From a man who teaches at a British univerity, much to our perplexity:

The reality is that private equity is not the best of capitalism, as it would like to pretend. Back in the 1970s it was described as what it really is. The description commonly used then for those undertaking this activity was ‘asset strippers'. Nothing much has changed, except the scale of the activity. Despite that, asset stripping is what it still is.

Clearly, the implication there, the intended meaning, is that asset stripping is something bad. When, in fact, it’s the recycling of economic resources.

Recycling is good, right?

Think through how a market economy works. There are varied economic resources - land, labour, capital being the usual trio - that are combined in different ways to try to achieve some goal. Not all of these tries work. This is the very point of a market economy, that the different combinations, methods and tries get, erm, tried. Then we do more of what works and less of what doesn’t.

But that does mean that there are those combinations that we do less of. In fact, there are those failed experiments that we’ve got to stop. Which means that those scarce economic assets we’re currently using to do something not worth doing need to be extracted, recycled and moved off into some other usage which produces value.

That is, asset stripping is not just an entirely valid part of capitalism, it’s also not just a desirable one, it’s one that makes us all richer. After all, moving an asset from a lower to a higher valued use is the very definition of wealth creation.

Odd how people who actually teach in universities can fail to grasp the basics really.

Tim Worstall