Here is Elon Musk’s long play. It’s GameStop 2.0. You would have to be living off-the-grid to not have heard about r/wallstreetbets and the GameStop Rebellion, but in short it was an attempt by ordinary small investors to stick it to large Hedge Fund players and expose the market manipulations and short-selling techniques they use to exploit financial markets and corrosively erode productive economics in a country, over time.
This may seem like a somewhat bold statement, but one has to put it into context. To borrow a term which was once a popular theory in physics, no financial market exists in a ‘steady state’. Instead, a financial market evolves on the basis of the conditions which preceded it. Or to put it another way (and rather more ominously), “All stable economies sow the seeds of their own destruction” - Hyman Minsky. One can see the evidence of this decline in the Hedge Funds own dismal performance in recent years- where the financial returns from the exotic manipulations and exploits once made the rich richer- extravagantly so- in recent years the growth of many has slowed to 2%.
The key problem is that as financial markets evolve through cycles, and the core objectives which apply to the political economics which govern them struggle to keep up. Every eighty years or so, the rules that govern a particular financial system have to be rewritten with a new core objective in mind. This is a forced necessity because of the mechanism of long term debt cycles, whose appearance is only the manifestation of a deeper, more fundamental problem- the fact that economies only perform optimally when there is a negotiated balance, or ceasefire, between labour and capital.
Unfortunately, we have yet to invent a financial system which takes this need for goodwill between worker and business owner into account. It is generally only seen in the SME sector, where personal contact allows for the formation of trust and human reciprocity. Each of the two alternate goals we have set for our framework of politics which governs economics in the past, have always tilted toward favouring either labour or capital, over time. When the system is designed with the core objective of fighting inflation, capital gains the whip hand- and the financial market slowly becomes an arid desert ruled by an aristocracy of wealth which might surge to between with, but is bound to inevitably decline and shrink into an ever diminishing aristocracy of wealth if the rules are not rewritten, because the ecosystem which feeds capitalism, the ‘water’ of wages, dries up. Conversely, when full employment is the goal, workers demand more and more, which is fine whilst high morale continues to feed innovation and higher productivity, but eventually leads to a redline beyond which there is no more room for wage growth, with rampant inflation the only result.
In many ways, this is like seesaw set with a runnel and metal ball rolling down the middle. It takes a long while for the ball the roll down the middle- usually 80 years. But towards the end of each long-term debt cycle the movement towards catastrophe accelerates and gains force. And in case you hadn’t guessed it already, the last cycle ended in 2008 and we didn’t reset the momentum of the ball. Even more worrying this lack of a proper reset seems to be producing the worst of both extremes, at the same time- both rampant inflation and a phenomenon which causes concentrated wealth to cannibalise the wealth of smaller fish in order to survive.
But we aren’t really getting to the real problem yet- the political. Every time a long-term debt cycle has occurred, the system had been set back to its preceding position, by the popular demand of the people. This simply didn’t happen in 2008. There were many reasons. Entrenched vested interests. Fears that too much intervention would kill the golden goose. The fact that in Washington and London the lobbying interest of finance is by far the most powerful, even dwarfing that of the intelligence community and the administrative state combined (who do you think keeps the machine running, and who do you think helps intelligence operate with relative impunity). Above all, in Washington in particular, our political classes were the oldest they had ever been, and this in turn created the institutional preference to return to earlier points of the long-term economic cycle- on the one hand, where job security and wages were at a premium, and on the other where strivers could create unprecedented levels of wealth for society, even if it is concentrated into the hands of a relative few.
The problem is that the alternate periods they yearn for are fixed moments in the economic cycle. They cannot be restored. It would be like breaking the fundamental laws of physics, like time travel- for the simple reason that those short periods of stability were incredibly dependent on the periods which preceded them. Instead, innovative thinking was called for- and not only were they old, but the political class as a whole tends to construct ideological structures which have little practical use, because they lack the level of detail necessary to make real world positive changes.
