WeWork and Counterfeit Capitalism

Matt Stoller, in his Big newsletter:

Endless money-losing is a variant of counterfeiting, and counterfeiting has dangerous economic consequences. The subprime fiasco was one example. Another example was the Worldcom fraud in the late 1990s, which forced the rest of the U.S. telecom sector to over-invest into broadband. Competitors have to copy their fraudulent competitors. It’s a variant of Gresham’s Law, which says that “bad money drives out good.” If you can counterfeit something for cheap, the counterfeit will eventually take over the entire market and drive out the real commodity. That is what is happening in our economy writ large, a kind of counterfeit capitalism as ‘leaders’ like Neumann are celebrated and actual leaders who can make things and manage are treated like dogshit.

This kind of counterfeit capitalism is terrible for society as a whole. At first, with companies like Walmart and Amazon, predatory pricing can seem smart. The entire retail sector might be decimated and communities across America might be harmed, but two day shipping is convenient and Walmart and Amazon do have positive cash flow. But increasingly with cheap capital and a narrow slice of financiers who want to copy the winners, there is a second or third generation of companies asking Wall Street to just ‘trust me.’

Compelling argument. I have always been deeply suspicious of any company whose business model is “lose a ton of money for the foreseeable future and eventually we’ll make a fortune”. It’s the South Park “Collect Underpants / … / Profit” business model, but real investors pump billions into it.

As a kid, when I heard the fable of the emperor with no clothes, I never bought the lesson, because I just couldn’t believe adults would go along with a sham that their own eyes told them wasn’t true. Turns out it happens all the time, over and over.

Friday, 27 September 2019