Tuesday, October 04, 2022

We Blew It: Malinvestment and the Plundering of Productive Assets

Plunder is fun until everything has been plundered. Nothing is infinite except greed and credulity. Unfortunately, neither greed nor credulity can build a sustainable, productive economy.

We blew it: rather than investing in a sustainable mix of energy and in increasing the productivity of labor and industrial processes, we squandered irreplaceable oceans of capital and credit in oh-so profitable skims and scams such as $10 trillion in stock buybacks and completely unproductive speculative absurdities.

All the capital that was malinvested in shifting production overseas, financial scheming and speculation cannot be replaced. All the credit that was squandered on skims and scams (borrow billions to fund stock buybacks, borrow trillions to reward cronies and buy the complicity of the masses) is now an unstable toxic dump that threatens a financial system that is now the crumbling keystone of the entire global economy.

We didn't have to be this foolish, but the incentives made it all rational to squander trillions of irreplaceable capital and decades of irreplaceable time. The incentives reward maximizing short-term profits by any means available, which include bribery, buying political favors, balance sheet fraud, loading companies with debt then taking them public, etc.-- none of which increase productivity, innovation or sustainability.

These incentives follow a power-law distribution: the greater the leverage, debt, monopoly and financial trickery, the greater the gains.

None of these extremely profitable financial strategies boosted productivity, jobs or efficiencies. All they accomplished was enriching the already rich. Call this incentive structure whatever you like: late-stage capitalism, crony capitalism, etc., the bottom line is this global system doesn't reward investing in productivity or long-term sustainability because those investments are risky.

Why invest in something risky when you can generate billions in pure profits via exploitation, fraud and financial games that were once illegal? Exploitation: arbitrage low wages and minimal environmental standards by shipping production overseas; should costs rise slightly as residents object to their nation becoming a toxic waste dump and their workers being ripped off, production is moved to a more exploitable locale.

Fraud: off-balance sheet, buying a company with debt, selling off its assets, hiding expenses and debt in off-balance sheet footnotes and then selling the indebted shell to unwary investors.

Financial games: load the company with debt to buy back shares, reducing the float and boosting per share earnings without increasing sales, productivity or profits.

Stock buybacks were illegal not that long ago because they are blatant means of self-enrichment. So were pharmaceutical ads aimed at consumers.

This is not the warm and fuzzy version of capitalism found in textbooks. In the PR textbook version, entrepreneurs "create wealth" via innovation that creates new products and services and boosts productivity by increasing the skills of the workforce and the efficiencies of industrial production.

Those paid to glorify this facade can cherry-pick examples, but the real money isn't made in innovation, it's made by ring-fencing monopolies and plundering productive assets. Rather than foster innovation, monopolies choke off disruptive innovations and competition as threats to their steady flow of profits.

Rather than invest in increasing productivity--the only real source of wealth creation--profits have been maximized by plundering productive assets: the workforce, resources and once-productive sectors.

All this profiteering took cheap energy and resources and limitless credit for granted. As long as somebody somewhere was doing the dirty work of extracting and processing all the energy and resources needed to keep the system running, then the financiers were free to "create wealth" for themselves via fraud, exploitation and games.

Now that the low-hanging fruit has all been plucked, it's taking a lot more capital and expertise to extract harder-to-get resources.

Credit seemed infinite when rates were near-zero, and everyone said that was The New Normal. But alas, capital still responds to risk by demanding a return, and the happy days of infinite credit and zero rates is over, regardless of whatever hopeful predictions are issued by those wistful for bottomless credit lines.

Rather than incentivize investing in our workforce and productivity, the system incentivizes plundering the workforce and productive assets, commoditizing everything into chunks that can be tossed into the plunder-meat-grinder to maximize the short-term gains of those who own the financial assets and the political power.

Now that we need to boost productivity and efficiency to build a sustainable economy, the capital, credit and skills needed to do so have been squandered to benefit the few at the expense of the many.

Time is running out to change the incentive structure and the system to reward investment in productivity rather than plunder. Look at the charts below of global energy and population. Hundreds of billions of dollars, yen, yuan and euros have been invested in alternative energy sources, but their share of global energy is still so thin a slice that you have to squint to see it.

It will take tens of trillions of dollars to make a dent in energy and industrial-transport-building efficiency. Many people are proponents of nuclear energy, but few look at the scale or cost. The U.S. has built a grand total of two nuclear plants in the past 25 years. Yes, a small modular design recently received approval, and the first prototype may be ready for testing in 2030.

(According to the U.S. Energy Information Administration, "As of May 25, 2022, there were 54 commercially operating nuclear power plants with 92 nuclear power reactors in 28 U.S. states. The newest nuclear reactor to enter service, Watts Bar Unit 2 with 1,122 MW net summer electricity generating capacity, began commercial operation in 2016. Two new nuclear reactors are actively under construction: Vogtle Units 3 and 4 in Georgia.")

To make a real difference, hundreds of such nuclear energy modules will have to be manufactured, and not next century, but starting now. Where are the resources, fuel, capital and expertise to do so? Oops, all the capital went into skims and scams rather than into the workforce and real-world productivity.

Investing in our workforce has morphed into an especially cruel form of financial plunder, self-exploitation: the workforce is expected to borrow tens of thousands of dollars to fund their own education, with little guidance from a rapacious banking-higher-education system other than "the more diplomas you get, the richer you'll become."

While this self-serving advice enriches the banking-higher-education cartels, it isn't generating systemic productivity gains. If it did, we'd be seeing huge leaps in productivity rather than declines.

Gordon Long and I discuss these macro-trends in our new program, The Plundering Of Productive Assets (34:52 minutes, 50 charts).

Plunder is fun until everything has been plundered. Nothing is infinite except greed and credulity. Unfortunately, neither greed nor credulity can build a sustainable, productive economy.









My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters


My recent books:

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 Kindle, $8.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Melissa B. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

Thank you, Jeff W. ($5/month), for your superbly generous pledge to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act


This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Do Not Sell My Personal Information


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP