A recent piece by Ryan Avent in the Economist asked a wonderful question:

“The question is not why Apple doesn’t employ more Americans. The question is why there aren’t more Apples. Maybe it’s insufficient demand. Maybe it’s technological stagnation. Maybe it’s a dearth of qualified workers, and maybe it’s poor regulatory policy. There’s little harm in trying to do better on all of those counts. What is harmful is to look at one of the great American corporate success stories and fret over its audacity in providing good jobs for workers in America and in China. How dare they!”

Avent was discussing the fact that Apple employs twice as many foreign workers as domestic workers.  The usual talking point is that this is the result of a decline in American competitiveness and the shipping of workers overseas.  But that misses the point as Avent notes.  The real question is not why Apple is shipping jobs overseas.  The real question is why there aren’t more Apples?

I have a rather simple opinion on this one.  The modern day Steve Jobs doesn’t start an Apple.  He starts a hedge fund.  We don’t ship our best and brightest into productive lines of work en masse anymore.  We ship them to Wall Street.  Hence, the financialization that we have all come to know and hate becomes self perpetuating.    Unfortunately, this is part of the curse of wealth.  As we have become such an enormously wealthy nation we have seen a boom in the demand for Wall Street’s services as wealth needs to be protected and nurtured.

It’s not a horrible problem to have.  But I believe Wall Street has exploited this surge in demand via products and services that add little to no value.  I attribute this in large part to the ignorance of the common man/woman.  And how can you blame them?  Most people are too busy doing what they do best to ever worry about their investment portfolio.  It’s easier to outsource that to an “investment professional”.  Unfortunately, that “investment professional” isn’t always concerned about your best interests, but is often times more concerned with fee maximization and maximizing the revenues for a firm that is only interested in maximizing shareholder value.

This country needs a very serious shift in what it values.  While it is important to value wealth and those who can protect it, I think we need to better educate ourselves about the various forms of wealth protection that are available.  This doesn’t mean that Wall Street is necessarily all evil.  It just means that Wall Street as a proportion of the total US economy has become disproportionately important in the minds of most Americans and the fees and revenues generated by these firms have allowed them to attract the very best and brightest minds.  What we need is a Wall Street that adds real value and is leaner and meaner.  I think the financial crisis was the markets attempt to impose this self correcting mechanism on this industry, but the government and the Fed clearly had no interest in allowing that to happen.  And so here we are back where we started with a crisis wasted and little resolved….

There’s an obvious cannibalization of capitalism that is occurring here and it is an incredibly serious risk to the US economy and our way of life.  We have allowed the power to concentrate itself in one largely unproductive industry which we refuse to allow fail.  That is the antithesis of the democratic and capitalist world that has made America so great.  While better regulation can help to some degree, the only real sustainable fix is via education and better understanding of the financial world in which we live so that the average American can reduce their dependence on Wall Street.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Note to Jack:
    more than 2 ways to create wealth: you can also grow wealth, I live in a rainforest, trees grow several feet per year here, the USA is paying people NOT to grow things, how insane is that???
    harvest energy from the sun, pretty much the same as growing wealth but you have to bash stuff first, after you dig it out
    anyway, point is there are other ways to create wealth
    innovation has always been the most exciting, not necessarily most useful though

  2. Lord Turner, head of the UK’s Financial Services Authority said that much bank activity is “socially useless”. (And he’s Lord, so you can’t argue with him.)

    Mervyn King, governor of the Bank of England said, “Of all the many ways of organising banking, the worst is the one we have today”

    William Hummel said, “Far too much bank lending goes to support purely speculative activities which . . . .serve no useful purpose…”

  3. I am a tech geek and stay up with fabrication of end items for computers. Currently there is not alot of fab facilities inside the USA with the exception of Intel, IBM and TI. The apple phone is made in Taiwan by foxconn based on the design by apple. A cost analysis was done at apple and the cost to make the Iphone from foxconn is currently 325.00 per unit. An estimate was done to do it in the USA and it is 635.00, if you could even find a fab facility that will do it. We do not have these facilities outside of the names mentioned due to the cost of construction. These facilities cost 2 billion to construct in Taiwan. I would not even try and guess their price here. The bottom line is apple wants greater margins and this is how they do it.

