The Rot Economy

https://wheresyoured.at/p/the-rot-economy

by hodgesrm • 3 years ago

349 206 3 years ago

Why Adam Neumann still gets money for a startup that cannot even fully define what he is trying to build after running we work to the ground is exactly why most people in this country are angry at the current state of things.

Normal people have consequences for the smallest of the mistakes they make in their lives. You can go to jail for failing to pay a parking ticket and have your life ruined if a medical bill goes to collections because your insurance wrongfully denied your claim.

Meanwhile corporations and connected individuals see little to no consequences of their direct actions. Ceos and founders mess up, and workers face the consequences. Real estate companies can literally walk away from their obligations and surrender buildings to lenders, and can still operate with no consequences. Banks can shut down and the executives can keep their millions in bonuses, while you who put your money in, should’ve known better about FDIC insurance limits.

rnk• 3 years ago

I think it's because he seems like that God,-like man who is going to lead you to the promised land! He's like a TV preacher, he's got that charisma and you went to follow him! And give him a billion dollars.

Keegs• 3 years ago

To paraphrase Matt Levine: the fact that you lost a billion dollars means someone else trusted you with a billion dollars, and that’s reason enough for financiers to trust you with yet another billion, thinking surely you’ll get it right this time.

hotpotamus• 3 years ago

The article says basically the same thing (though I suppose messiah is a bit of a demotion from god).

because he has the resemblance of the kind of messianic white guy that is able to take a product and sell it

spicyusername• 3 years ago

Can't agree more.

fallingfrog2• 3 years ago

No, no, you don’t understand, it was all those darned gays ruining everything!

Sounds like a farce but Fox really did try to blame “woke banking” for the collapse of Silicon Valley Bank.

datavirtue2• 3 years ago

Those grifters at Fox are geniuses. They know their audience very well and how to take an uninformed mind down any path they wish.

Fomite• 3 years ago

Whenever I want to get really angry, I convert the funding the latest Uber But For Pets On The Blockchain Using LLMs into "R01s" - the standard $1.250 million dollar NIH grants that are considered career making in the biological sciences.

You could change the world with the amount of money he's been given to...do whatever it is he can't even articulate.

onlyrealcuzzo• 3 years ago

Yeah, but you can change the world, and it doesn't necessarily mean you'll make a lot of money, and that's all anyone cares about, so what are you gonna do?

tomjen3• 3 years ago

With the amount of money I spent on my car (which is not a lot compared to what most people spend) I could have saved several people by donating to givewell, at a comparatively trivial inconvinience of having to bicycle/take the bus to work.

But I didn't, because the money is mine to do with as I please. Just like the billionairs money is theirs to do with as they please.

zakki• 3 years ago

Well from the article he gets the money from A16Z. I will say both of them are in the same boat on using other people money.

fbdab103• 3 years ago

...he is trying to build after running we work to the ground...

I do not disagree with your thesis, but Adam Neumann got paid close to $1 billion to leave WeWork. Sounds like he ran it in the most personally profitable way possible. Although, still well short of his trillionaire goal.

praptak• 3 years ago

This makes the main point stronger, not weaker. The main point was that no rational person would ever found his business.

rchaud8• 3 years ago

The overarching point is that the way market capitalism is structured today increasingly incentivizes these kinds of decisions.

That is not to say that Softbank completely dropped the ball on monitoring and oversight. Under no circumstances should Neumann have been allowed to self-deal by purchasing buildings with WeWork share collateral and leasing them back to the company.

astrange2• 3 years ago

Banks can shut down and the executives can keep their millions in bonuses, while you who put your money in, should’ve known better about FDIC insurance limits.

Man you just made this up. They do lose their equity and nobody lost their bank accounts.

spaceman_20203• 3 years ago

It helps to remember that there are apparently $120B in “stablecoins” that are used by real people to trade memecoins like SHIB.

All is well with capitalism /s

automatic6131• 3 years ago

At least, we can be confident that no one put anything like 120B into those stablecoins. Sadly, the real underlying amount is probably greater than 10% and even THAT'S a very depressing number

RandomLensman4• 3 years ago

How do you propose to regulate what investors can and cannot do? That seems to be at the core of it.

mikub• 3 years ago

Oh man thank you for that. Just the other day I was thinking about this stuff, I mean you can literally make no mistakes for years, but it only takes one weak moment and your life can be ruined. For example I am currently unemployed and teaching myself programming after a few bad years I turned my life around, but last year I had a weak moment and I bought some stuff that I couldn't really afford and also don't really needed (it was a Nintendo Switch, so I could relax a little after learning all day), it was something around 1000 Euro. Was it my fault that I bought it?, of course, but man, resisting is so hard when you can buy this stuff everywhere, even when you're sitting on the toilet you can buy it, I mean that's crazy. Like I said, it only takes one weak moment.

lukas099• 3 years ago

Did buying a Switch ruin your life??

dimgl• 3 years ago

I wish I had something more productive to add, but I want to say is that I love this article. It is absolutely the state of things... but I'm unsure what the solution (or solutions) are.

EatingWithForks• 3 years ago

I have a suspicion that the solutions would be incredibly radical to how we as humans are socialized to perceive justice, worthiness, and equality, such that we would immediately reject it as immoral, unethical, or otherwise unacceptable. [Consider for example that, not too long ago, many of us were socialized to oppose the idea women should vote.]

I also wish that the status quo is different, but I actually have no idea if I'd be able to stomach what different looks like based on my current upbringing which is thoroughly enmeshed in the systems that enable this.

mordae• 3 years ago

Vast majority of people who lived through revolutionary periods lived on. You'd manage.

Animats• 3 years ago

We know what the solutions are. Because they were implemented in the 1930s, and removed in the 1980s and 1990s as "deregulation".

