🔎Are governments eating the world?
How the world's largest Prisoner's Dilemma came into existence and why it may cause economic destruction.
TLDR Summary
There are two types of people: Those who pay the government and those who receive from the government. Some are paying taxes. Others are getting interest payments, wages from government jobs or social security payments.
Since government spending has been booming over the last decades in most developed economies, the number of receivers has grown dramatically faster than the number of payers. Receivers have gained tremendous power and they have been abusing that deliberately in many instances.
What has become known as the fiscal dominance regime has effectively created a Prisoner’s Dilemma: Payers and receivers could achieve the best mutual outcome for everyone if they cooperated. Payers would then work hard to make goods & services for everyone. And receivers would choose to limit the amount of wealth extraction to allow for an adequate compensation for payers. Unfortunately, this is not happening in reality.
This imbalance might eventually impair the productive capacity in many of the world’s major economies. The true risk in this fiscal dominance regime may not be runaway inflation (as most people seem to believe), but a silent strike of those who create the value that everyone enjoys.
The government’s insatiable appetite
Venture capital star Marc Andreesen famously declared in 2011 that software is eating the world, predicting that software companies would disrupt and conquer many industries. He was right about that in numerous instances. The implementation of software solutions has indeed had an enormous impact in the global economy in the last 15 years. And the ascent of AI will presumably intensify this trend.
But another trend has arguably had an even greater economic impact: the growing role of the government. Traditionally, we understand the economy as the sum of all transactions between people exchanging goods and services for money. This traditional world effectively ended in 2008.
