The Sabotage Economy

How capital accumulates by restriction rather than contribution, and why the market will not correct itself

The case for capitalism was never that it is kind. The case was that it ties reward to contribution. A price was supposed to be a verdict that channels capital and labor toward what serves people and starves whatever cannot earn its keep. Strip away the moral garnish and that is the whole defense: the market is the one machine that reliably links what you get to what you give.

The defense is false, and not because the state corrupted an otherwise honest mechanism. It is false because the governing logic of capital is not production. It is accumulation through restriction. Thorstein Veblen saw this a century ago and has never been forgiven for it: business and industry are opposed. Industry makes things; business makes money, and it makes money through what Veblen called the conscientious withdrawal of efficiency, the deliberate sabotage of output to defend price. Blair Fix and the capital-as-power school have since put the corollary on an empirical footing. Fix’s work finds that the supposed link between productivity and income, the spine of human capital theory, is dubious to the point of being untestable or circular, and that what actually predicts what a person earns is hierarchical power, command over subordinates, not output. Income tracks power. Capital tracks the ability to restrict.

Once that is admitted, the comfortable story collapses, and so does the alibi I want to keep handing the market. The price signal has not been silenced; it works, continuously and fairly accurately. The market reads it and then routes capital and labor toward the sovereign, the asset, the credential, and the toll, and away from the productive, the profitable, and the concrete, because that is where power accumulates and power is what capital is for. The institutions usually blamed for this, zoning, licensure, accreditation, the central-bank backstop, are not constraints imposed on capital from outside. They are capital’s own instruments, the sabotage written into law by the people it enriches. There is no clean market underneath the institutional grime waiting to be freed, because the actors with the most power are the ones profiting from the dysfunction. Free their hand and it gets worse.

The word for the result is irrational, used precisely. It does not mean the people inside the system are stupid. Each is rational. It means the system those rational actors compose betrays the one function the market was sold to perform, because what is rational for capital, the accumulation of power by withholding serviceability, is the negation of contribution. It shows up in three faces, and the first is the one where the market cannot even claim it was prevented from pricing.

The willing financier

Here is the fact the apologetics cannot absorb. At the end of 2020 the world held more than eighteen trillion dollars of government debt at a negative yield: contracts in which the lender hands the sovereign a sum today and agrees to receive less back, a guaranteed loss locked in on purpose. Around two thirds was European, a quarter Japanese, and a large part of it was held not only by central banks and regulatory captives but by return-seeking investors who had alternatives and could see them.

They could see them because nobody hid them. In those same years and regions the equity risk premium, the extra return on owning the productive economy rather than the state’s paper, sat at six to eight percentage points in the open. European and Japanese firms posted earnings yields of six and seven percent and dividend yields of three and four, printed daily, while the government bond offered a certain real loss, and over the period those equities decisively outran the bonds that were supposedly the safe choice. The signal was not muffled. It was screaming. Capital read it and bought the bond.

That is the thing to sit with, because it kills the suppression story from the inside. You cannot say the price was hidden when the dividend yield was public, and you cannot say the market lost the ability to price when the premium it declined was quoted every day. What the eighteen trillion proves is that the largest pools of patient capital on earth looked at a screaming signal to fund the productive and chose instead to be the willing chief financier of the state, at a price they knew was a loss. And the reason is the one Veblen and the capital-as-power school would predict: the sovereign’s bond is the purest claim on power there is, a perpetual toll on the taxpayer backed by the monopoly of force, while the equity is only a bet on serviceability. Offered a claim on power or a stake in production, capital takes the claim on power, every time. That is not a market malfunctioning. It is capital behaving as capital.

It has not stopped. The negative-yield extreme has passed and sovereign yields are positive again, but the preference is unchanged: the market remains the largest and most reliable funder of government expansion in the world, absorbing record issuance year after year while the OECD reports global public debt north of a hundred trillion dollars. The deficit is financed, the state expands, and capital keeps choosing the claim on the taxpayer over the stake in the enterprise.

