Financial "Degeneracy" Only Fortifies the "Prison of Financial Mediocrity"

“The Prison of Financial Mediocrity” by @systematicls might have been one of the most important articles on X this year as it articulated the visceral feeling that the American Dream has become a trap for those who start from zero.

The author anchors the alleged death of the American Dream in the widening intergenerational wealth gap. Boomers hold about 50% of the wealth while Millennials hold only 10%, despite both groups comprising roughly 20% of the population.

But isn’t this gap an inevitable consequence of the unprecedented economic growth since WWII? Is it really surprising that those who had more time to compound wealth are favored in this system? Does this truly prove that showing up, working hard, and committing to the “grind” no longer pays off?

Furthermore, proclaiming the imminent end of the American Dream is nothing new. In October 1975, the New York Times article “Economy Mars Belief In the American Dream” cited a 33-year-old professor (the age of today’s millennials) stating that “tomorrow is not going to get better in the way that people in 1955 would say that tomorrow would be better. That’s gone.”

Proclaiming the end of the American Dream (a term coined in 1931 by James Truslow Adams) has actually been en vogue for the last half-century.

Yes, housing prices exploded in the last decade, but there is good reason to believe they will normalize due to demographic shifts and increasing inventory. Additionally, AI and automation may eventually lower construction costs.

I agree that Millennials face a future of potential AI obsolescence. However, I doubt that the only rational move is to accept being locked out, defect from the slow grind, and commit to what the author calls “degeneracy”: high-variance bets in crypto, prediction markets, and speculative trading.

The article correctly identifies an application of Prospect Theory. When economic actors perceive themselves as operating in the loss domain, they naturally flip from risk-averse to risk-seeking. If the “safe path” guarantees a slow decline in purchasing power, a volatile bet with a 99% chance of failure and a 1% chance of escape becomes mathematically rational, even if it remains economically dangerous.

This psychological shift explains the flood of liquidity into everything from zero-day options to memecoins. However, assuming this behavior can sustain an accelerating long-term economic theme relies on a fundamental misunderstanding of what financial markets are for. In their ideal state, they function as a distribution machine allocating capital to innovators.

When money flows into equities or bonds, it ostensibly funds corporate expansion, research, and ultimately productivity growth. This positive-sum game creates new value that lifts the broader economy and the standard of living for its participants. Financial degeneracy, by contrast, directs capital into closed loops.

Call me an optimist, but I doubt that an increasingly relevant number of people will fall into the trap of believing that the rising casinos “in all forms” might be an escape hatch. They are not, and people will realize this sooner or later.

Financial degeneracy is likely the behavior of a loud minority rather than a generational standard. By assuming this is the new normal, we risk overestimating how many people are actually willing to wager their survival capital on a coin flip. “Long degeneracy” might be a bet on a short-term trend, as people will eventually realize the trap.

We must first distinguish between the noise of social media and the reality of the broader economy. Financial degeneracy feels universal on X because the algorithm is optimized to feed us extreme examples of risk-taking. Yet outside this bubble, the data tells a much more boring story. Millennial wealth actually grew by over 13% in 2024, a rise driven not by 100x altcoin plays but by traditional real estate and retirement accounts.

The author further argues that people in the US generally do not face the “bottom tiers of Maslow’s hierarchy,” such as starvation or lack of shelter. This was also largely true in the 1960s, an era that had widespread gambling as well. Yet we do not remember the gamblers of that era. We remember those who committed to the grind and compounded like Warren Buffett, the all-time idol of investors.

Financial degeneracy in contrast will not increase productivity. Whether it is a prediction market on Polymarket, Kalshi, or a sports bet, these are fundamentally negative-sum environments. They are purely redistributive mechanisms where winners are paid by losers, minus a fee extracted by the platform.

When a generation pours its excess liquidity into these casinos, that capital is not funding the next technological breakthrough or infrastructure project. It is simply changing hands until it is slowly eroded by the house rake.

This creates a dangerous diversion of resources. If the prevailing theme of the next decade is indeed a flight to high-variance speculation, we are looking at a future of capital starvation for the real economy. Research already indicates that for every dollar diverted to sports betting, net investment in productive financial markets drops by nearly $2.

If financial degeneracy accelerates, it creates a liquidity incinerator. The problem with the “Prison of Financial Mediocrity” is that trying to break out by gambling only fortifies the prison walls by damaging the economy as a whole.

With the personal savings rate hovering at 4% in September 2025, there is a finite amount of fuel for this fire. The “prison” might win in the short term until the economy starts losing because its most ambitious participants bet on the noise instead of investing in the future.

In the worst case, it might become a self-fulfilling prophecy if younger generations bet against the American Dream instead of building it.

Follow me on X for frequent updates (@chaotropy).