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
'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.'- it is worth noting that the British were initially very virtuous in India. It's were the phrase 'going native' comes from- with their tendency to take Indian wives, adopt local customs and blend in.
It was only later that venality and corruption set in, with the inevitable result that a once free and voluntary trading relationship between individuals and trading groups, led to a government intervention on the part of the British and all the awful subjugation it brings. That being said, it is a little known fact that Gandhi actually said of the British 'insofar as the they were the least government, they were the best government'.
But I think you are right- scale is the answer to why capitalism can often seem so cruel and brutal, despite its poverty alleviating benefits. It generally takes degrees of separation for man's inhumanity to man to truly get into its stride. There are always exceptions and bad bosses, but generally when one sees workers in a small business they always seem so much more happy and content. They bask in the warmth of human reciprocity. When names become numbers, that's the point to become alarmed.
I will add Graeber to a list which only seems to get longer by the day!
"It was only later that venality and corruption set in"
In the book "tragedy and hope" of Carrol Quigley, it is given a different reason like the initial governors of the british colonies were coming from Elite class, thus educated, and with a sense of morality that resulted in better conditions for the native inhabitants of the colonies. Then when the people in the colonies revolted these were replaced with new governors coming from lower classes that very often were harsher and greedy to get rich.
The book "tragedy and hope" is a extremely good book of history, this one put it on the list, it should be compulsory in schools. It may not be fully exact and could have some traps but in all it is one of the best i have found for history between 1880 and 1960.
I was going back even further to the initial trader enclave phase of British trade and exploration. Education seems to be one of the defining features of increased empathy and reduced violence. Have you seen The Violence Paradox, with Steven Pinker? https://www.bbc.co.uk/programmes/m000vsdy
It theorises that the Printing Press was the single most transformative invention in the changes it wrought in humans. Specifically, with the advent of fiction, we were at last able to 'walk a man in another man's shoes'. Before then, in many cultures in which the tribe still dominated thinking it was almost an anthropological universal to classify the world into those of the tribe, and not- with the latter being classified as non-human.
One can see it in the drastic reductions in murder and wars, over time. With our ability to observe distant peoples remotely, we are almost a different species, cognitively, from our ancestors.
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.
Thanks! Absolutely- I actually think it was this particular betrayal that caused so many Blue Collar Americans to turn away from the Dems. A little bit of trivia about the root causes of 2008- the systemically bad lending began in 1992 with the Affordable Housing Act. Housing Secretary at the time was a then little known New Yorker by the name of Andrew Cuomo.
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.
See my answer above to DOK. Plus, Private Equity Firms are hardly the stock market, they are increasingly specialising in assets, and assets, once subject to speculation, are especially susceptible to bubbles. I agree with you on the zoning, but this is something which is caused by an Iron Triangle of Interest. I agree with existing home owners, but many would rather see their grandchildren get homes than see their property values increase- which is why their is growing grey movement towards YIMBYISM- at least in the UK. where the role of private equity in housing has been in effect for longer and to a larger degree than in America.
The other two corners of the Iron Triangle are politicians (who inherently favour older voters) and finance, who want to see the total price of mortgages as an asset class grow, because one man's debt is another man's asset. This would be fine, if finance didn't intentionally stifle free market growth. I know small scale building entrepreneurs with 20 years of experience, a proven track record and perfect credit history, who simply cannot secure bank lending to buy building land- even though the loan is secured against an appreciating asset- for the simple reason that finance doesn't want the supply tap opened. Artificially inflated demand is very much in the interest of their long-term interest.
I hold no particular animus towards finance in general, only woards this specific practice- I was simply trying to develop an argument which played to both ends of the political spectrum. Where I do feel there is a problem is in relation to corrupt or ill-thought out government structures. Consider this- both Scandinavia and America have government subsidy schemes for private home ownership. The Scandies have a tax refund of 30% of debt interest paid on a mortgage, per person. America allows a house to be classified as a wasting product.
The problem with the American system is that it allows the depreciation to be treated as a net loss carry forward at the same time as the corporation is deducting the (perfectly legitimate) expense of maintenance and repairs. It's such a good deal that many corporations use this tax vehicle to defer taxes on profits when it makes the most sense for their business cycle. The Chinese also thought it was an incredibly good deal, which is why they were massive investors in American commercial and residential property, until about decade ago, when fears over volatility, and a lack of long-term sustainability made them stop. Of course, to be fair- it was also about them wanting access to private property rights.
'An actually free market can’t be exploited by carpetbaggers'- which is why American finance (and British finance) is anything but free market. Don't get me wrong- even when government tries to change the rules of the game, they do it completely the wrong way. Let me give you an example. When somebody commits financial fraud against your name, who should own the liability? Not you. Because from a purely legal perspective there is no way caveat emptor can apply to you. The banks are the ones who have been hoodwinked- their natural caveat emptor. Most legal systems have come to the naturally correct conclusion- but not America. Still, believe the rules of the game have been constructed according to the Natural Law which should apply to legal rights?
'Also, the idea that the student debt problem is caused by corporate greed is laughable.'- ah well, I completely agree with you there. Lol. It was an argument specifically directed towards Dems and on the subject of campaign promises. That being said, if the whole system wasn't one massive fraud against the young, why the interest rates? Because if current levels of higher education were really value adding, then one would expect the government to collect their public investment in higher tax returns in the future. Hence, the government fraud- the interest rates are proof they really don't believe it's a viable investment.
