Is Placing a Wager in a Casino an “Investment”?

Is placing a bet in a casino an “investment”? Absolutely! An “investment” is now defined as a wager, often leveraged, at a gaming table in the casino. Anything that offers a gain is an “investment.”

This is of course at odds with the classic understanding of “investing in new productive assets” that is core to classical capitalism in which the open market for goods, services, labor, risk and capital allocates capital to the highest and best use, i.e. the most profitable use, via the maximization of self-interest by all participants.

Once upon a time, increasing productivity was the most profitable deployment of capital. Now financial trickery in the casino is the source of outlandishly large gains. For example, buying back shares of the corporation’s outstanding stock, reducing the number of shares “sharing” the company’s earnings, cash flow and valuation.

So management creates a million new shares as compensation to managers and employees, and then uses surplus capital to buy back two million shares, jacking up the value of the newly created shares that are now mostly in the hands of senior management. $10 million for you, $100 million for me: easy-peasy.

What risk-laden investment in higher productivity could possibly match the gains generated by this low-risk financial mechanism? There is none, hence the rise of stock buybacks as a core use of surplus capital and borrowing power, for it’s even smarter to borrow vast sums to fund buybacks and then service this debt with earnings, as borrowing vast sums to fund huge buybacks boosts shares prices far more than a trickle of net earnings.

What makes sense is offloading the risks and low profit margins of production to overseas companies and using the gains from this transfer of risk to fund more stock buybacks and other financial tricks in the casino.

In the happy story, the money investors buy shares with is invested in new equipment that boosts productivity. But this describes a tiny sliver of the financial realm: yes, a new start-up company will issue shares to raise capital to fund its expansion. But this is approximately 0.1% of the transactions in the casino, which is all about trading existing shares–and financialized derivatives of those shares–of companies.

None of the money being wagered in the casino goes to the corporation that issued the shares–none. So what are “investors” “investing” in? Wagers on whether shares will rise or decline in value, based not on increasing productivity but on the skillful deployment of financial tricks, planned obsolescence and addiction.

The gains reaped in the casino are now the measure of the economy as a whole, and the primary source of “wealth.” Producing quality goods that aren’t addictive or obsoleted in a few years–there’s no money in that, fool. Get real. You want to get rich, “invest” in a bet in the casino.