What does it mean to have skin in the game?

There ought to be a word (and a special place in hell) for someone who pushes you to do something because he really believes it will benefit you — but doesn’t mention the fact that it will benefit him, no matter what.

The inimitable Nassim Taleb calls this having (or not having) skin in the game. He argues that any offer is bad if the proposer benefits from it while your outcome is uncertain. As he puts it: “Indeed, in the dozen or so cases I can pull from memory, it always turns out that what is presented as good for you is not really good for you but certainly good for the other party.”

This is the shifty used-car salesman who tricks you into a terrible deal on a car that may be a lemon, telling you that he hates to part with it at this price, but you’re gonna love it — while pocketing a fat commission and risking nothing. No skin in the game.

In finance, the classic example is a broker who sells you a risky investment, pocketing a hefty commission and losing nothing if the stock tanks — with no skin in the game.

When the housing bubble burst, in many cases nothing was lost by the banks and mortgage brokers that had pushed insane mortgages on people who couldn’t afford them. After setting up their “customers” for personal bankruptcy, they then packaged the crappy mortgages and sold them off to greedy and unsophisticated investors. (This is what Wall Street calls “innovation,” but that’s another topic.) The originators of the mortgages had nothing to lose and everything to gain — no skin in the game.

The ultimate, ironic example of skin in the game is the current Trump/Ryan budget and health care plan. It’s based on trickle-down economics, the ultimate con.

Trickle-down seems to me to be an obvious example of not having skin in the game. “Let’s cut the government services you depend on, and also cut my taxes” wouldn’t seem to be a convincing pitch, but people keep falling for it.

The big idea: that cutting taxes on rich people will lead to an explosion in investment and economic expansion that will benefit everyone. Sometimes this is claimed to benefit the poorest especially.

Well, it’s easy to passionately believe this if you have nothing to risk and everything to gain. High-income taxpayers (or politicians who rely on their support) don’t depend on the services that will be cut to fund their own tax cut, a benefit they realize immediately — no skin in the game.

It’s not quite “heads I win, tails you lose.” The con artist doesn’t care about your outcome. If that stock makes you rich or the rising economic tide does lift all boats, that’s okay. If you lose your shirt or your needed services or your home, that’s okay, too, because he’s pocketed the gains. He doesn’t care. He had no skin the game.

I’m not sure that the objective of the proposals from Paul Ryan or Donald Trump is to be cruel (bizarrely, in particular to the people who vote for them). The point is that they don’t care one way or the other, because they have no skin in the game. In this case, heads they win, tails they win. No matter what, they get the support of their wealthy backers, who in turn benefit immediately and directly. Everyone else? Well, good luck! Fox will keep distracting them and telling them it’s all the liberals’ fault.

What is truly hilarious to me is the argument of conservatives that rich people should determine taxation and spending policy, since they pay most taxes. In this view, the rich have the most skin in the game! This makes sense only if you believe the extreme proposition that all taxation is theft and that no one should pay any taxes. That’s a topic for a whole other article (or book). Sure, rich people — including kind ones — care about how much taxes they must pay, and they stand to gain from policies that raise or lower their taxes. I’m talking here about the claim that virtually eliminating taxes on the rich will lead to an explosion of growth — 4 trillion dollars worth, in the recent double-counting budget. In other words, if the growth materializes (which has never happened before when cutting taxes on the rich), then that’s great! If it doesn’t, well, I’ve got mine, Jack. I risked nothing, and society risked everything.

The irony for me is that conservatives often label progressives as “hypocrites,” because the latter argue for policies to benefit poor people (other people) without being poor themselves. They are apparently supposed to impoverish themselves before being allowed to advocate for others.

Advocating for someone else’s interests when doing so will cost you something is truly having skin in the game. Your policies may not work, but you will pay a price either way. And you have nothing to gain selfishly, other than living in a more equitable society. I want my skin in that game.