It's worth checking out The UK's Student Loan system as an alternative to publicly financed education as an argument. It's a Graduate Contribution Scheme, which has a natural term of expiry after twenty years. Basically, if you don't get the promised future pay, you never repay. It could be improved- different courses could use actuarial tables to set repayment thresholds- an engineer might start to repay at $30K, a graduate in Klingon $5K.
Of course, it's still a fraud- there is still interest- but it is a less pernicious fraud than the one perpetrated by American government.
'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.'- Ok, so financial types don't secure positions and then start to talk trash about a particular investments in order to maximise their investment. I won't mention the financial journal in question, but it is pretty common knowledge they used to have a dedicated phone line to accept 'tips' for the purposes of market manipulations.
Plus, Elon is right about short-sellers and speculative attack. Of course, there needs to be a mechanism for market adjustments, but if I borrow $100 from you without telling you, sell it for $90 and then give you $80 back for your trouble, you are hardly likely to be happy about it. This shouldn't be legal- the eventually of eventual collapse may not be ideal, but it is preferable to the current system.
This article shows that the speculative attack was real:
It was only wrong on three counts: “in principle, they’re not wrong”. First, this fails to take into account the intrinsic value of TESLAs patents. Second, where purely financial investors go wrong is that they fail to appreciate that people have a right to their psychic profits as much as their real ones. Markets are not rational, and people should be free to not operate in their own pure material self-interest- to think otherwise is the assertion of an ideologue and the reason why they find their predictions often don't come true. Markets have intangibles.
Third and most importantly- Musk is more likely to be able cross-pollinate across markets better than any other player. He is likely to win the race for self-driving cars- the other option isn't going to play out. He is also likely to win the race for functional robots. Generally, finance is better able to allocate resources than governments, but they will always fail against an engineer of his talents- when the system is 'closed' and dependent upon specific expertise.
Musk is not a salesman, he is the world's premier engineer and visionary. He can also be a dick- especially towards those two UK cave divers, but one expects such things from people with Asperger's.
'Anyway, your article made me think, which is why I read you, Geary. Thanks for another interesting piece.' Cheers mate, and I could say the same thing about your replies :)
'free market will give us the solution to climate change.'- I totally agree. The only thing I would say is that there is room for government funded developmental RND. America's greatest period of innovation was typified by around 1..2% developmental RND. It may have been used more to win the Cold War than fund NASA, but it was still gave America an incredibly important market advantage. 5 out of the 6 unique technologies which power smartphones were developed through public funding.
The future is a race, and we should want to win it because of China. This doesn't mean that the market isn't responsible for most innovations, simply that there are critical innovations we just don't know about yet, which they won't. Many innovations don't have an obvious ROI to begin with- they usually turn out to be the best ones.
“ Plus, Private Equity Firms are hardly the stock market, they are increasingly specialising in assets, and assets, once subject to speculation, are especially susceptible to bubbles. I agree with you on the zoning, but this is something which is caused by an Iron Triangle of Interest.”
I agree with all that. I think the situation is also different in the UK than it is here. Parts of the US have so much land and empty space that we have more of a release valve. Houses are smaller over there and people don’t have giant yards. In the US, there are still places where it’s dirt cheap to build and buy. Granted, people don’t want to live there, but if the price drops enough they will. I know places where the land/building/house costs are about an order of magnitude lower than what I think of as the average (based on personal experience, not based on any research or data). I also know places where the rents are 3-4x higher than what I think of as the average.
“ both Scandinavia and America have government subsidy schemes for private home ownership”
I’m generally against subsidies, too, haha. But I think you probably guessed that.
“ which is why American finance (and British finance) is anything but free market.”
We agree on that!
“ I was simply trying to develop an argument which played to both ends of the political spectrum.”
That’s what I figured.
“ It's a Graduate Contribution Scheme, which has a natural term of expiry after twenty years. Basically, if you don't get the promised future pay, you never repay.”
This is very interesting. If you work for the US Gov for 10 years your debt is forgiven. For teachers, that’s a good deal since teaching doesn’t pay well. For engineers, it’s a good deal for the government, since engineers (mainly in defense) are worth a lot to the government. Your point about R and D is a good one. I used to be an engineer at a research base for the DOD.
“ Ok, so financial types don't secure positions and then start to talk trash about a particular investments in order to maximise their investment. I won't mention the financial journal in question, but it is pretty common knowledge they used to have a dedicated phone line to accept 'tips' for the purposes of market manipulations.”
That sounds illegal to me, but it wouldn’t surprise me if some get away with it.
“ Markets are not rational, and people should be free to not operate in their own pure material self-interest- to think otherwise is the assertion of an ideologue and the reason why they find their predictions often don't come true. Markets have intangibles.”
I totally agree. People should be free to do irrational things all the time. I walked away from that defense job - great benefits, great salary, good future, solid job security. It wasn’t in my pure material self-interest to do that but I wanted something different.
“ Musk is not a salesman, he is the world's premier engineer and visionary. He can also be a dick- especially towards those two UK cave divers, but one expects such things from people with Asperger's.”