- The US needs Glass-Stegall back. That's the requirement that banks and brokerages must be completely separate companies. The argument for repealing Glass-Stegall was that banks were now so smart that they didn't need such severe restrictions to prevent collapse from bad investment decisions. The banks were wrong.

- Companies should only be allowed one class of voting stock. The New York Stock Exchange used to require that, back when the NYSE had real power. Allowing multiple classes of voting stock is what gives us President for Life CEOs such as Google and Facebook have.

- No stock buybacks. Illegal in the US from the 1930s to 1981. The US recently banned stock buybacks for 12 months for companies which received coronavirus funding.[1] But that was a one time thing. During periods of low interest rates, companies tended to buy back their own stock with borrowed money to prop up the stock price. This mostly benefits executives with stock options.

- Limits on complexity of corporate organization. This was a thing for utility companies until a decade or so ago. They were limited to a tree depth of 3 in ownership. This was to make regulation easier and reduce the risk of bankruptcy cascades. See "Enron".

- Utility deregulation. Regulated utilities used to be standard. They got a monopoly in exchange for regulation. Since they were allowed a fixed rate of return on investment for rate-setting purposes, they were not hugely profitable but were very stable. The argument in the 1980s for deregulation is that utilities tended to overspend on infrastructure, building about 10% more stuff than they really needed. With deregulation, that money could go to stockholders. When Pacific Gas and Electric was deregulated, the company went bankrupt in only a few years, leaving the stockholders with nothing. And consumer prices went up in deregulated states vs regulated ones.[2]

- Tax law favors debt, where interest is deductible as a business expense, over dividends, which are not deductible. This encourages taking on too much debt.

- US bankruptcy law allows "secured creditors" too much security. Bankruptcy is too easy on lenders and too hard on accidental creditors.

What we need is a return to conservative financial principles.

[1] https://smartasset.com/financial-advisor/stock-buyback-ban

[2] https://ceepr.mit.edu/deregulation-market-power-and-prices-e...

kortilla3• 3 years ago

Banning buybacks without banning dividends is pure stupidity. The only reason the former is preferred is because of the tax effect on the shareholders. If you ban buybacks it will just go back to dividends with the exact same outcome (companies giving money to shareholders).

Danieru• 3 years ago

Those are all really good points. Each one has a real impact and has influenced the market.

It does not serve society to have competition in negative sum games. These suggested changes would close off various silly tricks, and improve meaningful competition.

HybridCurve2• 3 years ago

While some of these solutions are good, I don't think any of them will make it through congress until well after Citizens United is appealed. TBH, trying to fix any problem of consequence in the US requires a functional Supreme Court, which we don't have.

sbierwagen• 3 years ago

Tax law favors debt, where interest is deductible as a business expense, over dividends

Taxation is another reason why buybacks are preferred over dividends: dividends are taxed as ordinary income but selling stock held for more than a year is taxed at the long term capital gains rate.

The IRA added a 1% tax to buybacks, but to equalize it fully either you'd need to reduce tax on dividends, extend the LTCG horizon past one year, or just eliminate the lower LTCG rate.

drpixie4• 3 years ago

So basically - capitalism is broken. The evidence of our current situation agrees with you.

And the US style of democracy, where the rules are written by the powerful, is broken and won't fix capitalism. Pity other (Euro) styles of democracy are so intolerable to the US style.

RandomLensman4• 3 years ago

Why is there nothing on regulating all the investors that are supposedly buying and financing the wrong things? If the demand is unchanged, why expect much of a change in what is financed?

Investors wanted to buy CDOs, they want to be in VC and so forth.

everybodyknows• 3 years ago

No stock buybacks. Illegal in the US from the 1930s to 1981.

Fascinating point. Out of forensic interest: Did Reagan campaign on legalizing stock buybacks? Or did Wall Street get his ear later on that one?

abdullahkhalids3• 3 years ago

Every company above a certain employee count (100ish)/annual world wide revenue must be at least 51% [1] owned 1/n by all existing employees. Obviously taking care of loopholes like contractors is implied.

If you want the economy to serve the people, it must be controlled by the people.

[1] I personally would advocate 67% as the number. So the 33% capital owning class needs at least half the employees to agree that their plans are best for the company.

Temporary_31337• 3 years ago

Clearly you have not witnessed communism first hand.

oersted4• 3 years ago

This is the definition of a Co-op. The model has been reasonably successful in some cases. There are co-ops with >$10B annual revenues, although it took them half a century of steady solid business to get there.

https://en.wikipedia.org/wiki/Mondragon_Corporation

The main issue is that such companies do not attract large investment, so they cannot really take advantage of modern capital markets. It would lead to slower productivity growth, with fewer crisis, maybe that's better, maybe not. But co-ops are not immune to spectacular failures either (see Fagor).

The do not attract large investment, but they can also be an effective solution to a lack of capital. Mondragon (linked above) was a collective grassroots venture in post-war isolated Spain, were regular workers got together to bootstrap employment for themselves. Oddly enough, led by a young Catholic priest.

It doesn't really fit cleanly into the Capitalism vs Communism worldview. On the one hand, it is definitely about collectivism and labour rights. On the other hand, a co-op is a lot like a modern neo-liberal startup, just with a large and flexible group of founders, where the shareholders and the most productive workers are one and the same.

Again, the piece that doesn't fit nicely: investors. That's the main weakness. Bootstrapped by design. Successful members of society cannot help others accelerate their ventures. They just use their wealth to aggressively consume, or just save a lot. Neither of which is great for efficiently improving the world.

