The recent fall in the stock market makes now a good time to talk about the difference between assets and investment.
Assets, as you’ve seen, are worth only what someone will pay for one of them.
If you bought Apple at $300 and now have a share worth only $240, it’s because the last guy to buy Apple bought it at that price. One sells for that, they’re all worth that. Collectively, they’re all worth that. So it was that nearly $300 billion got wiped away.
Spending, investment, is something else. Buying something, building something, improving something creates value that lasts. Facebook began investing in cloud data centers, at $1 billion/quarter, before it had $1 billion/quarter in sales. Amazon.Com invests nearly everything it brings in. It leads its financial records with the cash flow statement, which includes the amount of money it spent on data centers, on delivery vans, and on warehouses.
The value of an asset can rise or fall with the market. Investment values endure. The Interstate Highways built in the 1960s still deliver a return.
The Republicans are an asset party and Democrats an investment party. When the Bush Administration saw mortgage “insurance” wasn’t worth the paper it was printed on, and saw the banks were going under, they printed more money and gave it to the banks. That went into assets. On a bank’s books, loans are assets.
When Trump came into office, he passed a tax cut to rich people. They used it to buy assets. Corporations bought back their stock or handed the money out as dividends. Millionaires bought new sports teams. The value of stock and sports teams skyrocketed, but as we’ve seen what goes up can also go down.
Once you make an investment you create an asset. The value of that investment may rise and fall. But you’ve done something useful with the money. You can use the product of your investment to create more valuable work.
Forget what you’ve heard about “capitalism” or “socialism.” Republicans support assets, Democrats support investment. Don’t pay attention to what’s said. Pay attention to what’s done.
Republican policy made sense in an economy that was defined by assets. It makes no sense in an economy defined by the cloud. Oil companies are worth less and are fading away. What the cloud needs are brains — trained, energized, empowered, and enthusiastic minds.
Spending on minds or the infrastructure those minds use is what generates wealth today. Wealth has been moving for a generation, not just toward colleges, but toward research institutions. Iowa City, not Cedar Rapids. Austin, not Houston. Ann Arbor, not Detroit. The university “lifestyle” is also the software lifestyle. Bringing people together where ideas are being generated multiplies the value of those ideas, because you’re investing in them. Put them into the world, in the form of software, and they can quickly generate enormous returns.
When government puts money into assets, as it did during the 2010s, it’s pushing on a strong. The assets go up in price, then they go down. Money is lost and must be replaced. We’ve run the experiment. Running it again is the height of foolishness for any business or country.
What we need is an investment economy, with an investment government dedicated to nurturing human capital. Tech has been saying this for decades. It’s why wherever tech dominates the economy, Democrats enter power.
It’s time for Wall Street to recognize this truth. It’s time for investors to act on this truth and stop supporting politicians whose policies are aimed at raising asset values.
Because they don’t. They’re vulnerable to deflation, to runs on the banks. A single virus can kill them.
