One big grift

Meme stock have been around for a while.

Apart from that, my theory is that Elon Musk’s superpower is to raise financing for innovative ideas (or “plans”, if we’re being realistic) out of all proportion to the actual value of those ideas.

As we learned from Shaw, all progress depends on the unreasonable man. Similarly, all significant innovation depends on irrational investment. Rational investors prefer to invest in the second mover, who usually ends up with a lot more profit. So we need people like Musk. We just need to make sure that we, ourselves, don’t end up investing in his companies.

We just need to make sure that we, ourselves, don’t end up investing in his companies.

With various indices dropping their customary requirements for this very special boy, that becomes very difficult.

What is left out is that most “innovative” ideas go nowhere. It’s like the lottery. Just as the very few lottery winners get lots of publicity, to hide the fact that the overwhelming majority get nothing, so the very few “innovative” ideas that actually work out get lots of publicity, but there’s nothing but silence about the vast majority, which turn out to be duds and leave their investors with nothing.

As for the “second mover,” typically it’s someone with lots of cash who spots that one of these rare workable “innovations” is proving to have a future and is better equipped to turn it into a profit. So even if some innovation is worth something, the original investors still get nothing.

tl;dr — the game is rigged.

From a random walk to animal spirits on the rampage, what a story.

Just about everyone who has remained outside the right wing techno-fantacist blob is saying the same thing about the SpaceX IPO. It’s pretty clear, isn’t it? Outside of a flat-out sci-fi scenario the valuation makes no sense.

What I don’t understand, however, is how these valuations are possible — not only SpaceX but the whole AI financing loop, crypto, the whole thing. (a) We say the valuations are “political”, but how, empirically, does politics work here? Except for its ideological fringes, politics is always at least partially transactional, and what exactly are the transactions? Who is getting what from whom? (b) The thing about markets is that they can’t inflate forever, and experienced participants know this. Every dollar of unsustainable valuation is going to be deducted from someone’s account at some point. Yes, there are a lot of rubes, but not enough or with enough cash to slurp up all this slop. When the music stops, quite a few well heeled individuals and outfits will take a big hit.

I’ve always thought that if you had a critique of capitalism that meant you were smarter than the main players themselves, you had to be wrong. It’s getting harder to believe this each day. I agree with Paul Krugman, for instance, that Elon Musk is a human Ponzi scheme, but surely people whose day job is to manage large portfolios, theirs and others’, must know everything PK does about Musk. And who willingly walks into a Ponzi after its first hyper-profitable stage is over?

Musk is a meme business model. While extracting money from men in conference rooms is one of his skills, his superpower is in pretending to be a genius well enough to convince The Market. That’s the cornerstone of his (not really his companies, but him personally) valuation, what he might be able to do despite all evidence to the contrary. Like Trump he seems to have a bone-deep understanding of what his audience wants from him.

Like Trump he has a fatal flaw. With Musk its his pointless edgelord performance, for Trump its his inability to understand foreign relations as anything but a dominance competetion. Both undermine the credibility they have with their respective audiences, not fatally, not yet, but a self-inflicted wound nonetheless.

@JohnQ you wrote a similar piece about six months ago on “Musk’s Last Grift”, which was focused on his shift to developing humanoid robots. Contemplating the size of the SpaceX IPO, one might be tempted to think we must surely be at the terminal grift, and our hero must “cry salt tears, as there are no more rubes to bilk”, but I feel I must agree with other commenters here that the inequities in the world’s systems of finance and governance will keep offering avenues for exploitation.

As in that post, I would like to include a thread of posts from the sort of person whose thoughts represent so-called elite opinion on Musk and his kind: https://imgur.com/a/chris-andersons-2022-3-year-musk-predictions-ZHdK5fN

We’re in what might be called the Tom Wolfe bubble. Starting in Mauve Gloves & Madmen, Clutter & Vine, through The Right Stuff, to Hooking Up, Wolfe insisted that the real producers of value in the United States were engineers either leading or working at computer science corporations in Northern California, or living on military bases.

In the twenty-first century, these are the two cadres who are never asked to pay the price of any American political settlement (soldiers, sailors, and airmen often need to pay with their lives for various American policies, but that is what a military career has always entailed; when swingeing budgetary cuts slice to the marrow every other department, that of the military is always spared).

