Ultimately, businesses must make money for their investors or those businesses are shut down. It’s true that some businesses “make” money by laundering it for people engaged in criminal enterprises. There is another category of businesses that don’t make money but are not an extension of criminal activity. I’m calling them tech mirages. Tech mirages appear to be exciting, new viable businesses that are revolutionizing the way we do things. That’s the mirage part! In fact, they are doing old things to which they add some not particularly new technology and in the process attract and then consume vast amounts of capital. Investors are dazzled by the mirage while seemingly incapable of understanding what the financial numbers are telling them. Ride hailing giants Uber and Lyft are two examples of tech mirages. The part of the oil industry engaged in extracting oil from deep shale deposits using a special form of hydraulic fracturing or fracking is another tech mirage. Here are the main problems with tech mirages: 1) They destroy or undermine existing businesses, weakening them to the point where they collapse and then those tech mirages collapse themselves leaving society without the service supplied by the businesses they destroyed and/or  2) they distract from what we really need to do to adapt to the twin crises of climate change and resource depletion. So, how do I know that Uber and Lyft are tech mirages? (We’ll come to the oil industry later.) The simple answer is that both have lost and continue to lose billions for investors, and there is no prospect that this will change. Both companies claim to be doing something revolutionary. And, while they have introduced improvements in the way rides are made available to urban dwellers, they have changed nothing about how people get from point A to point B. Riders still use fossil-fueled cars driven on city streets by somebody else. Nothing particularly revolutionary there. Some will argue that startups consume lots of capital as they invest in people and infrastructure to deliver the promised goods and services. But neither Uber nor Lyft can be classed as startups. Uber turned 10 this year, and Lyft is now six years old. Businesses, especially tech businesses, that continue to lose money at such a prodigious rate so late in the game are usually abandoned as failures and normally long before 10 years have passed. I believe both Uber and Lyft will ultimately be abandoned. But this may not happen until after the current owners have hoodwinked new investors into buying most of the shares in an initial public offering. The other result of the rise of Uber and Lyft (and other ride hailing services that don’t fall under the taxi regulations) will be that regular taxi services may become extinct or at least shrink severely. When the world wakes up one morning to the collapse of Uber and/or Lyft, that day and probably for many months (perhaps years) afterwards, it will be much tougher to get a ride from a regular taxi, if there are any still operating. And, the punishment that regular taxi operators endured under the lax regime that allowed competing, unregulated ride hailing services to gobble up their business will almost certainly make those taxi services reluctant to expand if they are still around or start up again if they are not. The only lasting thing that Uber and Lyft will accomplish financially—and this assumes a successful initial public offering—will be to enrich a few top managers and other employees who manage to sell their shares before other investors wise up to the mess. That is certainly what has been happening in the so-called shale oil industry known for “fracking” deep oil deposits in order to make them release their oil for pumping to the surface. The industry touted advances in hydraulic fracturing that had already unleashed a torrent of natural gas from deep shale deposits and put those techniques to work on a large scale in similar deposits containing oil. This new technology was going to make oil cheap and plentiful for decades to come. And, while oil was neither cheap nor plentiful in the early part of the shale oil boom, it has become much cheaper and overly plentiful of late. But during the entire time of both boom and bust in this decade-long phenomenon, the industry as a whole has been free cash flow negative. The managers were paid well to drill and the investment banks were paid handsomely to sell both debt and equity issues. The promise from the industry was that over time increased efficiencies that would turn losses into profits. The efficiencies haven’t been sufficient to do that. And, investors have finally figured out that they likely never will. As a result, financing for shale oil has all but dried up. So, how has the fracking phenomenon left us worse off? First, the story itself has bewitched the public and policymakers into thinking that these deposits have solved oil supply problems for decades. This will only be true if investors continue to subsidize the persistent losses. Everything we know says they won’t. In fact, they are moving away from shale oil as I write. Second, cheap oil has made people believe that energy efficiency is unimportant and unnecessary. Third, the fracking that unleashed cheap natural gas—while it has allowed a transition from coal to cleaner natural gas in electricity generation—has slowed down the transition to renewable energy sources such as wind and solar which are the only hope of meeting the kind of reduction in carbon emissions in the utility industry needed to avoid catastrophic climate change. Sometimes people with money bet on the wrong company or industry. When they do, they should suffer the consequences. But perversely, insiders involved in the same wrong companies or industries often become wildly rich. That track record encourages those insiders to keep spinning positive tales about losing propositions while the insiders essentially move investor capital into their own pockets. Perhaps the most egregious stories these days are those told about tech mirages. Anything related to technology has for a long time captured the imagination of members of the public. They have come to have a blind faith that new technology will not only be helpful and amazing (with no bad side-effects), but also highly profitable. What they haven’t bargained for is that tech mirages can be both destructive to our communities AND deliver deep loses to investors before those mirages are finally revealed for what they are.


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