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

🎰 Welcome to Casino Culture.

Author: Dan Gray

Translation: Shen Chao TechFlow

Shen Chao 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,” author Dan Gray believes 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:

“Speculators, as bubbles on the steady stream of solid enterprises, may not be harmful. But when business 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 mostly doing harm.”

–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, just 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 Nothing” — Apple Pay design concept by Shane Levine

The Roots of Financialization

To understand casino culture, we first need to see 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, a key theme in Carlota Perez’s Technological Revolutions and Financial Capital. In the early “installation phase” of a market boom, large amounts of capital flood in to meet demand, layered with pure speculation. At a certain point, the market corrects (bubble bursts), then enters a new “deployment phase,” where new technologies spread across the economy, driving widespread 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 is driven by deregulation (e.g., Nixon Shock, GLBA, NSMIA) and by “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 real economic activity.

Think about the recent low-interest era—initially, it could have spurred unprecedented growth in manufacturing and infrastructure. Instead, financialization fostered a generation of “asset-light” companies that efficiently convert abundant capital into inflated valuations and shareholder returns. Capital pools circulate without flowing into productive activities.

Historically, financialization began in the 16th to 18th centuries with mercantilism and the gold standard. International trade was often 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 it fostered, underpins many current economic problems.

“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—since money is only valuable because it can buy—then that’s just absurd.”

–Adam Smith, The Wealth of Nations (1776)

Profit Doesn’t 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—after all, it creates value for shareholders. But the risk is that it produces “hollow” companies with inflated valuations, eroding overall economic productivity.

“For American manufacturers, the ratio of dividends and 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 pay higher dividends (or buy back stock) to maintain stock prices, rather than reinvesting in capital.”

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

Once We Had Robots

Throughout the 2010s, iRobot outsourced manufacturing, shedding fixed assets (factories) and inventory risks, lowering the asset base and boosting return on net assets (RONA) and return on equity (ROE). Meanwhile, 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 → executive 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 and sold off defense security lines and U.S. manufacturing bases. In subsequent years, maintaining competitiveness depended more on sales and marketing than on technological barriers.

This is the 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-made vacuum robots. The inevitable happened—once 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 in reality, long-term stagnation and sluggish growth persist. Financial reports are inflated (see Goodhart’s Law), but real prosperity and opportunity for ordinary people have not improved correspondingly.

Debt to the Center

“When someone is burdened with too much student debt or housing is too unaffordable, they remain in a long-term negative capital position or find it hard to start accumulating 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 a personal 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, 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 just a liquidity measure to make the system run more efficiently. 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 to produce and consume goods and services, driving the prosperity that Adam Smith called the “invisible hand,” from which you also 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; they are just bookkeeping for available economic energy.”

–Alan Watts, writer and philosopher (1968)

In a financialized economy, inequality in opportunity is subsidized by financial products. You take out a mortgage for a house you can barely afford, lease a car in installments, or use credit cards for holiday spending. Trading stocks or buying cryptocurrencies makes everything seem okay—maybe you can flip your way out of the bottom, escaping the permanent underclass. Your main 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 across the country 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)

During times of economic stress, financialization has evolved to exploit human cognitive biases. We tend to overestimate small-probability, high-reward outcomes—what economists Daniel Kahneman and Amos Tversky call prospect theory:

“People tend to underweight outcomes that are merely ‘possible’ and overweight those that are certain. This is known as the certainty effect, which causes people to avoid risk when facing potential 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 the extreme (but unlikely) payoff and underestimate 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 past fifteen years of deepening financialization have shifted behavior from savings to debt and gambling. US 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 in statistics, 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 the obsession with loot boxes and Pokémon cards, social media is full of people rolling the dice and chasing wealth.

Even more concerning is the scale of audiences attracted—another layer of abstraction, as viewers derive excitement from performers. These environments are pulling the new generation into a world 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, and 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., More Than 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 can always outpace those who must satisfy liquidity needs over shorter, more unpredictable timeframes.

Financialization Consumes Innovation

Since 2011, Silicon Valley’s theme has been “software devours the world.” More accurately, it’s “financialization 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 era, software provided VC with a tool: turning venture capital into inflated asset values and management fees. Loss-making startups are scaled up, then marked up to justify future funding. Capital chasing capital creates inflationary cycles—“the best” deals are those most likely to attract more investment. Similar to stock buybacks, this produces fragile market leaders with inflated valuations.

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

But the problem persists. Fund managers are also influenced by prospect theory—the “lottery” metaphor fits current investment behaviors: as top 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.

Worse still are investments leveraging the entrenched behaviors of long-term financialization. You can bet with bills, bet against insiders in prediction markets, or try your luck in under-regulated crypto casinos. The despair of late-stage financialization drives us into “financialization squared”—investors seeking scalable business models that exploit the stagnation caused by financialization itself to print paper gains.

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

Ultimately, investors must be responsible for their choices. You can follow the inertia of financialization, investing in products that support it all the way to the end. Or you can be part of the correction, backing companies that bring long-term prosperity through re-industrialization.

Obstacles Are the Road

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

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.

Something will break first.

“But this time, it’s different. In the current ICT revolution, we seem stuck in the ‘installation phase,’ or what I call the ‘tipping point’—a 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, tipping points are often driven by government action. While the US government is making some industrial policy moves, the trend of deregulation continues. This may be the first time in history that the industrial economy is quietly growing 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 have enduring moats and compound value, outperforming trendier sectors. More importantly, they directly address real problems, contributing to prosperity.

“Re-industrialization” is a shared 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 squeezed into metrics and ratios that print money in private markets. But they will restore genuine productivity to the economy.

The 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 greatest 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, wiping out hopes of accumulation and recovery.

Hope is that capital is ready to embrace “hard problems” again. This cycle’s hallmark is the great industrialists—especially those pioneering at the frontier. They are idealists with visions beyond shallow financial incentives. They prioritize lasting 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 who continue to embellish metrics with investor-preferred hype.

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