The central bank is not the villain here, which is why the case is so damning. The price of money was low for reasons no central banker authored: Richard Werner’s empirical work shows interest rates follow nominal growth rather than driving it, and Paul Schmelzing’s seven centuries of data show real rates drifting down on a trend older than central banking itself. The rate was an honest reading of a low-growth world. That removes the alibi: if the rate was honest, the choice to fund the state and the loss-maker at it was a real choice, not a distortion forced on anyone. What the backstop does is narrower and worse. It does not make the choice, it protects the choice from correction. You cannot short an asset that an institution with an unlimited balance sheet has promised to keep buying and survive, so the lender of last resort and the floor under asset prices do not cause the preference, they guarantee no one can punish it. The market chooses to fund power over production, and the backstop ensures the choice can never be arbitraged away.

The same preference, turned from the sovereign to the speculative, funds the other great misallocation of the moment. The five largest American technology firms are guiding to over six hundred billion dollars of capital expenditure in 2026, roughly three quarters of it for artificial intelligence, at a capital intensity of forty-five to fifty-seven percent of revenue against ten to fifteen a few years ago. Goldman Sachs projects more than a trillion dollars across 2025 to 2027. Bain calculates that merely sustaining the trajectory requires the sector to throw off some two trillion dollars of annual revenue against the capital deployed, a return nobody has shown at anything near that scale. The revenue to justify the spend does not exist, and capital funds it anyway, increasingly with borrowed money: over a hundred billion in hyperscaler debt raised in 2025, with Morgan Stanley and JP Morgan estimating one and a half trillion of technology-sector issuance ahead, credit pointed not at uses that will earn it back but at a buildout whose returns are asserted, with the loss spreading into the financial system rather than staying with the people who chose it. SpaceX confesses it cleanly: Starlink is a real cash-generating utility at a sixty-three percent margin, yet the company’s roughly two-and-a-third-trillion-dollar valuation at its 2026 listing came from the AI venture grafted on, which burned nearly ten billion dollars against two hundred million in revenue. The profitable thing is collateral for the narrative. And the proof none of it was ever about the cheap rate is that the rate has normalized, real ten-year yields sit above two percent, and the patience has not ended.

The wage of power

The second face is labor, and Fix’s finding carries it directly. The official theory says you are paid your productivity, mediated by the human capital your education built. The evidence does not support it. What survives the data is that income rises with position in a hierarchy, with the number of people beneath you, not with anything you make. The labor market does not reward contribution. It rewards rank, and rank is a claim on power, the same thing the bond is.

This is Veblen’s business and industry written across the wage structure. The nurse, the electrician, the machinist, the grower, the man who keeps the water clean produce serviceability directly, and their pay has been disciplined for forty years against global competition and automation. The compliance officer, the administrator, the intermediary, the credentialed gatekeeper produce claims about serviceability and are showered, because they occupy the chokepoints where the claims are stamped and tolled. Christopher Lasch watched this division harden into a class whose competence is abstraction and whose loyalty is to its own portability; James Burnham named the managers who would inherit the system from owners and workers alike; David Graeber simply counted the make-work and asked why it pays.

The correction that should erase the gap is entry: if rank pays more than skill, people should flood toward rank and compete the premium away. The credential blocks that entry, and the credential is capital’s instrument, not the state’s. Employers demand the degree though its tie to productivity is, as Fix documents, dubious, because it sorts for class and conformity and offloads the risk of the hire onto a signal no manager is blamed for trusting. It is a toll booth disguised as a measure. You can read its weight where the administrative load is countable: the United States spends well over a thousand dollars per person on healthcare administration alone, roughly five times the figure in peer countries, and that is not doctors or nurses but the labor of billing, coding, and prior authorization, pure abstraction, richly paid, precisely because it controls the gate to the concrete thing. The economy is not paying for the work. It is paying for the position athwart the work.

Restriction as the business model

The third face empties every household, and here the sabotage is naked, because the price is not silent. It screams upward and nothing answers.

The most useful chart in modern American economics, the one Mark Perry keeps updating, tells it in a frame. Across 1998 to 2018, general prices rose about fifty-six percent. The goods open to competition collapsed: televisions down ninety-seven percent, toys down seventy-four, software down sixty-eight, cellphone service down more than half. The sheltered essentials exploded: hospital services up two hundred eleven percent, college tuition up nearly one hundred eighty-four. The libertarian reads this as competition good, government bad. That is the wrong lesson. The right one is that competition delivers only where the good resists capture as a position, an asset, a signal, or a toll, and that capital spends its genius converting the essentials into exactly those, because a position and an asset and a signal and a toll all collect rent, and a commodity does not. The flat-screen got cheaper because no one could corner it. The hospital bill compounded because everyone in the chain could.