Haha yeah. I used to be down on Musk for years but he proved me wrong with SpaceX and Tesla. I’ve grown to like the guy. He makes me laugh. But yes he can be immature and dumb at times and he was cruel to those cave divers for reasons I could not fathom.
To Ben Connelly "corporate greed isn’t the root of all evil", most probably not, but please watch the documentary "the corporation". There is a big difference when we are talking a SME (where the owner or manager knows personally the people working, so the CEO sees people instead of numbers) than when we talk about a corporation.
To clean a bit my image otherwise you will see me as a conspiracy communist and nothing could be further from the truth.
I believe that in corporations we have "created a monster", i do not know how to tame or how to ensure that they would do well for the humanity. While i am sure of the need for private companies and corporations and competition i would like to find a way of ensuring the contribute to the collective well being while keeping its nature and competitive manner (i am not sure but what i say looks like a contradiction, and maybe not possible).
Short selling for me is somehow a problem, one day we could discuss about stock exchange, i would really enjoy talking with the people of this forum about these matters over a coffee.
Best regards and i compliment you for you comment, i may not share all your views, but i can say that except for a few points we would agree in many many things and would enjoy a nice discussion over a coffee
Thanks for your comment. I agree that there are problems with corporations and really any overly large organization. I would argue that the best way to check corporate power is competition and that in a freer market corporations would not be able to consolidate quite so much power. The problem is that oftentimes they grow close with the people who are supposed to be regulating them, and the regulators write the laws and regulations with loopholes that actually prop up the existing players and prevent new competitors from entering the market or performing well enough to threaten the larger corporations. Rent-seeking.
The other important check on corporate power is rigorous enforcement for the laws and regulations that we do have. There shouldn’t be a separate law for big companies than there is for regular people (I’d argue that GM’s ignition switch is an example where they got off way too leniently).
Completely agree Ben, as an engineer that worked for over 15 years in multinationals of the automotive i know very well the case of the GM ignition switches.
Another example, with the emissions scandal of VW, it came out that a law firm advised VW how to proceed by country. In the USA they advised VW to say nothing and pay, while in Spain they advised VW to go to court and fight due to the length and cost combined with the low financial power of customers and that the administration would help VW they would get out of the hook easily. Basically a collusion of administration and corporations.
If you want to see another one "nice" being played just now, you can see Poland arguing to the EU that they do not want the 4 booster of the Pfizer, and they do not want to pay for it because they still have some 25 millions doses unused, and the EU pushing for them to take these and pay for them.
"write the laws and regulations with loopholes that actually prop up the existing players and prevent new competitors from entering the market". At the moment we have a very big European industrial producer that cannot produce because of the mess from Covid, China and Ukraine, well this producer was able to "write the EU directives" and now european companies using its goods cannot find substitutes complying with the directive. The quantity of business that are being lost for that is really frightening, just one producer but we are talking billions of business lost by European companies, and no light at the end of the tunnel so far.
Some 200 years ago the big money lenders used to support both sides of the war and ripe money from the debt, they winner used to accept the looser debt. Nowadays wars are not on fashion so the game is to generate public debt that citizens would have to pay. In certain European countries the interest of the debt is higher than the money allocated to education for example.
I do not see an easy solution when our governments are bought so easily.
See my comment below to Ben. Many of my friends are cosmopolitans. I actually voted to stay in Europe, because having worked the manufacturing side of PVC windows and doors, I knew exactly how important seamless parts and supply are high and mid value manufacturing. But that being said, the EU is an innovation killer, and monetary union was a disaster for the Southern European nations.
In many ways, I am more pro-Brexit, even though I voted against leaving at the time. I didn't like the way my fellow countrymen were being portrayed in the media- when most of the animus was being directed at the bureaucrats in Brussels. Ironically, I am quite the cosmopolitan, and I've spent several happy holidays in the Puerto Banús area- the food and culture are fantastic, although I would also admit to being a big fan of Sorrento and Southern Italian cuisine
The EU Covid policy was a fucking joke, and I wonder how long it will before they use other emergencies to justify itself tax-raising powers again. It's worth noting that at the same time the American economy went from a global share of wealth creation of 39% to 33%, Europe went from 32% to 17% (or 19%- I'm quoting from memory. The EU is pretty bad for protecting vested interests. Generally, there are a lot of good things it does- but its approach to commerce is backward to say the least.
I was living in Scotland right before Brexit and I remember the way some people would talk about it was just crazy. A German fellow said that voting to leave would be voting against “70 years of peace” which I found compelling until I remembered that… haha, the EU wasn’t around for 70 years!
I’m no fan of Trump and never voted for him but it was like that here with the things people (not just Hillary) said about Trump voters. I heard people say they were all racists or that “now we know who to kill.” Etc. I did hear a Scottish young man say that “if you voted Tory, you might as well punch a poor person in the face,” but otherwise I’ve heard far worse invective on this side of the Atlantic.
Yeah, I probably wouldn't have voted for Trump either- but I would have voted third party rather than voting for the current batch of Democrats- other than a few notable exceptions- I think Katie Porter is a pistol, and even though I don't agree with a lot of her platform, she's the only one talking serious banking reform.