    I do agree that bright folks are no longer in the manufacturing sector. Just look at engineers. Other countries place a premium on their education. Most people that are bright know where the money is in our current system. I cannot blame them for wanting to make more.

  4. great threads, people.
    I’ve found this site to be among the best for polite and intelligent discussions.
    why not more Apples?
    I’m living in Taiwan right now, having grown up and educated in the USA.
    I’m finding out that as Asians grow more wealthy, they are also slowly become more like USA.
    1.Service sector is growing to be nearly as large as the US
    2.Mcjobs are the norm for young people with college degrees
    3. Financialization of the economy is becoming frighteningly similar thru the local housing bubble that just won’t pop
    4. obesity is more prevalent
    5. high income expectation, unwillingness to do physical work, is more prevalent.

    however, there are many many more Asian Steve Jobs here, especially in LED lighting, Solar and Wind power, Smartphones, touch screens, mobile gaming software, chip equipment and processes, etc…

    that’s the main difference, but in 20 years. I see the similar stagnant situation as USA here with high employment and a graying population.

  5. I see. The solution is central planning. USA has become “too financialized” and the resources (labour primarily) could be put to “better” use in another sector. Not because the free market encouraged that labour to migrate to greater opportunities, mind you, but because someone “said so”. I know, I know, “government intervention and subsidies”, but those hardly explain the entire scope of the shift.

  6. Or we could remove some of the profit motive of financialization by nationalizing the TBTF banks and using their income as a substitute for income taxes.

  7. @Pod

    “central planning” uh-oh now you went and done used a dirty word. you know this ain’t the pragmatic socialist right?

    Everything of value that is produced is managed at some level or another. Our modern free market system is no different. It’s rules are not naturally ordained but simply the outcome of political arrangements. Political arrangements defined by law though property rights, the corporation, and the creation of money. Among other reasons, this is why classical economists never spoke of “economics” but always of the “political economy.” The intended purpose of these political arrangements is to benefit of society by reducing risk and driving economic development.

    http://www.DollarMonopoly.com – “frame the argument/change the game”.
    wait i’m working up a whole KC warrior mythology thing. give me a couple days. should be funny as hell. had the idea this morning. check this link out:


  8. Cullen:

    You are far too kind to Wall Street, and I think you are dead wrong when you assert that Wall Street expanded because Americans have more wealth.

    Time was, the financial sector provided a net benefit to the economy. Investment banks in particular actually invested in productivity and innovation. Today, their primary source of income is quite simply, theft. Wall Street and the financial sector in general, have learned they can make more money by extracting wealth, rather than investing in future wealth. To my mind, this is a sign that there has been a reduction in real wealth growth over the last 40 years or so, not an increase. The illusion of more wealth has been provided by debt.

    The financial sector uses inflation and debt to basically steel the wealth of the people. This has become so blatantly obvious after the crash of ’08, that any denial of this fact would force one to conclude that the denier must actually reside quite comfortably in some “happy place” on another plane of existence.

    Wall Street has been able to get away with because they have infiltrated government and changed the laws that made their shenanigans previously impossible. Wall Street is the government. Any serious analyst or researcher who actually looks into this and still comes out with questions cannot be taken seriously.

    The real problem is not that Joe Sixpack doesn’t understand ETFs. The general public has never understood finance. This has not stopped America from becoming prosperous in the past. THe problem is the whole system is corrupt, and wealth is being stolen. In a country as blessed and as rich as the USA, with its advanced economy and vast developed markets, this is the only possible answer. The solution is for the people to retake the power of government away from the banks. Then some financial education would be useful.