Enter Elon Musk. Whatever you may think of him, he has every reason to be just as fed up with the status quo and finance as the rest us. According to a recent TED interview, he was forced to make a false statement to the SEC because his lenders had threatened to withhold funding if he didn’t. and TESLA at the time had come under the most sustained financial attack through the mechanism of short-selling in human history. The latter part at least is well-documented- and due in part to the fact the sensitivity of commodities markets, electric cars only have to displace around 2% of global oil demand, to collapse prices and denude finance of it’s most profitable revenue streams, for a time.
Whether you believe his claim is irrelevant, but in many ways the claim bears a striking resemblance to that of Sergio Berlusconi, when sustained manipulations of Italian bond markets had Italian taxpayers forced to pay returns on bonds at a rate of around 7%. Thankfully, the carpet baggers didn’t succeed in Italy, or Spain, or Portugal, or many of the other Southern European economies in which they wanted to unleash creative destruction, denude public pensions and create free market zones with decimated public sectors that they could exploit more thoroughly. Tragically, they succeeded in Greece with the net result that the Greek economy shrank by 30%. To a far lesser extent they succeeded in Poland, where the need to protect bond holders rather than use the odious debt mechanism, resulted in a backlash from government which instead hit private pension funds. Poland recovered quickly, Greece did not- demonstrating perhaps that some poison chalices are preferable to others.
What this comparison aims to demonstrate is although you may believe that politically Elon Musk’s views may not align with yours, and you may not believe in his dreams of an electric car future, at an existential level, your fundamental interests coincide with his. Because if you are against him, unwittingly you are siding with the interests of finance and the corrupt corporate duopoly which has ruled over American politics for the longest time. For the Right, Elon Musk has the rare opportunity to restore political balance and free speech to the public forum. For the Left, this GameStop Rebellion 2.0 has the potential to upset the financial hegemony which has prevailed over you for majority, or all, of your lives.
Think about it. Are you happy about progress on climate change, labour rights, the cessation of the child tax credit, the failure of promises on raising the minimum wage? Do you really think that the Corporate Centre Left has your best interests at heart, when Joe Biden could deliver on his student debt promise with the stroke of a pen, or the deferral to the Senior Parliamentarian is little more than a veiled attempt to disguise the fact that the corporate Dems never wanted to deliver on their promises? After all, they could have forced Republican to vote up or down on all of their more popular measure- but they didn’t want to!
Plus, you know they are coming for you next, right? They will pay lip service to woke capitalism, but they won’t lift a finger to help the tens of millions of workers who toil in the real economy under inhumane conditions and subsistence wages. Where has their support been for the recent Amazon Worker Union votes? And whilst they might adhere to the tokenism of cultural progressivism, they won’t allow those voices which argue for a more just economic progressivism based upon class interests and economic justice to ever gain the prominence it deserves- despite the fact that the very ethnicities they purport to champion, are heavily represented in Blue Collar whose class interests they snub.
Finally, you have to realise where all this is headed, with finance gaining ascendant power over the political, able to maintain an economic system which should have been reset in 2008. You may scoff at the paranoia of the Right over the Great Economic Reset, but what it really is, is the introduction of a New Gilded Age, where the vast majority of people are treated like economic serfs. Do you want to know how they will do it? Through Private Equity and here is the plan.
Few private equity (PE) firms systematically focus on pricing transformations, though such programs can create substantial value. Here’s how pricing value can be captured at any stage in the deal cycle. (from the article)
In economic terms this is raising prices without creating value- or put another way, it’s a transfer- a reduction in value for customers in favour of shareholders. Think about it this way- have you noticed how Blackrock is buying up housing to the point that young people cannot afford a home? For the fortunate few with affluent parents, this will mean that you can buy less with your money as house prices rise even further. For the rest, it will mean much higher rents, and an even greater portion of your salary or wages spent on housing cost. And greedy finance will see mortgage debt as asset class surge to unprecedented levels.
They’ve been studying the UK economy for some time. Many of them have invested in it, as the pressures of our housing crisis creates more and more pressure on young people, depriving many of the hope of ever buying their own home. Building land costs roughly £1M an acre in the South of England- which means they get to make roughly £125K on a barely adequate single family home, even before groundbreaking. It’s Rentier economics, with the notable difference that you agree to pay your raised rents upfront and service them through the mechanism of mortgage repayment. It’s coming to a place near you in America very soon- if it hasn’t already, and if it has it’s only going to get much, much worse.
