There’s a peculiar symmetry between the world of artificial intelligence and the complex interplay of incentives, choices, and outcomes in human society. In AI, the concept of a loss function governs everything. It’s how the model evaluates its predictions against an ideal outcome and adjusts to improve itself. A proper loss function penalizes errors and rewards progress, ensuring the model learns effectively. But what happens when the loss function itself is broken? The AI learns the wrong lessons, optimizing behaviors that deviate from true objectives. It spirals into inefficiency and dysfunction, and without correction, it becomes a hollow facade of its intended purpose.

When I look at society today, I see something eerily similar. Many of our most entrenched systems operate under a broken loss function—one that consistently misaligns incentives, distorts feedback, and produces outcomes that harm individuals, communities, and the collective future. Nowhere is this more evident than in our sprawling debate over student debt forgiveness and, on a broader level, in the declining fertility rates seen in developed societies. These symptoms point to a deeper societal problem: that virtuous decision-making is no longer being rewarded, failure is regularly excused, and our governing institutions—bloated and incentivized by self-interest—have hijacked the loss functions that ordinarily govern human progress. At some point, we must ask ourselves if this is a failure of capitalism, as some claim, or if it is instead the fault of collusion, corruption, and a government too large to allow meaningful accountability. I argue the latter.

To begin, let’s revisit the student debt crisis. At first glance, it feels compassionate and just to argue for forgiving student debt. But this superficial reaction belies a deeper and more troubling reality. The student loan system in its current form doesn’t originate from capitalism’s competitive principles, which reward efficiency and punish waste. Instead, it exists as an aberration—a closed-loop system created by universities, lenders, and the federal government, where incentives are aligned to prioritize reckless borrowing and inflation rather than accountability and results. Universities raise tuition unchecked because they know students can borrow endlessly, thanks to government-backed loans. Lenders don’t mind issuing risk-laden loans because they know the government guarantees repayment. And the very structure perpetuates itself as policymakers, loath to reform the system, propose temporary fixes like debt forgiveness while preserving a corrupted status quo.

This isn’t capitalism—capitalism rewards institutions that create value and punishes inefficiency or excess. Rather, the student debt crisis is driven by collusion and a corrupt political apparatus that shields universities from consequence while passing the burden onto borrowers and taxpayers. Debt forgiveness may seem like a balm for the millions struggling with loans, but it’s a short-term anesthetic for a system that needs deep surgery. The cycle would simply repeat itself: universities would continue overcharging for degrees of questionable value, borrowers would perceive less personal risk in taking on massive loans, and the architects of this dysfunction would face zero repercussions. True reform doesn’t reward failure but reorganizes the incentives so consequences align with actions—just as a proper loss function should.

But the crisis of broken incentives extends beyond just student debt. Let’s take a step back and look at another insidious symptom of our fractured societal loss function: declining fertility rates. Fertility is, at its most basic level, the ultimate feedback loop for any society. Reproduction ensures the survival of a civilization, its culture, and its economic vitality. Societies that value productivity, community, and long-term stability should, in theory, structure incentives to foster family formation and child-rearing. Yet we live in a world where this loss function is broken too. Fertility rates are plummeting—not due to natural inevitability but because systemic incentives prioritize short-term economic productivity, individual gratification, and careerism over family life.

Rising tuition costs saddle young people with mountains of debt, delaying marriage and families. Housing markets, distorted by overzealous regulatory interference and speculative bubbles, make homeownership—often a prerequisite for family planning—all but unreachable for many. Culturally, institutions promote individual fulfillment over collective continuity, and governments run social systems that all but guarantee that the financial cost of raising children lands squarely on individual parents with minimal help from society at large. When the cost of starting and maintaining a family so heavily outweighs the perceived benefits, it’s no surprise that fertility rates plummet.

In many ways, society has optimized for the wrong variables. Our loss function no longer prioritizes the sustainability of civilization or the long-term material and cultural health of our people. Instead, it rewards elite institutions bloated with inefficiency, punishes working families, and incentivizes atomized behavior while eroding the foundation of cooperative society. Much like the student debt crisis, declining fertility rates reveal a profound dislocation between effort and reward, decision and consequence. But this isn’t capitalism’s doing; it’s yet another symptom of the coalition of elite institutions and an overreaching government that meddles with feedback loops it cannot comprehend and ensures accountability is always deferred indefinitely. How can we fix our collective brokenness when the very entities handing down policy are themselves insulated from the costs of failure?

This returns us to a crucial idea: that capitalism isn’t the villain of these societal dysfunctions. If anything, true capitalism—one that empowers competition, holds institutions accountable, and rewards efficiency—is being stymied by the same excesses that deform our loss functions. Consider this analogy: in AI, backpropagation is the mechanism that allows a model to learn. By constantly comparing predictions to the ideal outcome and recalibrating weights, the system improves. But in society, we’ve replaced true backpropagation—the alignment of consequences with choices—with a crude simulation of it. Bureaucrats, universities, and policymakers act not as impartial arbiters of societal improvement but as central planners injecting their distortions into the process to protect their positions. What we’re getting is not real optimization, but an approximation of optimization that benefits the coalitions responsible for maintaining the dysfunction.

What’s the solution to all this? The answer lies not in expanding government intervention, as many advocate, but in shrinking it—restoring the conditions for genuine accountability and letting capitalism’s feedback mechanisms work as intended. Smaller government has the humility to step aside and let institutions—not bureaucrats—sink or swim based on their ability to deliver value. A smaller government cannot endlessly subsidize inefficiency, nor can it shield the consequences of failure from those who deserve to face them. A freer market would force universities to compete for students on real value propositions, driving prices down and efficiency up. A freer market in housing would strip away the restrictive zoning and building regulations that drive costs sky-high, enabling more affordable family living. A freer market in higher education, apprenticeships, and job training could vastly expand the avenues available to young people, reducing reliance on overpriced “one-size-fits-all” college degrees.

When a society’s loss functions are hijacked by overzealous, corrupt governments or powerful coalitions of institutions, the results are systems that look humane on the surface but erode prosperity and freedom at their core. Capitalism, when given the chance, has proven it can optimize those loss functions—rewarding innovation, punishing waste, and aligning choices with their natural outcomes. Forgiveness of student debt without reform isn’t justice—it’s distorting the loss function even further. Continuously ignoring declining fertility because it feels inconvenient to fix is yet another failure of accountability.

At the end of the day, the broken loss function of our society is nothing more than the externality of overreaching governments and coalitions conspiring to protect themselves at everyone else’s expense. If we truly want to restore accountability, equity, and progress, it’s not through more intervention but through less. Let society recalibrate on its own terms; let us rebuild systems where incentives align with consequences; let us put faith back in capitalism’s ability to self-correct—not the broken estimates government tries to impose on it. It’s only by stepping back that we can move forward. The sooner we recognize this, the better for us all.