I am not against environmental laws. I am simply saying that they have positive and negative consequences, and we have to be honest about the latter.
Both today and in the past we have done plenty of both.
The money doesn’t just disappear into a black hole. It eventually gets spent, one way or another. Maybe the guy who built a business and sold it off for a bunch of money takes that money and starts a new business; or he puts it into a diversified investment portfolio and that fund is leveraged by a bank to offer loans that other people use to start their businesses; etc.
It simply isn’t true that new businesses aren’t being created, and there is no reason in principle or in practice why the pool of money churning around more with more financial investments should prevent investment in new capital. If you claim that there is, you need to explain a mechanism by which money is actually being removed from the economy.
The only time that happens is when a company like Apple sits on untold billions in cash reserves. But investing in financial funds doesn’t remove money; it moves it around, but leaves it available for investment in new capital as well (it just changes who has the funds to make that investment).
You’ve provided absolutely no evidence that this is the case. Money spent on “financial capitalism” is moved around, but no matter how many times it cycles through financial investments, it remains available to be leveraged for the purchase of new capital as well.
Well, when the shares are initially sold by the company, they bring in a big cash inflow that the corporation does in fact use to expand, produce more goods, lower costs, hire employees, etc.
This is what’s called an IPO.
The same thing happens if you sell to private investors. For a very simplified glance at this process, look at Shark Tank - I want $XXX,XXX dollars for YY% of my company, and here’s what I plan to do with that money to grow both our investments.
Once the company sells the shares, when they are resold, the company itself doesn’t profit; but the person who had the shares and sold them now has the money, which he will spend, or reinvest.
And if the stock is held by an investment fund, then as mentioned, that fund is probably being used to back loans that the bank is offering to new homeowners or new business owners. So capital is still being created.
I need to explain that if you invest capital in one thing you aren’t investing it in a different thing?
That’s a basic economic principle called opportunity cost. Part of choosing to invest assets (time, money, resources, etc) in one opportunity is you are choosing to forego investing those assets in all the other opportunities.
Just to be clear, I didn’t claim that.
This is industrial capitalism.
No; you need to explain what the guy you paid to buy stuff (or the rights to stuff) from is doing with the money that dumps it into an economic black hole rather than leaving it available for further investment, including in capital.
And that opportunity cost applies to the guy who invested in financial institutions and not a tractor. But the $100 he invested are now available to someone else to invest further; maybe in other financial institutions, or maybe in physical capital.
If the $100 changes hands twice or a dozen times or ten billion times before finally being invested in a tractor, it still didn’t prevent the economy as a whole from growing further through investment in capital.
There is an opportunity cost from the perspective of the individual investor, but not for the overall economy.
The only opportunity cost to the economy comes from the labor done in the financial sector instead of another sector; but that’s not really a problem in the US economy, and the financial sector is a decision making apparatus for the economy as a whole, so it plays a valuable role.
How is it different from an IPO, aside from having an arbitrary number of investors instead of just Mark Cuban and Kevin O’Leary?
You know that when you do an IPO you typically say “we are seeking to raise $XXX,XXX dollars by selling off YY% of the company as ZZZ shares, and here is how we will use the money to grow everyone’s investment”; and that the quality of their plan determines what investors are willing to pay?
Correct.
Money never just “sits there.” Money is always doing something, for someone. And it usually benefits the working class, one way or the other.
When Apple sits on billions of dollars in cash, it kinda does just sit there.
Obviously Apple is probably not literally keeping the money in a Scrooge McDuck vault, and if it’s sitting in a bank account then it does benefit the economy a little bit, by letting whatever bank it sits in lend more money as it drives up that bank’s fractional reserve. But compared to literally anything else that Apple could be doing with that money, it may as well be “sitting there”.
But that one exception aside, you are right.
First, you need to realize that I’m not holding this position. Frankly, I’m one for whom the current system is working quite well. But you’re ignoring that once a critical mass of people think the system is broken, the perception becomes the reality.
And spare me this crap. It should be quite apparent I’m not espousing this as my personal feelings on the matter.
There won’t be some economic woodstock that establishes a new system. There won’t even be a game plan or a well defined new system. Shit will break down and something new will form in its place. Better? Worse? After a period of economic anarchy? Who knows. Or, possibly, the masses will find their votes and demand a radical overhaul of regulation that will slowly change things. But it won’t be a Project 2025 style manifesto where everyone says “Yes. Let’s do that.”
Really?
Okay, I have a big jar of coins in my kitchen. That’s a pile of money. Explain to me what that money is doing while it’s sitting in the corner of my kitchen.
