Today's great businesses will die off like the dinosaurs
Governments don't like it, but capitalism creates and destroys businesses.
A preview of theTyrannosaurus rex growth exhibit, which will open in July at the Natural History Museum of Los Angeles County, shows three specimens of varying ages. Will Facebook and Google face extinction just like the dinosaurs?
Reed Saxon / AP / File
Facebook didn’t even exist until 2004. Maybe it’s just a fad. But it is a fad that the financial markets value at $50 billion. Mark Zuckerberg is now one of the richest men in the world. If he stole the idea, he is one of the most successful thieves in history. Google is another parvenu. It was created in 1998. Now it is worth $197 billion. Yahoo!, founded in the middle of the Clinton years, is worth $20 billion. eBay, which set up shop about the same time, has a market value of $40 billion.
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Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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Capitalism is a process of “creative destruction,” said Joseph Schumpeter. New wealth is created. Old wealth is destroyed. Unless the feds can make time stop, these great successes of today will be the great failures of tomorrow.
The “crisis in capitalism” is now in its 5th year. But where’s the crisis? Capitalism responds to demands that haven’t even been invented yet. We didn’t know we needed a Facebook, for example, and there it is. Whole new industries are growing up, worth trillions of dollars, with hundreds of thousands of well-paid employees, high margins and rapid growth rates. Capitalists are taking trillions of dollars from old businesses and re-allocating it to new ones. Emerging markets have grown 85% in the last 5 years, while mature markets have been flat. According to a McKinsey study, global investment is expected to jump from $11 trillion this year to $24 trillion in 2030 – with most of the money going to market economies that didn’t even exist 30 years ago.
Capitalism is destroying fortunes too. In the US household sector alone, some $7 trillion has been taken off housing values since 2006. And in the corporate sector, in terms of gold, US stocks have lost 80% of their worth over the last 10 years. The world’s erstwhile biggest automaker, GM, would have gone broke if it had been allowed to do so. Many of the planet’s biggest and most prestigious financial institutions would have been demolished too. We will never know for sure. Because just as capitalism was getting out its wrecking bars and sledge hammers, it was called off the job.
The financial crisis that began in 2007 was widely, and intentionally, misunderstood. People who were paid not to see it coming earned even more pretending to see it go away. Bankers, for example, made billions in fees for promiscuously mongering debt during the bubble years. Then, when the itching and soreness began, they profited from the quack cures. It was a “liquidity” problem, they said; “give us more money and the economy will recover!”
Politicians were happily bamboozled. They mislabeled the problem a “failure of capitalism.” Very convenient for the leveraged speculators capitalism was about to destroy. And very convenient too for the central planners who wanted to bring it under control. In 2009, magazine, for example, named Ben Bernanke its #1 Top Global Thinker, for his role in staving off another Great Depression. Without Bernanke’s decisive rescue, bankers who lent imprudently would have lost their jobs, failed economists would be parking cars, reckless investors and fund managers would have gone broke. Trillions in unpayable debt would have been written off. But thanks to Bernanke it’s still there! Thanks a lot.