West Coast tech bros are 21st c. America’s equivalent of Golden-Age Dutch tulip enthusiasts. They create increasingly centralized giant corporations which prevent the significant accumulation of capital anywhere but in the accounts of their senior management and investors (with being in senior management part of the career path to becoming a tech investor). Growth stalls throughout the rest of the country, and the political elites in Washington, in thrall to “headline growth” treat the tech bros as the geese who lay the golden eggs: but for them siphoning capital out of every taxi ride, view of an old movie, and exchange of written communication, it is believed, the country viewed as a whole would fall into economic doldrums that match the experience of most of its citizens and residents.

I have only the most glancing respect for Musk. Tesla’s leadership and management did manage to avoid the supply chain snags that interrupted production at most other North American car makers during the Covid epidemic. That’s something, but it’s also the upper limit of what can be said for Musk (and his many failures and vices, from racism to USAID and beyond, swamp it in the greater accounting). For the most part, he just happens to be the patent owner on the American version of the Semper Augustus bulb. Bernie Sanders once singled him out for praise. Yet, Musk, who now has as many millions-of-dollars as a millionaire has dollars, is the figurehead of the particular form of financialization of the economy that the United States has taken in recent decades.

I just read that the Trump regime claimed in a legal filing that xAI is “vital fpr national security” (https://www.wired.com/story/doj-lawyers-argue-xai-vital-national-security-naacp-lawsuit/)

As Robert Reich and others have shown, it’s a Ponzi scheme, but it’s a government supported Ponzi scheme. It has the full support of the Trump regime in addition to the financial elites, the capitalist ruling class. Of course “investing” early is absolutely the rational decision in these circumstances (the only question is when is the time to get out).

The financial markets are signaling their loyalty not just to Elon “Nazi salute” Musk but also to Trump, the guarantor of this new economic order. I fear they really believe that material reality doesn’t matter any more, that the fantasy world they live in will ultimately win over physics and chemistry, ecology and climatology, economics and accounting. And why shouldn’t they, so far everything they do succeeds (at least insofar as the financial markets are concerned)

What Peter Dorman said @9, which partially overlaps with my comment above about passive investing. John, any views on this? How is it that, notwithstanding bubbles and frauds like this one, you still seem to better off buying and holding the whole market rather than trying to be “smart” and avoid stocks like SpaceX.

ETB @2 “Because this sounds less like a law of innovation and more like a symptom of oligarchy.”

Before Musk, there had been many attempts to start new auto companies (Tucker, DeLorean, and Bricklin come to mind in the US). All failed. And there are many EV manufacturers other than Tesla, but AFAIK, no western companies other than Tesla have been able to produce EVs profitably. And besides the cars, Tesla made the expensive, ambitious move to set up its own nationwide charging network.

On the SpaceX side, space exploration has been going on since the late 1950s and governments have poured countless billions into their programs over the decades. It was a mature industry before SpaceX started. Musk pushed technologically and politically entrenched incumbents aside by reducing the cost of launch by more than an order of magnitude. And the innovation is pretty obvious — from using low-tech stainless steel instead of exotic materials to iteratively testing and learning from successive failures, rapidly updating and discarding engine designs and achieving a level of reusability that seemed impossible outside old sci-fi (flipping rockets vertically, restarting engines, and landing tail-first). You don’t have to like Musk to be impressed by SpaceX’s achievements. And Starship a disaster? Yes there have been test failures. But there were SpaceX rocket failures before Starship too. If successful, Starship has the potential to lower the cost of launch by yet another order of magnitude.

The $1T number is eye catching, but the IPO raised $85B — that’s the amount of new money Musk has to work with. Actually, it’s much less than that, since $63B is going to pay off early investors and retire debt. There seems little doubt that the $20B+ that remains will be poured into the ventures (not super-models and super-yachts). If SpaceX doesn’t produce results, successive offerings won’t sell for anything like the same amount per share. Musk doesn’t have $1T in his pocket, or anything like it. Nobody does. It’s a paper value of his shares — a valuation that is highly dependent on future results.

tl;dr — the game is rigged.

There’s a story (not necessarily a true story) about legendary gambler and con man Canada Bill Jones being told that the faro game he was playing in was rigged. ‘I know’, he’s supposed to have said, ‘but it’s the only game in town.’

LAA: “voters might decide that there are many sectors of the industrial economy wherein NO ONE can plausibly claim that their skills justify the high and persistent rewards they are now receiving.”

Do voters think that the wealth of the hyper-rich is justified by their skills or whatever? I don’t think so. In any case voters could decide any day that wealth inequality is too high and needs to be reduced. It doesn’t take a complicated theory or justification (although there is no shortage of such), what it does take is popular hate and anger at the rich. And my hunch is that the oligarchs are quite aware of that and that they are promoting and doubling down on fascism in part because thes think their best chance at keeping their obscene undeerved wealth is to divert the anger of the masses at other targets. That’s only part of the explanation, the other part is that most of them are actually committed fascists.

