The following are real people. While all this data is public and published by the individuals themselves, I chose to not use real names as the story is not so much about the individuals, as the system of economic systems and motivations that shape them.
L. served as an officer at Unit 8200. After their service they enrolled in the Philosophy, Political Science and Economics (PPE) program at the Hebrew University of Jerusalem. Alongside their studies, they worked as an economist at the Ministry of Finance. Upon graduating, they left the Ministry of Finance to become a Product Economy Manager at the online gaming company MoonActive.
After graduating from PPE, R. did Strategic Economic Planning at the Ministry of Health. Today, they specialize in financial modelling, not for the public health sector, but for the game economy in the world of Coin Master, MoonActive’s flagship game.
S. worked for the Bank of Israel as a Data Analyst after completing their PPE degree. Today they work as a Product Economy Manager at MoonActive.
These are merely a few selected examples. Many others follow a similar trajectory: obtaining a degree in PPE, beginning a career in economics within the public sector, and culminating in a position as Product Economy Manager at MoonActive.
A Valuable Resource
Professional economic talents are a valuable and finite resource in societies. They are required for many of the most important societal undertakings. In order to produce impactful systems, projects, or endeavors, strong economic talent is needed to establish and manage our complex human activities. For example: to plan the future expansion of the public health sector, we must allocate competent economic expertise to ensure the financial feasibility and overall success of this undertaking. Every large and important human endeavor in modern society requires this form of economic talent input to succeed.
Economic talent is a finite resource, comparable to other essential finite resources in society. Only a limited number of trained economists graduate each year, and it requires years to acquire the professional experience necessary to perform these significant and complex tasks.
As with any finite resource, the question arises as to how the resource should be allocated, or more precisely, how talent should be distributed throughout the economy and what social mechanisms will influence this allocation. On its face, the answer is clear: the free market will manage the allocation of talent.
Individuals will freely choose occupations and positions that offer the greatest return on their abilities. Skills that generate the most value will consequently be in high demand, resulting in substantial rewards that incentivize individuals to invest in those skills. This is the fundamental process by which individuals are matched to work in a manner that benefits the overall economy. Thus, the market works its magic by efficiently matching jobs to individuals, optimizing the distribution of talents.
I will argue that when highly trained economists are drawn into optimizing virtual slot machine economies rather than public institutions, markets are misallocating the scarce and socially critical resource of economic talent.
When highly trained economists are drawn into optimizing virtual slot machine economies rather than public institutions, markets are misallocating the scarce and socially critical resource
The Pattern
The previous descriptions above, in which PPE graduates move from university to the public sector to MoonActive are interesting for two reasons. The first is the socially-conscious starting point and publicly-minded graduates of PPE, and the second is the diametrical opposite endpoint of virtual economists at MoonActive.
PPE offers a multidisciplinary approach that aims to instill in its graduates a broad, integrated perspective by combining studies in philosophy, political science, and economics. PPE is designed to produce well-rounded and socially conscious economists who can competently integrate social values and philosophical ideas that extend beyond strict economic rationality. Students not only acquire a practical foundation in economics but also develop the ability to critique and reflect on broader social implications.
The marriage of economic training with the social considerations at the root of economic issues is exactly the sort of preparation that makes for the ideal civil servant. As the pattern suggests, many graduates do indeed enter the public sector upon graduating. As citizens, it is exactly the sort of multifaceted-training that we would want from our public workers.
This initial social-minded education is in stark contrast to the motive of MoonActive. MoonActive is an Israeli online game developer. Its most successful game is called Coin Master, which is reported to generate over $1 billion annually. Coin Master is a slot machine game wrapped around a village builder mechanic, in which users spin a slot machine to earn coins later used to construct buildings and defenses for their village. Leaving aside for the moment any moral qualms about the whole subset of games called “Social Casino,” what I would like to focus on is the specific role of Product Economy Manager that these bright graduates are filling.
Online games which operate on a mass scale generate internal economies to facilitate the exchange of virtual in-game goods. Just like real-world economies, virtual economies are subject to the same macroeconomic phenomena and need careful analysis and tuning to ensure their smooth functioning. In a similar fashion to how an economic analyst at a central bank analyzes economic data to arrive at an optimal interest rate, so too do virtual economy managers track key economic indicators to keep the in-game operation efficient.
The technical proficiencies required for both roles are strikingly similar. For example one of the requirements for this role is to: “Monitor individual and macro player balances to ensure the overall health of the game’s economy”, as well as pricing the game’s virtual currency. By just changing the word player to citizen we in effect get the exact job requirement of a financial analyst at the central bank.
The skill set required is the same but external outcomes are completely opposite. While economists working in the public sector aim to improve the overall health and efficiency of the economy, thereby increasing prosperity and raising living standards for society, their virtual economist counterparts aim to maximize private profit by constructing systems optimized to extract the greatest value from players. The job is therefore to construct a balanced economy, but not with the goal of societal prosperity, but to maximize engagement, retention and revenue for MoonActive.
The job is therefore to construct a balanced economy, but not with the goal of societal prosperity, but to maximize engagement, retention and revenue for MoonActive.
