WEST RIVER, MARYLAND – “It feels like 1999,” says a friend. “Then, it was the dot-coms trading at ridiculous prices. Now, it’s everything.”

At the office yesterday, lunch was delivered by DoorDash. Friends who come to Baltimore frequently use Airbnb to find a place to stay.

Unlike many of the dot-coms of 1999, these hip, new companies are operating in the real world and generating real revenues.

But they’re not making any money. They lose money. That is, they destroy wealth, they don’t create it.

That’s what happens when it costs more to provide a service or a product than you get from selling it. Not only do you lose money, but capital is wasted… and lost forever.

Das Kapital is our subject today… and tomorrow, too.

And our hypothesis is that just as bad money drives out good money (Gresham’s Law), bad capital destroys good capital (Bonner’s Law).

Capital is what creates wealth. It is yesterday’s achievements. It is savings. It is factories, banks, markets, patents, machines, highways, knowledge, skills, pipelines, and depots.

Capital is what makes one country rich and another poor. And real capital is what the geniuses at the Federal Reserve are now destroying.

So, let’s look more closely…

Gamblers Win

The trouble with Airbnb, DoorDash, and hundreds of others is not just that they’re losing money… but that their business models will probably never make any money.

They can increase sales. But if they try to widen their margins, competitors take away their market share.

This is also the problem with Elon Musk’s Tesla. It made headlines by being a big, bold mover… first and foremost in the electric car market.

But it’s not like Amazon. People who want a new toaster oven can turn to Amazon to find the best deal at the best price. But they can’t turn to Tesla to find the best electric car.

For most consumers, buying an auto… or even buying lunch… is worth spending a little time in order to find what you want at the lowest price.

And now that the major automakers are making electric cars, too, Tesla is just one of many different choices. And it has many competitive disadvantages (lack of distributors… fewer service networks… etc.)

That doesn’t stop investors from believing that they can make a buck by buying TSLA or any of the other fast-moving stocks of today.

In the last few days, both Airbnb and DoorDash have sold shares to raise money (to cover their losses). And both new share offerings soared soon after making early investors billions of dollars in profits.

The gamblers made money. But did the world gain capital? Or did it lose it? Is the world better off when investors provide capital to capital-destroying enterprises?

Sharp Drop

And here, we turn to Bloomberg. For while the sleek, rich hustlers are making money by trading stocks in companies that lose capital, the average person, who never had much of it in the first place, is running out of the little he had…

Americans’ cash cushions have been declining for months, most acutely among low-income households, underscoring the already-precarious financial situation of the millions of people who may soon lose their jobless benefits.

The median household checking account balance surged by 65% after the arrival of stimulus checks in April, formally known as Economic Impact Payments, but balances have steadily declined since May, according to a report published Wednesday by the JPMorgan Chase Institute.


JPMorgan Chase Institute, part of the biggest U.S. bank, estimates 9.4 million people are on track to lose their unemployment benefits at the end of the month without congressional action. The vast majority of those people are receiving Pandemic Unemployment Assistance, a program that offers jobless benefits to those not traditionally eligible like gig workers.

When the jobless benefits expire, what happens? Their spending will “drop sharply,” say the experts.

Fake-Money Package

So what to do about that? Don’t worry, Dear Reader, the feds are on the case. Here’s NBC News:

Lawmakers are trying to hammer out an agreement by Friday, when Congress hits the deadline to pass legislation to keep the government funded. Leaders from both parties hope to attach the Covid-19 aid package to the government funding bill.

“We’re not leaving, I assure you. We’re not leaving until we finish this package,” McConnell, R-Ky., promised.

The “package,” of course, is full of money. And Dear Readers will accuse us of beating a dead horse when we point out that the feds have no money to put in the package.

But this nag is not dead… Far from it.

Instead, it is prancing around in front of us… full of life. Who doesn’t believe that giving money is not only a good idea… but necessary? What economist doesn’t tell you that when the economy goes limp, you put some starch in it by increasing “demand?”

And what politician won’t tell you that he is providing “relief to hard-working American families” by printing up walking-around money and handing it out all over town?

But what if they’re hard at work… say, for DoorDash… or the Small Business Administration?

Or what if they are not working at all?

Like a dirty old man heading for a playground, the feds are preparing to hand out more candy.

But will it make the kids better off? Or will it just rot their teeth?

We will see tomorrow…




Like what you’re reading? Send your thoughts to [email protected].