Last week brought news that the iconic restaurant chain Red Lobster has filed for bankruptcy protection and has started closing locations. The chain is mostly known for being a cheap night out for people in the suburbs and businessmen stuck near a suburban business park. The people hired to write about business for regime media, people who know nothing about business, have rolled with the usual lines about how casual dining was devastated by the pandemic.

The joke online is that Red Lobster’s all you can eat shrimp deal cost them millions because diversity would sit there for hours eating shrimp. The restaurant admits it was a disaster for them, but the real reason the chain has failed is that it was taken over by gangsters who made it into a bust-out. The gangsters in this case are private equity investors who bought up the chain. This bankruptcy is part of fleecing the dumb money that still remains trapped in the enterprise.

The way these scams work is the private investors swoop in and buy a property that is asset rich but cash poor. That is, they have things of value, but those things are not generating enough revenue to meet expenses. Sometimes the enterprise is profitable but needs cash to expand or maybe reorganize itself to shed poorly performing assets and expand into more profitable areas. Private equity comes in with attractive terms and an army of experts to reshape the enterprise.

In reality, they usually sell the assets in deals that have the buyer lease back the asset to the company in order to raise quick cash. Other times the asset is pledged as collateral in a similar sort of debt arrangement. The result is the enterprise quickly raises cash to pay the investors with a healthy profit but is left stripped of its assets and often holding a lot of debt. This is what happened here. The new investors sold the real estate in lease-back deals that are now expiring.

It is a good example of how so much of our economic output is just moving money around in circles. It is the old joke about a stranger coming into a little town to rent a room for the night. Nothing of value has been created by investors buying up this restaurant chain. It simply became a vehicle for them to lure in new money to pay them a profit for their investment, while all along knowing that the end result would be these new investors getting a haircut in bankruptcy proceedings.

The argument in favor of this sort of dealing is that all of the parties involved are sophisticated enough to know the risks. The real estate investors that bought the properties and then leased them back knew the risks or at least they should have known the risks, as it is their business to know the risks. This is all true, but it obscures the fact that this is not genuine economic activity. This is not how an economy should function, but it is the core of the American economy now.

This is not without consequences. Travelers now have to check out the type of plane they could be boarding, because Boeing planes are falling apart. As with Red Lobster, the blame is placed on diversity, which is not entirely without merit, but the real culprit is the vulture capitalism that has come to define elite economics. Boeing is no longer in the business of building better airplanes. It is in the business of creating financial transactions for the benefit of the investor class.

What we see with Boeing has been happening with the military industrial complex for the last three decades. They are no longer in the business of building practical weapons that can be used by the American military. Instead, they are in the business of creating complex transactions for the benefit of insiders and investors. One result is an F-35 fleet that looks great parked at an air field, but it is too dangerous to fly. Meanwhile, Russia and China make weapons for war, not investor profit.

A root of this growing problem in the American economy is the notion that anything that can be shown to turn a profit is normatively good. The usual suspects are going to ruin the town of Harpers Ferry with a development project that will make them money, but come at the expense of the residents. They can do this because they went to the state and showed it will turn a profit, so everyone fell in line. No doubt promises of insider access to those profits were included in the pitch.

The reason profit is a good thing in an economy is it is supposed to spur innovation that results in new products and greater efficiency. Profit is a means to an end, not an end in itself from a macroeconomic perspective. When profit or the quest for profit results in planes falling from the sky or communities being harvested for their social capital, then profit or the quest for profit is bad for society. It is why we used to hunt down and punish corruption and fraud. Note we no longer do that.

An economy is about making things, fixing things, and inventing things, which is no longer the way to get rich in America. Instead, as Peter Theil explained in his book, the path to wealth is finding a way to game the system. You find a flim-flam like the Red Lobster scam or you game government to let you make electric cars that no one needs or wants. The blood sucker economy is not about making things, fixing things, and inventing things. It is about robbing the people who do those things.

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