{"id":5503,"date":"2017-05-30T10:56:02","date_gmt":"2017-05-30T14:56:02","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=5503"},"modified":"2018-09-21T02:03:25","modified_gmt":"2018-09-21T06:03:25","slug":"where-markets-fail-markets-are-not-systemic","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2017\/05\/30\/where-markets-fail-markets-are-not-systemic\/","title":{"rendered":"Where Markets Fail: Markets Are Not Systemic"},"content":{"rendered":"

How else do markets fail?<\/a><\/span><\/p>\n

Markets are usually not systemic. Instead, from the bird\u2019s-eye perspective of “Capitalism,” many businesses are “opportunities” in the same way that it feels good to hit yourself in the head with a hammer: It’s much better once you stop.<\/span><\/p>\n

For example, the rising sea levels induced by climate change necessitate the construction of seawalls to prevent flooding. From the market standpoint, investors in the seawall-building company will benefit. Yet, at the systemic level, for capitalism as a whole, this is a capital loss. Why? There are new seawalls, but had sea levels been static, the capital contained in the bricks, mortar, and labor could have been deployed elsewhere for a positive return.<\/span><\/p>\n

Instead, what looks like return at the market level is actually symptomatic of stranded and wasted capital.<\/span><\/p>\n

Perhaps the sea level example is too prospective for you. What about how the cost of treating lung cancer is a \u201cwin\u201d for investors in health-care companies? Tobacco companies generate returns on the front end. Labor (capital “L”) also benefits because, as the supply of productive workers drops and the demand for workers holds steady, net wages go up. Yet, in a systemic context, the costs of dealing with cigarette smoking are disastrous.<\/span><\/p>\n

So here we have two companies and an entire capitalistic entity, Labor, that enjoy returns on capital and yet, for the system as a whole, their activities actually destroy capital.<\/span><\/p>\n

I am not blaming tobacco companies, health-care firms, or even cigarette smokers. I am just pointing out that markets log returns on capital, when, in fact, what is actually happening at the systemic level is capital destruction. As capitalists, we must treat capital as precious.<\/span><\/p>\n

As a cynical investor, these scenarios can result in a great pairs trade, right? But this is a failure of markets that could and should be corrected by investors. The question is how.<\/span><\/p>\n

Possible Remedies<\/strong><\/span><\/p>\n