For those further down the economic spectrum, it will only mean a longer commute to work, as those on lower wages will be forced to move further out into the periphery to barely subsist. Longer travel times to work, and a heavier carbon burden on the climate- either that or being forced to pack into highly profitable, high density concrete and glass monstrosities, like sardines.
So, in many ways, you may not realise it- but Elon Musk is your unwitting ally. ‘The enemy of my enemy is my friend’- Arthashastra. By declaring war on the financial elites who have almost brought Musk to ruin in the past, he has declared war on your ultimate enemy- the prevailing political and financial hegemony which is ruining young people’s lives. If your student debt is a government-run, public investment then why are you paying interest on it? Why should the fact that finance wants to extract more money from you in interest payments, force you to put off setting down and jeopardise you chances of starting a family?
Instead, you should be aiming to force a compromise. How about a filter which allows you to control your political and cultural content more directly. To filter out the more reactionary and Culture War conservatives, and instead focus on the more sensible ones who might actually share some of your values- like the shocking 71% of young Trump voters who support the Amazon workers. It might even give you the chance to win some of them over- or at least find common ground- perhaps concentrating your interests against those of boomers. Perhaps if you are more interested in an economic progressivism which unites worker interests, you could have a sliding bar which allows you to filter out the endlessly frustrating noise of the Culture War, and instead allow you focus in on policies and issues which matter.
Hidden in the remote recesses of the web, their are libertarians who some might believe are only pot smoking Republicans, but have instead been arguing against heavy-handed cops and municipal rent-seeking through policing for decades. You might not believe that the market alone can solve the problem of climate change, but it will at least it will help improve your mental health and sanity, if you can set your feed to include climate engineering, highlighting projects like Ocean Cleanup or the NEOM project, with its carbon reducing solar desalination technology. Corporate media wants you rivetted to your screen with panic porn about the climate change- they don’t want you to see the green shoots of hope, rare though they may be. The corporate interests who advertise with them don’t care if you take to the streets and protest, because they can tweak the taps of human need, and know that the economic desperation it causes will make enough people forget about climate. But at the same time, in small ways, know that a few geeky engineers are already making a difference, even if their efforts fall woefully short of the sort of change that is needed, and your governments have decided not to fund them as they agreed at Paris, because they don’t really want to disrupt the financial status quo.
I might be wrong about Elon’s plan B. But he actively support the GameStop rebellion. He has found it difficult to contain his disdain for financial elites in the past, and firmly believes that they don’t create value. Do you? So, when Twitter decides to go nuclear with their Poison Pill option- a tactic designed to fight off hostile takeovers by diluting share value- be ready. Have your wallets open and ready to buy shares. Better yet, have a proxy voting form downloaded and ready to send over to whatever voting interest you want to represent you in the shareholder meeting.
You don’t have to be for Elon Musk. You don’t have to agree with him on climate change or electric cars. You may vehemently disagree with his views on Hate Speech as Free Speech. But just remember who your real enemy is- it’s the financial interests which are ruining your lives and the lives of untold others. Do you want to be treated like a serf or a human being? If you want to latter, then you might need to forge a temporary alliance with people you truly despise.
We are heading towards GameStop 2.0 and whatever happens it will be a magnificent ride!
Now about this very good piece that you wrote, i agree with you but i would go even deeper
I call this "misdirection", see all the economic studies and theories and Smith and so on, when actually "no one of the savvy ones" wants a free market to deal with, they want captive customers, they want oligopoly, they want lobbying to bend the laws in their favour to prevent new competitors entering.
See for example the theories of Adam Smith, and then how the countries that have achieved economic and industrial development and a very important thing "corporation headquarter" have done so by applying mercantilism (that is exporting a lot importing only the very necessary, examples China, Germany, etc.) .
I do not remember where i read this but it is like "England (aka Adam Smith and other authors) were exporting some theories to advise other countries what to do, and saying do as i tell you not like i do", see at that time England was killing the textile industry of India.