Of course, amongst the various things Trump was supposed to have said but didn't- he did give one highly incendiary speech about immigrants, which can't be explained away- but the Democrat position is that nobody should have voted for him because of this one instance- when many Americans were so desperate at the sorry state of Congress and its impact on their lives that they were willing to vote for anyone, no matter how bad, from outside the Washington political establishment.
Actually, though, I just remembered that I heard some in the UK burn Margaret Thatcher in effigy and celebrated the day she died. I suppose that takes the cake for partisan animus!
I have travelled widely, I have an extensive knowledge of food, culture, movies, plays, classic novels. I am the type of person who, when on holiday, visits museums and immerses himself in local culture- although I also enjoy a drink on holiday, as well. The fact that you don't know this about me, speaks volumes about yourself, rather than me- you are probably the type of person who likes to talk about women and the latest Netflix documentary than anything resembling high culture.
Besides which, I've tried the world's preeminent psychometric test on the subject, the Big 5 Personality Test. I score 90% on trait Openness to New Experience- indicating that I am extremely open to new ideas and experiences. Admittedly, I haven't travelled as much in recent years as in my youth- but that is something I hope to rectify in the future.
Also, don't sell yourself short. Despite the fact that you seem intent upon stalking me, you come across as smart. You are able to string together your ideas in a well-organised, articulate and literate fashion, and that is something only around the top 10% of the population is able to do. One has to account for the fact that intelligent people naturally find themselves tending to associate and form friendships with other intelligent people, so I think it is likely you've been using a harsh benchmark to measure yourself.
Do you perhaps have an exceptionally intelligent brother? Am I getting warm? If so, you have been measuring yourself against someone who is not in the top 1% of the population, which is the minimum level for such assessments, but rather the top 0.1%- in other words, 1 in a 1,000. Generally, siblings don't tend to vary by more than 11 points of IQ- so it is highly likely that you place somewhere in the top 2% to 5% of the population- if my suspicions are correct.
If so, this would also account for why you consider me unworthy of the label cosmopolitan- you would be using an unfair yardstick- comparing the very highly cultured to the highly cultured Is a bit like saying Ricky Gervais isn't funny because he isn't Dave Chapelle.
Yes. Public debt worries me too. The US National Debt interest is probably higher than what we spend on education, but I wouldn’t know off the top of my head.
There is a lot of waste there. They keep trying the same tired old policies, when London tried investing in classroom practice, a culture of professional data management and accountability, academies (our version of charters) and generally stricter schools- results shot up dramatically.
I was going to congratulate you two on an excellent conversation. You can always tell whether a society is functioning in a healthy competitive manner, if small restaurants own the lion's share of the market.
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.
You are most kind. It was actually OK when Private Equity Firms were actually creating value- although to be fair sometimes they would use exotic lending practices to reward investors, where no value had been created. But with the newest moves, this simply isn't the case. These days it's more about wealth transfers upwards than wealth creation.
The government. The reason why the capital exists in the first place, is because most money which is created by fiat actually ends up in the hands of wealth funds. If you don't believe me, look at the history of fiat money- the British began printing in 1821, with the ultimate result that they abandoned the gold standard in 1931.
It might have been true 15 years ago that the largest investors in Private Equity were institutional investors- insurance and private pension companies- but today the largest investors are Sovereign Wealth Funds and government run public pension funds. Only two of the top 15 SWF's are European, none are American.
So if you are fine with the American people being hurt in order to pay bureaucrats pensions and reward the Saudis, then that's fine. It's all perfectly legal. But raising prices without creating value is a wealth transfer and an upward one at that- in effect socialism for government employees and rich people. It's also Rentier economics.
Here's the really big kicker- it doesn't increase house production, it reduces it. The UK experience proves that conclusively- but if you want to get technical it's Say's Law- supply creates demand, demand doesn't create supply. This is especially true of the housing market, because when demand rises above a certain threshold, the increased scarcity costs reduce the profits to be made from actually building houses.
Plus, it's the motherlode of asset bubbles. Many of the more libertarian economists and financial experts are beginning to say it will burst in late 2025 or 2026. https://www.youtube.com/watch?v=hMTyML2h6KY
I get your view, but of course money isn't wealth, and that mal-equation is how government keeps economically challenged citizens down, pretending that money is wealth (which requires human effort to create: freely producing something useful to others as shown by free trade/exchange). You don't create wealth just by giving away more money they create or forcing wages up and prices down they are improving our lot. You can certainly steal from one to give to another (redistribution), but you effectively take wealth from the party that produced it to allow it to just be consumed by parties who did not.
Most politicians are such economic dweebs. They naturally cater to demand. The Chinese may be many things, and they are certainly making a fair few economic mistakes- especially using finance as a government tool. But their tax and spend policy ain't half bad. They only tax about 25% as a portion of GDP, 80% of that is devolved away from central planning and to the regions, with most of it being spent on economic development.
If government really wanted to help people they would concentrate on the supply side, not the demand. They also desperately need to find a mechanism for eliminating waste- Pournelle's Iron Law of Bureaucracy is unsustainable.
Inflation hurts labour more than anybody else. It's also not so great for savers :(
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
'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.'- it is worth noting that the British were initially very virtuous in India. It's were the phrase 'going native' comes from- with their tendency to take Indian wives, adopt local customs and blend in.
