A world turned into a casino, don't believe in tears

Author: Dan Gray

Translation: Deep潮 TechFlow

Deep潮 Guide: This article starts from the historical roots of “financialization” and explains why today’s economy is increasingly resembling a casino. From meme stocks to cryptocurrencies, from sports betting to venture capital “lotteries,” Dan Gray argues that when capital no longer flows into productive activities but instead circulates in financial engineering, the true health of the economy is being masked. The article concludes with a call to return to “re-industrialization,” betting on hard tech companies that solve real problems.

Full text below:

“Speculators, as bubbles on the steady flow of solid enterprises, may not be harmful. But when the enterprise operations themselves turn into bubbles on a whirlpool of speculation, it becomes serious. When a country’s capital development devolves into a byproduct of casino activities, it’s usually a sign of trouble.”

–John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)

Meme stocks, cryptocurrencies, leveraged bets, prediction markets, VC seed rounds pouring $2 billion.

Savings rates at historic lows, debt at historic highs.

Capital has never been more restless. Creating wealth has become a gamble—placing big bets with long odds, hoping to win big.

Gambling has infiltrated every corner of the economy, from institutions to individuals, from top to bottom. It shapes the behavior of the younger generation and influences the direction of tech investments.

Welcome to casino culture.

Caption: “Double or Free” — Apple Pay concept design by Shane Levine

Roots of Financialization

To understand casino culture, we must first understand how we got here. The core concept is “financialization,” which refers to the gradual detachment of capitalism from productive activities in the economy.

In practice: economic returns shift from producers to capital holders. This is the opposite of industrialization. During industrialization, investments in manufacturing and infrastructure increased, and economic returns flowed from capital owners to the production side.

These two forces cycle with major technological revolutions, as Carlota Perez discusses in Technological Revolutions and Financial Capital. In the early phase of market prosperity (“installation period”), large amounts of capital flood into satisfying demand, layered with pure speculation. At a certain point, markets correct (bubble bursts), then enter a new phase of production (“deployment period”), where new technologies spread across the economy, broadly driving prosperity.

In a healthy economy, this cycle lasts about 40 to 60 years, generally advancing human progress. But the West has experienced about 50 years of continuous financial service expansion and industrial stagnation.

Caption: Cycle of technological revolution and financial capital, source: Carlota Perez

From a policy perspective, financialization has been driven by deregulation (e.g., Nixon Shock, GLBA, NSMIA) and quantitative easing—money printing. As a result, companies are incentivized to pursue success through financial engineering. Shareholders focus on metrics that reflect financial market performance rather than actual economic activity.

Recall the recent era of low interest rates—an environment that could have spurred unprecedented growth in manufacturing and infrastructure. Instead, financialization fostered a generation of “asset-light” companies, efficiently turning abundant capital into inflated valuations and shareholder returns. Capital circulates within pools, not flowing into productive activities.

Historically, financialization began in the 16th to 18th centuries with mercantilism and the gold standard. International trade was settled in precious metals, and political success was measured by accumulated gold and silver rather than more active, productive trade economies. This shift, along with the zero-sum mindset, underpins many current economic dilemmas.

“We always find that the biggest thing is to get money… If we are to seriously prove that wealth is not in gold and silver but in what money can buy—money is only valuable because it can buy—then that’s absurd.”

–Adam Smith, The Wealth of Nations (1776)

Profit Does Not Bring Prosperity

The preference for accumulation is reflected in public companies treating market capitalization as the ultimate success indicator. Increasingly, firms distribute profits via dividends or stock buybacks (reducing supply to boost EPS and stock prices) rather than investing in R&D or capital expenditures. In essence, companies avoid creating more value directly, instead manipulating metrics and ratios to look good.

This behavior makes some sense—it’s about creating value for shareholders. But the risk is that it produces “hollow” companies with inflated valuations, eroding overall economic productivity.

“For U.S. manufacturers, the ratio of dividend payments to capital equipment investment rose from about 20% in the late 1970s and early 1980s to 40-50% in the early 1990s, and over 60% in the 2000s. In other words, market pressure forces companies to use higher dividends (or buybacks) to maintain stock prices rather than reinvesting in capital.”

–“The Greater Stagnation,” Luke A. Stewart and Robert D. Atkinson (2013)

We Once Had Robots

Throughout the 2010s, iRobot outsourced manufacturing, shedding fixed assets (factories) and inventory risks, lowering the asset base and boosting return on assets (ROA) and return on equity (ROE). Simultaneously, cutting R&D increased free cash flow, which was used for stock buybacks rather than product innovation. EPS was artificially inflated, creating a positive feedback loop: stock price up → management compensation up → more buybacks.