Hard to tell if this is a better model, might be slow but sustainable. The promise of equitably distributed rewards (as in Communism), while still having individual incentives for productivity (as in Capitalism), is rather attractive conceptually at least.

tacitusarc• 3 years ago

Companies wouldn’t hire people in that case, they would just use contractors, which would be a worse state of affairs.

cardy31• 3 years ago

Agreed. I don’t have a lot to add or a good solution, but that is one of the best articles I’ve read in a long time.

forgetfreeman2• 3 years ago

A lot of really smart people are going to propose really intelligent, market-focused solutions, all or most of which are evidence-based. Without exception these proposed solutions will fail to address regulatory capture. Given one flavor or another of feudalism has been the norm for the majority of recorded human history, evidence suggests the only way to prevent the ultra-wealthy from owning everything (with ruinous results) is to delete wealth accumulation on this scale from society. How to best accomplish this feat is left as an exercise.

spaceman_20203• 3 years ago

Modern monetary policy has failed. Tying the currency to something real and finite - say, gold - is the only way to rein in the nonsense. The value of things becomes much clearer when you can’t simply conjure up money out of thin air.

pixelesque• 3 years ago

On a semi-related point, I am interested in what alternatives there might be to the apparent "infinite" (GDP) growth target as a national/global economy, and the (Western?) assumption that companies should constantly "grow" to be successful.

There are things like "Doughnut Economics", but IMHO that seems a bit too much the other way (almost communist-like), and I'm not really sure there's any practical chance of going in that direction anyway.

neerajsi2• 3 years ago

Hot take: these are the kind of issues you'd expect if there is a significant amount of capital accumulation. There's always going to be dumb money doing things that make the news. How many failed railroads were made during the industrial revolution? How much money was squandered on tulip bulbs?

Intelligent investments take more time to culminate than unintelligent ones take to fail, so things would look pretty bad in any savings rich economy.

jfengel• 3 years ago

I wonder if this has any measurable effect of reducing wealth inequality. Do the rich eventually just give their money away via stupid investments? It flows from the ignorant VC to this joker to a bunch of overpaid consultants and marketing execs to the poor schmucks who do something like actual labor?

It's galling to have it work so inefficiently, and much of it just transfers from one rich yahoo to another. But maybe there's a ray of hope somewhere under all that BS?

kortilla3• 3 years ago

Yes, they lose their money and make new smart people rich. 80% of millionaires are fist generation.

Wealth tends to collapse over generations in an ultra wealthy family just because the kids aren’t passionate about whatever made the original money and they squander it on half-baked businesses or “bad investments”.

urbandw311er• 3 years ago

On average the VCs get it back again on exit, it’s the acquirer who is left holding the baby.

nostrademons3• 3 years ago

A successful investment is just one that hasn't failed yet.

Ekaros• 3 years ago

At least the tulip mania was purely derivatives. So loss to real economy was probably rather minor. The people could have gambled that money in other ways and it just moved around.

I don't think they wasted huge amount of any resources back then. Just time of people who had too much of it anyway.

itairall• 3 years ago

Plus people are basically spoiled brats when it comes to this question.

As if the medieval peasant had it better. The average person lives the highest standard of living in the history of humanity with a life so easy that the biggest problem is being able to afford the Apple Vision Pro or not.

A metaphoric society of complainers about how they only got a BMW 5 series for their sweet 16 from daddy when their friend got a 7 series!

Personally, I am thankful for capital accumulation and that I have been able to live the amazing life I have instead of picking potatoes on a farm all day and then eat potatoes for breakfast,lunch, and dinner. Get married to your cousin and life is basically over at 30. That could have been anyone reading this but you basically won the life lottery instead.

quitit• 3 years ago

I also had this thought, but perhaps in a slightly different angle: All this spare capital to splash on vague nonsense, looks like a symptom of a worsening rich poor divide. It's a concentration of wealth in a segment that is too small to spend it wisely.

dalbasal• 3 years ago

There's more to it than "irrational exuberance," IMO.

Take Google. Their one, core cash cow is an oil strike. If you strip away all the unrelated and unesesarry.... It's an 80% profit business that represents most of www's monetisation.

Google already have all the market share. It takes >$10bn to meaningfully affect their bottom line and share price. Few of Google's many investments have an obvious chance of achieving this.

Still... The market (and Google's board) consistently prefer to retain (or avoid realising) earnings.

The fact that Google's growth requires almost no capital also generates an inward capital flow.

Google's culture was a good fit for this. First they let a thousand flowers bloom. Then the cultivated university-like subcultures. They alway knew how to spend big on blue skies.

FB is a little more awkward. They know where the bread is buttered. They invested more tightly around the core money maker, but they get to the same place as Google. Way more capital, credit and discretionary spending than they possibly need. Nothing more to invest in.

Well... All this is resources that aren't spent on manufacturing, tooling, energy, construction, etc.

Take chip fabrication, or computer hardware broadly... It's capital intensive. Factories change slow. Markets change fast. Prices continuously fall. It's a nightmare, comparatively.

I say "capital" but the real shortage is risk. Google/FB/etc are "hoarding" all the risk allowance. Where they can invest in highly speculative projects because the money is just there, analogue businesses are still backed by banks, bonds, specialised investment firms and tightly controlled payback schedules... Not an easy world to innovate in.

The modern system now reaches bedrock very quickly. When we can dig no longer we start depleting all our resources trying to dig anyway.

Reality is that were not getting more out of Google no matter how much resources they draw. That's what capital is to firm, resources. Over resources X and under resourced Y.

neerajsi2• 3 years ago

It looks like the article could have been divided into two separate theses. The Adam Neumann problem is general unproductive investment of savings.

The Google/Meta problem is different: the challenge of investing in the context of an individual corporate identity and its configuration of human and intellectual capital. Amazon would be a nice contrast to the companies mentioned here. It's a good marriage of the more ephemeral and short term tech capital and traditional physical capital that can have bigger and more stable long term yields. Apparently it sucks to work in most orgs there :/.

fallingfrog2• 3 years ago

Something about all of this reminds me of Joseph Tainter’s collapse theory of diminishing returns. Have we reached the point already where returns on investment have already become negative? For at least some sectors, I’d say yes.

dools3• 3 years ago

The only reason growth is seen as good is because our population is increasing. As such growth has been coincidentally correlated with full employment and therefore prosperity. When the population levels out everyone will realise that we don’t need growth to achieve full employment and that optimisation is the new recipe for success. It’s a temporary problem.

