Jenga Capitalism
Like many tech bros in Silicon Valley, I have a new favorite product: Perplexity.ai, the AI-powered “answer engine” that threatens Google’s search dominance. When you ask Perplexity a question — say, “Peter Piper picked a peck of pickled peppers. How many pickled peppers did Peter Piper pick?” — it scours the web, synthesizing its findings into a snappy summary replete with links you could theoretically click on:
I never click.
Perplexity’s summaries are usually good enough for me, and if I see a trustworthy-sounding source among the references, I rarely feel compelled to investigate further.
It isn’t difficult to see how my new search behavior — scaled across billions of internet users — could be bad, or, at minimum, highly disruptive. The business model of web publishing assumes I’ll sometimes click on the links offered to me by search engines.
What happens when AI gets good enough to render clicking completely optional? Will the human beings who produced the cited content — that is, the knowledge I’m accessing indirectly — keep creating? Or will they need to find new work, starving Perplexity’s fleet of Nvidia GPUs of new information?
In other words, will AI’s short-run success undermine its long-run future (a la Boeing/humanity)?
These questions are among the most pressing for us to answer if we are to stride boldly into an AI-driven future. They help explain why the New York Times is suing OpenAI and Microsoft for copyright infringement. Even my unperceptive self sounded the alarm on these issues early in the ChatGPT moment (albeit in an annoying and opaque way buried underneath several layers of irony, but hey — you knew what you were signing up for).
Alas, my unperceptive self sees no good way out of this dilemma, nor does anyone else. Ezra Klein discusses it here and primarily sounds concerned. Perplexity’s CEO sidesteps the issue whenever asked about it. I suppose one could argue that so much Value will be Generated by AI Innovation that we can find ways to Make All Stakeholders Better Off (and maybe!).
But, man, doesn’t it feel hard to believe? We know how the modern internet economy works. We experience the dysfunction every day. Venture capitalists (let alone Jeff Bezos) aren’t investing money at a $3 billion valuation assuming they’ll need to share Value with something called an “All Stakeholders.”
And I don’t even mean to pick on Perplexity! As I said, I love the product, and it’s not like the current economic incentives undergirding web publishing are healthy. Websites do all kinds of kooky things to rank highly on Google. I would love it if a new financial model came along to produce a saner and more usable internet. (I would especially love it if I could one day access a chicken soup recipe without needing to scroll through an SEO-optimized anecdote about how the smell of chicken soup reminds the author of cooking with his Nana.)
The trend I’m gesturing at is bigger than any one company. It’s bigger than AI. In many areas of economic life, capitalism seems exhausted. It produces new value by pillaging what came before rather than inventing the new. This process looks dynamic and impressive — Valuations! So high! — but it’s ultimately self-sabotaging because today’s growth erodes the capacity for future growth.
Call it “Jenga Capitalism.”
I assume you’re familiar with Jenga, but forgive me while I briefly sketch out the argument.
(You can also watch this extremely unpopular Wingstop ad featuring a family playing the game.)
Jenga starts with a fixed number of blocks arranged in a compact tower. Players take turns removing blocks from the tower’s lower levels and setting them on top. The tower grows at the expense of its structural integrity, eventually collapsing.
Needless to say, well-regulated capitalism shouldn’t work this way!
Arguably, the whole point of our economic system is to durably increase our economy’s size. In Jenga terms, that means finding and adding net-new blocks, not stealing from our foundation.
But, of course, stealing is so much easier.
The most familiar example of this dynamic is growth through environmental neglect or degradation. Juicing GDP is easy if one simply disregards water quality or fish populations. Thankfully, the environmental movement influenced lawmakers and regulators over decades to take sustainability concerns seriously, helping steer capitalist development toward a healthier long-run path. For example, the plunging price of solar power is a genuine miracle that could save the planet. But one wonders if we would have progressed down the solar learning curve — that is, build new blocks — if short-run economic logic dictated the kinds of energy we produce. (TL;DR: we wouldn’t have; government support was vital.) Conversely, how much more advanced would our green manufacturing sector be if we implemented a carbon tax decades ago when it became clear we should?
And while I feel surprisingly sanguine about our ability to avoid the worst consequences of climate change, I don’t observe us taking the same steps to shore up our economic tower in other areas.
We already discussed how AI’s success — built atop the cumulative truth-seeking efforts of millions of reporters, journalists, editors, and hobbyists — could upend future efforts to make sense of our world. Since facts and ideas are critical inputs to innovation, growth that messes with their continued production is self-defeating (even if the valuations of our AI overlords suggest otherwise).
(It also wouldn’t be the first time that asset values were high because they represented the opportunity to transfer wealth rather than create it.)
But AI is only one high-profile example. The modern economy features so many — too many — others.
Consider:
We gutted our national aerospace champion by allowing financial engineering to displace actual engineering. This displacement was profitable for a time, but now prevents Boeing from safely building new planes (or even remixes of previously successful ones!).
Elon Musk claimed he would improve Twitter’s business by capitalizing on its enviable advantages. Instead, he fired everyone who worked there and keeps the site running in zombie form.
