“I want you to know what the risks are, because I still want to come home for Thanksgiving if this doesn’t work.” That’s what Jeff Bezos said to Jacklyn and Miguel Bezos when they invested a little over $245,000 in Amazon, his online bookstore. Bezos placed his odds of failure at 70 percent. It was likely an optimistic projection.
Which is the point. And it’s an economic one, though one that economists, economics reporters and politicians continue to gloss over. While the seeds of real economic growth are being planted all over the United States as you read this, and in conversations not unlike the one Bezos had with his parents, the deep in economic thought can’t get their minds off what will happen in Jackson Hole this week, and what hints Fed Chairman Jerome Powell will convey to his rapt audience about his present and future intentions with the “Fed funds rate.”
To say a Jackson Hole focus is a total waste of thought and energy is to put it mildly. See Jacklyn and Miguel Bezos’s intrepid investment in their son once again.
The simple, routinely ignored truth is that for the companies that matter, and that actually power economic advance, what the Fed tries to do with rates is utterly immaterial. As is pointed out routinely in my upcoming book, The Deficit Delusion (release date: August 19th), there’s not an interest rate high enough to compensate investors for putting their wealth to work in startups.
Evidence supporting the above claim can be found in the value of Bezos’s parents’ Amazon shares. No doubt they sold a little or a lot over time, but assuming they’d held onto each share acquired with their $245,000 investment, the latter would be worth $30 billion today.
The difference between the capital committed by Bezos’s parents and the ultimate worth of their investment speaks volumes about the near total irrelevance of the Fed to economic growth. The Fed’s rate fiddling is done with the aim of influencing the overnight lending rate within banks, except that no bank or banker would have ever loaned Bezos $245,000 for Amazon.
Bank loans quite simply must perform, which explains why Bezos wasn’t seeking or getting bank loans for his business idea. Banks can’t lend to concepts that have 70%+ odds of going bankrupt, which yet again explains why Jeff Bezos went to his parents instead of a traditional bank. The Fed and its efforts to influence bank lending has nothing to do with anything.
Which brings us to Jeff Bezos himself. He’s been criticized for being rich himself, and he’s also been criticized for not having a plan to give his wealth away. Jacklyn and Miguel Bezos’s loving, but also courageous investment in their son explains why the critics would be wise to hold their fire.
As their $245,000 investment in Amazon loudly indicates, money is precious. It can be transformative. Exactly because Jeff Bezos has hundreds of billions to put to work, his capacity to author the commercial future through investment in the Amazons of tomorrow is unrivaled. As with his parents, interests are so very much not the point.
They never are. Yet when readers read the financial press or watch financial news this week, Jackson Hole will dominate the discussion, far removed from what truly powers economic growth.