As for private sector stupidity the antidote is stronger government and stronger institutions that can counter balance people making dumb decisions, not an attempt to regulate or shame away dumb decisions. The only problem is that the private sector has become too fetishised.

steveBK1233• 3 years ago

Yeah I don't think degrowth is a solution that fits with HumanOS. Humans unfortunately are wired to feel change but not levels. That is, standing still rarely feels good no matter how good the current state is. People are wired to seek a better lot in life, on average.

This is hard to achieve without growth.

dools3• 3 years ago

Degrowth is totally stupid as a movement.

kiba• 3 years ago

If growth is doing more with less, then I'll welcome it.

astrange2• 3 years ago

That is what growth is. (Growing by using more resources is not mandatory at all, and is more expensive.)

Degrowth is a bad idea invented by the British to make it look like they collapsed their economy on purpose instead of accidentally. Basically, you always need growth because that's what combats entropy.

dools3• 3 years ago

If the population is steady (as it will be by 2050) then you don’t need to increase production unless it’s to meet needs not already met. So the growth imperative now is mostly focused on job creation because people keep getting born. Growth in terms of absolute economic activity becomes less important if more people aren’t being added to the population however there may still be some growth necessary in order to increase equity of outcomes (although we may also just need a redistribution of existing economic activity to meet needs of the many over and above the needs of the few).

What I meant by my comment initially is that in an economy where population is increasing rapidly one can just use growth in economic activity as a pretty good proxy for prosperity.

Classic case of correlation!= causation though.

andsoitis• 3 years ago

more

Doesn't the "fault" lie within human nature? The desire for more? If that is true, then why expect an economic system to have a different goal?

ccooffee• 3 years ago

Is endlessly seeking more truly _human_ nature? I'm reminded of the "Mexican fisherman" parable[0].

[0] https://bemorewithless.com/the-story-of-the-mexican-fisherma...

jdaw0• 3 years ago

I still hate this story. The difference is that the fisherman without a business empire is one bad week away from ruin and his entire family starving to death.

jvb1000• 3 years ago

What arguments/evidence do you have to support claim that humans by nature always desire "more"?

green_man_lives2• 3 years ago

Maybe my feelings are a bit hyperbolic, but 2023 really feels like the year that the internet "died". That plus heatwaves, price increases, etc, it really feels like the death throes of neoliberal capitalism akin to what the 70s were for managerial capitalism.

It's insane to me that with the threat of climate change looming, the US spent trillions on foreign wars. In the aftermath of 2008, when money was free we spent trillions more on what? More efficient ways to sell shit people didn't need or couldn't afford?

We had two decades and trillions upon trillions of dollars to improve our system in so many ways and it was almost entirely squandered. Even the most politically and financially ignorant Americans can feel how crappy our system has been for the last two decades.

The question is, what will replace it? A human-centric economy that invests money into physical and human infrastructure? Or the meme of neo-feudalism with people working in Amazon cages and paying for Domino's pizza in installments.

titzer• 3 years ago

and it was almost entirely squandered.

Oh, it went to exactly the intended place: propping up asset prices, corporate profits, and the stock market. Absolutely nothing was an accident.

zweifuss• 3 years ago

For me, the Internet was dying in 1997. Ads, scams, and Pr0n were everywhere.

Let's recognize that in not-so-small parts of the world, the Internet is still on the path to becoming ubiquitous, reliable, and affordable.

green_man_lives2• 3 years ago

I was not even alive during the Eternal September, but the way I feel now feels like how Usenet old-timers describe it.

paulpauper• 3 years ago

When I wrote in October that Mark Zuckerberg was going to kill his company, the street responded in kind, savaging Meta’s stock for burning cash building a metaverse that was never going to exist

and now almost at $300 again. nuts. Yeah, so many people in 2022 got this wrong. I don't think Zuck was at much risk of killing his company. Meta stock keeps going up, and is one of the biggest performers on the Nasdaq by far, almost back to its old highs.

The metaverse may have been a dud and the company was fined by the EU, but so what. Instagram and Facebook are more dominant than ever, and it's an advertising juggernaut. CPMs and CPC rates at record highs due to record advertising spending. Go ahead and try to find a company that is at the perfect intersection of profits, size, market dominance, and moat like Meta...maybe Microsoft, Alphabet. Not many.

It was not just the job cuts...many companies have/had big layoffs , like during the early 2000s or 2008-2010, and did not see anywhere close to such a huge recovery that Meta saw.

The markets seemed to ignore the $410 million fine that Meta received for GDPR violations, along with the fact that European users will now have to deliberately opt-in to sharing their data

large occasional fines by the EU are bascially seen as a cost of doing business. see Alapbet, which has been fined many times.

wavefunction• 3 years ago

This all seems like one big sunk cost fallacy in post form.

HDThoreaun3• 3 years ago

Meta's CPC/CPM are actually down around 20% YOY according to the last 2 quarters earnings. They're just showing way more ads and growing user base a bit to make up for it.

pcrh• 3 years ago

This kind of criticism is unfortunately not new. VCs are routinely criticized for funding enterprises on little more than hunches, and history is replete with examples of investments that made no sense, from the infamous Tulip Mania onward.

It really speaks to a few things: 1) how irrational apparently intelligent people can be, 2) the importance of salemanship, and 3) that the value of capital to those who have a lot of it is much less than its value to those who have little, and so they are more willing to take bets such as those described.

Spooky23• 3 years ago

Being rich doesn’t make you smart. A great example is 2nd generation wealth — it doesn’t tend to end well.