The most distressing instances of Jenga Capitalism treat human beings as blocks to pilfer. For example, we produced a generation of young men seemingly ill-equipped to make positive contributions to society; is it a coincidence that we legalized weed and sports gambling at the same time, keeping them profitable but disempowered? Similarly, the China outsourcing shock of the 1990s devastated manufacturing communities across America. Instead of finding new ways to leverage that immense human capital, we permitted Purdue Pharma — with an assist from McKinsey — to strip-mine these communities, converting pain into profit.
Ironically, we need our manufacturing belt to rise again, this time to make chips and green technology. How much time was wasted by failing to maintain the foundation of our tower? How many incompetent tyrants did we elect in part because these communities needed to register their pain?
Alas, if only someone could have seen three decades ahead… Oh, wait!
The Jenga Capitalism framework fell into place for me when I came across this post from Josh Brown, a financial advisor who argues that it’s never been more pressing to join the capitalist class:
As Professor Scott Galloway told us this week — and I’m paraphrasing — this is a country that is inhospitable to those who haven’t accumulated any wealth yet… Families with wealth have a greater advantage than ever — an advantage that carries through from birth into elementary school and then secondary education. It feels as though the gap has never been wider, and it also feels as though it’s been growing…
People who are locked out of homeownership and working a job without corporate retirement plans are seeing the dream pull further away from their grasp — regardless of how hard they work. They’re just not in the game and it sucks.
He’s correct, and the fact that he’s correct strikes him (and me) as depressing. Jenga Capitalism explains why.
We allowed a generation of capitalists to play a self-serving game, prompting asset values to skyrocket because no one knows how high the tower can grow before its foundation gives out. Assuming you have the wealth necessary to afford the entry price, you might as well play. Someone else will pick up the pieces.
If you don’t think so, remind me how many bankers went to jail after the Great Financial Crisis… Oh, wait!
I worry that I sound like something of an anti-capitalist in this post. After all, “Jenga Capitalism” is basically a spin on the familiar Marxist concept of “late capitalism,” the phase of economic development that (purportedly) produces so many crises and contradictions that humanity has no choice but to shed its capitalist clothing and don something more enlightened (e.g., a workers’ paradise).
Although late capitalism is a colorful term, it’s not a helpful one. Capitalism isn’t going anywhere, nor should it. Alas, no competing set of social arrangements reliably increases global living standards so rapidly and efficiently. And, as tempting as it is to think we live at the end of history, we don’t. Humanity will muddle through, much as it always has.
Jenga Capitalism implies a humbler and more attainable goal: Let’s tweak our social arrangements to make our muddle more pleasant and sustainable. Let’s play a game focused on block accumulation, not block theft.
Is it possible?
Critics on the far left and right would say we can’t. The former would argue that there’s no redeeming capitalism from its fundamental flaws. The latter would contend that fiddling with the knobs of our capitalist machine eventually breaks it; the road to serfdom is always one exit away.
Still, I see reasons for optimism.
First, the dynamics I’ve sketched out here have long been a part of capitalist development, which means we know how to address them. For example, child labor was (and sadly is) a particularly pernicious form of Jenga Capitalism, robbing society of healthy, happy, and productive adults so that capitalists can squeeze out a few extra widgets in the short run. As society grew more affluent, it banned the practice and invested in public education, making us all better off (economically and morally).
Second, there are (literal) green shoots: I’ve become genuinely excited about Joe Biden’s industrial policies. They are the most ambitious attempt I’ve seen to rebuild America’s productive capacity. If our efforts succeed, the strong foundation afforded by cheap, clean, and abundant energy will lead to a taller and sturdier economic tower in the decades to come.
On the other hand, we face new challenges that previous generations didn’t. (Yes, I’m talking about the internet.) In particular, one could argue that I’ve missed the most obvious form of modern Jenga Capitalism — namely, we allowed our information environment to become polluted by hyper-optimized algorithmic sludge. We shattered society’s ability to train its attention on its most critical problems, let alone build consensus on them. (It’s been two years, and I remain disoriented by how quickly coverage of Russia’s Ukraine invasion gave way to wall-to-wall analysis of Will Smith slapping Chris Rock, for example.) Worst of all, we built an arena for picking political and cultural leaders that rewards humanity’s worst impulses — narcissism, self-promotion, shamelessness, playing to the tribalistic impulses that inflame rather than unite and uplift. TV wasn’t a perfect medium for picking leaders — and it probably meant we over-indexed on handsomeness — but it wasn’t this.
At the risk of ending on a pessimistic note, I sometimes think about the environmental movement and ask: Could it have accomplished anything had it started today? Or would it have shattered into a thousand tiny personalized pieces, incapable of congealing into a consistent whole that could push society in a greener direction?
I don’t know! Maybe!
Then again, I’m not the first to notice that modern protest movements seem flimsier than their historical predecessors. The real-world friction that needed to be overcome to create the Civil Rights Movement made it most resilient in the face of setbacks. Conversely, the revolutionary energy of Occupy Wall Street and the George Floyd protests dissipated quickly, with seemingly little lasting change to show for it.
Despite our technological sophistication, progressing on critical issues today is more challenging and error-prone than it was when society was built on reading and writing (which, incidentally, was the communications paradigm coinciding with the origin and bulk of modern economic growth). But progress we must. The form of capitalism we have is our most serious choice. We should pay it the attention it deserves.
Of course, that assumes we still have the capacity to do so.