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Is it bad though? I would think new innovative services would be a better place for money to go compared to sticking into some long term bond. At least this way

Is it bad though? I would think new innovative services would be a better place for money to go compared to sticking into some long term bond. At least this way a bunch of people get jobs and servers/compute/CPU/whatever get bought. For every Uber there are dozens if not hundreds of Slack/Splunk/Softlayer type companies that end up with some of that money and employ people. This is somewhat related to how I perceive the economy of China working. Whenever I visit there I marvel at all the infrastructure projects and you realize it doesn't need to "make money" over there. The government just decides what to build and loans itself money to get it done.

ABCLAW 8y ago
>Is it bad though? Yes. Hence the 'mal' part. Investment should be going towards enterprises which produce actual value. If the only way you can produce value is by throwing away money through predatory pricing, then you aren't creating value. And so without any value to create, eventually you blow up and lose a bunch of people their money. When enough people lose enough money, people stop lending their money so freely and the business cycle starts the contraction phase. Now good enterprises have trouble getting capital, so they delay purchasing all of those cool servers/computers/whatevers. Since the companies selling those things now receive less orders, they order less from their suppliers, etc. Suppliers go under. People lose their jobs. People without jobs spend less, which kills demand further. Fuck. etc. If it helps to have a misleadingly simplified 1 phrase summary: you can think of malinvestment as taking money from workable enterprises in the future and funnelling it into shitty enterprises now.
- afarah 8y ago
  Of course they're creating value, Uber and the like is of great value for its users. The service is merely being subsidized by investors who believe in such practice. Is it a bad investment? Maybe, their investors did not think so and they were free to compare it with other options you deem obviously better, considering you're even saying Uber and the like are stealing these other business would-be money...
  - roenxi 8y ago
    If they aren't making a profit they aren't creating value. They are destroying some value and transferring other value from investors to customers. The difference here is when you add everything up you have less, when for a good investment the total should go up. In principle, in a fair market economy, that is OK because someone has to take the risk of being wrong about what is a good idea. The concern being voiced is that monetary policy is diverting resources away from people who are known to make good long term decisions and towards people who have access to loans from the central bank. At some point the people who are borrowing money can't pay it back and the losses are revealed - not in and of itself a problem; those responsible take the hit. But in the mean time, the people who would have used the resources more sensibly to build infrastructure or sustainable logistics chains havn't been because they weren't being given the time of day by the markets. The worry is that a dropping tide lowers all ships. If value is being systematically destroyed and the cause is government incentives then the potential for that to crop up in unexpected places is quite high. I'm always tempted to link monetary policy to the themes of pension issues, low real wage growth, poor infrastructure and rising inequality seen in the US.
    - generated 8y ago
      It is possible to create value and not profit. Economic value exceeds or matches market value. Market value drives revenue. Profit is a function of revenue and cost. These are well defined terms; please be careful saying things like "If they aren't making a profit they aren't creating value." It detracts from your otherwise strong argument. If that line were true, non-profit organizations wouldn't exist.
      - roenxi 8y ago
        Now that you have pointed it is obvious that, say, a non profit can create value without creating a profit or that there might be externalities. But we aren't really talking about that sort of concern here, we are talking about for-profit companies that aren't doing research and any externalities are tenuous. It is completely unreasonable to say that such a company could be creating value. They are clearly a wealth transfer mechanism from who-knows-where to consumers. It doesn't make sense if it isn't malinvestment. People love to pull out hypothetical externalities to justify things they like that just aren't worth doing; they aren't going to justify running a corporation at a loss.
- HillaryBriss 8y ago
  > When enough people lose enough money, people stop lending their money so freely and the business cycle starts the contraction phase. But the business cycle is not a bad thing. One important feature of the cycle is that as investment seeks new opportunities nobody knows with certainty what will succeed and what will fail in advance. The down part of the cycle clears out the losing investments. If the free market business cycle has any strengths, surely this is one of them: allowing big money to be both smart and stupid, allowing the wealthy to take dumb risks and lose to those who are more nimble, more insightful, more industrious.
pitaj 8y ago
In addition to what the other reply said, it's bad because - it's inefficient wasted energy and capital - it causes bubbles which eventually pop, resulting in booms and busts - it pulls resources away from other opportunities
- digitaltrees 8y ago
  It’s not bad if the short term losses lead to long term monopolies. You might not believe that WeWork will ever be a monopoly, or achieve positive unit economics, but that is the bet. In some ways, the ability to focus on such long term strategy is an excellent example of markets functioning rationally rather than a short term profit optimization that leads to long term stagnation.
  - cimmanom 8y ago
    It may not be bad for the investor if that’s be outcome, but it sure is bad for the market and the consumer.
    - digitaltrees 8y ago
      I totally agree. Monopolies are destructive. Markets to work with monopolies; there is no competition to allow for optimal price discover that matches supply and demand. I am just reacting against the urge to blame monetary policy and government itself. I find this to be a common response that keeps being disproven and yet doesn't go away. I am definitely not a fan of Uber, Amazon, and the like. I really don't like this model that is being pursued in much of SV. I understand Peter Thiel and others reason for wanting monopolies; it is rational from the perspective a firm and investors, but it is highly irrational from the perspective of that firm within society, and an investor as a citizen within a country. The more monopolies exist the smaller the economic pie will be over time. The more they concentrate resources to extract outsized profits, the less space there is for innovative startups. The more they abuse pricing power, the less customers they have.
      - nilskidoo 8y ago