DayDollar• 3 years ago

It also suspicously starts to look like planned economics, once the mono-duo-poly stage is reached.

Rare goods, long queues, no choice, bad products and the leadership is off, chasing its own tail in some basebal metric detached from the world. It even features market-libertarians having to defend practices like shredding perfectly fine goods in ware houses.

The moment the ussr was gone, the race horse finally could binge and become something very similar to the ussr economy, but instead of obsessing on tanks & steel, it focused on excel sheet virtual wealth wankery, disguising the slide back into the gilded age feudalism.

abvdasker• 3 years ago

I mean if you look at the astronomical levels of defense spending the US greatly resembles the USSR even in terms of the "tanks & steel". Broadly this kind of waste and stratification is characteristic of just about every fading empire.

mistermann2• 3 years ago

There are some compilations on TikTok of people showing China's public infrastructure to America's (including the ~slums many neighborhoods have become)....not a good look. If the general public had a clue any of this was going on I think they'd be livid.

rchaud8• 3 years ago

US defense research gave us DARPA, the first step towards the Internet.

What are we getting via VC-led industrial policy? More jobs in selling advertising?

georgeecollins• 3 years ago

Yet US defense spending vs GDP is nearly the lowest it has ever been in the last fifty years. If defense spending v GDP is a sign of a falling empire, we fell in 1960.

Plus seriously, if you think spending 4% of GDP will cause a country or "empire" to collapse you need to read some history books.

Source:

https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?locat...

eastbound• 3 years ago

It also suspicously starts to look like planned economics

EU certainly is, or we have all signs of it: Most funding for French startups come from the BPI, so the BPI drives everyone to the AI Blockchain TechHR and whatsnot, while…

…while, as an example, and I underline it’s just one example of broader customs, French people regularly take hostage managers in factories for 2 to 10 days, until they sign off an agreement, provided limited supplies of water and food. None of those agreements was cancelled for duress. So we put all public funding into having the next Apple, while not letting actual customer demand drive the economy, and still preventing middle class people from actually going big.

I’m already rich so I try to remain emotionally detached, but when the state drives what should be built (Macron putting 500m into AI, and a billion into Intel chips of the previous-previous generation), it really is a state-driven economy.

hef19898• 3 years ago

Well, a couple of things: France =|= EU, which should be obvious. Also, you have to put 500 million in context: Liquid Death (canned H2O) has a valuation of 700 million USD, MS dumped 10 billion on OpenAI and Germany burned 500 million on a road toll system that cannot be built because the whole concept is illegal. Someone else already brought up Adam Newman. And now put that in relation to the budget of an entire nation state. Peanuts, actually.

Regarding those Intel chips: Which chips exactly caused the chip crisis? High end latest gen ones or older tech? And now you can guess on which chips the vast, vast majority of national defence hardware runs. That idea actually isn't to bad.

imtringued• 3 years ago

If you are rich you could have done your part. It is really easy. All you have to do is read some books and then start a fintech (expected budget: 20 million USD, less if you can find a cooperating banking partner) and then all the things you complain about will disappear and you will even earn money in the process. I am dead serious.

ClumsyPilot5• 3 years ago

I’m already rich so I try to remain emotionally detached, but when the state drives what should be built

This is simply ahistorical, every developed country got there with the help of the state.

Did the interstate highway system get built by venture capital? Did the power grid?

Western governments are no longer capable of these kind of major projects.

London is running out of water.

United Kingdom has huge canals connecting manchester, London, and Birmingham. They were dug without industrial machinery. With shovels.

When I propose to English people that there is plenty of water in scotland and maybe they should expand canals network and repurpose it to redistribute water, they think its madness. Some kind of unachievable, socialist plan.

China has built a canal network to redistrubute water. That why they will be earing our lunch - actually its their own lunch. We arent making lunch, we are wondering why market didn’t bring us lunch.

flybrand2• 3 years ago

Yes!

So much of the recent nuttiness worldwide is due to embracing a rebranding of ‘central planning’. It doesn’t work.

the_gipsy• 3 years ago

What is the point of power if not to abuse it. Start a business, it's new and good and you penetrate the market, you grow and grow and... are you willing to let the next better product put you out of business? No of course not, you will throw all the weight you have to squash the competition disregarding fair play and ethics - that's why you grabbed that power, so that you can use it!

The USSR collapsed and 3 decades have past. Except Venezuela there is no menace of worker revolution at the horizon anywhere in the world. There is absolute zero menace to corrupt capitalist governments who run a two-party turnist democracy.

RandomLensman4• 3 years ago

Where are those long queues, lack of choice, etc. - not my experience. Maybe there is some country specificity to it?

x86x872• 3 years ago

Go and try to buy a car. It's not unusual to have to wait months and pay above MSRP

bruce5113• 3 years ago

I'm no Alphabet fan, but their sprinkling through this article seems out of place. There are so many good examples (like Uber), that picking on Google and Microsoft, or even Facebook seems unnecessary.

The bottom line us that these 3 businesses make money. Billions per quarter. It's coming in so fast they quite literally dont know what to do with it all.

The market is fine with billions lost on the metaverse because its a drop in the bucket. An EU fine doesn't move the needle.

Yes, Google and Facebook are ad companies, and yes they'd like to be more diverse than that, but the fact remains that ads on Google and Facebook work. People keep spending money there because it works. There's real value in efficient advertising and Google and Facebook have provided that real value.

MS already has a diverse business, from OS to Office, from Azure to Xbox, from Teams to Flight Simulator. Bing can afford to be a long-play and seems to be gaining traction.

I also cannot help but think that if this article was written in 2006 Amazon would have been the (legitimate) poster child for the point he's making. Billions spent, never profitable. But look at them now.