So i do not think we have had capitalism "per se", and i agree with you and disagree with Ben Connelly below, and i would not quote books or studies, i would just say that go to a bar and play cards, in Spain we have the game called "copo" (pure luck betting, no psychology involved), then you would understand that in a capitalist system finally the big one comes bigger and that unless some sort of "reset back to square one" is applied this end game. So i do not see you influenced by Max but i would just say you have played "copo" or have seen it being played.
I would also quote John D. Rockefeller, "competition is sin", and his practices, and i do not remember where but i read that "the trust laws enacted were to protect the big fortunes and prevent other joining the big fortunes group, but to the public a different story was sold".
As said i do not think we have seen a complete free capitalism, or free market system in the west at least for a number of years, because the powers that may be did not want it.
I also have read on one of your comments that you have followed/read Neil Ferguson, same here BUT, i enjoyed "the ascent of money" but in some chapters i differ (very much), i see his books like a nice piece of history explained "in a Disney way" (to mention a chapter i do not agree with his explanation of Waterloo). I am afraid that this narrative is approved and pushed through, whic h is a pity for such a intelligent and knowledgeable professor. I would really recommend a different author that is no "Disney", David Graeber "debt: first 5000 years", there you have a more plausible explanation of the money invention, of the first trading & bartering, and explained how some thousand of years ago certain cultures had implemented a "reset" because otherwise they society could not go on with accumulation of debt. After reading extensively I find Graeber much more plausible even if the tale is not that nice to hear, but yes we are humans.
Also to counter some "nice Ferguson history" i recommend "how trade shaped the world", reading about the trading imposed on India and China by the british empire, yes at the same time that we were preaching Adam Smith.
I know i am coming here as a "total conspiracy" individual, but far away from that. Once you should make an article about "misdirection" with things like
is the "left" the "left that we were told in the school"?
Why me say libertarian, liberal, progressive and so on? (english is not my mother language and i can offer a theory on this one)
why we keep on producing "strange names" to define things that have been there from the beginning of the times
Good piece, Geary. You forgot to mention that it was Obama who caved to the banksters; he had them, he could have changed the financial system, he chose to become one of them instead. Greatest failure of a modern politician, with dire consequences ...as you correctly point out.
You sound like you’ve been influenced by Marx. Do I think corruption in finance and collusion between finance and government is a problem? Sure, but nothing better anti-corruption law enforcement couldn’t solve. Do I think stock-buybacks and price inflation without value creation are problematic? Sure, but I think the stock market is a fundamentally good thing as it allows people to give their money to other people to fuel business-formation and growth etc etc etc.
Short selling doesn’t bother me. I thought the GameStop thing was stupid. And I struggle to feel any antipathy towards people in finance. You’re being a bit overwrought - corporate greed isn’t the root of all evil. Honestly, if she could get past her hatred of Elon Musk (based upon the fact that she just doesn’t like the idea of someone having a lot of money), Elizabeth Warren could totally get on board with your argument here. Half your talking points are ones she peddles.
“ Think about it this way- have you noticed how Blackrock is buying up housing to the point that young people cannot afford a home? ”
This is actually a false narrative not borne out by the data. It is both true that Blackrock is buying housing and that young people struggle to buy homes. But the source of the housing bubble is not some greedy guys on Wall Street. Big Investors still make up a statistically very very small portion of the ownership and buying of homes and apartment buildings. If anything, the housing problem is one of overregulation, zoning, and NIMBYism. In fact, none of the problems you identify couldn’t be fixed with a freer market.
“ Thankfully, the carpet baggers didn’t succeed in Italy, or Spain, or Portugal, or many of the other Southern European economies in which they wanted to unleash creative destruction, denude public pensions and create free market zones with decimated public sectors that they could exploit more thoroughly.”
An actually free market can’t be exploited by carpetbaggers. Carpetbaggers need to be in bed with regulators to design the system in ways that enrich them without creating value.
“ It takes a long while for the ball the roll down the middle- usually 80 years.”
Where does this idea come from? I think it’s a semi-famous economist but I’m not placing it.