In this process, iRobot repositioned itself as a “smart home” tech company to achieve more attractive valuation multiples (P/E, P/B), rather than remaining a less glamorous “appliance” maker. It hired many software developers, sold off defense security units, and closed U.S. manufacturing bases. In subsequent years, maintaining competitiveness depended more on sales and marketing than on technological barriers.

This is a story of a frontier robotics company funded by DARPA and incubated at MIT. It once dismantled improvised explosive devices in Afghanistan, participated in rescue operations after 9/11, but eventually became a distributor of overseas contract cleaning robots. Unsurprisingly, as the company lost control over its products, its monopoly position was eroded by more innovative competitors.

iRobot is just a microcosm of systemic financialization issues. Much of the economic growth over recent decades appears shiny on paper but is stagnating in reality. Financial reports are exaggerated (see Goodhart’s Law), but real prosperity and opportunity for ordinary people have not improved accordingly.

Debt to the Center

“When someone is burdened with too much student debt or finds housing unaffordable, they remain in a negative capital state or struggle to build wealth through property; and if someone has no chips in the capitalist system, they are likely to oppose it.”

–Peter Thiel, email to Mark Zuckerberg (2020)

From an individual perspective, financialization limits opportunities for wealth creation because economic upward mobility is concentrated among capital owners. If companies are forced to cut R&D, capital spending, and domestic employment to optimize financial metrics, they become top-heavy. When this trend spreads across the economy, wages are suppressed, and inequality worsens.

Caption: Since 1978, CEO pay has surged 1460%, with 2021 CEO compensation 399 times that of the average worker

Source: Economic Policy Institute

In the industrial economy, money was simply a liquidity value unit that made the system more efficient. It’s a tool—useful for important things, but not inherently valuable. Money is valuable because it enables you to buy a good house, drive a nice car, and enjoy a comfortable life. Your core economic role is producing and consuming goods and services, driving the “invisible hand” of Adam Smith to create prosperity, from which you benefit.

“The relationship between money and real wealth (actual goods and services) is like that between words and the physical world. Words are not the physical world itself, and money is not wealth; it’s just a bookkeeping of available economic energy.”

–Alan Watts, writer and philosopher (1968)

In a financialized economy, inequality in opportunity is subsidized by financial products. You take out loans to buy unaffordable homes, lease cars on installment, or rack up credit card debt for vacations. Trading stocks or buying cryptocurrencies makes things seem okay—maybe even a way to flip into a better class through speculation. Your primary economic role becomes a debtor to the system, which is designed to keep you there.

“Banks are using increasingly sophisticated models to predict which customers will borrow more after credit limit increases. For many, this means automatic increases they never requested or fully understand. These decisions shape household debt nationwide in ways most borrowers cannot see.”

–Dr. Agnes Kovacs, senior lecturer in economics at King’s Business School

Gambling Genes

“Buying a lottery ticket is the only time in our lives when we can hold a concrete dream—getting those good things we already have and are used to.”

–Morgan Housel, The Psychology of Money (2020)

In times of economic stress, financialization has evolved to exploit human cognitive biases. We tend to overestimate rare, high-return events—what economists Daniel Kahneman and Amos Tversky call prospect theory:

“People tend to underestimate the weight of outcomes that are merely ‘possible’ and overvalue certain outcomes. This is known as the certainty effect, leading people to avoid risk when facing certain gains but seek risk when facing certain losses.”

For example, if you’re chasing wealth, you’re more likely to borrow money to buy a lottery ticket because cognitively, you assign higher weight to that extreme (and unlikely) payoff, underestimating the small (but certain) cost. Conversely, a wealthy person will prioritize avoiding losses and is less likely to buy a lottery ticket they can easily afford.

The deepening of financialization over the past fifteen years has shifted behavior sharply toward debt and gambling. U.S. sports betting revenue soared from $400 million in 2018 to $13.8 billion in 2024, while credit card debt increased from $870 billion to $1.14 trillion.

This behavior masks many systemic issues—goods purchased on credit still count as consumption statistically, and gambling appears as service consumption.

As this mindset spreads through the economy, the speed of “gamblification” accelerates. Whether it’s sports betting, meme stocks, altcoins, gamified broker platforms, or loot boxes and Pokémon card packs, social media is full of people rolling dice and chasing wealth.

What’s more concerning is the scale of audiences attracted—adding another layer of abstraction, where viewers get entertainment from performers. These contents are pulling the next generation into an environment where gambling is fully normalized and even glorified.

“Although loot box activities can predict the frequency of monetary gambling (opening free boxes, paid loot boxes, selling items) and perceived normative pressure (selling loot), other activities have a greater impact. Specifically, all tested gambling indicators are significantly predicted by watching gambling streams—or videos containing gambling behaviors.”