Of course there are failures. Of course most of the money is wasted [1]. This is not a secret , its not even a bug, its baked into the VC model. It's been obvious since forever.

The VC model is but one kind of business model, designed for a specific kind of business. And as a model it is applied to a vanishingly small number of actual businesses overall.

[1] money is not "wasted" in the sense that water can be wasted by leaving a tap on. It is spent. Salaries, infrastructure, rent, cars, food, whatever - its all "trickling down" to people or actual profitable companies. Selling shovels, and jeans, is more profitable than digging for gold, and less risky, but that one gold digger who strikes it rich keeps hope up for all the others.

rTX5CMRXIfFG4• 3 years ago

It’s still very clearly wasted though? That money could have gone to more profitable and genuinely innovative businesses that benefit society, instead of startups that were meant to tank from the very beginning. And money isn’t the only resource being wasted here but time. There are also plenty of companies that fail so hard that employees, to whom you believe the wealth trickles down to, are left with nothing to show for what they have supposedly done there, and could even cost them reputation-wise in their careers. This arrangement is hardly anything that the working class should be thankful for.

bruce5113• 3 years ago

We all know 90% of VC money will eventually generate no return. That's precisely the model. The problem us that it's hard to predict which 10% will win.

The alternative to VC funding is either traditional bank finance, or boot-strapping. Incidentally neither is terribly more effective at picking winner's- its commonly reported (although I don't know how accurate) that 90% of businesses will fail within 5 years. It kinda makes sense, most ideas kinda suck.

Selling equity to raise money is the worst kind of financing. Most businesses are better off getting bank loans, or bootstrapping. Learning how yo make do, how to build profit on a shoestring, how to be efficient is a good thing.

VC money is useful for a different kind of business. One which needs significant capital, but has potential for massive returns.

I find it hard to feel sympathy for employees who go to work for a startup, get significant salaries, know the risks, and squander their salaries well enough to have nothing to show from it. In an era of a pitiful minimum wage I don't think they're the "working class".

While individual time is certainly wasted either thus model (and indeed all models) societal time is not. By trying lots of things simultaneously we save time overall.

It has ever been thus. When airplanes were invented everyone and their friend started a plane company. Innovation exploded. There was consolidation and now we have a handful. There are startups in the aviation space, but nibbling at the fringes, not aiming to be "the Boeing killer".

Cars are interesting because there's a disruptive transition coming (well, 2 actually). This opens the door to a Tesla (Not to mention a bunch of other EV startups that failed.) In the long run I expect Tesla to either get acquired into an existing manufacturer, die, or become a niche brand. The bulk of EVs will be made by VW , Toyota,GM,Ford etc .

This doesn't mean Tesla money is wasted. It showed the makers there's a market for EVs. That changes the world.

drpixie4• 3 years ago

There are so many good examples (like Uber)

Last I checked their figures (just now) I don't think Uber is a great example. Never yet made a profit, living off capital and their VC gamblers.

Agree they did have billions of income. But it cost them MORE billions to get there. They can't (yet, if ever) be considered a successful business - at best they are potentially successful.

oersted4• 3 years ago

I think you misunderstood. He is saying that Uber is a better example of such a failure, not that it is a better business.

Alphabet, Meta and MS at least have vast profits in the present, not just potential, so they are indeed "better" businesses than Uber, as you say, and thus bad examples to make this point.

testacct222• 3 years ago

The bottom line us that these 3 businesses make money. Billions per quarter. It's coming in so fast they quite literally dont know what to do with it all.

Revenue might be going up, but are they actually providing additional value to users? Or just gutting them more thoroughly?

I look at the amount of utility that Google's products provided back in 2013, and I look at how much they provide now. Can't say the improvement has been anywhere close to stock price

sokoloff2• 3 years ago

Are you measuring utility to people who were searching or watching YouTube in 2013 and 2023?

Or measuring the utility to advertisers on Google’s platforms in 2023 and projected into 2033, many of whom weren’t using Google ads in 2013.

Google didn’t give me individually a ton more utility (arguably less in search), but I think it did give their actual customers (advertisers) a ton more utility in aggregate.

flybrand2• 3 years ago

These companies feel like parasitic house guests, you let them in and things start disappearing.

izacus• 3 years ago

The article takes for granted this bizarre assertion that these businesses NEEDED to layoff people this year.

They're all STAGGERINGLY profitable still and the lowered workforce costs will hardly make a dent in the accounting statement.

This is all you need to know about the silliness in this article.

gmerc3• 3 years ago

But that’s the point. They needed the growth or, in this case, the profit impact of shifting employee money to shareholders

csomar• 3 years ago

When I wrote in October that Mark Zuckerberg was going to kill his company, the street responded in kind, savaging Meta’s stock for burning cash building a metaverse that was never going to exist.

I can't help but this sentence got me triggered. Does the author honestly believe that his article affected Meta price?

defrost2• 3 years ago

No.

"Responded in kind" means "moved in parallel with" | "with similar actions or in an equivalent manner" | etc.

The author doesn't claim the market acted because of their article, they mean that the market acted as though it also believed MZ was going to tank Meta.

crindy• 3 years ago

I think the phrasing is confusing because on first parsing, it reads like the market is responding to the article

morelisp• 3 years ago

It's not the idiom, it's poor structure; the object of the clause is ambiguous and could mean "responded to my writing" or "responsed to Mark Zuckerberg". E.g. "While I wrote" or "After I wrote" would remove the implication of causation that "When" has. But really it should just say "The street responded by savaging..." with no authorial preening.

That being said, it's a weird thing to get hung up on.

carom• 3 years ago

This was an extremely good article and captures why I feel (likely incorrectly) so uneasy investing in stocks.