If anything good is coming out of the Mumpist regime’s grift and corruption, it might be stoking anger at the rich as they are openly plundering society at will. History shows that such a groundswell of anger can build up surprisingly quickly and can sweep away a seemingly stable system. And this system doesn’t look stable at all.

mw @ 21

Respectfully, I’m not particularly impressed by arguments that treat empirical accounts of corporate success as a rebuttal to a structural claim about systems. I did not question whether highly self-confident, wealthy, and well-connected individuals can persuade similarly positioned individuals to fund speculative projects (they clearly can!); rather, my question is whether that mechanism is actually necessary, or simply one historically contingent way of organising innovation (a distinction between observed success and structural necessity).

While I appreciate the clarification that Musk is not in fact swimming in a giant pool of gold doubloons like Scrooge McDuck, it is important not to confuse personal liquidity with control over capital deployment. The fact that this control is mediated through equity structures rather than cash holdings does not reduce its significance; it is merely how modern systems organise large-scale coordination of risk and investment. “Paper value” is therefore not a distraction, it is merely the valuation form of control over large pools of deployable capital (contingent on investor coordination and expectations).

The “Western companies” caveat does more work than it should, because success within a system does not imply necessity of that system (success stories do not only count if they occur within very specific ideological boundaries). In EVs, firms like BYD and CATL demonstrate large-scale industrial innovation within a state-coordinated industrial policy environment, where capital formation and demand conditions are shaped at the system level rather than routed through a single high-net-worth intermediary. This breaks the inference from success to necessity, since comparable outcomes can arise under different coordination architectures (the charging infrastructure point is also weak here, given that large-scale infrastructure development is a standard expression of state capacity across many contexts – a point not usually considered particularly controversial). SpaceX is an interesting case, but direct comparison between commercial near-Earth launch economics and deep-space or crewed scientific missions risks conflating fundamentally different objective functions (cost and cadence versus mission complexity, scientific output, and reliability under extreme constraints), and I can’t help but notice how the advantages of the latter tend to disappear when analytical focus is placed solely on the former. Nevertheless, while SpaceX may represent genuine innovation in orbital access economics relative to traditional government-led models, at most this only establishes performance within a specific objective function and not necessity of the underlying coordination structure.

In short, the central issue remains whether similar or better outcomes could arise under different coordination structures, rather than assuming the current arrangement is uniquely necessary – success under a given system is, at most, evidence of sufficiency; it is not evidence of necessity…

My cat Petey is worth $2 trillion… Hey it’s worth a try

Just sell someone a 2 trillionth share in your cat for a dollar. Voilà!

The really depressing aspect is that because of the culture of near-complete elite impunity that has established in the USA, it is guaranteed that he will not see any repercussions for his behaviour – be it the fraud or the illegality of DOGE or the illegality of his gas turbines or not paying rent or his libel and hate-mongering – unless he somehow becomes destitute first. I struggle to think of any very rich person in the USA who ended up in a prison cell without first going bankrupt (Madoff, Bankman Fried, Holmes). And it seems unlikely that somebody with as many diverse assets as him will ever lose everything.

At the society level, once an absence of regulation, inequality, and elite impunity have become as entrenched as they have in the USA, how do things ever get better? I am afraid that only a catastrophe of the scale of 1863-1865 or 1929 will shake things up enough for that to happen. Until then, lots of meme stocks and ‘cryptos’ will inflate and implode and thereby impoverish the rubes further while creating an increasing number of centibillionaires.

ETB@27. “In EVs, firms like BYD and CATL demonstrate large-scale industrial innovation within a state-coordinated industrial policy environment, where capital formation and demand conditions are shaped at the system level rather than routed through a single high-net-worth intermediary.”

Perhaps (however it may be the case that even Chinese companies cannot make money selling EVs). But examples from China a best show us only what is possible in an authoritarian, non-Democratic nation with an enormous low-cost labor force and scant requirements for environmental or labor protections. The Chinese political-economic system cannot be imported to the EU or US, and I hope none of us would want to try.

“rather, my question is whether that mechanism is actually necessary, or simply one historically contingent way of organising innovation”

My answer is, ‘yes’, it is necessary — particularly in the US. It costs about 8-12 times more per mile to construct subways in New York than Paris. And it doesn’t seem to matter how many decades or tens of billions of dollars California pours into high speed rail — they apparently can’t do it for love or money. More on topic, the Biden administration launched program to build out an electric vehicle charging network, but the results have been meagre with only a tiny fraction of the number of stations and charging ports of the Tesla supercharger network. In a US context, the answer is clearly ‘no’ — federal, state, and local government efforts absolutely could not have done what Tesla and SpaceX have done — neither in terms of innovation nor especially in terms of cost-effective and timely execution.