It was only later that venality and corruption set in, with the inevitable result that a once free and voluntary trading relationship between individuals and trading groups, led to a government intervention on the part of the British and all the awful subjugation it brings. That being said, it is a little known fact that Gandhi actually said of the British 'insofar as the they were the least government, they were the best government'.
But I think you are right- scale is the answer to why capitalism can often seem so cruel and brutal, despite its poverty alleviating benefits. It generally takes degrees of separation for man's inhumanity to man to truly get into its stride. There are always exceptions and bad bosses, but generally when one sees workers in a small business they always seem so much more happy and content. They bask in the warmth of human reciprocity. When names become numbers, that's the point to become alarmed.
I will add Graeber to a list which only seems to get longer by the day!
Nice weekend
You too!
Que tengas un buen fin de semana
"It was only later that venality and corruption set in"
In the book "tragedy and hope" of Carrol Quigley, it is given a different reason like the initial governors of the british colonies were coming from Elite class, thus educated, and with a sense of morality that resulted in better conditions for the native inhabitants of the colonies. Then when the people in the colonies revolted these were replaced with new governors coming from lower classes that very often were harsher and greedy to get rich.
The book "tragedy and hope" is a extremely good book of history, this one put it on the list, it should be compulsory in schools. It may not be fully exact and could have some traps but in all it is one of the best i have found for history between 1880 and 1960.
Muchas gracias igualmente
I was going back even further to the initial trader enclave phase of British trade and exploration. Education seems to be one of the defining features of increased empathy and reduced violence. Have you seen The Violence Paradox, with Steven Pinker? https://www.bbc.co.uk/programmes/m000vsdy
It theorises that the Printing Press was the single most transformative invention in the changes it wrought in humans. Specifically, with the advent of fiction, we were at last able to 'walk a man in another man's shoes'. Before then, in many cultures in which the tribe still dominated thinking it was almost an anthropological universal to classify the world into those of the tribe, and not- with the latter being classified as non-human.
One can see it in the drastic reductions in murder and wars, over time. With our ability to observe distant peoples remotely, we are almost a different species, cognitively, from our ancestors.
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
Great source, thanks for that.
welcome!, one day we need to compare notes about history books :)
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.
Thanks! Absolutely- I actually think it was this particular betrayal that caused so many Blue Collar Americans to turn away from the Dems. A little bit of trivia about the root causes of 2008- the systemically bad lending began in 1992 with the Affordable Housing Act. Housing Secretary at the time was a then little known New Yorker by the name of Andrew Cuomo.
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.
See my answer above to DOK. Plus, Private Equity Firms are hardly the stock market, they are increasingly specialising in assets, and assets, once subject to speculation, are especially susceptible to bubbles. I agree with you on the zoning, but this is something which is caused by an Iron Triangle of Interest. I agree with existing home owners, but many would rather see their grandchildren get homes than see their property values increase- which is why their is growing grey movement towards YIMBYISM- at least in the UK. where the role of private equity in housing has been in effect for longer and to a larger degree than in America.
The other two corners of the Iron Triangle are politicians (who inherently favour older voters) and finance, who want to see the total price of mortgages as an asset class grow, because one man's debt is another man's asset. This would be fine, if finance didn't intentionally stifle free market growth. I know small scale building entrepreneurs with 20 years of experience, a proven track record and perfect credit history, who simply cannot secure bank lending to buy building land- even though the loan is secured against an appreciating asset- for the simple reason that finance doesn't want the supply tap opened. Artificially inflated demand is very much in the interest of their long-term interest.
I hold no particular animus towards finance in general, only woards this specific practice- I was simply trying to develop an argument which played to both ends of the political spectrum. Where I do feel there is a problem is in relation to corrupt or ill-thought out government structures. Consider this- both Scandinavia and America have government subsidy schemes for private home ownership. The Scandies have a tax refund of 30% of debt interest paid on a mortgage, per person. America allows a house to be classified as a wasting product.
The problem with the American system is that it allows the depreciation to be treated as a net loss carry forward at the same time as the corporation is deducting the (perfectly legitimate) expense of maintenance and repairs. It's such a good deal that many corporations use this tax vehicle to defer taxes on profits when it makes the most sense for their business cycle. The Chinese also thought it was an incredibly good deal, which is why they were massive investors in American commercial and residential property, until about decade ago, when fears over volatility, and a lack of long-term sustainability made them stop. Of course, to be fair- it was also about them wanting access to private property rights.
'An actually free market can’t be exploited by carpetbaggers'- which is why American finance (and British finance) is anything but free market. Don't get me wrong- even when government tries to change the rules of the game, they do it completely the wrong way. Let me give you an example. When somebody commits financial fraud against your name, who should own the liability? Not you. Because from a purely legal perspective there is no way caveat emptor can apply to you. The banks are the ones who have been hoodwinked- their natural caveat emptor. Most legal systems have come to the naturally correct conclusion- but not America. Still, believe the rules of the game have been constructed according to the Natural Law which should apply to legal rights?
'Also, the idea that the student debt problem is caused by corporate greed is laughable.'- ah well, I completely agree with you there. Lol. It was an argument specifically directed towards Dems and on the subject of campaign promises. That being said, if the whole system wasn't one massive fraud against the young, why the interest rates? Because if current levels of higher education were really value adding, then one would expect the government to collect their public investment in higher tax returns in the future. Hence, the government fraud- the interest rates are proof they really don't believe it's a viable investment.
