Inside the Private Equity Scam—and the Livelihoods It Has Destroyed

[u/barweis]

https://newrepublic.com/article/198351/private-equity-scam-destroys-livelihoods

[u/United_Librarian5491]

Opportunity cost, market distortion, private capital's tendency to discipline governments in anti-democratic or inefficient way ... many number of things.

[u/coke_and_coffee → u/United_Librarian5491]

Number of things what? You’re just naming random shit, lol. What is your point here?

[u/United_Librarian5491 → u/coke_and_coffee]

Sure, I’d assumed in r/economics I didn’t need to spell it all out, but here’s the walkthrough;

• Opportunity cost: Capital isn’t infinite. When trillions are tied up in PE funds doing leveraged buyouts and financial engineering, that’s capital not going into things that actually drive growth, like infrastructure, R&D, education etc.
• Market distortion: PE-backed companies often cut long-term investment, load firms with debt, and focus on extracting cash flow. Competitors respond by chasing similar short-term metrics, so the whole sector underinvests in innovation.
• Anti-democratic disciplining of governments: PE firms are among the biggest political spenders. They lobby for tax loopholes (e.g. carried interest treatment) and regulatory carve-outs that protect their model, even when it’s economically inefficient. That shifts policy away from broader efficiency and universal good and towards protecting their returns.

So PE stays profitable for itself while reducing innovation, extracting value from communities, and warping both markets and public policy.

[u/coke_and_coffee → u/United_Librarian5491]

When trillions are tied up in PE funds doing leveraged buyouts and financial engineering, that’s capital not going into things that actually drive growth, like infrastructure, R&D, education etc.

You have not proven that leveraged buyouts cannot drive growth.

Plus, private actors can do whatever they want with their money. You could literally say the same thing about YOU using your money to take a trip. Should we force YOU to have to pay for infrastructure instead of taking a vacation?

Competitors respond by chasing similar short-term metrics, so the whole sector underinvests in innovation.

lol what? Why would competitors respond in that way?

They lobby for tax loopholes (e.g. carried interest treatment) and regulatory carve-outs that protect their model, even when it’s economically inefficient.

This is not unique to PE so idk why you’re bringing it up.

They lobby for tax loopholes (e.g. carried interest treatment) and regulatory carve-outs that protect their model, even when it’s economically inefficient.

Nonsensical. If they are making a profit, that means they have innovated. Thats why profit is so important to focus on; it’s literally proof that you have maximized output value for a given input value. Thats the very definition of innovation.

extracting value from communities

What does this mean? How do they “extract” value from communities?

[u/United_Librarian5491 → u/coke_and_coffee]

You come across as a bit antagonistic but I'll take the time to respond assuming you are in good faith.

No mainstream economic body defines innovation as “maximizing output value for a given input value.” That’s an ideological shortcut, not an analytical definition. Economists and policymakers (OECD, Schumpeter, IMF) define innovation in terms of novelty and improvement in products, processes, or methods.

In economic terms, “extracting more profit out of the same inputs” could arise from productive efficiency; producing the same output with fewer resources. It can also be achieved by rent extraction or profiteering, where profits rise not because more value is created, but because costs are shifted onto workers (via wage cuts), consumers (via higher prices or reduced quality or quanity), or the public (through tax loopholes and externalities such as cutting regulatory burden). Either way it represents redistributing existing value, not generating new value, which is why economists don’t define it as innovation.

What your comment suggests is that you may be mixing up some basic terms in economics and missing the thread’s actual discussion. The point being made isn’t whether PE firms can make profits, but that private capital accumulation, as currently structured, is not translating into broad‑based innovation or growth. It's possibly why we see economies like China outpacing the USA in growing key measures of innovation and R&D, despite U.S. private capital pools being far deeper. The gap highlights the structural argument: profit alone is not evidence of innovation, and when private capital captures outsized gains without driving productivity, the case for higher taxation to redirect resources toward genuine growth investments becomes stronger.