These massive price swings have nothing to do with how the company is performing and everything to do with macro levers the government pulls. It feels like a big game of financial engineering rather than investing in a profit making enterprise.

forgetfreeman2• 3 years ago

I wouldn't feel weird about being deeply skeptical of the market. It's nothing more than a casino for oligarchs and wealth management funds.

spaceman_20203• 3 years ago

There is simply too much money in the world, and too much of it is concentrated in the hands of a small elite that’s able to place increasingly outsized bets on “number goes up”.

It feels like the death throes of capitalism.

EVa5I7bHFq9mnYK• 3 years ago

For reference, some other titles from the author's blog:

Tech's Reckoning; The Scum Economy; Elon's Tragic Kingdom

Fire Mark Zuckerberg; The Uncanny Valley; Social Media Is Dying

Degenerative AI; Google Should Fire Sundar Pichai

Looks like man found his niche :)

nazgulnarsil• 3 years ago

Let's get angry at economic indicators we have little understanding of. All of them are normative and should do what I say.

politelemon• 3 years ago

A big point the author relies on is that Google has destroyed its search. And yet I am not seeing it, many people I ask don't see it either. I don't doubt that we all experience using the search engine differently, for me it's still working just fine.

It's an unreliable anecdata to hinge your main point on that, it would only make sense if its more widely noted to the extent that its share is dropping significantly and being regularly reported in general media.

badtension• 3 years ago

You might be interested in this discussion: https://news.ycombinator.com/item?id=30347719

noduerme4• 3 years ago

This reads a bit like a complaint that markets are irrational.

Lots of people lose money in markets by betting on bad ideas, or companies that are obfuscating their underlying weaknesses.

That's part of the purpose markets serve: Moving money from things that suck value into things that add value. If the OP knows better than the market, hopefully they're shorting Facebook stock and, when that plays out, they'll invest their gains in something new that produces real value.

Of course, markets can remain irrational longer than it takes to write an embittered blog post...

rTX5CMRXIfFG4• 3 years ago

Or you just have a hatred for criticism of modern-day capitalism. Also, the entire post is exactly about how money (specifically VC) is being thrown at things that don’t actually add value.

bratbag• 3 years ago

I didn't pick up any hatred until I got to your post.

noduerme4• 3 years ago

No, I just think markets are more complicated, fluid and flexible than critiques like this make it seem. I'm old enough to have witnessed numerous decades-long waves of hype pouring money into sclerotic companies that, at the time, everyone assumed were immortal no matter how corrupt and terrible their decision-making had become - only to watch over and over again as the giants fell. I feel like every wave is accompanied by a sense of hopelessness that things will never change, and then in seemingly an instant, they do change.

I'm relatively sanguine that Google and Uber will be replaced by something better (something that's not a con game), and that the people who invest in garbage will end up losing to newer, more agile players. That's how it's always seemed to me when you look at any given 5-10 year horizon. The short term is always frothy.

I almost never invest in tech companies... except if I'm looking to make a few quick bucks on some new hype (e.g. I bought Google with a 2-week horizon right after Microsoft announced Bing's AI bot, and after Google took a huge hit because the market overreacted; turned and sold it for a 10% profit). (The exception for me is medical tech which I'm willing to take several-years-long shots on). I sit on real estate and utilities and the odd manufacturer or retailer with a history of increasing dividends, and watch the wilds of the NASDAQ with a daily mixture of jealousy and schadenfreude - because I know my own risk tolerance.

Markets are made of people. Companies are made of people. Poor incentives and deception do indeed lead to catastrophic losses and inefficiencies. Corrections are made. Fools and their money are parted.

I don't have a hatred of criticism of any sort. I do however think there's a smell when someone walks away after losing at the table and complains about the game.

ClumsyPilot5• 3 years ago

This reads a bit like a complaint that markets are irrational.

No its a conolaint that markets are failing. Market failure is a real term economists use tondescribe real problems.

dmje• 3 years ago

Literally every left leaning person since the dawn of time: "the world is a closed system so we can't have unlimited growth in anything". Literally every right leaning person since the dawn of time: "MOOOOONNNNNNEEEEEEEYYY!!!!"

ggm• 3 years ago

When I wrote in October that Mark Zuckerberg was going to kill his company, the street responded in kind, savaging Meta’s stock for burning cash building a metaverse that was never going to exist.

No.. that "responded" is far too causative. you observed a state of being which others observed and acted on independently: your writing is gold but the street did not "respond" to your writing. That's chutzpah.

If your meaning is "when the market saw what I saw, the market responded" that's fine. You don't define the market.

checkyoursudo• 3 years ago

I think we can take the more charitable view that you have identified. I read it as a bit of self-promotion more than hubris. Like, "I report on the market, and I saw what they were seeing, aren't I a good reporter?"

fzeroracer• 3 years ago

Realistically, the answer to this problem is simple. More regulations on big tech, vastly higher salaries and less emphasis on stock gambling. The rot within the economy is because someone running a small business is almost impossible nowadays. Either you get destroyed by economy of scale and monopolistic companies taking losses to destroy your marketshare, or you take in venture capital and pray to the altar of growth. If salaries kept up with inflation then there wouldn't be a need to gamble on the stock market to achieve wealth, and that wealth could be fed back into the economy in actually useful ways instead of being accumulated in the hands of wealthy billionaires.

revskill• 3 years ago

This is Game theory in action afterall. If you don't "grow", you die.

than3• 3 years ago

I read the article, and while it touches on a common issue, I don't think it goes far enough. When looking at these problematic incentives that are mentioned, notably the author doesn't really address the incentives like for example where does the money come from.

When you talk about venture capitalists, you often are referring to a bank associated with a venture capitalist. Everything in business after all, incentive wise, trickles down from the banking system.

We can't change the way we do business when the incentives are fixed, and banking in general is only marginally overseen by government; most of the regulation and praxis is done by the Fed which is not government; but a private institution.

testacct222• 3 years ago

A weird thing with this article and others: they shit on Google and Facebook, but they never shit on Apple?