But even for China, Tesla and SpaceX were arguably essential. The big atomic ‘secret’ of the Manhattan project was not one that required any spies to steal. As soon as the bombs were dropped, every government on the planet knew that if they poured the necessary resources into a nuclear weapons program, they could expect to get working nuclear weapons out of it. Similarly, BYD has been following Tesla as an example. BYD may end up winning the race, Chinese investors and government agencies likely would never have funded BYD without Tesla demonstrating what was possible. The same very much applies to SpaceX. The Chinese may match or ultimately exceed Tesla’s and SpaceX’s efforts in execution, but they absolutely relied on Musk’s companies’ pioneering innovations to show them what was possible.

ETB & mw — Aren’t the two systems converging? On the one hand, you have Confucian-Marxism wherein the state is propelling the development of industry. And on the other hand, you have Capitalism wherein the rise of individual entrepreneurs is becoming ever-more strongly dependent on the state’s protection of markets.

Indeed we may see increasing protectionism of all types, for at least three reasons: 1.) The left/right populist reaction to globalization’s destruction of long-term livelihoods and neighborhoods. 2.) Increased world population crowding and, in industrial production, the saturation of consumer attention and satisfaction. 3.) The rise of information technology, which, of course, is instantly duplicatable to saturation.

I foresee a battle coming about whether states should shorten their patents, considering that anybody can use agentic AI to create and run a billion-dollar business. (Just yesterday, NERDS.xyz reported that Alibaba, the huge Chinese e-commerce conglomerate, is running its annual $1 million prize competition for new startup ideas, and this year, 71% of the applicants are for one-person startups using AI:)
https://nerds.xyz/2026/06/alibaba-ai-one-person-businesses-solopreneurs/

In the case of Musk, we have someone who is less an innovator than he is an impresario or circus ringmaster, stitching together the various threads of industry. Nothing wrong with that. But even he has resorted to reaching for the moon. Literally. I don’t see where the private profit is to be found in the moon, or in Mars, for another hundred years. Until then he may suppose that he can argue for a great deal of government largesse to get there. Perhaps under the rubrics of national pride or national security?

All of which seems to be highly convergent?

mw @33,

Chinese investors and government agencies likely would never have funded BYD without Tesla demonstrating what was possible

The BYD IPO took place before Tesla was founded.

@mw 33
“however it may be the case that even Chinese companies cannot make money selling EVs”

This is a common strategy in the last decades: there is some sector that we expect that will bring a lot of money in the future, some enterpreneur (or the Chinese government for that matter) dumps a lot of money in it to squeeze away the competition, so that when the product develops iot is a monopolist and can reap the benefits.

Tesla also was in negative cashflow territory from 2012 to 2020, Amazon had a similar experience IIRC, the various AI products are similar.

This is IMHO the consequence of an economic situation where wages (including but not limited to China) are low relative to productivity, so there is a lot of money that enters into profits, but “capitalists” (or the Chinese government) do not have new marginal projects to invest into that have reasonable profit levels, so they all use this “dumping” strategy, that leads to big bubbles.

This is also the reason central banks are forced to keep rates low in historical terms, because the bubbles are neeeded to recycle profits in some sort of demand, in practice.

But I don’t think that this means that one neeeds the single charismatic salesman Elon to make it work, rather the existence of guys like Elon or Donald is the consequence of this economic situation where huge sums of wealth are bet on the expectation of distant future monopolies, IMHO.

Seriously, SpaceX’s astronomical valuation means investors believe it will make huge profits in the future, because the rest of us (either personally or through our governments) will need to pay it huge amounts of money for the services it provides and the assets it controls. (Eg because we don’t want to be on the receiving end of https://www.bbc.com/news/articles/c0q3ndj7052o>this one day.) Which can then be used to buy up even more of out essential infrastructure/media/planet.

I sure hope it’s all a con.

engels @42. “I sure hope it’s all a con.”

And I hope that SpaceX remains massively valuable because the only way that can happen is by the company providing highly useful goods and services that people (and companies and governments) are willing spend their money on. As for cutting Russia off from Star Link — do you really object? And, of course, there is nothing preventing governments or other companies from deploying competing arrays of communications satellites.

there is nothing preventing governments… from deploying competing arrays of communications satellites