It's worth checking out The UK's Student Loan system as an alternative to publicly financed education as an argument. It's a Graduate Contribution Scheme, which has a natural term of expiry after twenty years. Basically, if you don't get the promised future pay, you never repay. It could be improved- different courses could use actuarial tables to set repayment thresholds- an engineer might start to repay at $30K, a graduate in Klingon $5K.
Of course, it's still a fraud- there is still interest- but it is a less pernicious fraud than the one perpetrated by American government.
'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.'- Ok, so financial types don't secure positions and then start to talk trash about a particular investments in order to maximise their investment. I won't mention the financial journal in question, but it is pretty common knowledge they used to have a dedicated phone line to accept 'tips' for the purposes of market manipulations.
Plus, Elon is right about short-sellers and speculative attack. Of course, there needs to be a mechanism for market adjustments, but if I borrow $100 from you without telling you, sell it for $90 and then give you $80 back for your trouble, you are hardly likely to be happy about it. This shouldn't be legal- the eventually of eventual collapse may not be ideal, but it is preferable to the current system.
This article shows that the speculative attack was real:
https://www.ft.com/content/4f8d65b3-6fe4-4bb9-9d13-2f8e7bf82d9f
It was only wrong on three counts: “in principle, they’re not wrong”. First, this fails to take into account the intrinsic value of TESLAs patents. Second, where purely financial investors go wrong is that they fail to appreciate that people have a right to their psychic profits as much as their real ones. Markets are not rational, and people should be free to not operate in their own pure material self-interest- to think otherwise is the assertion of an ideologue and the reason why they find their predictions often don't come true. Markets have intangibles.
Third and most importantly- Musk is more likely to be able cross-pollinate across markets better than any other player. He is likely to win the race for self-driving cars- the other option isn't going to play out. He is also likely to win the race for functional robots. Generally, finance is better able to allocate resources than governments, but they will always fail against an engineer of his talents- when the system is 'closed' and dependent upon specific expertise.
Musk is not a salesman, he is the world's premier engineer and visionary. He can also be a dick- especially towards those two UK cave divers, but one expects such things from people with Asperger's.
'Anyway, your article made me think, which is why I read you, Geary. Thanks for another interesting piece.' Cheers mate, and I could say the same thing about your replies :)
'free market will give us the solution to climate change.'- I totally agree. The only thing I would say is that there is room for government funded developmental RND. America's greatest period of innovation was typified by around 1..2% developmental RND. It may have been used more to win the Cold War than fund NASA, but it was still gave America an incredibly important market advantage. 5 out of the 6 unique technologies which power smartphones were developed through public funding.
The future is a race, and we should want to win it because of China. This doesn't mean that the market isn't responsible for most innovations, simply that there are critical innovations we just don't know about yet, which they won't. Many innovations don't have an obvious ROI to begin with- they usually turn out to be the best ones.
“ Plus, Private Equity Firms are hardly the stock market, they are increasingly specialising in assets, and assets, once subject to speculation, are especially susceptible to bubbles. I agree with you on the zoning, but this is something which is caused by an Iron Triangle of Interest.”
I agree with all that. I think the situation is also different in the UK than it is here. Parts of the US have so much land and empty space that we have more of a release valve. Houses are smaller over there and people don’t have giant yards. In the US, there are still places where it’s dirt cheap to build and buy. Granted, people don’t want to live there, but if the price drops enough they will. I know places where the land/building/house costs are about an order of magnitude lower than what I think of as the average (based on personal experience, not based on any research or data). I also know places where the rents are 3-4x higher than what I think of as the average.
“ both Scandinavia and America have government subsidy schemes for private home ownership”
I’m generally against subsidies, too, haha. But I think you probably guessed that.
“ which is why American finance (and British finance) is anything but free market.”
We agree on that!
“ I was simply trying to develop an argument which played to both ends of the political spectrum.”
That’s what I figured.
“ It's a Graduate Contribution Scheme, which has a natural term of expiry after twenty years. Basically, if you don't get the promised future pay, you never repay.”
This is very interesting. If you work for the US Gov for 10 years your debt is forgiven. For teachers, that’s a good deal since teaching doesn’t pay well. For engineers, it’s a good deal for the government, since engineers (mainly in defense) are worth a lot to the government. Your point about R and D is a good one. I used to be an engineer at a research base for the DOD.
“ Ok, so financial types don't secure positions and then start to talk trash about a particular investments in order to maximise their investment. I won't mention the financial journal in question, but it is pretty common knowledge they used to have a dedicated phone line to accept 'tips' for the purposes of market manipulations.”
That sounds illegal to me, but it wouldn’t surprise me if some get away with it.
“ Markets are not rational, and people should be free to not operate in their own pure material self-interest- to think otherwise is the assertion of an ideologue and the reason why they find their predictions often don't come true. Markets have intangibles.”
I totally agree. People should be free to do irrational things all the time. I walked away from that defense job - great benefits, great salary, good future, solid job security. It wasn’t in my pure material self-interest to do that but I wanted something different.
“ Musk is not a salesman, he is the world's premier engineer and visionary. He can also be a dick- especially towards those two UK cave divers, but one expects such things from people with Asperger's.”
