Why Silicon Valley needs Washington DC

http://www.washingtonpost.com/blogs/the-switch/wp/2013/10/17/people-in-silicon-valley-yawned-at-the-shutdown-they-shouldnt-have/

by nickoakland • 13 years ago

30 56 13 years ago

washingtonpost.com

rayiner9• 13 years ago

This is a good article. I'll take a dig at Chamath Palihapitiya, because of the irony of his comments. He knows as well as anyone that the LP money VC's play with comes from government regulated banks, mutual funds, retirement plans, etc. Without the Fed's "easy money" credit policy, the VC industry as we know it today, flush with cash despite exhibiting poor historical returns, would simply not exist and neither would Silicon Valley as we know it today.

I'll also address one of Lee's comments: "Now, maybe you'd like the government to have a smaller role in these issues to start with." In some cases, it wasn't an option for government to have a smaller role to begin with. Consider spectrum allocation. Today, we're getting to the point where radios can mediate spectrum usage issues amongst themselves. We aren't there yet, but we're getting there. I think long-term we need to modernize our regulations to accommodate these advances. But for the vast majority of the wireless age, this technology did not exist. There simply was no practical alternative to government regulation, in one form or another.

001sky• 13 years ago

This is a good comment. Just worth adding a footnote, for those interested in the richness of context:

[1] On the ERISA revisions of the late 1970's:

Employee Retirement Income Security Act of 1974 (ERISA) – With the passage of ERISA in 1974, corporate pension funds were prohibited from holding certain risky investments including many investments in privately held companies. In 1975, fundraising for private equity investments cratered, according to the Venture Capital Institute, totaling only $10 million during the course of the year. <In 1978, the US Labor Department relaxed certain parts of the ERISA restrictions>, under the "prudent man rule,"[21] thus allowing corporate pension funds to invest in private equity resulting in a major source of capital available to invest in venture capital and other private equity. Time reported in 1978 that fund raising had increased from $39 million in 1977 to $570 million just one year later.[22] Additionally, many of these same corporate pension investors would become active buyers of the high yield bonds (or junk bonds) that were necessary to complete leveraged buyout transactions.

agorabinary5• 13 years ago

On a systemic level, what advantages does government provide to solving these various problems that private individuals couldn't? Beyond blindly asserting that "there simply was no practical alternative to government regulation", or citing historical examples of government projects (when private alternatives were not legally allowed!) like roads, please explain what fundamentally allows government to perform these tasks better.

VC money more often comes from highly successful past ventures, not grandma's retirement savings plan (which are terrible investments anyway). How many ex-Facebook equity holders are building their own companies? How many ex-Paypal before them? It's simply dishonest to attribute Silicon Valley's wealth to DC and the Fed's easy money. Most of that money heads to Wall Street, the most government regulated industry in existence, fueling rampant corruption with examples too numerous to list. The inflation the easy money inevitably brings causes the average middle-class investor to invest greater and greater portions of their income into the markets and their retirement accounts, feeding Wall Street account managers, the federal government, and ultimately, the bubble-prone stock market these investors need just to break even on their savings.

Silicon Valley does not need DC, it is hindered by DC. The democratic, lobby-based, "law-for-sale" system is systemically disadvantaged to the classic survival of the adaptable. While the Valley develops our next innovations, DC puts bandages on debt limits while the other powers of the world seek reserve alternatives to our hemorrhaging currency. Please, do not talk about government success. It does not exist.

rayiner9• 13 years ago

On a systemic level, what advantages does government provide to solving these various problems that private individuals couldn't?

Private action in a free market suffers from numerous issues: free rider problems, collective action problems, problems involving positive and negative externalities, problems involving information asymmetries, etc. These are well-developed areas of economics that libertarian-minded policy folks tend to ignore, but which simply cannot be ignored. Most government programs, from environmental protection (negative externalities) to Social Security (irrational hyperbolic discounting), are rooted in one of these economic phenomena.

VC money more often comes from highly successful past ventures, not grandma's retirement savings plan (which are terrible investments anyway)

See the sibling comment about private equity fundraising after changes in ERISA. Some VC money does come from people taking money from past ventures and putting them into new ones. But the bread and butter of VC involves raising money from limited partners, specifically pension funds, mutual funds, etc. The other major sources tend to be endowments, banks, insurance companies, and sovereign wealth funds.

See: http://fisher.osu.edu/supplements/10/12707/LPReturnsJanuary2... (p. 1).

agorabinary5• 13 years ago

free rider problems, collective action problems, problems involving positive and negative externalities, problems involving information asymmetries, etc.

The usual statist objections to pure market action are total myths, not to mention weak and tangential objections. I'd love to argue the market with a hardline Marxist because at least they take a true thrust at market action rather than just nibbling.

free rider, externalities

How is it a problem to anyone that a persons actions benefit others without deriving some monetary value for the benefit? No one is coerced, no rights violated. This is the only standard for judging these matters. No person should be forced to pay for a benefit for a transaction they did not agree to. Collective defense, for example, does not suffer because some people don't pay to play --- forcing equal patronage only serves to undermine the entire relationship between buyer and seller. More: http://mises.org/daily/2769

collective action

Kickstarter.