  9. Why aren’t there more Tesla Motors?
    at least Tesla tries to re-occupy the old Fremont Plant and hire some American blue-collar workers.
    Facebook, Google, Zynga, Linkedin, etc.. are nice but they create only a few IT jobs mainly for the elite.
    we need more 3M, GM, and Whirlpool to build up the middle-class

    • While it’s great if Tesla is creating jobs in the US, they are not a great example to hold up. What do they make? Useless sports cars for the rich. Yeah, that’s going to revitalize America.

      Creative destruction is a vital part of capitalism, and largely what made America great. Do not lament the loss of dying or outmoded industries. Embrace innovation, create new technologies, products, companies and industries that will propel the nation ahead with greater productivity and wealth. This requires re-educating and re-training, but its the only way. Trying to hold onto jobs in labour markets where some other developing country can always outbid you is a losing strategy because the only way to compete is by lowering wages and thus living standards.

      Very high energy prices could bring more traditional jobs back if energy costs force economies to become more local, but then higher energy costs will also be a drag on living standards. No, the only real solution is innovative, environmentally sustainable creative destruction that creates competitive advantages for the US middle class. Another major war is another option (as long as it’s not on US soil). The first great age of globalization was halted because of WWI. After WW2 the US steamed ahead of the rest of the world. Not hoping for war. Just saying.

  10. “Why aren’t there more Apples?” TPC

    Because our banking and money system has ruined our society? Because the parasite is killing the host?

  11. that’s the catch 22
    more innovation sounds fine and dandy.
    but in the internet age, it again creates a few neat jobs for the tech. elite. Yet this ultimately eliminates more blue-collar works thru process improvements, technology advancements, and off-shoring to Asia.
    the more innovation in IT and other tech advancement, the more middle-class jobs are lost in the USA.
    Retraining a 55 year old tool and die maker to be a computer networking guy sounds great, but in the real world is very unlikely to occur.

  12. An entrepreneur will start a business if they choose to. Starting a business has nothing to do with Wall Street. After all, Wall Street helps entrepreneurs raise much need growth or liquidity capital.
    Look at all the new software and web-based companies that have been started within the last 10 years. Most of the founders could have succumbed to a job on Wall Street or IBM…instead, they took risks and started companies. Companies that gainfully employee a lot of Americans.

    • The banking system system steals purchasing power from the entire population so that entrepreneurs and businessmen can make “better use” of that purchasing power. Well that stolen purchasing has been used to outsource and automate the population’s jobs away. Oops! Now few can afford the new products.

      Who-could-a-node that government backed, systematic theft could damage a society?

  13. The simple solution is allowing the bad firms to fail, no matte how big they are. There are many firms that manage money much better than Wall Street or Joe Six Pack could ever imagine. Those firms should be allowed to thrive, rather than have to compete with the incompetents that are backstopped by Politicians.

    I get very frustrated with the idea that the general public knows how to manage money, even their own. It has been proven that small, ‘dumb’ money is just that, buys high and sells low. If people would allow professionals that have long term goals and investment themes, we would be much better off.

  14. Would Cullen Roche quit the financial industry to ‘help’ shrink the proportion of FIRE in the economy? Nope. CR thinks he is helpful to society being a financial professional.

    Would Cullen Roche quit the financial industry if it took 25% of the FIRE workforce with him, shrinking its impact on society? Nope. Because that is the Japanese way where the collective is more important than the individual.

    Everyone in FIRE either thinks like CR – I am too valuable, so if anyone should quit it should be the other guy. Or they are simply a leach on the system and happy to milk it. So you are asking the impossible. This is the incentive system and unless you are willing to jump ship first to set an example, its just funny to talk high and mighty. And yes I know you are a “positive” FIRE, but trust me a lot of negative FIRE think they are positive or could care less about the system.

    You’re spitting in the wind.

