Dollar Economy vs Supermoney Economy

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Tim O'Reilly:

"What today’s P/E ratio of 44.8 means that, on average, the 500 companies that make up the S&P 500 are valued at about 45 years’ worth of present earnings. Most companies in the index are worth less, and some far more. In today’s overheated market, it is often the case that the more certain the outcome the less valuable a company is considered to be. For example, despite their enormous profits and huge cash hoards, Apple, Google, and Facebook have ratios much lower than you might expect: about 30 for Apple, 34 for Google, and 28 for Facebook. Tesla at the moment of Elon Musk’s peak wealth? 1,396.

Let that sink in. You’d have had to wait almost 1,400 years to get your money back if you’d bought Tesla stock this past January and simply relied on taking home a share of its profits. Tesla’s more recent quarterly earnings are a bit higher, and its stock price quite a bit lower, so now you’d only have to wait about 600 years.

Of course, it’s certainly possible that Tesla will so dominate the auto industry and related energy opportunities that its revenues could grow from its current $28 billion to hundreds of billions with a proportional increase in profits. But as Rob Arnott, Lillian Wu, and Bradford Cornell point out in their analysis “Big Market Delusion: Electric Vehicles,” electric vehicle companies are already valued at roughly the same amount as the entire rest of the auto industry despite their small revenues and profits and despite the likelihood of more, rather than less, competition in future. Barring some revolution in the fundamental economics of the business, current investors are likely paying now for the equivalent of hundreds of years of future profits.

So why do investors do this? Simply put: because they believe that they will be able to sell this stock to someone else at an even higher price.


Those at the gaming table can, for the most part, afford to lose. They are disproportionately wealthy. Nearly 52% of stock market value is held by the top 1% of Americans, with another 35% of total market value held by the next 9%. The bottom 50% hold only 0.7% of stock market wealth.

Bubbles, though, are only an extreme example of a set of dynamics that shape our economy far more widely than we commonly understand. The leverage provided by the betting economy drives us inevitably toward a monoculture of big companies. The local bookstore trying to compete with Amazon, the local cab company competing with Uber, the neighborhood dry cleaner, shopkeeper, accountant, fitness studio owner, or any other local, privately held business gets exactly $1 for every dollar of profit it earns. Meanwhile, a dollar of Tesla profit turns into $600 of stock market value; a dollar of Amazon profit turns into $67 of stock market value; a dollar of Google profit turns into $34, and so on. A company and its owners can extract massive amounts of value despite having no profits—value that can be withdrawn by those who own shares—essentially getting something for nothing.

And that, it turns out, is also one underappreciated reason why in the modern economy, the rich get richer and the poor get poorer. Rich and poor are actually living in two different economies, which operate by different rules. Most ordinary people live in a world where a dollar is a dollar. Most rich people live in a world of what financial pundit Jerry Goodman, writing under the pseudonym Adam Smith, called “supermoney,” where assets have been “financialized” (that is, able to participate in the betting economy) and are valued today as if they were already delivering the decades worth of future earnings that are reflected in their stock price.

Whether you are an hourly worker or a small business owner, you live in the dollar economy. If you’re a Wall Street investor, an executive at a public company compensated with stock grants or options, a venture capitalist, or an entrepreneur lucky enough to win, place, or show in the financial market horse race, you live in the supermoney economy. You get a huge interest-free loan from the future."