Guy Posts

Over the last few months we’ve learned that some of the biggest names in sports and business have needed a little extra “juice” to continuously knock the ball out of the park, be it in Yankee Stadium or on Wall Street.

Athletes and business professionals alike claim they were held captive by the culture of the time and needed to maintain an edge in order to remain competetive. I’d have an easier time buying these excuses if the official motto of the United States read, “If You Ain’t Cheatin’ You Ain’t Tryin’,” but last I checked, the phrase “In God We Trust” still adorns most of our currency.

My intent is not to lament the downfall of the Honest or admonish the Cheater. The national debate in the sporting and politcal world will be kept busy for years sorting out who is cheating and what the repercussions should be. Instead, I propose that all to often cheaters turn theories of economic rationality into the instruments of economic rationalization.

Edified in contemporary economic thought is the notion that pursuit of one’s own interests contributes most to the welfare of society. Through each person striving mightily, the theory goes, a strong invisible hand emerges that lifts society to optimality. Conversely, NOT behaving strictly in one’s economic self-interest detracts from the bottom line, and leaves one with the stigma of being an irrational, uneducated communist. As a result, the invisible hand which was once an appropriate image, has become so deeply ingrained in our collective model of the world that I wonder, is it really that invisible?

At the present, the invisible hand is more like the heavy anchor that grounds contemporary economic thought. A market bubble in information technology, commodities, and housing—all within one decade—should provide sufficient high level evidence that large amounts of capital, pursuing short-term profit horizons, do exert a real influence on the global economy. Borrowing against tomorrow’s output to pay yourself today, despite the myriad warnings, has proven to be a flawed business model. When the fictional Gordon Gecko declared, Greed, for lack of a better word, is good he not only inspired Teldar paper’s share holders, but reaffirmed to a generation of financiers that greed will save the “malfunctioning corporation called the USA.”

While rational choice theory is a convenient model, if only for its mathematical elegance, gaping holes exist in the assumption that the narrow pursuit of personal self interest will lead to the optimal allocation of society’s resources. When one considers the Prisoner’s Dilemma or the Tragedy of the Commons, evidence emerges that suggests pursuit of pure self-interest, without regard for the overall social order, leads to a sub-optimal outcome for not just society but for each individual within it. How do we fix this?

Digital information exchange has emerged as a worthy counter force against those who seek to abuse rational economic theories to rationalize economic malfeasance. With the cost of data storage plummeting over the last decade, more and more information is being added to the web each year. Every illuminating blog post, customer review, and news story gets crawled, indexed and ultimately stored in databases accessible to anyone with an internet connection

Cheat in an earlier age, and you could salvage your reputation by skipping town and starting anew. As John Battelle notes, “most of us will not waste the afternoon down in the basement of our county courthouse” digging up court cases. “The very fact that it’s so much trouble to find the information has, in effect, muted that information.” Transgress now and your reputation runs a higher risk of hanging in the balance of a creative search query.

The internet enables the public to access a more complete set of information, making it easier to identify those individuals and firms that have crossed over the line of healthy self-interest and into the realm of social destruction. The effect of this is two-fold: 1) In the short term, more people will be exposed (be ready), and 2) in the long run, our culture will digest the implications of a digital deterent like the internet, leading to a decrease in intentional economic fraud.