We have thus described the misallocation of talent from public economic roles to the management of fictional economies. It is clear that we as citizens are ill-served by the transfer of economic talents from improving public endeavors which directly impact our lives, to optimizing a fictional economy. The mechanism that brings about this state of events is the result of allowing the free market to allocate the scarce resources of economic talents. In the next section I shall present the rationale behind the market-driven allocation and present my rejection of it.
The Market
An axiom of well-functioning markets is that they will allocate resources to the place where they produce the most overall value. This is the magical trick of capitalism. If we let it run its course, economic incentives alone will ensure the efficient utilization of resources.
Individuals are rational economic agents that respond to signals from the market as to where their abilities are able to create the most value. The chief way the market communicates this information is through wages. Thus, by answering the call of the market and following its signals, workers allocate their skill to where they are able to generate the most value, and therefore profit and growth for the economy as a whole. If individuals would ignore such signals, there will be no way to ensure that resources are efficiently allocated to the place where they are most required.
Individuals that are maximizing the value of their talent will not only ensure their own material prosperity by means of a high wage, but will also benefit society at large through higher consumer spending and more taxes paid to the state. Thus listening to, and acting upon this market signal the economy as a whole will prosper.
Extending this view to our particular subject: PPE graduates are rational economic agents and are responding to signals from the market as to where they are able to create the most value. MoonActive has perfected the conversion of economic aptitudes into capital gains in a manner that from a financial point of view it makes more sense to invest those resources into MoonActive than in any other place. Simply put, the fact that Product Economy Managers can command high salaries is due principally to the fact that MoonActive has innovated how to take this resource of economic expertise and extract the most value out of it.
Society has an interest in each individual offering their abilities in the most efficient manner, extracting the greatest return for each unit of expertise, to maximize the economic output of society as a whole. By this telling, there is no failure about the trajectory from PPE to MoonActive, as it expresses the most efficient use of their talents, and thus betters the entirety of society. The market is working exactly as it should.
The Response
But a market that systematically deprives society of the resources it needs to function cannot be regarded as a functioning one. By wastefully allocating scarce economic talent away from socially valuable endeavors and toward the management of inconsequential virtual economies for private benefit, it undermines our ability to employ that talent for the health of the very economic system it depends on.
By viewing talent as a discrete resource, we can begin to see that if it is utilized in one part of the economy, then it cannot be used in another. The economic talent that we are concerned with is a finite resource. If society chooses to allocate it to a certain endeavor, then it is not utilized in another. This is the simple nature of scarcity.
Economic expertise that was allocated to the balancing of coins to spin ratios, cannot be repurposed and applied to optimizing patient to MRI machines ratios
As such, once talent has been utilized, and labor expended, it cannot be re-harnessed and reutilized to a different part of the economy. Economic expertise that was allocated to the balancing of coins to spin ratios, cannot be repurposed and applied to optimizing patient to MRI machines ratios. Thus, even if the state coffers are fuller in cash due to the higher taxes paid by high-earning MoonActive economists, the state cannot simply take this money and apply it to meaningful projects, money alone is meaningless without it being able to buy human professional labor to implement it.
Even if higher private earnings at MoonActive increase tax revenue, taxes cannot fully compensate for the lost public sector work that would have been produced by the same people. Since talent is scarce and non-fungible, channeling it into uses of low social value imposes an opportunity cost that money alone cannot undo.
The Demand
Returning to the human element we started with: the PPE graduates who purposefully chose PPE over economics or business management degrees. They had an initial interest in the wider sociological implications of economics. Furthermore, they all took their first career steps in the public sector, demonstrating this initial commitment, and we should commend them for it.
However, as we let the market work its magic and rational individuals respond to its demands, a stark divide has emerged between the promise of an efficient market allocating scarce resources to where they create the most value and the current reality. The much needed talents of capable and socially-minded economists are being employed not to optimize the real economy but rather to orchestrate and enhance a virtual economy.
Market logic attracts economists from the public sector and employs their skills not for the benefit of society, but for the benefit of private profit. This constitutes a misallocation that cannot be corrected even by an increase in immediate tax revenues.
The phenomenon of the private sector draining talent from the public sector is not novel. A substantial body of literature addresses strategies to mitigate this issue, with proposals ranging from enhancing the prestige and attractiveness of public sector careers to graduates, to attracting valuable talent through more flexible and rewarding pay structures. While these modernization initiatives are important, the more significant argument I wish to advance concerns the demands that we, as citizens and the ultimate beneficiaries of a functioning state, ought to place on our economic structures.
If the market has produced this situation, we as citizens can alter it in ways that are more aligned with our genuine societal goals and ambitions. It should start with believing that we have the legitimate right to question institutional designs that systematically misallocate scarce resources like economic talent. When faced with a failure, such as the misuse of important economic talent, we mostly shrug, and feel defeated that this is the market. But we are allowed to assign limits to the sphere of economic rationality.
Just as we would not permit a private company to misuse our water resources to the detriment of the public, we should likewise not allow the misuse of this crucial economic talent. Economic rationality must serve a purpose, and we are justified in critiquing the market if it operates in a manner contrary to the overall well-being of society. When this market rationality is a detriment to society prosperity, we have a right to curtail it.