    • I didn’t say the entire FIRE industry was useless. In fact, it should be obvious to anyone that most of us are pretty useful. But there’s a lot of dead wood out there. There were a lot of people out there selling phony mortgages that should have never been sold. There are a lot of people out there selling stocks for 3% per sale. There are a lot of people out there building products that don’t do much aside from sound fancy.

      Have I been all good? No. I used to be one of the guys selling stocks for 3% per sale. And it made me sick. You won’t find a single client of mine who feels that they’ve been ripped off or lied to. EVER. And if people don’t see any value in this website and the message I am trying to send then you’re just flat out blind. I am not perfect. But I am trained in this industry, I understand it, and if anyone is going to help get us out of it I feel like it should be someone who understands the disease. I don’t see anyone else trying to help. Do you? Would you rather I just go flip burgers, call myself an honest man and shut my mouth? Or would you rather I try to make things right however I can?

    • Michael Kinsley once made the point that unless you’re Gandhi, there’s nothing hypocritical about opposing tax loopholes that you yourself benefit from. Indeed, you should get points for arguing against interest when you think it conflicts with the greater good. Likewise, there’s no reason to get on Cullen’s case for arguing against self-interest. Would that we had more people willing to do that.

      In the mean time Roger Martin’s book Fixing the Game looks fascinating, he compares the economy to the NFL since pro football has both a “real market” (games) and an “expectations market” (gambling). The NFL is fanatical about keeping them separate, namely, players and coaches are barred from gambling.

      “In other words, the NFL has managed the division between the real and expectations market in a manner that is exactly the opposite of the way we have managed it in business. American capitalism encourages, and in many cases even mandates, the players in the real game to invest heavily in the expectations game, and has built structures that bring the key players from the two markets into almost constant contact.”

  15. Nomo – you have it all backwards. jobs are being commoditized. i’m have an MS in engineering but interested in finance because of the money. this will occur until the system is properly managed. this is an operational failure by the economic profession. don’t shoot the messager cullen’s ideas are the solution not the problem. we suffer from groupthink more than anything else. blame human nature if you want to blame someone…just like your caustic comments towards cullen

  16. Excellent post Cullen. Kevin Phillips has made similar points… about the Spanish, Dutch and British Empires.

    “Each time, finance rose at the expense of industry, agriculture, and other earlier forms of economic activity. This alone could fill an entire book. The provincial parliaments of Spain complained about how wealth was being taken away by foreign bankers, lenders, and merchants. Holland’s example worried Britons who were all too well aware of it, but the United Kingdom ultimately followed a similar path.”
    Phillips’s thesis, essentially, is that when moving money around becomes the engine of a great power’s economy, it’s a sure sign of decline and fall.


  17. The most rapid acceleration in the standard of living and GDP growth are occurring in countries like China, India and Brazil, and obviously not in the countries of Western Europe, the USA, and Japan, which are stagnating in comparison. Some could validly argue that the standard of living in the USA has spiraled into a relentless downward trajectory, especially if one were to consider the seemingly implacable loss of purchasing power of the US dollar over the past few decades, most especially since the dollar was unpegged from gold in 1971. Of course there are greater potentialities for growth to begin with in the aforementioned countries with lower per capita incomes, but that’s exactly the point. The bottom line is, if they are better at attracting industries like Apple, then it will only logically follow that they will be better at future innovations like Apple also.

    The question being asked by the Economist writer is somewhat convoluted. It tends to sidestep many important causal relationships, which he tends to admit with the numerous references to “maybe” this and “maybe” that. Cullen follows by saying, essentially, that the Too Big To Fail mentality should end, which would represent an important shift in values. Of course this is entirely true. I would add that such an extraordinary unwinding of capital, by allowing the necessary failures on Wall Street to occur, would subsequently unleash many pent up reserves of creative energies and entrepreneurial spirit. This would lead inexorably to wealth creation and innovation.

    However, this does not settle a larger practical question, without delving into hypotheticals in the form of maybes ad infinitum, as presented by the Economist writer.