Also, the idea that the student debt problem is caused by corporate greed is laughable. Students are not the victims of rich investors. They’re the victims of a government-fueled education bubble, perhaps and other problems. But there is a reason that the interest rates on certain types of loans are ridiculously high and you know that when you take out the loan. A loan is when someone gives you their money. You have to pay it back and the interest rate is there to 1. Incentivize you to give it back quick and 2. Ensure that the entity who loaned you the money gets something out of it (a return on investment). Also it has to do with the rate the market will bear, supply and demand, and the FED’s interest rates.
“ Hidden in the remote recesses of the web, their are libertarians who some might believe are only pot smoking Republicans, but have instead been arguing against heavy-handed cops and municipal rent-seeking through policing for decades. You might not believe that the market alone can solve the problem of climate change, but it will at least it will help improve your mental health and sanity, if you can set your feed to include climate engineering, highlighting projects like Ocean Cleanup or the NEOM project, with its carbon reducing solar desalination technology.”
I don’t smoke pot and I’m no longer a Republican but I definitely think that municipal rent-seeking is the source of much that is bad in the world. And that the free market will give us the solution to climate change.
Anyway, your article made me think, which is why I read you, Geary. Thanks for another interesting piece.
The principle that has been ignored is that the pie needs to be shared to a greater degree than is being done so now. I am reminded of the contrast between the Ancien Regime and the UK and US systems of wealth distribution. A closed system versus open systems - we all know what happened to the closed (as to all closed systems) system.
Now about this very good piece that you wrote, i agree with you but i would go even deeper
I call this "misdirection", see all the economic studies and theories and Smith and so on, when actually "no one of the savvy ones" wants a free market to deal with, they want captive customers, they want oligopoly, they want lobbying to bend the laws in their favour to prevent new competitors entering.
See for example the theories of Adam Smith, and then how the countries that have achieved economic and industrial development and a very important thing "corporation headquarter" have done so by applying mercantilism (that is exporting a lot importing only the very necessary, examples China, Germany, etc.) .
I do not remember where i read this but it is like "England (aka Adam Smith and other authors) were exporting some theories to advise other countries what to do, and saying do as i tell you not like i do", see at that time England was killing the textile industry of India.
So i do not think we have had capitalism "per se", and i agree with you and disagree with Ben Connelly below, and i would not quote books or studies, i would just say that go to a bar and play cards, in Spain we have the game called "copo" (pure luck betting, no psychology involved), then you would understand that in a capitalist system finally the big one comes bigger and that unless some sort of "reset back to square one" is applied this end game. So i do not see you influenced by Max but i would just say you have played "copo" or have seen it being played.
I would also quote John D. Rockefeller, "competition is sin", and his practices, and i do not remember where but i read that "the trust laws enacted were to protect the big fortunes and prevent other joining the big fortunes group, but to the public a different story was sold".
As said i do not think we have seen a complete free capitalism, or free market system in the west at least for a number of years, because the powers that may be did not want it.
I also have read on one of your comments that you have followed/read Neil Ferguson, same here BUT, i enjoyed "the ascent of money" but in some chapters i differ (very much), i see his books like a nice piece of history explained "in a Disney way" (to mention a chapter i do not agree with his explanation of Waterloo). I am afraid that this narrative is approved and pushed through, whic h is a pity for such a intelligent and knowledgeable professor. I would really recommend a different author that is no "Disney", David Graeber "debt: first 5000 years", there you have a more plausible explanation of the money invention, of the first trading & bartering, and explained how some thousand of years ago certain cultures had implemented a "reset" because otherwise they society could not go on with accumulation of debt. After reading extensively I find Graeber much more plausible even if the tale is not that nice to hear, but yes we are humans.
Also to counter some "nice Ferguson history" i recommend "how trade shaped the world", reading about the trading imposed on India and China by the british empire, yes at the same time that we were preaching Adam Smith.
I know i am coming here as a "total conspiracy" individual, but far away from that. Once you should make an article about "misdirection" with things like
is the "left" the "left that we were told in the school"?
