Posted: April 2nd, 2009 by Militant Libertarian
When you enter a casino, the implicit agreement between the gambler and the house is that whatever money you win is yours and whatever money you lose belongs to the house. Now imagine a scenario where the agreement was that anything you win is yours, but anything you lose will be covered by everyone else in the casino. If everyone in the casino were aware of this policy and hastened to take advantage of the policy forthwith, they would crash the system in a matter of hours because inevitably the gamblers would lose a lot more than what can be covered by the collective net worth of the others.
Now imagine a situation where it was just like a regular casino except that some of the people have the fortunate privilege of keeping all their winnings, but socializing all of their losses. As long as these gamblers are winning, you as a casino-goer might never become aware of the flip side to their deal: that if they began to lose, money would be taken from your pocket to cover their losses. And so it was for a long time, these privileged gamblers never had to ask anyone else to pay for their bad bets since they never really lost a hand.
Then the privileged ones’ luck changed. At first they’re able to cover some of their losses themselves, and they do this by placing bigger bets hoping that on the next hand they’ll win. They lose yet again, and at a certain point they no longer have enough reserves to cover the next bet. Their only choice now is to enact the other side of their predetermined policy: to force everyone in the casino to hand over some money so that these gamblers can keep playing.
At this point, many of the other casino goers are very upset at this deal. After all, they thought everyone was responsible for their own losses, and surely not for the losses of anyone else. Even those who were betting conservatively the whole time now have to give up their profits that were painstakingly made in spite of all the bad bets the other guys were making.
Reluctantly, everyone gives their portion of the money to cover the other people’s losses because they have no choice. They can’t cash in their chips without paying their share and they aren’t allowed to leave the casino either until they make good on the lopsided deal that others made on their behalf.
The privileged gamblers are back in business. However, the policy that enabled the foolhardy gambling to begin with is still in place and in short order the losses again become insurmountable. The dark side of the policy is once again activated and the people are forced to pay for the others’ losses a second time. On this occasion, the other gamblers do not have enough money in the present to pay the losses, so the original plan is a bust. The solution is to have a huge loan taken out, to be paid by the other gamblers over the course of a number of years. The rationale is that the new loans will enable the bad debts to be paid and to pave the way for future prosperity.
Unfortunately, by now everyone is a whole lot poorer and very upset at those who have made their lives so miserable. They don’t know whether to blame the house, the foolhardy gamblers, or the policy that made it possible. The gamblers are told that if the privileged gamblers’ losses aren’t addressed, it would doom the whole casino. People bicker and point fingers, but one thing’s for sure, they no longer gamble as much and they do whatever they can to hold onto their money.
The casino remains open even in spite of less business and eventually the loans are called in to be repaid, but there is not enough to make good on the debts. At this point no more loans can be created, and no more money can be extracted from the other gamblers, so the only choice left is for the house to create a huge number of new chips to pay back the loans and to put money back in the hands of the gamblers so they can continue doing the same thing they were doing previously.
Everyone reluctantly agrees to this policy since the only other option is for the casino to go bankrupt. However, the new chip creation policy only helps out a few: the ones who lent the money and amazingly, the well-connected, high-rolling gamblers who got everyone in this mess in the first place.
By the time the less-connected gamblers get their chips, the minimum bets at all the tables have become too high for most people in the casino. Even among those who can afford to sit at the table now see that their winnings don’t go as far as they used to. Because of all these wealth extractions, loans, and chip creation policies, everyone on the whole is much poorer than they were a few years ago and there wasn’t much they could have done anyway since these decisions were being made for them.
What is the solution? At this point, it’s anyone’s guess. The gamblers might go along with the scheme indefinitely so long as they have some minimal needs met, or the gamblers might storm the house and take over the casino. There are too many variables to adequately know what the future might hold in the short term.
However, if the gamblers could go back in time, they would make sure that there’s a sound policy of keeping profits and losses in the hands of the individual who makes and puts the money on the table. They would also ensure that no one ever creates new chips out of thin air since doing so only helps the well-connected and devalues the chips for everyone else.
In short, they would be vigilant in ensuring that everyone would have an equal opportunity to succeed or fail. Nobody would be forced to pay for the mistakes of others and because of this, less mistakes would be made since all gamblers would know that nobody is covering for them should they lose. It is only natural that the people would want to prosper in an environment where everyone is financially responsible for their own actions, and not for the actions of everyone else.
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