Despite the success of its core rocket business, the company is burning through a prodigious amount of money. Yet SpaceX still managed to pull off a record-breaking IPO, transforming Musk into the world’s first trillionaire.
This is becoming apparent around the world, but nowhere more so than in the U.S., where ordinary people have embraced speculation both as a way to get rich and as a reflection of their own beliefs with perhaps greater zeal than anyone else on the planet.
The latter point is harder to prove with hard numbers, but the anecdotal evidence is heaping up. To the consternation of many traditional investors, what securities you buy have become almost like an extension of one’s identity—whether that is the stock of a dowdy utility or racy computer games maker, cryptocurrencies, or even dabbling in the newfangled prediction markets.
And what does this pressure say about who America is as a country, collectively?
When the U.S. formally declared war on Germany in 1917, the task of figuring out how to pay for the army, navy, and weapons America needed fell to President Woodrow Wilson’s son-in-law, Treasury Secretary William McAdoo.
McAdoo knew that taxes alone couldn’t shoulder the entire burden of the war, given the scale of the money needed. The problem was that the U.S. government bond market had by then shriveled up. The size totaled under $1 billion, and most of it was stuffed away in bank vaults rather than traded.
Yet McAdoo balked at their pessimism. “It was true that [Americans] know little or nothing about government bonds, but we would tell them,” he wrote in his memoirs. To thrill the public, he decided to dub the bonds “Liberty Loans,” and set up a sprawling War Loan Organization to mass-market them.
Life, Liberty Loans, and the pursuit of happiness
When bankers initially struggled to communicate with the masses, celebrities like Charlie Chaplin were enlisted to burnish the pitch. Edward Bernays—often considered the father of modern public relations and the author of a pioneering book on propaganda in the 1920s—orchestrated sophisticated plays on patriotism, sentiment, or personal political yearnings to entice investors who might have been put off by the paltry interest rates on offer.
The Atlantic excoriated this as “borrowing with a club”, and warned that “mob rule by the rich, with the able assistance of hoodlums” could stir support for socialists. Even future president Warren Harding complained that the selling drives were “hysterical and unseemly”.
All told, the Treasury sold five low-cost mammoth Liberty Loans to finance the war, which raised an astonishing $21.4 billion. Relative to the size of the U.S. economy then and now, this is the equivalent of selling approximately $9 trillion of bonds today. Thus, an unprecedented feat of financial salesmanship transformed a war that was initially not overwhelmingly popular into a unifying national endeavor.
An investing identity crisis
Nonetheless, his Liberty Loans proved transformative for the fabric of America’s financial system. It is hard to overstate just how impactful the bond sales were for the country’s culture of investment.
This spilled over into the stock market as well. Researchers have later studied the long-run county-level data on how American households save money and found that areas with greater Liberty bond program participation were far more likely to invest in bonds and stocks in the future as well. In fact, a paper published by the National Bureau of Economic Research last year estimated that 20% fewer Americans would have held stocks had the Liberty Loan campaigns not been conducted.
And leaders like JPMorgan Chase CEO Jamie Dimon have directly likened increasingly popular prediction markets to gambling—while caveating that “people have been gambling forever.”
Which brings us back to SpaceX. For some investors, SpaceX is an overhyped and overpriced monstrosity, run by a controversial and mercurial founder. For others, betting on SpaceX is an expression of faith. They believe in Musk and his visions of spacebound data centers, thinking machines, robots that can mine Mars, and ultimately, interplanetary travel. To them, today’s stock price is a humdrum secondary concern.
But you need not be a finance professor to see that this is a dangerous trend. Markets work best when decisions are based on fundamentals, not feelings. And by reflecting America’s political polarization, identity investing can also accentuate it. Unfortunately, as the Liberty Loan story indicates, the reality may be that the American zeal for speculation and a willingness to sometimes let emotions trump rationality may always have been intertwined.
The extent may wax and wane according to the market cycles, but by now they might be impossible to separate.
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