Information assymetries

Information is a value that is open on the market, as all values are. Not sure if the product your buying is safe? Buy insurance for it. Or, take the time to do your research and make comparisons. That time spent has a value. Decide which you are willing to give up: that time, or the cost of the insurance. Value is a dynamic and multifaceted concept. http://mises.org/daily/1135

dragonwriter6• 13 years ago

Silicon Valley does not need DC, it is hindered by DC

Then why doesn't Silicon Valley exist in some place without an effective government?

saraid2162• 13 years ago

The democratic, lobby-based, "law-for-sale" system is systemically disadvantaged to the classic survival of the adaptable.

Odd, I was reading a history book the other day and took note of this passage:

"The other wrong lesson [the philosopher William James] thought people took from On the Origin of Species is, in effect, the flip side of the first. It is the belief that evolutionary science can lay a foundation for norms–that natural selection serves as a kind of "bottom-line" arbiter of merit. This is the doctrine of "the survival of the fittest," .... It makes the logic of evolution the logic of human values: it suggests that we should pursue policies and honor behavior that are consistent with the survival of characteristics understood to be "adaptive," and it justifies, as "natural," certain kinds of coercion."

yetanotherphd• 13 years ago

Low interest rates encourage investment in the whole economy, so it's misleading to claim that the tech boom in particular was caused by easy money. The government pulls a lever that effects the whole economy equally. It didn't funnel money directly to silicon valley vc's.

rayiner9• 13 years ago

I didn't say that the tech boom in particular was caused by easy money. I said that the tech boom, as we see it right now, wouldn't exist without easy money. Other things wouldn't be the same either, of course.

dlsx2• 13 years ago

I don't buy it, and he starts off eloquently on the tired argument that a privatized company could never handle the burden of maintaining roads.

Ah yes, big government. We would never had the ingenious ability to tar and pave roads without your bloated schemes to pocket large percentages for politicians.

Politicians ladies and gentleman are the big problem in Washington. They are expensive, and if you look at their net incomes year over year astoundingly they continue to make absurd profits regardless of the functioning American economy or not.

If politicians were willing to volunteer their "Services" then I would agree with the sentiments. However, as long as they are able to be bought relatively easily, it allows more corruption and extortion to take place. There is a libertarian solution to everything, and in every instance a free market perspective should be applied to government officials who can't seem to cut the fat out of their vicious diet.

AsymetricCom2• 13 years ago

There is a libertarian solution to everything

Oh my..

I must have missed the part of your argument where you conclusively prove that the "libertarian solution" is the best option in this instance.

dlsx2• 13 years ago

Roads are payed for already by ticket fines, and freight/shipping deliveries. So, not tax money.

http://www.dailypaul.com/268271/but-who-would-pave-the-roads

There's many different solutions, but of course you are a liberal who prefers to be spoon fed. It's as if you automatically assumed the government solution is the best option sigh

agorabinary5• 13 years ago

He doesn't need to prove the libertarian alternative. You need to first show how our present road system isn't a complete nightmare.

Touting the road system as a government success. Please.

pmorici3• 13 years ago

I would think the acquisition of the land on which the road is built would be a larger problem for a privatized company than the actual construction and maintenance of the road.

Apocryphon• 13 years ago

And where's the incentive for private corporations to build infrastructure for the public? Government isn't the answer to everything, but neither is the free market.

glenra3• 13 years ago

Privately built roads, railways and pipelines have often solved this problem in the past. One way to deal with the holdout problem is to just buy options on land along various alternative routes, then only exercise the options once they collectively add up to a viable path.

dasil0032• 13 years ago

What's the libertarian solution to corporations raping the environment in order to siphon the value of the commons into the pockets of a few executives and investors?

msandford3• 13 years ago

Under what regulatory regime is a corporation able to rape the environment and siphon off the money? Who says that corporations as they exist today should exist in libertarian-land? Perhaps you'd have only LLCs where the limitation of liability is actually rather small and as such management would take an active role in ensuring that they weren't personally liable for the rapacious behavior that some corporations exhibit today.

Up until Glass-Steagall was repealed Goldman-Sachs was a relatively well run bank that was entirely privately owned and all the partners there made sure people weren't doing crazy subprime stuff because it would negatively impact the bottom line over the next decade or more.

Nassim Taleb talks about "skin in the game" as a requisite for moral decision making. Perhaps libertarians would say that you can't perform in a managerial role at a company without having some meaningful skin in the game. Would people find a way to dodge that? Sure. But companies who did dodge it would tend to be short-term greedy, not long-term greedy and as a result they would tend to go bankrupt faster thus ridding us of the unpleasantness of their existence.

mixmastamyk• 13 years ago

We need a Washington DC much better than we have.

saraid2162• 13 years ago

I'd like to see this explored more. I can wholeheartedly agree that the US government is hugely problematic–that's not exactly a big concession–but that's not a challenge. The challenge is in defining a better system and then getting us there.

My own explorations are currently dealing with the latter by deliberately presuming that half of my ideas won't get implemented and making sure the rest are functional despite that.

pravda• 13 years ago

Gosh, what about the whole Military-Industrial complex, which transfers billions from the public treasury into high-tech research and development.

https://www.youtube.com/watch?v=VSJjlaggbK0

Why Silicon Valley needs Washington DC

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