–Eva Grosemans et al., Not Just Loot Boxes: The Role of Video Game Live Streaming and Gambling-like Elements in Youth Gaming-Gambling Links

Of course, the house always wins. Whether it’s harvesting order flow data, charging fees, or the negative expected value of gambling itself, current capital holders always outpace those who need to meet liquidity demands in shorter, more unpredictable timeframes.

Financialization Consumes Innovation

Since 2011, Silicon Valley’s theme has been “software devours the world.” More accurately, it’s “finance devours the world.” Despite its rebellious and independent reputation, venture capital has unfortunately exhibited all the flaws of financialization—favoring accumulation above all.

In a low-interest environment, software provided VC with a tool: transforming venture capital into inflated asset values and management fees. Loss-making startups are scaled up with massive losses, then marked up to justify subsequent funding rounds. Capital chasing capital creates inflation cycles—“the best” deals are those most likely to attract more investment. Similar to stock buybacks, this produces fragile market leaders with overstated valuations.

This wave of financial engineering ended with the end of the low-rate environment in 2022, and subsequent corrections wiped out much of the paper gains. The market is still digesting the hangover, with weaker fundraising performance in later funds (mainly in fringe markets and “outsider” managers).

But the problem persists. Fund managers are also influenced by prospect theory—the “lottery” metaphor fits their investment behavior perfectly: as leading institutions dominate the center, others overpay for projects with potential for extreme returns. Power Law dynamics now shape entry logic more than exit strategies—investors rush toward the endgame.

Even worse are investments based on long-term financialization patterns. You can bet on bills, bet against insiders in prediction markets, or try your luck in under-regulated crypto casinos. The despair of late-stage financialization has led us into “financialization squared”—investors seeking scalable business models that exploit the stagnation caused by financialization itself, printing paper gains.

Caption: Augustus Doricko, founder of Rainmaker, a true industrialist

Ultimately, investors must take responsibility for their choices. You can continue riding the tail of financialization, investing in products that sustain it, all the way to the end. Or you can become part of the correction, supporting companies that bring long-term prosperity through industrialization.

Obstacles Are Roads

Despite unfavorable incentives (slower growth, lower valuation multiples), and activity scales that are not yet large enough, sectors like manufacturing continue to grow steadily.

Is this a sign of a return to the industrial cycle, or merely an increasing awareness that the current state is unsustainable? It’s unclear. But one thing is certain: as more capital concentrates in fewer investors and flows into fewer companies, more investors and builders feel detached from the current system.

Eventually, something will break.

“But this time, it’s different. In the current ICT revolution, we seem stuck in the ‘installation phase,’ or what I call the ‘Turning Point’—a transitional period of recession, uncertainty, rebellion, and populism, exposing the pain caused by the initial ‘creative destruction.’ It is precisely when the system faces danger, skepticism, and attack that politicians finally realize they must establish win-win games between business and society.”

–Carlota Perez, Why is the ICT Installation Phase So Long?

As Perez describes, turning points are often driven by government action. While the U.S. government has made some strides in industrial policy, the trend of deregulation continues. This may be the first time in history that the industrial economy has quietly grown alongside the financial economy, competing for capital and talent.

Make no mistake—industrialization is the harder path. Fund managers face skepticism from LPs and less attractive short-term gains. But in the long run, “hard tech” and “deep tech” companies possess durable moats and compound value, outperforming trendier sectors. More importantly, they address real problems, directly contributing to prosperity.

“Re-industrialization” is a common call among technologists who feel the future has been betrayed.

It’s the new uranium enrichment plant in nuclear revival, the ocean robotics startup solving key food supply chain issues, the specialized AI lab focusing on drug discovery in the AlphaFold era.

None of these projects benefit from financialization. They are not easily wrapped into metrics and ratios that print money in private markets. But they will restore genuine productivity to the economy.

Era of Industrialists

“The relationship between the creation of money and credit and the creation of wealth (actual goods and services) is often confused, but it is the biggest driver of economic cycles.”

–Ray Dalio, founder of Bridgewater Associates

Financialization, during the post-boom stable period, has become a form of inertia—a mechanism of extraction and a driver of stagnation. Ultimately, it is self-interested, zero-sum, and increasingly prone to systemic collapse, sweeping away hopes of accumulation and recovery.

Hope capital is ready to embrace “hard problems” again. This cycle’s hallmark is the great industrialists—especially those pioneering at the frontier. The key is that they are idealists, with visions beyond shallow financial incentives. They prioritize durable competitive advantages over fragile capital barriers, and long-term legacy over short-term status games. Finance will serve their needs, not the other way around.

Meanwhile, the return of Adam Smith’s “invisible hand” will not spare those still polishing metrics to appease investor preferences.

(Thanks to Yifat Aran, Alex LaBossiere, Laurel Kilgour, and Aaron Slodov for feedback on the initial draft.)