Technology × Freedom

Elon Musk’s “Innovations” Make the Middle Class Poorer

July 24, 2017 invisiblehand

Last week, business magnate Elon Musk tweeted that he had received “verbal” approval from the U.S. government to build an underground Hyperloop between New York and Washington, D.C., which would whisk passengers from one city to the other in a mere 29 minutes at a brisk pace of 700 mph. Sounds like a wonderful innovation, and certainly a boon for the Mid-Atlantic, no?

Not quite.

See, I have a bone to pick with Elon Musk. Everyone fawns over the self-styled Tony Stark as if he were a god among men, a golden boy who will usher in a new age of clean energy, private space exploration, and speed-defying mass transit. And while Mr. Musk (ahem, his team of engineers, ahem) may very well achieve these technological feats, that doesn’t make them good.

A good innovation is something that allows a person to enjoy a higher standard of living for a price they’re willing to pay. Henry Ford’s production line system enabled cars to be manufactured cheaply enough that millions of Americans could suddenly afford a product that had previously been enjoyed only by the wealthy few. Elon Musk is the master of bad innovations.

I don’t mean that clean energy, private space exploration, or speed-defying mass transit is bad. In fact, I’m all for these things – if and when they become economical. Right now they’re bad innovations because they aren’t economical – or at least, there’s no way of knowing if they are.

That’s because all of Musk’s innovations are built on the sands of taxpayer money. By 2015, Musk’s companies had successfully solicited nearly $5 billion of government funding. (That’s not counting the $72 million in Tesla stocks the Michigan Department of Treasury bought last year to fund the pensions of retired state workers.)

The same will likely be true of the new Hyperloop. Big Think reports:

Replying to those who can’t wait to have this happen in their own city, Musk also encouraged people to contact their elected representatives to drum up support for building hyperloops.

“Support” meaning, among other things, tax subsidies.

Consider what Eric Peters writes about Tesla:

If [Musk] could design and build an electric car that could be sold without subsidies – and at a profit – then he would. But he can’t. No one can. Or at least, no one has.

Electric cars will only be “the future” if either most people somehow become much more affluent and so cost considerations no longer apply or the cost of electric cars comes way down, such that they can be viewed as other than an indulgence. As an economically sensible alternative to an internal combustion-powered car. That day may come. But for now, it hasn’t.

And until it does come, carny barking crony capitalists like Elon Musk are only pushing off the day when it may come. By distorting the market.

Elon Musk’s government-funded innovations actually delay the day when these innovations could have a net benefit to society. But by bypassing the market and using tax money to accelerate the development of these new technologies, Musk is simply impoverishing the many to satisfy the few.

He does this in one obvious way, through carbon credits. The government has legislated (thanks to the lobbying efforts of folks like Elon Musk) that auto manufacturers that don’t make zero emission vehicles (ZEVs) have to pay a carbon tax. These taxes are then transferred to companies like Tesla that do make ZEVs, in order to make their cars seem more affordable. But the automakers that are taxed simply pass on that extra cost to the consumer through higher prices. This bait and switch means that a large number of taxpayers are subsidizing the small number of people who actually buy Teslas. Thus, the Tesla is a bad innovation because it doesn’t actually improve the overall standard of living for everyone. It only improves it for some – namely, the already well-off buyers of Tesla – to the detriment of everyone else – the working-class buyers of all other car brands.

But Tesla, SpaceX, and companies like them also hurt the working class in a subtler way. I touched on this when discussing Amazon, as well as Estonia’s tech bubble. The idea is that when the Federal Reserve pumps the economy full of new money (they’ve added over $2 trillion to the money supply since 2008), it creates an environment of easy credit. The cost of money itself gets distorted and lenders start lending willy-nilly. This leads to real wealth (capital) being allocated to activities that are uneconomic – i.e. don’t create additional value. Instead of creating wealth, you’re now simply consuming it.

Frank Shostak explains it much better than me:

…we can conclude that recessions are the liquidation of economic activities that came into being solely because of the loose monetary policy of the central bank.

Additionally, once it is realized that so-called real economic growth, as depicted by real GDP, mirrors fluctuations in the money supply rate of growth, it becomes clear that an economic boom has nothing to do with real and sustainable economic expansion. On the contrary such a boom is about real economic destruction, since it undermines the pool of real wealth — the heart of real economic growth.

Hence despite "good GDP" data, many more individuals may find it much harder to make ends meet.

In other words, while all the economists tells us that jobs are being created and the economy is growing, the average middle-class American strangely finds that his financial position isn’t advancing, but rather slipping. Meanwhile, all the real wealth is being siphoned off by people like Elon Musk and their wealth-destroying “boom” companies.

When the Federal Reserve pumps the economy with new money, they do so through quantitative easing, wherein the Fed purchases bonds and other securities from banks. This inflates the value of everyone’s stock portfolios. Since the wealthy own about half of all stocks and bonds, they essentially get 50 cents for every new dollar the Fed creates. And since wealthy people finance their lifestyles with the dividends of their stock investments – whereas a working-class individual relies on the value of the stocks themselves as his future retirement income – the boom-and-bust cycle doesn’t affect the Elon Musks and Jeff Bezoses of the world nearly as much as it does the average American.

The long and short of it is this: Musk, Inc. is a boom company, but one that, like Amazon, will weather the storm of an inevitable bust because it’s subsidized by the government.

Before you join the Cult of Elon, remember: you’re singing the praises of the very people who are destroying your hard-earned wealth.