2012-08-16

Markets And Rules

When I was growing up, my family used to play a lot of games together: card games, board games, sports, party games, video games... all games. When a game wasn't readily available, my father would simply make one up. Before we knew it, wherever we were and whatever our business there, we were well ensconced in a game of some sort.

While my father was excellent at inventing games at thin air, this skill sometimes became a double-edged sword in that he also liked making changes to the rules of existing games. It often happened that we would get a new board game for Christmas, play a few rounds, and then suddenly my father would halt game play and say, with a thoughtful (and perhaps mischievous?) look on his face, "Okay... let's make a rule..."

The problem with his rule changes were that they typically resulted in his winning the game every time. It wasn't that he was changing the rules more to his favor, but rather more to his liking. He had in his mind an idea of how such a game "should" be played. And because he is an incredibly intelligent man, he also had in his mind a foolproof strategy for winning under those hypothetical conditions.

See, part of his problem with the original rules was that his strategy could only be executed imperfectly. It was a brilliant strategy, but the rules of the game injected just enough chaos to make his strategy unpredictable.

Of course, that level of unpredictability is precisely what makes games fun. There is no point at all to playing a game in which the outcome is known in advance. It's no longer a game, it's simply an exercise, a demonstration. Rather than being a fun mystery, it becomes a simple application of theory.

In Theory

One of my favorite sources of "pop economics" is a line from an old episode of The Simpsons called "Bart Gets An Elephant." In it, Bart wins a radio contest offering his choice of $10,000 or an elephant. Predictably, Bart chooses the elephant. After some brief hijinks, the elephant is delivered. Marge says, "I really think this is a bad idea," to which Homer replies in his inimitable way:
Marge, I agree with you in theory. In theory, communism works. In theory.
Any of us who has a standard, American public education is well-schooled in the meme that "communism only works in theory." (Some of us push our education a little further and indeed confirm that communism doesn't even work in theory; but let's set that aside for now.)

The problem is not unique to communism. Indeed, most theories work in theory. It is only after theories encounter the unpredictable nature of the real world in practice - along with reality's infinitely many considerations that could not be foreseen by the theory's proponent - that they ever fall apart.

My father's game-playing strategies (at least, the ones that didn't work without a rule change) are the perfect example. His strategies were brilliant in theory, brilliant! Nonetheless, according to the game's existing rules, they fell short. There was just too much chaos to be accounted for, too much chance. He needed a rule-change to reconcile his winning strategy with real-world gameplay.

Markets
In the world of theory, nice guys finish first. In the marketplace, that would mean that the cleverest, kindest entrepreneur would always win out over the competition. The little guy, fighting to feed his family with the proceeds of his modest enterprise, would survive and thrive because in some sense he "deserves" success more than the faceless corporate conglomerate against which he must compete. He is your friend. he gives you a good discount. His prices are a little bit higher, but he gives you more personal service. And besides, he's an interesting person who you enjoy cheering for.

In this perfect world of theory, guys like your friend who owns that vinyl record shop downtown would never have to worry about finances, because frankly they're cool. Cool people are way better than lame business school grads in blue shirts.

We see this kind of cheerleading everywhere in the marketplace. People want the small, mom-and-pop shops to win out over the big corporations. They make movies about it. Everyone thinks about it. Everyone sides with the little guy. The big corporations are just too cutthroat! It's not fair!

People also cheerlead the "cool" businesses, the ones that are in. You know, brands like Trader Joe's, Apple Computers, Whole Foods, REI, and so forth... We want these corporations to succeed because they're so darn cool. They have so much mojo that we feel we are part of the team when we buy and use their products and services.

But in the real world of market capitalism, the people we like don't always succeed. Often, the ones who succeed are the really annoying business school types we all hated when we were growing up. Even more often, those who succeed care about little else than money and glory. They might even have acrimonious personalities. In some "higher" sense, it seems unfair that bad people can be good in business. It offends our sensibilities that Dr. Phil sells more books than Kurt Vonegut.

Change The Rules
So, some of us feel the rules ought to be changed. It might be fair, under the rules of pure capitalism, that Wal-Mart is more successful at selling sportswear than your friend Selma's vintage clothing store. But to some of us, those kinds of rules foster a culture that values mass-produced ugly t-shirts from [insert developing nation here] over the really cool stuff that Selma sells.

Some of us don't like those kinds of values and don't want to live in that kind of world. They've tried doing all their clothes shopping at Selma's place, and it doesn't work. "Lame people," and there are a lot of them, still continue shopping at Wal-Mart, buying lame clothes, produced at low wages in far-away countries. Some of us simply with that were not the case.

So some of us decide they'd like to change the rules so that the world more closely aligns with their own personal theory.