As anyone who reads the financial news knows, the world´s economy is awash with cash and has been for almost a decade. The Bank of Japan is so keen to get people to spend their lucre that they are now charging negative interest rates. The surplus of cash has led to commodity and asset bubbles as far as I can tell. Want to know why a zero-bedroom windowless chamber in London costs £800,000?
Because someone thinks it is a better bet than leaving the money in a bank. So, if there was ever a time to find loose money and spend it launching a new business this is that time. If you run out of money someone will give you some more.
One argument runs that Airbnb and Uber’s real secret is not that they have a great idea but that they are using easy access to capital to spend the competition into the ground. In the realm of hotels and taxis this is easy as most of the players are small firms living hand to mouth. As soon as certain proportion of the competition have gone to the wall, these new firms will then raise prices and start acting in a monopolistic fashion. This is what Amazon has done with books.
Tesla is not in the same position. Its competitors are not mother-and-father businesses but mighty combines such as Toyota, Ford and General Motors. Tesla is burning through cash at a huge rate in the hope that it can build a customer base and steal sales from its peers. This is possible because at the moment putting money into Tesla looks like a good idea compared to keeping it in the bank or buying something else.
The question is this: would that money not have achieved a worthier goal if it had been spent on public transportation? And why hasn’t the money been spent on sustainable transport instead? The answer is that while corporations are free to spend money on any idea no matter how pointless, the governments that created the money using quantitative easing are not free to spend money on anything, however much the need exists. All across the world the mantra is that smaller government and less government spending is the order of the day.
I am wondering as we discover that Elon Musk is demanding his Model X is sold at a profit, whether the money spent on his electric cars was a mis-allocation of resources. What if European governments had spent that money on more or better trains? What if the money had been spent on making our cities more energy efficient? It’s true that an electrically powered car is more eco-friendly way to get about than a petrol-driven one. But better than that is to avoid having to travel in the first place and, if you do have to, to take a train or bike. They say the best is the enemy of the good, but in this case, the good is the enemy of the best.