We live in a time of radical monetary policy and dramatic technological change. Cheap money finances innovation, and innovation helps hide the full effects of cheap money. In the process, everything we know about work, investment, and consumption is being redefined.
To understand what this means in practice, let’s start with a familiar example.
Taken for a Ride
Uber has more than 100 million customers and is synonymous with “getting from A to B.” But this does not mean it has a good business. On average, every time someone takes an Uber, the company loses money. Over the past decade, investors kept Uber from going bankrupt by pouring more money into the company. In essence, these investors are subsidizing Uber’s customers.
Uber and its investors are part of a bigger trend which Derek Thompson first described in 2019. Companies such as Casper, Peloton, Uber, WeWork, DoorDash, Lyft, and Postmates lowered their prices to a loss-leading level in order to maximize their growth. They got more customers but lost money on every sale. By doing so, these companies and their investors helped fund the lifestyle of their customers — mostly young people living in cities. Thompson calls this the “Millennial Lifestyle Sponsorship.”
This strategy offers important hints about the future of other businesses and professions. But before we get to these, we need to understand how technology and monetary policy enable the Millennial Lifestyle Sponsorship and why this strategy is more reasonable than it sounds.
“Money never sleeps,” Gordon Gecko explains to a young banker in the original Wall Street movie. Gecko is referring to the fact that markets are always open somewhere. But his deeper message is that money cannot rest: it needs to generate more money. Sleeping means missing out on investment opportunities and losing value to inflation.