Haha yeah. I used to be down on Musk for years but he proved me wrong with SpaceX and Tesla. I’ve grown to like the guy. He makes me laugh. But yes he can be immature and dumb at times and he was cruel to those cave divers for reasons I could not fathom.
Great post.
To Ben Connelly "corporate greed isn’t the root of all evil", most probably not, but please watch the documentary "the corporation". There is a big difference when we are talking a SME (where the owner or manager knows personally the people working, so the CEO sees people instead of numbers) than when we talk about a corporation.
To clean a bit my image otherwise you will see me as a conspiracy communist and nothing could be further from the truth.
I believe that in corporations we have "created a monster", i do not know how to tame or how to ensure that they would do well for the humanity. While i am sure of the need for private companies and corporations and competition i would like to find a way of ensuring the contribute to the collective well being while keeping its nature and competitive manner (i am not sure but what i say looks like a contradiction, and maybe not possible).
Short selling for me is somehow a problem, one day we could discuss about stock exchange, i would really enjoy talking with the people of this forum about these matters over a coffee.
Best regards and i compliment you for you comment, i may not share all your views, but i can say that except for a few points we would agree in many many things and would enjoy a nice discussion over a coffee
Nice weekend
Thanks for your comment. I agree that there are problems with corporations and really any overly large organization. I would argue that the best way to check corporate power is competition and that in a freer market corporations would not be able to consolidate quite so much power. The problem is that oftentimes they grow close with the people who are supposed to be regulating them, and the regulators write the laws and regulations with loopholes that actually prop up the existing players and prevent new competitors from entering the market or performing well enough to threaten the larger corporations. Rent-seeking.
The other important check on corporate power is rigorous enforcement for the laws and regulations that we do have. There shouldn’t be a separate law for big companies than there is for regular people (I’d argue that GM’s ignition switch is an example where they got off way too leniently).
Completely agree Ben, as an engineer that worked for over 15 years in multinationals of the automotive i know very well the case of the GM ignition switches.
Another example, with the emissions scandal of VW, it came out that a law firm advised VW how to proceed by country. In the USA they advised VW to say nothing and pay, while in Spain they advised VW to go to court and fight due to the length and cost combined with the low financial power of customers and that the administration would help VW they would get out of the hook easily. Basically a collusion of administration and corporations.
If you want to see another one "nice" being played just now, you can see Poland arguing to the EU that they do not want the 4 booster of the Pfizer, and they do not want to pay for it because they still have some 25 millions doses unused, and the EU pushing for them to take these and pay for them.
"write the laws and regulations with loopholes that actually prop up the existing players and prevent new competitors from entering the market". At the moment we have a very big European industrial producer that cannot produce because of the mess from Covid, China and Ukraine, well this producer was able to "write the EU directives" and now european companies using its goods cannot find substitutes complying with the directive. The quantity of business that are being lost for that is really frightening, just one producer but we are talking billions of business lost by European companies, and no light at the end of the tunnel so far.
Some 200 years ago the big money lenders used to support both sides of the war and ripe money from the debt, they winner used to accept the looser debt. Nowadays wars are not on fashion so the game is to generate public debt that citizens would have to pay. In certain European countries the interest of the debt is higher than the money allocated to education for example.
I do not see an easy solution when our governments are bought so easily.
See my comment below to Ben. Many of my friends are cosmopolitans. I actually voted to stay in Europe, because having worked the manufacturing side of PVC windows and doors, I knew exactly how important seamless parts and supply are high and mid value manufacturing. But that being said, the EU is an innovation killer, and monetary union was a disaster for the Southern European nations.
In many ways, I am more pro-Brexit, even though I voted against leaving at the time. I didn't like the way my fellow countrymen were being portrayed in the media- when most of the animus was being directed at the bureaucrats in Brussels. Ironically, I am quite the cosmopolitan, and I've spent several happy holidays in the Puerto Banús area- the food and culture are fantastic, although I would also admit to being a big fan of Sorrento and Southern Italian cuisine
The EU Covid policy was a fucking joke, and I wonder how long it will before they use other emergencies to justify itself tax-raising powers again. It's worth noting that at the same time the American economy went from a global share of wealth creation of 39% to 33%, Europe went from 32% to 17% (or 19%- I'm quoting from memory. The EU is pretty bad for protecting vested interests. Generally, there are a lot of good things it does- but its approach to commerce is backward to say the least.
I was living in Scotland right before Brexit and I remember the way some people would talk about it was just crazy. A German fellow said that voting to leave would be voting against “70 years of peace” which I found compelling until I remembered that… haha, the EU wasn’t around for 70 years!
I’m no fan of Trump and never voted for him but it was like that here with the things people (not just Hillary) said about Trump voters. I heard people say they were all racists or that “now we know who to kill.” Etc. I did hear a Scottish young man say that “if you voted Tory, you might as well punch a poor person in the face,” but otherwise I’ve heard far worse invective on this side of the Atlantic.
Yeah, I probably wouldn't have voted for Trump either- but I would have voted third party rather than voting for the current batch of Democrats- other than a few notable exceptions- I think Katie Porter is a pistol, and even though I don't agree with a lot of her platform, she's the only one talking serious banking reform.
