Perverse Incentives Fueling the Tech Bubble

Many of the local large public companies are miserly, on a relative basis, in returning profits to shareholders. The incredibly large cash balances they hold must go somewhere; start-ups and their VC backers know it. An extra billion or three for the latest hot app won’t hurt the balance sheet much, nor will the negligible additional operating expenses associated with bringing on the few dozen or so engineers associated with the acquisition, most of whom will quit anyway. It is irrelevant whether these acquisitions technically pay for themselves (they won’t), so long as they forestall a competitor or potentially expand market presence in an industry with no barriers to entry and mercurial consumer tastes. While the behavior appears somewhat bizarre on the surface, it is completely logical and rationally-driven given the circumstances.

The tech industry has (for better or worse) been influential, but on the other hand, it has not created jobs and was unable to fuel a post-2008 recovery. But what’s the end game to growth? We are destroying the planet and losing focus of what’s important (what is that exactly? Case in point. Hint: it’s not hedonistic consumption). So if investors are parking their cash in tech until the “next big thing,” I predict the “next big thing” to possibly be in American oil via Keystone XL and fracking. But if the next decade(s)’ American wealth is fueled by domestic oil exports, I think it’ll be the beginning of end for the U.S. (the U.S. not the world, not doom-mongering). I’m afraid that oil will poison our public conscious as it has for Venezuela, Saudi Arabia, and Iran. We produce a lot of oil already but has it ever been the driving force of our economy? (and I wouldn’t consider us to be very conscientious, modest, compassionate, or self-aware in the first place). I fear for how it will change us if we find ourselves in oil-dependent growth.

Rather, could we see economic downturns as cues to change? The economy is bad because there’s no demand, and there’s no demand because people have no money. So it might make sense to redistribute some of the cash that’s sitting around, but it’s difficult to track and get a return on that kind of growth so we buy into overvalued assets coupled with a blind faith in “free markets”.

The system of incentives as it stands is perverse.

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