The tragedy of the commons

We should all be familiar with the tragedy of the commons, right? It's a basic economic principal. However, watching the news makes it abundantly clear that many people are not familiar, so here it is.

The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this to happen.

Replace individual with corporation, which we can do now that the Supreme Court has ruled they are the same thing, and you have a pretty decent explanation of what has happened in America over the last 40 years.

It might make sense for one corporation to screw over their employees and outsource manufacturing to a 3rd World Country, but when every corporation does it you end up eroding the manufacturing base of the country, and the result is a middle class that can no longer afford to buy the products you are making.

It might make sense for one politician to sell out to the big money interests, but when they all do it you end up with a country being run by the rich, for the rich. They may think that is what they want, just like the farmer overgrazing the common pasture thinks fattening up his cows at the expense of others is what he wants. And he'll keep thinking that, right up until the pasture fails and no cows can get fat. The middle class is that pasture.

It might make sense for one investment bank to scam the world by packing up crap mortgages into CDOs and selling them as A rated investments. But when they all do it the ponzi scheme eventually has to crumble, and you end up with a middle class that probably on the whole, has net negative equity in their homes.

Just like the classic example from Econ 101 with farmers that need to cooperate and maintain the common pasture for the good of the village, politicians, corporations, and financiers needed to maintain a stable economic base so that the American economic engine could keep running and growing. They didn't. They all acted in personal self-interest, and screwed the country in the process. The power interests in this country only saw the rest of us as a resource to be used in their pursuit of wealth and more power. And now they've depleted the resource, the rich are doing essentially the same thing the most rich and powerful farmers would do in our mythical example. They have put armed guards at whatever resources are left, and they aren't sharing.

This post inspired by this comment in a discussion at Metafilter.