Housing is restriction at its most deliberate. The people who own houses and the people who build them both profit from scarcity, not abundance. The public homebuilders manage their starts to protect their margins and will not flood a market and crater their own pricing power, and capital has reclassified the house from a good to be produced into an asset to be appreciated, whose worth is its scarcity. Abolish zoning tomorrow and the builder’s interest in restricting supply and the owner’s interest in protecting his equity remain, because those are market interests, not regulatory ones. The Joint Center for Housing Studies puts the national price-to-income ratio near five against about three-point-two in the 1990s, with home prices up roughly five hundred fifty percent since 1980 against income growth under four hundred; a household earning seventy-five thousand dollars could afford about half the listings in 2019 and a fifth now. The price is shouting for houses. Everyone positioned to build them makes more by not.

Healthcare is restriction routed through an intermediary. A private insurer is not buying care, it is taking a toll on the flow, and a bigger bill is a bigger toll. When your margin is a slice of throughput you maximize throughput, and when you have bought the pharmacy manager and the provider groups you nominally negotiate against, you are paying yourself; cost control would be self-harm. The country spent 5.3 trillion dollars on health in 2024, eighteen percent of the economy, about fifteen thousand dollars a person, roughly twice the per-person figure of comparably wealthy nations, and the Peterson-KFF tracker has shown again and again that Americans do not consume more care, they pay higher prices per unit, with worse outcomes. That is not a market that failed. It is a market in which the referee owns both teams.

Education is restriction sold as prestige. The product an elite school sells is exclusion, and a college’s value is the number it turns away, so expanding supply would destroy the thing being sold. That is why institutions sitting on endowments the size of small nations refuse to grow. Over the long arc tuition is up something like twelve hundred percent since 1980 against general inflation a bit over two hundred, fed by a loan subsidy that let schools raise prices into the financing. I will keep one honesty the case is strong enough to afford: tuition inflation has actually cooled below the general rate in the past few years, as demographics and enrollment finally bit, a fact the St. Louis Fed has documented. The structural point survives anyway, because it was never that tuition rises every year. It is that for decades the price floated free of any relation to value delivered, because the product was scarcity and scarcity does not get cheaper until the buyers begin to vanish.

The machine that profits by withholding

Stand back and the three faces are one engine. Capital accumulates by restriction, reward tracks power rather than contribution, and the institutions that look like external interference are the restriction made law: zoning is the owners’ sabotage, licensure the incumbents’, accreditation the schools’, the backstop the asset-holders’. The price signal functions throughout; capital reads it and chooses rent over service every time, because rent is where the power is.

So the economy has split in two. There is a concrete, competitive, tradable sector where prices fall, productivity shows, and wages are ground down, and an abstract, protected, administered sector where prices and incomes rise without limit because restriction has been secured. The flat-screen and the toy live in the first. The government bond, the hospital, the university, the house, the compliance department, and the trillion-dollar narrative live in the second. We are trained to call both the market and to blame the second’s pathologies on greed or on capitalism’s enemies, when the second sector is capitalism’s truest expression: the conversion of every good it touches into a toll.

And it does not heal, because the same class sits on both sides of every transaction. The asset-management complex that funds the state and the managers who run and spend it are, in Burnham’s phrase, the same managers; the central bank that floors the assets and the holders who feed on the floor are the umpire and the team in one locker room; the insurers own the providers they pay; the universities and the accreditors that ration the credential are one guild; the zoning board and the homeowner who profits from scarcity are the same voter. Capital is not behaving irrationally when it bankrolls the state at a loss, hoards the houses, tolls the sick, and pays itself for rank. It is financing its own power, and the maker, the tender, and the saver are not in the room. The irrationality is visible only from outside the class, which is to say from the standpoint of everyone who still produces something.

This is why there is no exit through deregulation, the libertarian theodicy that has kept the machine running by promising that a freer hand would clear the rot. The hands that are freed are the ones profiting from the rot. Capitalism was sold as a machine that punished waste. What capital actually built is a machine that profits by withholding, converts every essential into a toll, and funds its own dominion over everything that works, while still speaking the language of prices with perfect fluency. It simply learned, long ago, that the money is in not obeying them.