Why me say libertarian, liberal, progressive and so on? (english is not my mother language and i can offer a theory on this one)
why we keep on producing "strange names" to define things that have been there from the beginning of the times
Sorry about such long comment
Nice weekend
Hello Geary, First things first, i promised you a link about the Ukraine thing
https://www.rand.org/content/dam/rand/pubs/research_briefs/RB10000/RB10014/RAND_RB10014.pdf
Good piece, Geary. You forgot to mention that it was Obama who caved to the banksters; he had them, he could have changed the financial system, he chose to become one of them instead. Greatest failure of a modern politician, with dire consequences ...as you correctly point out.
The road to Hell always is paved with good intentions...interesting trivia indeed.
You sound like you’ve been influenced by Marx. Do I think corruption in finance and collusion between finance and government is a problem? Sure, but nothing better anti-corruption law enforcement couldn’t solve. Do I think stock-buybacks and price inflation without value creation are problematic? Sure, but I think the stock market is a fundamentally good thing as it allows people to give their money to other people to fuel business-formation and growth etc etc etc.
Short selling doesn’t bother me. I thought the GameStop thing was stupid. And I struggle to feel any antipathy towards people in finance. You’re being a bit overwrought - corporate greed isn’t the root of all evil. Honestly, if she could get past her hatred of Elon Musk (based upon the fact that she just doesn’t like the idea of someone having a lot of money), Elizabeth Warren could totally get on board with your argument here. Half your talking points are ones she peddles.
“ Think about it this way- have you noticed how Blackrock is buying up housing to the point that young people cannot afford a home? ”
This is actually a false narrative not borne out by the data. It is both true that Blackrock is buying housing and that young people struggle to buy homes. But the source of the housing bubble is not some greedy guys on Wall Street. Big Investors still make up a statistically very very small portion of the ownership and buying of homes and apartment buildings. If anything, the housing problem is one of overregulation, zoning, and NIMBYism. In fact, none of the problems you identify couldn’t be fixed with a freer market.
“ Thankfully, the carpet baggers didn’t succeed in Italy, or Spain, or Portugal, or many of the other Southern European economies in which they wanted to unleash creative destruction, denude public pensions and create free market zones with decimated public sectors that they could exploit more thoroughly.”
An actually free market can’t be exploited by carpetbaggers. Carpetbaggers need to be in bed with regulators to design the system in ways that enrich them without creating value.
“ It takes a long while for the ball the roll down the middle- usually 80 years.”
Where does this idea come from? I think it’s a semi-famous economist but I’m not placing it.
Also, the idea that the student debt problem is caused by corporate greed is laughable. Students are not the victims of rich investors. They’re the victims of a government-fueled education bubble, perhaps and other problems. But there is a reason that the interest rates on certain types of loans are ridiculously high and you know that when you take out the loan. A loan is when someone gives you their money. You have to pay it back and the interest rate is there to 1. Incentivize you to give it back quick and 2. Ensure that the entity who loaned you the money gets something out of it (a return on investment). Also it has to do with the rate the market will bear, supply and demand, and the FED’s interest rates.
“ Hidden in the remote recesses of the web, their are libertarians who some might believe are only pot smoking Republicans, but have instead been arguing against heavy-handed cops and municipal rent-seeking through policing for decades. You might not believe that the market alone can solve the problem of climate change, but it will at least it will help improve your mental health and sanity, if you can set your feed to include climate engineering, highlighting projects like Ocean Cleanup or the NEOM project, with its carbon reducing solar desalination technology.”
I don’t smoke pot and I’m no longer a Republican but I definitely think that municipal rent-seeking is the source of much that is bad in the world. And that the free market will give us the solution to climate change.
Anyway, your article made me think, which is why I read you, Geary. Thanks for another interesting piece.
The principle that has been ignored is that the pie needs to be shared to a greater degree than is being done so now. I am reminded of the contrast between the Ancien Regime and the UK and US systems of wealth distribution. A closed system versus open systems - we all know what happened to the closed (as to all closed systems) system.
A very insightful and astute article. The return to Victorian levels of wealth distribution is indeed a very worrying development.