    Tangibly, huge transfers of wealth have been occurring for decades from the older industrialized countries into BIC nations and others like them because the innovators know that there is greater productivity available with less stringent capital requirements in those places.

    While Wall Street may have much to do with creating a climate that allows for those transfers of wealth (or not preventing them) on a national level, I think Wall Street is simply exploiting the status quo, and since no one seems to be hell bent on making those rapacious investment banking firms [insert favorite here] fail when they deserve to do so, it only follows that they will continue to exploit the system in the manner the system allows them to do. I would disagree that more regulation is the answer. Just as someone should not be allowed to rip off taxpayers for welfare money, probably not extending TARP funds would have been more reasonable.

    It is only with a transformation of values that you have a change or reinterpretation of the laws of the land. Those laws that do not allow, enhance, spearhead, galvanize, and unleash the human instinct for progress, development, and innovation should simply be allowed to fall to the wayside. You cannot force someone to pay you X amount to do that, and you cannot force someone to join X group to make you do that either. That only makes people trust you less, and unfortunately for some, that’s the simple truth.

    Wealth creation, rising living standards, innovation, job creation – all of those things simply require a modicum of unassailable honesty and freedom in the climate best suited to provide them. Innovators and their innovations, with capital in hand, travel there fast!

  18. Dear Cullen,

    You’ve put your argument in a box.

    First I never said FIRE is all bad, neither did you.

    But you want part of FIRE to move along into other industries so they can create jobs outside of FIRE. But your argument to me is that there is a lot of dead wood

    You wrote:
    “But there’s a lot of dead wood out there. There were a lot of people out there selling phony mortgages that should have never been sold. There are a lot of people out there selling stocks for 3% per sale. There are a lot of people out there building products that don’t do much aside from sound fancy.”

    So the implication is we dont need those people in FIRE. Yet your original argument is the best and brighest are going into FIRE, not other areas of the economy.

    So if we transfer the dead wood from FIRE – the useless folks – do you think they are going to create the next Apple or (insert company here)? Hell no – they will be a leach in any system or industry. They might be taht salesman that sits at the golf course for 6 hrs twice a week. They are not creating the next (super company).

    You want Jim Simons or Cullen Roche to move. My argument is they will not – because they feel they are too important to the FIRE industry. Or have far more rewards in FIRE.

    So the dead wood you are pointing to wont help us in whatever industry they are in. The stars of the financial world however might, but why should they move out of FIRE if you wont? Why should any of you move out when the incentives in the system are set this way by society?

    Again spitting in wind.

    • The point that you’re missing is with regards to the value society places on these jobs. I am not just saying that the industry needs to be downsized. I am saying that its rewards need to be downsized. There is no reason why banks should make so much money. But they do because people value their services even though much of their service is valueless. If the top earners in this country didn’t all work for banks and hedge funds and were instead doctors or engineers I think we’d see a very different outlook from college graduates and wannabe entrepreneurs. So I think you’ve misinterpreted my argument a little bit.

      I don’t know exactly how you fix that. Got any ideas? I am all ears. Or maybe you don’t think it’s fixable. I don’t have all the answers. I just know it’s a problem….

      • 1. Balanced Budget Amendment
        2. Flat Tax
        3. Honest Money (see Section 10 of the US Constitution)

      • This is the biggest beef I have with the financial sector, Cullen. Rarely does anybody argue that truck drivers need to be paid for their hauls according to the market value of the stuff they are hauling, and that absent that kind of compensation arrangement they will not be properly incentivized to do a good job. But many financial pros argue that financial services will go to hell unless the people managing and moving money around in our economy are not allowed to claim huge portions of the money they move for their services.

  19. Well, I don’t why one problem precludes the other. Yes, of course it would be nice to have more productive companies. Yes, it would be great to imprison all the Wall St. thugs that extort the economy and are aiming at a global monopoly. But why does a company go to China? Because it is profitable to do so. On the whole, corporations are machines, and yet they are treated legally and mythically as persons. This is an intellectual calamity. Either nations and the communities within them have rights that have priority over the rights of commercial entities, or else we will live in a corporatized world. As Brzezinski said years ago: “The nation state as a fundamental unit of man’s organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state.”
    [Brzezinski, Zbigniew, Between Two Ages: America’s Role in the Technetronic Era (New York: Viking Press, 1973), p. 246.]

