Matt Ygelesias on eroding business norms and Musk backing out of his Twitter deal

Matthew Ygelesias, Under the Tuscan mailbag, Slow Boring, July 15, 2022.

The normative foundation is the idea that there is something to being a good businessman other than purely making a lot of money. Something we learned about Donald Trump is that back when he was doing actual property development, he would frequently refuse to pay contractors what he’d agreed to pay. Then after falling badly into arrears, he would offer people who complained a choice: pursue costly litigation against him and his team of lawyers in which he would publicly impugn the quality of their work or accept less than full payment right now. This turned out to work pretty well. The American legal system gives rich people the ability to bully middle-class business owners. Historically, rich people haven’t fully taken advantage of that opportunity in part because they worry about concrete reputational damage and in part because it’s the wrong thing to do.

But the more a “greed is good” mentality takes over, not only is the “I won’t do that, that would be wrong” motive eroded but the amount of reputational damage is eroded, too. And it means we’re transforming into more of a low-trust society where you have to ask yourself questions like, “it’s true that we made this business agreement, but what practical recourse do I have to enforce it if the other party breaches?” And even in a country with a strong rule of law, practical recourse can be hard to come by.

What Musk is doing seems like an example of this. He made a deal to buy Twitter, and then by coincidence the macroeconomic situation changed very quickly soon after he made the deal. Higher interest rates pushed down the price of tech stocks in a way that made Musk personally quite a bit poorer and meant that his agreed-upon acquisition price was a much higher premium over the market rate than he’d initially intended. So he’s pulling stunts in order to try to secure a better deal rather than saying “damn, I hit some bad luck but a deal’s a deal.”

Over time, that kind of savvy norm-erosion is going to make the United States a poorer country like we see here in Italy and elsewhere in southern Europe where people insist on personal relationships rather than arm’s length contracting in a way that makes it harder for companies to grow and scale and undermines competition.