It doesn’t have to be just a pile of coins. Let’s pretend it’s a hundred thousand dollars. I hide it under my mattress and leave it there for ten years. What was that money doing during that ten year period?
Or let’s move beyond just money and look at other assets. I buy a kilogram of gold and bury it in my back yard. What is that gold doing? Or I buy a Van Gogh and hang it on my wall. Is that painting doing something.
Here’s the reality. It’s very easy for money and other assets to do nothing.
I buy a factory for ten million dollars. I then invest another million in buying automation. I lay off a thousand workers, who are no loner needed because of the automation.
How did my investment help the working class?
I think I know what @LSLGuy might be referring to. The most obvious points of reference are the 2008 Great Recession and the 2001 Dot-com bust.
These are events I know a decent amount about as I started my career in tech/consulting in the mid 90s and my wife has spent her entire career in structured finance doing Big Short CDO stuff.
I believe the difference between boring ole capital investment to pay for that new brakepad division and the highly speculative “financialization” @LSLGuy is referring to is as follows:
In regular old capital investment, you see a demand for a product or service (ie brakepads) so you borrow money from the bank to expand your product line and sell brakepads at a profit while paying off the loan over time.
In the “financialization”, you see a demand for brakepads so you start buying up business loans for brakepad companies. You package them up and sell them as CDOs for investors looking to get in on the brakepad boom. Maybe you create a new cryptocurrency (brakecoin) for people to do whatever people do with crypto. Consulting firms like Mckinsey and Accenture build entire “brakepad readiness” offerings to help supply chain and transpo companies transform to the new brakepad economy. A whole cottage industry of experts, authors, public speakers, TED talks, influencers sprouts up holding conferences and hosting high end brakepad parties.
For the business, it does become like “cocaine”. In the near term, the company has a lot of extra money and a mentality that the party will never end. Presumably there are entire industries of similar companies vying for the same talent, so they will blow that money on steak dinners at Smith & Wollensky, corporate retreats to Disneyworld, happy hours and pricing nightclubs, and (at times) actual cocaine.
The companies building the automation equipment employ technicians, electricians, engineers, assemblers, forklift drivers, cleaners, etc.
Okay. let’s say the automation factory is the same size as my factory. They also have a thousand employees who are kept in their jobs by selling automation.
Every month they make a big sale and sell automation to another factory. And every time they do so, a thousand employees at that factory are laid off. So every year, the thousand employees at this one factory are doing work that results in a hundred and twenty thousand other people lose their job. How is that benefitting the working class?
Or maybe the automation factory doesn’t keep making big sales. Maybe it closes down after selling automation to my factory. That’s another thousand employees laid off on top of the thousand employees I laid off. How is that benefitting the working class?
Or maybe the automation factory keeps going for years, selling automation and causing other employees to lost their jobs. All of those out-of-work employees want new jobs and are willing to accept any offer. So the automation factory owner is able to cut wages and tell his employees they will be replaced by lower-paid employees if they complain. How is that benefitting the working class?
Listen, I’m not saying that all capitalist actions hurt workers. I’m not a communist. But it’s equally wrong to claim that all capitalist actions benefit workers. Plenty of times, capitalists do things which hurt workers.
What do you think of the argument by the economist Michael Hudson that finance has become a parasite on the real economy? I know I’ve heard Warren Buffet say he agrees with that.
Every booming industry in modern history has involved whole cottage industries of whatever the fad was in that era. I think the idea that this stuff is some sort of horrible corrupting influence that will destroy the economy is ludicrous.
I might question why the stock market would go down after a strong jobs report.
I think the interests of Wall Street are frequently decoupled from Main Street. And for publicly traded companies, pressure from shareholders (typically large Wall Street institutional investors) often force them to take short term actions that are not in alignment with the company and its workers.
It some cases like where you have large investors buying up tons of homes to rent out as AirBnBs, driving up housing prices in those markets, I think that is very much parasitic.
I feel that way about dividends. Dividends keep being eroded in favor of “more tax efficient buybacks.” But to me, the problem with that is that companies will make risky moves to execute buybacks, which I then have to sell shares to realize a gain, and in the meantime the possibility of the price falling is always present, and may even be enhanced by the risky moves made to buy back shares.
Frankly, as an owner of the company, I’d be just as happy to get my quarterly check.
There are a couple of statues in front of FTC headquarters that symbolize this:
If the horse runs wild, you don’t benefit from it.
If you kill the horse, you don’t benefit from it.
The only sensible way forward is to control (regulate) the horse.
I make a distinction between a large number of companies jumping into a rapidly growing industry (most of which won’t succeed) and the willful systemic adoption of flawed or fraudulent practices.