
Why Silicon Valley needs Washington DC - nickoakland
http://www.washingtonpost.com/blogs/the-switch/wp/2013/10/17/people-in-silicon-valley-yawned-at-the-shutdown-they-shouldnt-have/
======
rayiner
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.

~~~
agorabinary
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.

~~~
rayiner
> 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...](http://fisher.osu.edu/supplements/10/12707/LPReturnsJanuary2013.pdf)
(p. 1).

~~~
clienthunter
You know whenever I see spats like this I feel compelled to point that
governments cause such profound economic distortion that we really can't speak
of what a 'free' society would be actually be like - it's so far removed from
anything humanity has known in a very long time.

We're all (more or less) coders here, right? What happens when we tinker with
a big, complex, undocumented system that nobody really understands?
_Government_ as a concept isn't so much tinkering as it is a blindfolded child
refactoring by typing with his elbows.

~~~
rayiner
The economy is itself a distortion caused by government. In the state of
nature there are no economies because as soon as you accumulate a little
capital someone clubs you on the head and takes it away. This is why most
libertarians are of the statist variety. They talk about the economic
distortion caused by government, but what they mean is the distortion caused
by the parts of government they don't like (I.e. besides the police, courts,
etc). This is a perfectly fine position, but is susceptible to the economic
arguments I listed.

~~~
clienthunter
As an economist I assure you that if I noted a correlation between head
clubbing and capital accumulation I would take offensive and defensive steps
to protect my head. In fact most would, leading to a nice little equilibrium
where head clubbing is not a worthwhile strategy. They may even form a
protection racket, and call it "Police".

Economics is not the study of capital, it's the study of trade - which
incidentally is _so_ natural we even observe it in the animal kingdom.

Few libertarians would deny the need for at least occasional collaboration,
but that is not the same as government. Governments are universally wasteful
of resources, susceptible to corruption, resistant to changing needs, and have
a nasty habit of claiming absolute moral authority on things...which in turn
has a nasty tendency to start wars. It is, objectively, a limiting and archaic
system that does us all a great deal of damage.

~~~
rayiner
> As an economist I assure you that if I noted a correlation between head
> clubbing and capital accumulation I would take offensive and defensive steps
> to protect my head.

With what? You're an economist, not an MMA fighter.

> In fact most would, leading to a nice little equilibrium where head clubbing
> is not a worthwhile strategy. They may even form a protection racket, and
> call it "Police".

Right, so the nerds get together and beat down the MMA fighters and create
laws against "murder" and "theft" and pretty soon you've got government. We're
_living in_ your nice little equilibrium.

~~~
clienthunter
> With what? You're an economist, not an MMA fighter.

A) you don't know that, B) everyone else would be an MMA fighter?

> Right, so the nerds get together and beat down the MMA fighters and create
> laws against "murder" and "theft"...

Premise construction

> ...and pretty soon you've got government.

Magic

> We're living in your nice little equilibrium.

Conclusion

I can't even accuse you basing your argument on a logical fallacy, because
there isn't an argument present.

------
pravda
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](https://www.youtube.com/watch?v=VSJjlaggbK0)

------
mixmastamyk
We need a Washington DC much better than we have.

~~~
saraid216
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.

------
dlsx
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.

~~~
pmorici
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
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.

~~~
pmorici
um, they collect tolls?

~~~
rayiner
Toll roads run into the problem of positive externality. Specifically,
transportation creates large positive externalities. A road creates economic
benefits not just for people who use them to get from point A to point B, but
direct economic benefits for stores, developers, and employers along the
route. Tolls capture only the part of the benefit felt by people traveling on
the roads. As a result, if you fund roads using only toll revenues, you'll end
up building less roads than your economy needs.

~~~
natosaichek
So ask the stores / developers / employers along the route to buy-in on the
road. Ask them to help pay for construction and give them a cut of the tolls
proportionate to their investment. This lowers external capital requirements
to create new roads. Tolls could be used primarily for maintenance and
upgrades, but may have some profit associated to pay back the initial
investment. If the associated nearby economic interests are invested in the
road, incentives seem pretty well aligned to me. Thoughts?

~~~
rayiner
Why should the stores along the route buy-in? They'll get the benefit of the
route for free even if they don't buy-in.

As for giving the stores a portion of the tolls, that doesn't help, because
you're still trying to recover all the costs of construction from a subset of
the people who benefit from the road. Think about the math: say drivers
benefit X from the road and stores and developers and employers benefit Y.
Total social benefit is X + Y. With tolls, your incentive to build roads is
F(X), insensitive to Y. So whether Y = 10x or 0.5X doesn't change your
incentive to build the roads at all. In other words, the incentives aren't
aligned with the social benefits.