ABCLAW 8y ago

>Is it bad though? Yes. Hence the 'mal' part. Investment should be going towards enterprises which produce actual value. If the only way you can produce value is by throwing away money through predatory pricing, then you aren't creating value. And so without any value to create, eventually you blow up and lose a bunch of people their money. When enough people lose enough money, people stop lending their money so freely and the business cycle starts the contraction phase. Now good enterprises have trouble getting capital, so they delay purchasing all of those cool servers/computers/whatevers. Since the companies selling those things now receive less orders, they order less from their suppliers, etc. Suppliers go under. People lose their jobs. People without jobs spend less, which kills demand further. Fuck. etc. If it helps to have a misleadingly simplified 1 phrase summary: you can think of malinvestment as taking money from workable enterprises in the future and funnelling it into shitty enterprises now.

afarah 8y ago
Of course they're creating value, Uber and the like is of great value for its users. The service is merely being subsidized by investors who believe in such practice. Is it a bad investment? Maybe, their investors did not think so and they were free to compare it with other options you deem obviously better, considering you're even saying Uber and the like are stealing these other business would-be money...
- roenxi 8y ago
  If they aren't making a profit they aren't creating value. They are destroying some value and transferring other value from investors to customers. The difference here is when you add everything up you have less, when for a good investment the total should go up. In principle, in a fair market economy, that is OK because someone has to take the risk of being wrong about what is a good idea. The concern being voiced is that monetary policy is diverting resources away from people who are known to make good long term decisions and towards people who have access to loans from the central bank. At some point the people who are borrowing money can't pay it back and the losses are revealed - not in and of itself a problem; those responsible take the hit. But in the mean time, the people who would have used the resources more sensibly to build infrastructure or sustainable logistics chains havn't been because they weren't being given the time of day by the markets. The worry is that a dropping tide lowers all ships. If value is being systematically destroyed and the cause is government incentives then the potential for that to crop up in unexpected places is quite high. I'm always tempted to link monetary policy to the themes of pension issues, low real wage growth, poor infrastructure and rising inequality seen in the US.
  - generated 8y ago
    It is possible to create value and not profit. Economic value exceeds or matches market value. Market value drives revenue. Profit is a function of revenue and cost. These are well defined terms; please be careful saying things like "If they aren't making a profit they aren't creating value." It detracts from your otherwise strong argument. If that line were true, non-profit organizations wouldn't exist.
    - roenxi 8y ago
      Now that you have pointed it is obvious that, say, a non profit can create value without creating a profit or that there might be externalities. But we aren't really talking about that sort of concern here, we are talking about for-profit companies that aren't doing research and any externalities are tenuous. It is completely unreasonable to say that such a company could be creating value. They are clearly a wealth transfer mechanism from who-knows-where to consumers. It doesn't make sense if it isn't malinvestment. People love to pull out hypothetical externalities to justify things they like that just aren't worth doing; they aren't going to justify running a corporation at a loss.
HillaryBriss 8y ago
> When enough people lose enough money, people stop lending their money so freely and the business cycle starts the contraction phase. But the business cycle is not a bad thing. One important feature of the cycle is that as investment seeks new opportunities nobody knows with certainty what will succeed and what will fail in advance. The down part of the cycle clears out the losing investments. If the free market business cycle has any strengths, surely this is one of them: allowing big money to be both smart and stupid, allowing the wealthy to take dumb risks and lose to those who are more nimble, more insightful, more industrious.

pitaj 8y ago

In addition to what the other reply said, it's bad because - it's inefficient wasted energy and capital - it causes bubbles which eventually pop, resulting in booms and busts - it pulls resources away from other opportunities

digitaltrees 8y ago
It’s not bad if the short term losses lead to long term monopolies. You might not believe that WeWork will ever be a monopoly, or achieve positive unit economics, but that is the bet. In some ways, the ability to focus on such long term strategy is an excellent example of markets functioning rationally rather than a short term profit optimization that leads to long term stagnation.
- cimmanom 8y ago
  It may not be bad for the investor if that’s be outcome, but it sure is bad for the market and the consumer.
  - digitaltrees 8y ago
    I totally agree. Monopolies are destructive. Markets to work with monopolies; there is no competition to allow for optimal price discover that matches supply and demand. I am just reacting against the urge to blame monetary policy and government itself. I find this to be a common response that keeps being disproven and yet doesn't go away. I am definitely not a fan of Uber, Amazon, and the like. I really don't like this model that is being pursued in much of SV. I understand Peter Thiel and others reason for wanting monopolies; it is rational from the perspective a firm and investors, but it is highly irrational from the perspective of that firm within society, and an investor as a citizen within a country. The more monopolies exist the smaller the economic pie will be over time. The more they concentrate resources to extract outsized profits, the less space there is for innovative startups. The more they abuse pricing power, the less customers they have.
    - nilskidoo 8y ago