Of course, amongst the various things Trump was supposed to have said but didn't- he did give one highly incendiary speech about immigrants, which can't be explained away- but the Democrat position is that nobody should have voted for him because of this one instance- when many Americans were so desperate at the sorry state of Congress and its impact on their lives that they were willing to vote for anyone, no matter how bad, from outside the Washington political establishment.
Actually, though, I just remembered that I heard some in the UK burn Margaret Thatcher in effigy and celebrated the day she died. I suppose that takes the cake for partisan animus!
I have travelled widely, I have an extensive knowledge of food, culture, movies, plays, classic novels. I am the type of person who, when on holiday, visits museums and immerses himself in local culture- although I also enjoy a drink on holiday, as well. The fact that you don't know this about me, speaks volumes about yourself, rather than me- you are probably the type of person who likes to talk about women and the latest Netflix documentary than anything resembling high culture.
Besides which, I've tried the world's preeminent psychometric test on the subject, the Big 5 Personality Test. I score 90% on trait Openness to New Experience- indicating that I am extremely open to new ideas and experiences. Admittedly, I haven't travelled as much in recent years as in my youth- but that is something I hope to rectify in the future.
Also, don't sell yourself short. Despite the fact that you seem intent upon stalking me, you come across as smart. You are able to string together your ideas in a well-organised, articulate and literate fashion, and that is something only around the top 10% of the population is able to do. One has to account for the fact that intelligent people naturally find themselves tending to associate and form friendships with other intelligent people, so I think it is likely you've been using a harsh benchmark to measure yourself.
Do you perhaps have an exceptionally intelligent brother? Am I getting warm? If so, you have been measuring yourself against someone who is not in the top 1% of the population, which is the minimum level for such assessments, but rather the top 0.1%- in other words, 1 in a 1,000. Generally, siblings don't tend to vary by more than 11 points of IQ- so it is highly likely that you place somewhere in the top 2% to 5% of the population- if my suspicions are correct.
If so, this would also account for why you consider me unworthy of the label cosmopolitan- you would be using an unfair yardstick- comparing the very highly cultured to the highly cultured Is a bit like saying Ricky Gervais isn't funny because he isn't Dave Chapelle.
Yes. Public debt worries me too. The US National Debt interest is probably higher than what we spend on education, but I wouldn’t know off the top of my head.
There is a lot of waste there. They keep trying the same tired old policies, when London tried investing in classroom practice, a culture of professional data management and accountability, academies (our version of charters) and generally stricter schools- results shot up dramatically.
I was going to congratulate you two on an excellent conversation. You can always tell whether a society is functioning in a healthy competitive manner, if small restaurants own the lion's share of the market.
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.
You are most kind. It was actually OK when Private Equity Firms were actually creating value- although to be fair sometimes they would use exotic lending practices to reward investors, where no value had been created. But with the newest moves, this simply isn't the case. These days it's more about wealth transfers upwards than wealth creation.
Who first "distributed" this wealth that you think others should use force to "fix"?
The government. The reason why the capital exists in the first place, is because most money which is created by fiat actually ends up in the hands of wealth funds. If you don't believe me, look at the history of fiat money- the British began printing in 1821, with the ultimate result that they abandoned the gold standard in 1931.
It might have been true 15 years ago that the largest investors in Private Equity were institutional investors- insurance and private pension companies- but today the largest investors are Sovereign Wealth Funds and government run public pension funds. Only two of the top 15 SWF's are European, none are American.
https://www.institutionalinvestor.com/article/b1p4bkg405f9k3/The-World-s-Dominant-Investors-in-Private-Equity
https://www.swfinstitute.org/fund-rankings/sovereign-wealth-fund
So if you are fine with the American people being hurt in order to pay bureaucrats pensions and reward the Saudis, then that's fine. It's all perfectly legal. But raising prices without creating value is a wealth transfer and an upward one at that- in effect socialism for government employees and rich people. It's also Rentier economics.
Here's the really big kicker- it doesn't increase house production, it reduces it. The UK experience proves that conclusively- but if you want to get technical it's Say's Law- supply creates demand, demand doesn't create supply. This is especially true of the housing market, because when demand rises above a certain threshold, the increased scarcity costs reduce the profits to be made from actually building houses.
Plus, it's the motherlode of asset bubbles. Many of the more libertarian economists and financial experts are beginning to say it will burst in late 2025 or 2026. https://www.youtube.com/watch?v=hMTyML2h6KY
I get your view, but of course money isn't wealth, and that mal-equation is how government keeps economically challenged citizens down, pretending that money is wealth (which requires human effort to create: freely producing something useful to others as shown by free trade/exchange). You don't create wealth just by giving away more money they create or forcing wages up and prices down they are improving our lot. You can certainly steal from one to give to another (redistribution), but you effectively take wealth from the party that produced it to allow it to just be consumed by parties who did not.
Most politicians are such economic dweebs. They naturally cater to demand. The Chinese may be many things, and they are certainly making a fair few economic mistakes- especially using finance as a government tool. But their tax and spend policy ain't half bad. They only tax about 25% as a portion of GDP, 80% of that is devolved away from central planning and to the regions, with most of it being spent on economic development.
If government really wanted to help people they would concentrate on the supply side, not the demand. They also desperately need to find a mechanism for eliminating waste- Pournelle's Iron Law of Bureaucracy is unsustainable.
Inflation hurts labour more than anybody else. It's also not so great for savers :(