequences, is a necessary part of the system. Economic dislocation and crises have real costs, but they are also opportunities for renewal. Old relationships are severed, assets are freed up, and innovation demanded. A forest fire brings life as it destroys — so too, economic upheavals create light and air for innovation to flourish. The 1918 influenza epidemic was devastating, but it was followed by the Roaring ’20s. The strongest businesses are those that are started in lean times. Wages rise after disruptions like pandemics — if the natural cycles of disruption and renewal are allowed to function.

We’ve let ourselves confuse corporations with the things they own and the people they employ. Corporations are simply abstractions. They feed nobody, house nobody, educate nobody. When a corporation fails, those who have risked their capital to support it lose their investment, but the workers are still capable of work, the assets remain available, and whatever need the corporation was filling remains.

Letting firms fail and share prices fall to their market level also provides younger generations with the same opportunities we, Gen X and boomers, were given: a chance to buy Amazon at 50 (vs. 100) times earnings and Brooklyn real estate at $300 (vs. $1,500) per square foot. As Thomas Piketty has pointed out, the high growth recoveries that follow economic shocks are periods of real wage growth, whereas slow and steady growth tends to favor the wealthy.

Once the government gets into the business of propping up the losers, you can predict who will be first in line for the handouts: the people with the most political power — corporations and rich people. It’s not just a matter of their lobbyists and their lawyers and their press flacks, though that’s a big leg up. There’s also something more insidious: cronyism.

Cronies gonna crony

The federal government’s response to the pandemic has been true to form. Under the cloud cover of “protecting the most vulnerable,” we’ve handed trillions of dollars to the most powerful.

The only bipartisan action is reckless spending that benefits rich people while throwing some funds at the neediest for optics.

The $2 trillion relief package passed in March 2020 was a theft from future generations. Personal income was 7.3% higher in Q2 versus Q1 of 2020 because of stimulus payments and extra unemployment benefits. The personal savings rate hit a historic 33% in April, the highest by far since the department started tracking in the 1960s. The relief package included a $90 billion tax cut that benefited almost exclusively people making over $1 million per year. The richer you were, the more you gained. At the beginning of August, U.S. billionaires had increased their wealth by a total of $637 billion. It appears, as has been the case for decades, that the only bipartisan action is reckless spending that benefits rich people while throwing some funds at the neediest for optics.

Not every dollar will be wasted. Maybe a third of it will go to the needy. But the majority of the money we are asking our children to repay has done nothing but flatten the curve for rich people. Rich people have registered disproportionate benefit, their preexisting relationships with banks getting them to the front of the line. Look no further than the refusal of the administration to reveal who is getting the money — until after the election, of course.

Instead of letting market failures play out, we propped up the shareholder class using money stolen from the next generation. “We’re all in this together,” they tell us. Bullshit. The really ugly truth is this: For the wealthy, the pandemic means less commuting and emissions, more time with family, and more wealth, with markets at all-time highs.

Cronyism and inequality

The obscene $2.2 trillion Covid relief package was just a symptom of our cronyism. The systemic flaw is that our government is no longer keeping capitalism’s winners in check. Instead, it’s a co-conspirator in their entrenchment.

The wealthy have done well over the past few decades, in a supernova kind of way. A ton has been written on this because the data is abundant. There is shocking data at the extremes: The top 0.1% now own more of the nation’s wealth than the bottom 80%. The three richest Americans hold more wealth than the bottom 50%. And there is bad news in broad strokes as well: Since 1983, the share of national wealth owned by lower- and middle-income families has declined from 39% of the pie to 21%, while upper-income families have increased their share of national wealth from 60% to 79%.

No entrepreneur starts, or doesn’t start, a business because of the tax code.

For purposes of self-preservation, you’d think the rich would be concerned with this level of income inequality. At some point, the bottom half of the globe by income realizes they can double their wealth by taking the wealth of the richest eight families, who have more money than 3.6 billion people. Here in the U.S., the bottom 25% of households (31 million families) have a median net worth of $200. Most recently, a group of protesters built a guillotine outside the Manhattan home of Jeff Bezos to commemorate his wealth passing $200 billion.

This trend is only getting worse. Once, we elected leaders who cut the tops of trees to ensure saplings get sunlight. Today there is less and less sunlight. A recent study of historical tax-return data concluded that the uber-wealthy paid a tax rate of 70% in the ’50s, 47% in the ’80s, and 23% at present — a lower tax rate than the middle class. Whereas poor and middle-class tax rates have largely stayed the same.

My own experience provides a case study in how the wealthy lock in their gains. When I sold my last company, L2, in 2017, I paid an effective tax rate of 17%–18%. I paid 22.8% federal, but the first $10 million were tax-free, thanks to Section 1202 of the tax code. Section 1202 is a tax break for early shareholders, meant to encourage startups. Only it’s nothing but a transfer of wealth from other taxpayers to venture capitalists and founders. No entrepreneur starts, or doesn’t start, a business because of the tax code. It takes a special kind of crazy to start a company and a lot of talent, work, and luck to build it to be something you can sell for millions of dollars. The decision has nothing to do with the tax code. Tax breaks for the successful are just another way we deepen inequality.

Once people make the jump to lightspeed, advantages like this let them pull away. Access to more resources, investment opportunities, lower taxes, tax specialists, political contacts, friends who can help your kid get into school, and the wheel spins. It’s never been easier to become a billionaire, or harder to become a millionaire.

Welcome to the Hunger Games Economy

The virtues of failure

Cronies gonna crony

Cronyism and inequality

Written by will-smith