Why? Is Apple just a serious company in comparison? At least, with Apple I get the impression that some of their products (e.g. mbp) are leaps and bounds ahead of the competition. I can't say the same for any Google or Facebook product

starbugs2• 3 years ago

Apple makes their money from selling products and services rather than selling the user. At least that's the perception. Apple also gets their share of this kind of criticism, but it invites much less of it in this way.

oersted4• 3 years ago

Microsoft could be in the same category. They've both had some pretty bad periods, no doubt, but they have been smart and quite diversified for the last decade at least. Same generation of startups too. There might be some insight in that, what changed?

account-5• 3 years ago

I see this all the time. Not sure why. Personally the way this guy feels about over valuing companies I feel about the way apple over values it's products. But people still buy them though, same as the companies this article talks about the companies market share going up. There's something wrong there

gmerc3• 3 years ago

Apple is valued leaps and bounds over the others. For having half the world on Meta, it’s a shit performing business

Apple also does not slaughter golden cows, they execute with long term vision and they slowly agressive with competitors not users.

Also haven’t laid off.

So really, they are in a category of their own.

HDThoreaun3• 3 years ago

Meta makes $30 billion a year. It is not a shit performing business. In fact it is one of the best businesses in history. Their stock bounceback isn't because of the layoffs, it's not because investors were actually worried that meta's business was bad. It was because they worried Mark had gone rogue and since he's the controlling shareholder investors have no way to stop him. The layoffs were just the way for him to signal that he still has investors interest at heart.

amelius• 3 years ago

The economy is like DOS 1.0. Sustainability requires an entirely new way of thinking.

TrapLord_Rhodo• 3 years ago

I wonder if the author of the article believes his own words.

When I wrote in October that Mark Zuckerberg was going to kill his company, the street responded in kind, savaging Meta’s stock.

He seems a bit delusional.

It picks on the likes of FB, Google,Uber, Tesla and uses that to justify a whole host of things like he's the only sane one and the rest of the market is dumb.

FB, Google are money printing machines that will continue for years.

Uber has not made a profit from its businesses

This is just a downright lie. Also, uber is still experiencing high revenue growth but it's costs have not been rising for years. Maybe investors can follow a trend line and understand Uber's not going anywhere?

They had a net loss of 1.21 billion last quarter, yet the street fell over itself to praise the company because “gross bookings grew 19% year-over-year”

This quote seems especially dishonest. Ubers revenue grew almost 90% YoY... and he uses the 19% bookings as a reason investors liked it?? It's handpicked information to match his points, not reality. He must have searched really hard for the dumb metric.

svilen_dobrev• 3 years ago

growth-driven-growth - is that a thing?

it's tiresome to see it so frequently.

Not much difference from amount_to_steal-driven-country-"development"

rchaud8• 3 years ago

Neuman is seemingly attempting to reinvent the rental market — a diseased, exploitative industry in its own right — in his own image. He’s replacing one cancer with another, only even more aggressive and metastatic.

Adam Neumann is the VC industry, he is just cooler and better-looking than anybody on Sand Hill Road.

Every VC thinks $industry needs disrupting, for the good of the consumer. What's left unsaid is that after the Soviet-scale subsidies run out, the disruptor will inevitably become as turgid and anti-consumer as the incumbent it sought to replace.

rdlecler1• 3 years ago

Where some people see problems, other people will see opportunity.

MichaelZuo• 3 years ago

The truth is that nothing lasts forever. Companies can (and should) die — or, at the very least, understand that there is an inevitable limit to growth, and eventually they must reconcile with being a stable, albeit plateaued, business.

This point seems to negate the rest of the essay. It's true that nothing lasts forever, that includes human labour...

cannabis_sam• 3 years ago

I mean, what else would anyone expect after capital started siphoning off larger and larger amounts of money from labor in the 70s.

Repaying labor with a relative pittance due to growth and simultaneously lowering taxes, just to hoard capital at an ever increasingly more insane rate, while of course dismantling antitrust, will obviously just concentrate capital.

Exponentially concentrated capital will need to chase exponential returns…

The naive folly of the efficient market hypothesis is its childishly simplified view of the world; a given in a world of economists treating their social sciences as if it were as bound to nature as physics.

Although one would’ve hoped politicians weren’t so utterly and devastatingly easy to buy, but they clearly went a long with this insanity.

The idiocy of crypto is but a blip compared to the scam run by capital over the last 50 years.

It’s simple, just redistribute society’s gains, jfc…

pixl972• 3 years ago

Just wait till capital can pay for intelligence on a CPU and doesn't have to deal with whiny thinking labor demands any longer.

nick-of-time2• 3 years ago

This is the problem at the center of almost everything I’ve written. Why are bosses mad they can’t bring people back to the office? Because their alignment of business success isn’t really tied to profit or “success,” but rather the sense that they are “big” and “successful,” which requires a bustling workplace and “ideas.”

This is similar to the sentiment of Bullshit Jobs as posted here yesterday. There is a strong incentive within the modern market economy to value perception over reality. This often involves hiring people to look like they're doing something without any consideration as to whether they're doing anything valuable.

ArunRaja• 3 years ago

Articles claims and my rebuttals:

Claim 1: Just chasing the growth, for its own sake devoiding sustainability is bad.

Greed is how humans function, like it or not.

Claim 2: Good businesses are left uncared, for the sake of lusturous, suicidal businesses.

Is "good business" a polished term for inefficiency. If so, inefficiency will be severely punished.

Claim 3: mass layoffs are bad.

The "highly changing" large scale businesses are bound to adapt to the situations rapidly.

Claim 4: Facebook investing in metaverse, crypto boom.

Certain investments payoff only after a certain inflection point. Doesn't mean those investments are worthless.

The Rot Economy

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