Why is financialization hard to distinguish from gambling?
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Why is financialization hard to distinguish from gambling?
The market is merely an extension of human nature, and human nature is full of flaws and selfishness.
Navigating Web3 tides with focused insightsAuthor: @polarthedegen
Translation: AididiaoJP, Foresight News
Hyper-Financialization and the Market
Hyper-financialization is the extreme stage of the financialization process, where financialization itself refers to the dominance of financial markets in the economy. In hyper-financialized economies, financial activities such as speculative trading overshadow productive services that contribute more to society. Meanwhile, household wealth and inequality become increasingly tied to asset prices. In short, wealth is no longer directly linked to hard work or tied to the means of production.
Thus, more capital flows into speculative activities, as Keynes once said:
“When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.” — John Maynard Keynes
Understanding markets is important. We live in (mostly) free-market economies: voluntary buyers and sellers meet here, prices constantly update to reflect new information, and in theory, winning traders continuously replace losing ones. Their decisions determine how scarce resources are allocated within the market, thereby improving allocative efficiency. Theoretically, markets are meritocratic—and this makes sense. Since traders decide where scarce resources go, we naturally want them to be skilled at capital allocation.
Therefore, in an idealized free-market system, skilled traders direct capital toward socially desirable outcomes and receive more capital in return; those less adept at allocation see their capital reduced. Capital naturally flows to those best at allocating it, all while real output from manufacturing and services continues to be created.
But today’s markets no longer fully achieve this. Trading used to be an exclusive game—through much of the 19th and 20th centuries, only the wealthy and well-connected could participate, transacting in places like the New York Stock Exchange, limited to licensed brokers and members, with ordinary people having almost no access. Moreover, market data was difficult to obtain, leading to severe information asymmetry.
Digitalization changed all that. With the spread of telephones and new technologies, emerging applications began democratizing investing. Today, apps like Robinhood offer zero-commission trading and provide access to options, prediction markets, and cryptocurrencies. While this development has made investing more accessible and fairer, it has also elevated the market’s importance in our daily lives.
Super Gambling ⬄ Hyper-Financialization
The rapid digitalization from the late 20th to early 21st century has made financial speculation—“super gambling”—not only unprecedentedly low-barrier but also reached record levels of participation.
Zero-day expiry options volume: a proxy for retail gambling behavior
One might ask: is this level of hyper-financialization bad? I’m almost certain it is. Under hyper-financialization, markets deviate from their role as “weighing machines” for capital and become mere tools for making money. But I’m more interested in causality: we live in a society where both financialization and gambling are prominent, yet it's hard to tell which is cause and which is effect.
Jez describes super gambling as a process where “real returns are compressed, and risk rises as compensation.” I believe super gambling is one of two natural responses to hyper-financialization. Unlike the other response—growing socialist tendencies among millennials—super gambling catalyzes hyper-financialization, which in turn elevates the level of super gambling, creating a nearly ouroboros-like cycle.
Hyper-financialization is a structural shift where society becomes increasingly dependent on markets; super gambling is a behavioral response to the decoupling of effort and reward. Super gambling itself isn’t new. A 1999 study found that U.S. households earning under $10,000 spent 3% of their annual income on lottery tickets, driven by a desire to “correct” their lower income status relative to peers. But recently, as society has become increasingly financialized (and digitized), gambling culture has grown more pervasive.
Socialism as a Response
Now we can explore the first of the two natural responses to hyper-financialization I mentioned:
Through social media and digitalization, financialization has permeated every aspect of our lives. Our lives revolve increasingly around markets, which now bear an unprecedented responsibility for capital allocation. The result is that young people can barely enter the housing market. The median age of homeowners has hit a record 56, while first-time homebuyers now reach a median age of 39—also a historical high.
Asset prices have decoupled from real wages, partly due to inflation, making it nearly impossible for young people to accumulate capital. Peter Thiel pointed out this is a key reason for the rise of socialism:
“If someone is burdened with heavy student debt or finds housing too expensive, they remain in a state of negative capital for a long time, making it hard to start building capital through real estate. If a person has no stake in the capitalist system, they’re likely to oppose it.”
Asset inflation and high housing prices reduce perceived social mobility. This sense that the “social contract is broken” is evident in a recent Wall Street Journal poll: only 31% of respondents still believe in the “American Dream”—that hard work leads to success. Moreover, most Americans believe financialization will continue until 2050 and that the wealth gap will only widen further.
This pessimism reinforces the idea: rising asset prices leave those without capital behind, and hard work cannot change that. When people no longer believe effort improves life, they lose motivation to work hard within a system they perceive as rigged in favor of the asset-owning class. This accumulates into today’s rise of socialism—a structural response to growing financialization, aiming to restore the link between effort and reward through fairer asset distribution.
Socialism is an ideological response aimed at bridging the gap between bourgeoisie and proletariat. Yet as of May 2024, public trust in government stands at only 22%, leading to another natural reaction: more and more people stop relying on socialism to close the gap and instead try to climb into the upper class through (super) gambling.
The Cycle
As previously stated, the dream of rising through gambling is nothing new.
