America’s Investing Identity Crisis

The initial public offering (IPO) of Elon Musk’s SpaceX in the summer captivated the attention of hundreds of thousands of investors worldwide. Despite the company's rocket business being successful, SpaceX burned through a significant amount of money. However, the IPO still managed to break records, making Musk the world's first trillionaire.

This event is an extreme manifestation of two remarkable trends that have become increasingly prevalent in financial markets: ordinary investors are a growing force, and their feelings can often outweigh fundamentals.

This phenomenon is particularly evident in the United States, where people have embraced speculation as a means to get rich and reflect their beliefs with greater fervor than any other nation. According to estimates by Jefferies, an investment bank, ordinary retail investors now account for over 20% of U.S. stock market activity, roughly twice the level a decade ago.

This surge in retail investors has impacted markets in various ways, with the types of securities they purchase becoming an extension of their identity. Whether it's a dowdy utility or a racy computer games maker, cryptocurrencies, or dabbling in newfangled prediction markets, finance has become intertwined with personal identity.

The roots of this uniquely American phenomenon can be traced back over a century to the massive bond-sale program that financed the U.S. entry into World War I. Treasury Secretary William McAdoo, a charismatic and progressive individual, recognized that taxes alone couldn't finance the war given its scale. He decided to target established investors with a high-interest rate of at least 5%. To appeal to the public, McAdoo dubbed the bonds "Liberty Loans" and set up a War Loan Organization to mass-market them.

This campaign proved successful, with people encountering billboards, exhibitions, leaflets, cake sales, workplace accostments, and marches promoting Liberty Loans. Celebrities like Charlie Chaplin were enlisted to boost the pitch, and Edward Bernays, a pioneer of modern public relations, used patriotism, sentiment, and personal political yearnings to entice investors. At times, the push to subscribe to a Liberty bond sale crossed into crass shaming and intimidation.

Despite the controversy, Liberty Loans were popular and became a communal expression of belonging, transcending social, racial, and religious lines in a divided, polyglot nation. This experience paved the way for today's uniquely American situation where investing has become an expression of identity, a way to prove who individuals are and what they are worth. This pressure on Americans to invest based on their beliefs says much about who the country is as a collective.