    That is precisely what is happening, and we seem to be too stupid and spineless to see it for what it is and to do anything effective about it. At least the Greeks do something, and the Icelanders actually threw them out. In our country, they get away with everything, and hence we are losing everything.

    • @jesse

      Our current problems has nothing to do with ideology but rather poor monetary management. Fiscal optimization at any level of public spending by a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. MMT is trying to explain to the gatekeepers why the system is f@cked up. Nothing to do with politics – this is a management failure. The teacher’s asleep and the kids are all choking each other.

  20. Cullen – This is an excellent post. I too work in the FIRE industry and I can tell you that a lot of what we offer adds very little net value to the economy. How does it get fixed? Well, probably the hard way – financial collapse. It should have happened in 2008 but the Fed/Gov’t forestalled it. But we are still on that trajectory. It will be painful but I’m excited about what the other side will look like for the future generations.

  21. Not to be disobliging, but really, only someone seriously deficient in awareness would say that money management is at the root of this country’s problems. It is an element of the problem, but most assuredly it is not the root of them.

    • Not to be disobliging, but really, only someone seriously deficient in awareness would say that money management is at the root of this country’s problems. Sam

      How could a money system historically rooted in fraud, based upon theft of purchasing power from the poor among others and upon usury between fellow countrymen possibly be the root of evil in this country?

      The wicked earns deceptive wages, but he who sows righteousness gets a true reward. Proverbs 11:18

  22. Apparently no one on this website has been noticing the new wave of technology start-ups that are sprouting up all over the US. Talk to anyone in silicon valley right now, its impossible to hire engineers at the moment because of the huge wave of new innovative companies being started.

    Or to put it another way, Facebook is 5 years old and is already a huge business. We are starting the new Apple’s here in America and they aren’t being created anywhere else in the world

  23. I heard even facebook is trying go to Ireland to reduce it’s taxes.
    let’s face it. the US fed and local gov has made it uncompetitive for businesses to remain in the US. so for those corp’s that are lucky enough to be able go offshore, get a Cayman Island subsidiary, manufacture or do engineering in Asia, then sell products/services back to the US consumers, they have the right to go.
    Apple itself go thru a cayman island account to avoid taxes. so wall street is not even a big factor, although indirectly perhaps someone on wall street may have helped Apple go offshore.

  24. Labor creates ALL wealth. (even labor on wall street).
    But he is correct, much too much driving people to work for it on wall street.

    Since yr ALL ears, i suggest:
    25% interest on speculation,
    .05% interest on INDUSTRIALIZATION,

    assembly line fusion plants AND free freight and free passenger on MAG-lev trains,
    (ya see not all americans have bin brainwashed into thinking big is bad, etc).
    (local freight to run on natty gas).

    The simple interest rate change(above) would drive the Republic to brains on Industrialism.

    A refreshing site, some Americans can think outside of the POURING trash of “free enterprise” confines, ie: their “rights’ to buy and sell people and everything…I think we had a war or two over this same issue…

    And if this fails, a Moratorium on DEBT, you can cash yr fed bonds in 20 years
    you do not mess with our abilities to industrialize. (if you DO- forget yr return).
    A new National Bank, (dissolve the FED), and a new start(w/out the huge burden of mis directed Capital- we have now).

    This will of course start a national debate OUTSIDE of the confines of the C.F.R. and such groups…their “big is bad/small is beautiful” confines do not fit, and be seen (rightfully) as an attack on the new fledgling U.S.Republic.

    Our Republic had to do this after the revolution, and it worked. (back when we could not make our own hats..stick a noodle in yr hat..”