The Inward Draw of Capitalism

Reflections on "Income vs Production", a year later

I’ve been meaning to write a thread about this. In fact I’ve sat down a few times, started writing, and then the wheels fall off the article. Probably because it’s nuanced, probably because it’s difficult to illustrate, probably because it ties together so many weird, disjoint looking things that it makes me look like this.

But fuck it, I haven’t written in over a year so here goes nothing.

Last year, I wrote about Income vs Production, I talked about how it would be easier to buy real estate in Austin Texas than to start a factory in Austin Texas.

If we look back upon both of those things, one year later:

• I’d be up so much on my Austin Quadplexes I could refinance and buy more

• I’d be purely in the hole in the factory, looking down the barrel of what could be the most expensive capital rates in the past few decades

So the payout on owning the Quadplexes, very good. Payout on building the factory, very ass. But that’s in dollars.

The factory itself has the capacity to produce manufactured units, create jobs, and automate heavily to keep that “production” value in America. This has the capacity, if done right, to push the cost of goods in America DOWN.

There’s no doubt in my mind, over the past few decades, we have massively conflated Capital and Production. We are on a trend “inward”, where capital, our proxy for GDP, is better served deployed into things that generate more capital, instead of things that generate production.

Now I’m going to propose something here:

The largest challenge of our species is to reverse the trend of going “inward”

If you’re familiar with the “Great Filter”; this is our great filter. If we go inward, we will never find that intelligent life beyond, or won’t be around for that intelligent life to find us.

Now please bare with me here and let me explain what I mean by “inward”:

In a future where the Metaverse becomes the most valuable asset in the world, money will flow to it like water. Which will result in a further “missprice” of capital towards things that would produce infinite value for humanity. It’s pretty plain to see how it could go that way: incentives mean more people become part of the “non-production class”, supply chain atrophies, not enough people around to fix it, breakdowns, collapse.

I’m not saying we shouldn’t build the metaverse. Augmented reality will obviously be amazing and vastly increase QoL. What I am saying: with current incentives, it is much easier to move inward (metaverse) that it is to move outward (factories). That’s just a fact of the matter we covered earlier in the article.

Here’s why we need to do it now, before it’s too late (if it’s not already).

Assume every person’s income can be represented on this continuum.

This tube represents your income. It is green, you are happy. Hurray! But wait, this isn’t actually true. The government takes 30-50%! Let’s pencil that in.

But then you also have rent food utilities etc and it looks a bit more like this. And we know those black sections are growing faster than the green ones, so your little “disposable income” (which powers the economy, because we measure spending) is shrinking, indefinitely

So, we know that we need to do one (or many) of three things:

• Increase dollar per value tax spending (A government problem)

• Increase dollar per value Housing, Food, Utilities (A capitalism problem)

• Increase dollar per value income (A personal problem)

Now, we’re failing miserably at the first one, failing pretty strongly at the second one, and the third one is really the only control the average person has over the “income bar”. So is it a wonder that people are looking for side hustles, however dumb they might be? Of course not!

You could blame the crypto shills, real estate investors, and other “benchwarmer capitalists” (and we should!) but that doesn’t solve our problem. People who don’t roll up their sleeves and who want to piggyback on other people’s work have existed since the dawn of time. Remember those kids who didn’t contribute to group projects? Now they own real estate.

So, given the above we’re seeing squeezing at both ends, and it’s SO much easier to sit around and trade stocks instead of working of 7.95/hr. Every person is glued to their phones dealing in crypto lotto stock pumps instead of actually working on something of consequence. Rent + utilities are squeezing from the left, and the government and companies are squeezing from the right. At some point, the middle collapses and the bottom falls out. At that point, the last drop of Capitalism will be squeezed out, and we’ll have no more alpha left to extract. No more Airbnb’s left to house hack, no more real estate left to buy, etc.

Once again, I think the biggest challenge of our generation is preventing the “bottom from falling out”. What can we do about it? I think the solution is twofold:

1. A return to golden era production

2. Refusing to give “Benchwarmer Entrepreneurs” a platform

Number one is pretty straight forward: we need to build more housing, more farming automation. In the same way massive subsidies were issued for climate change, massive subsidies (with payback periods!) should be issued for those building houses, factories, automation, etc. Additionally, capital deployment needs to probably be nerfed across the board, with incentives being used to “traffic shape” capital to the right spots.

Number two probably requires a bit more clarification. What do I mean by “Benchwarmer Entrepreneurs”? Let me show you.

Nick Huber @sweatystartup

A big win this week in the storage business. Bought a facility for $1.9 million in June of 2021. Refinanced it yesterday at a $6 million valuation. $2.4 million was wired into our checking account at closing. A short thread:

Flipping storage units, slapping a coat of paint on them, jacking up prices, and then using the the “equity leverage” he just created to get a tax free loan. Repeat, ad infinitum.

Nothing was created here except capital extraction + debt. And why do I call it “Benchwarmer Entrepreneurship”? Because Entrepreneurship has developed this “sexyness” about it. I think people should still look favorably upon entrepreneurs, but I think a lot of the reason people like Nick post on social media is for status, and I don’t think we should be glorifying something that doesn’t produce any value for society. Incentives are already stacked against Production, we don’t need status to add to this equation.

In the end, every single person like Nick who votes to deploy their capital into something which doesn’t produce anything beyond capital, is a vote to sit on the sidelines while every single other person works to keep the lights on, or ideally reverse the cycle.

I don’t know if the above is redeemable, but I know that we’re on the wrong path and we need to work to fix it.

What I’m doing beyond just writing shit? I spend most of my waking hours trying to make compute more accessible, invest my spare capital in businesses that streamline building homes, and, sometimes, I try to write about everything that I see wrong in the world, even if it might bite me in the ass socially or financially.

I have many friends in crypto, trading, real estate, so I don’t take writing any of this lightly. I would love to be universally revered on Twitter; it would probably make my life easier and my company more successful, but I’m determined to reverse this cycle because I see it as one of the largest problems of our generation.