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Why and How Capitalism Works

Updated: Apr 24

Several years ago, U.S. nuclear power was politically dead. The consensus was that it was both too dangerous and too expensive, leaving only wind & solar as the future of clean energy.

Nevertheless, in May of 2023 I suggested that nuclear power was perhaps no longer an option, that it should be a growing part of our future energy mix, one that would allow for economic growth while reducing emissions.  I also began allocating some of my personal capital into nuclear power.  Not only to hopefully generate a positive ROI, but also because of my belief that the deployment of nuclear power was not just a good idea, it was necessary.

I literally put my money where my mouth was.

This is a fundamental component of free market capitalism. Many individuals putting their capital at risk, deciding how to allocate it. The opposite of socialism, where the State decides where best to allocate capital, without any associated individual risk.

The wisdom of the many versus the wisdom of a few. Which one is superior in terms of creating economic wealth?  History strongly suggest that a decentralized economy, with its many risk-taking individuals yields a better overall economic outcome. Implying that on average, the many individuals tend to make good economic decisions, knowing that they will be financially punished if wrong.

In comparison, just how many California politicians have, or will ever be penalized for misallocating capital into the soon-to-be-infamous California bullet train?  None, even though over one hundred billion tax-payer dollars will eventually be squandered.


In July of 2023, it was starting to become obvious that AI tools were increasing the demand for electricity, threatening to increase the cost of electrical power unless the supply were to increase as well.

Later in October an article in Scientific American suggested that the consumption of electrical power by AI by year 2027 would exceed the consumption by many smaller countries.

Followed by Microsoft announcing in December that it was experimenting with generative artificial intelligence to see if AI could help streamline the nuclear power approval process.  Very curious. Given that AI is so resource intensive, why did Microsoft prioritize this unique application of AI?  Was there not a thousand other problems that required AI to solve?  Perhaps something to do with Microsoft’s most important product, its cloud service, dependent on the data centers that already consume 1 to 1.5 percent of global electricity…

In January of 2024 the IEA noted that global electricity demand will rise by 3.4% a year, driven by AI, crypto and data centers. Noteworthy was that nuclear power, so long the persona non grata of clean energy, was mentioned alongside the standard renewables without the normal negative caveats.

By March the consensus was that the data centers needed to advance AI will require so much power they could strain the power grid.

And then in April, Rene Haas, the CEO of ARM, stated that AI models such as ChatGPT “are just insatiable in terms of their thirst” for electricity, and that “by the end of the decade, AI data centers could consume as much as 20% to 25% of U.S. power requirements.”


Thanks to AI, our electrical power situation is quickly becoming increasingly dire.  In response do we:

  • Slow down AI development (No)

  • Quickly ramp up electrical power generation (Yes)

There are only so many paths for increasing reliable electrical power generation, so do we build: 

  • More coal plants like China (No)

  • More natural gas power plants (low cost, might be best choice in the short term)

  • More hydro (not possible)

  • More solar and wind (not reliable, requires storage batteries & grid overhaul, expensive)

  • Nuclear (expensive but reliable)

While I have nothing against the smart and economical deployment of wind, solar and batteries, just as with electric cars, government subsidies in these areas have severely distorted the market, making it difficult to analyze.

What I do know is that government subsidies will become increasingly difficult to maintain as government debt increases, so my guess is that we will need to ramp up cost-competitive natural gas power plants in the short term, and build out next generation nuclear plants for the long term.

Just another individual deciding where to allocate capital…


Now that I have explained why I was reallocating my capital to nuclear, how was I doing it?

This is exactly what the public stock exchanges are for.  They are one of the super-powers of free market capitalism, an exchange open to the public where individual investors such can allocate their capital in just about every facet of the U.S. economy. These exchanges, with their listed public corporations, allow investors to vote with their capital, enabling them to influence the direction of the economy, which products are made, which services offered, etc.

The public corporation that I decided to allocate some of my capital to was Constellation Energy Group (CEG).

Here is a graph of the CEG share price, starting in May of 2023.

Apparently, I have not been the only one allocating capital to CEG, as its stock price has enjoyed a 250% gain over the last year.

While such an increase in the stock price is not a direct benefit to the corporation, it certainly is an indirect one in that the corporation can now raise additional working capital by creating and selling new shares, with less dilution for the existing shareholders.

Thus, an upward spiral. The higher the price of the stock, the less painful it is for the corporation to raise more capital, which if wisely invested, will lead to future company growth.

Sometimes the price of a stock increases in response to the company increasing its dividend.  Or perhaps it exceeded growth expectations, thus implying a future increase in the dividend. But in this case, it was more of a reflection of many investors concluding that nuclear power was needed, and that CEG is well positioned to deliver.

Maybe they will, maybe they won’t.  But as this process is repeated over and over, and with more good choices than bad, the more deserving corporations will on average will be able to raise additional capital on better terms, increasing their chances of success.

Which is one of the reasons why free market capitalism works, and unfortunately, is understood by few.


Socialism, or a centralized economy, is so much easier to understand.  Why can’t a committee composed of a few wise & educated people reach the same conclusion as the many individual investors? Why would they allocate capital in the same way, if not in a more productive way?

Two reasons. Without their own capital at risk, they are less likely to make the correct decision, they literally will not do their homework.  Secondly, they will be overly driven by emotional politics, and less by cold, logical reasoning.

The incentives are wrong. Which partially explains we still have a Post Office delivering paper junk mail.


Consider the recently passed CHIPS and Science act.  An appointed committee allocating $280 billion of other people’s capital, meaning that there is $280 billion less for individuals to allocate. Funneling this capital to existing, large chip corporations such as Intel, TSMC and Samsung.

Purely a political decision, supposedly to bring chip manufacturing back to the U.S.

Consider what would have happened if the CHIPS Act had been passed a decade ago.  Would then much less relevant NVidia have been one of the chosen few?  If not, could this politically driven market distortion possibly have led to NVidia’s premature demise?  If so, where would we be today in the battle for AI dominance?

We will never know, but something else to consider is which smaller, brilliant startups today were overlooked, disadvantaged, and put out of business by the CHIPS Act?

Once again, we will never know the full impact of this market distortion.

But economic history tells us that it is rarely positive.


Free market capitalism may not be a perfect system, but it is a good one.  Anyone who has funds in an IRA, 401K, brokerage account or even Robinhood can participate, and I encourage you to do so.  But please do your homework.  Try to make good investment decisions, and don’t just mindlessly follow the speculation herd. Investing should be a balance between achieving a good ROI, and enabling those companies that share your future vision.

But this only works if government created market distortions are minimized.  Every CHIPS Act, Inflation Reduction Act, Covid bailouts, student loan bailouts, and excessive government spending in general will result in excessive taxation and inflation, meaning that the wiser, many individual investors will have less available capital to invest.


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