But with advances in the internet, the mechanisms of gambling have fundamentally changed. Today, nearly anyone of any age can participate. Once socially stigmatized behavior, gambling has been normalized and deeply embedded into social structures thanks to social media glorification and lowered barriers.
As noted earlier, the rise of gambling is a result of internet proliferation. Today, people don’t need to visit physical casinos—gambling is everywhere. Anyone can open a Robinhood account to trade zero-day expiry options, access cryptocurrencies, and online gambling revenue has hit historic highs.
As The New York Times put it:
“Today’s gamblers aren’t just retired elders at card tables, but young men on smartphones. Thanks to a string of quasi-legal innovations in online betting, Americans can now bet on almost anything through investment accounts.”
Recently, Google partnered with Polymarket to display betting odds in search results. The Wall Street Journal wrote: “Betting on football and elections is becoming as routine as watching games and voting.” While largely a social phenomenon, I believe the main driver remains hyper-financialization—even social gambling is a result of markets penetrating deeper into our lives.
As household wealth becomes increasingly tied to asset prices while wage growth lags, the upward mobility path through hard work appears narrower than ever. This raises a question: if living standards can’t improve, why work hard? A recent study found that when families feel homeownership is unattainable, they tend to spend more, reduce work effort, and opt for higher-risk investments. The same applies to low-wealth renters. These behaviors accumulate over the life cycle, further widening the wealth gap between owners and non-owners.
At this point, survivorship bias kicks in. Stories of overnight riches on social media, Instagram displays of conspicuous consumption, and day traders promoting promises to “quit your job” fuel a widespread speculative mindset. South Korea is a prime example: low perceived social mobility, worsening income inequality, and high housing prices have led to increased gambling tendencies among ordinary Koreans. The Financial Times reported: “Speculative retail investors have become the main force, accounting for over half of the daily trading volume in South Korea’s $2 trillion stock market.” They call themselves the “Sampo generation”—giving up dating, marriage, and childbirth due to high youth unemployment, job insecurity, stagnant wages, high living costs, heavy household debt, and fierce competition in education and employment.
This phenomenon isn’t limited to South Korea; Japan’s “悟道世代” (Enlightened Generation) and China’s “lying flat” generation are similar.
Across the Atlantic in the U.S., half of men aged 18 to 49 have sports betting accounts, and 42% of Americans—and 46% of Gen Z—agree with the statement: “No matter how hard I work, I’ll never afford the home I truly want.” If a few minutes of betting can earn a week’s, month’s, or even a year’s salary, why work a hated minimum-wage job? As Thiccy sharply observed:
“Technology makes speculation effortless, and social media spreads every rags-to-riches story, luring the masses like moths into a losing game.”
The dopamine effect behind this cannot be underestimated. In the long run, these gamblers lose money—but after experiencing easy gains, how can they return to a 9-to-5 job? People always think: just one more try, just one last lucky break, then I’ll quit.
“All you need is a dollar and a dream.” — New York State Lottery slogan
Thus the ouroboros begins its cycle: hyper-financialization breeds nihilism toward the system, leading to more gambling, which in turn intensifies financialization. More survivorship bias stories spread through media, more people gamble and lose money, diverting resources from productive activities. Markets no longer support companies that benefit society but flow toward firms that enable gambling. A stark example: HOOD (Robinhood) stock rose 184% this year, while the average retail trader spends only about six minutes researching before each trade—often done hastily right before trading.
But I don’t see this as pure market failure. Markets are merely extensions of human nature, and human nature is flawed and selfish. Thus, markets choose the most profitable outcomes rather than the most socially beneficial ones. Even if these outcomes are detrimental to humanity in the long run, we shouldn’t solely blame market failure—markets aren’t moral arbiters.
Still, it’s sad that an entire industry is built on extracting money from people. But as Milei said: “If you go to a casino and lose money, what can you complain about? You knew what kind of place it was.” Or more bluntly: there are no tears in a casino. I do believe hyper-financialization distorts markets. Markets aren’t perfect, but financialization makes them increasingly resemble casinos. When net-negative outcomes can be profitable, the problem clearly goes beyond the market itself.
Regardless of morality, this accelerates hyper-financialization. Stock prices rise further, unemployment increases, escapism spreads—TikTok, Instagram reels, the metaverse… The issue is, gambling is a zero-sum game (strictly speaking, due to fees, it’s negative-sum). Even from a simple zero-sum perspective, it creates no new wealth and brings no social benefits—it merely redistributes money. Less and less capital flows into innovation, development, and positive-sum outcomes. Elon Musk once said: “The point of civilization is to create far more than it consumes.” But in a hyper-financialized society, this is hard to achieve, especially as we face another consequence of financialization: escapism.
The gap in leisure activities between middle and upper classes has never been smaller, as humans spend increasing time online. Combined with declining social mobility, this not only weakens motivation to work hard but also reduces the desire to create beautiful new things.
What I’m saying is: in a hyper-financialized society, individuals cannot create more than they consume, and thus society cannot achieve positive-sum outcomes.
Finally, I end with this depiction of a hyper-financialized techno-capitalist society:
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@polarthedegen
