
Debunking “America has become so anti-innovation – it's economic suicide” - subverter
https://www.subverter.co/2017/05/19/debunking-america-has-become-so-anti-innovation-it-s-economic-suicide/
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otalp
Interesting that he mentions Elon Musk when his companies are literally kept
alive by billions in government subsidies and contracts.

I don't like the binary view of "Give all power to corporations, with no
government intervention" and "Let the state control all means of research and
access"

The ideal is clearly in between, where the state should break up monopolies
and punish companies that have detrimental externalities to their
functioning(like polluting the environment).

That's not to dismiss government funded research either. We have Computers and
The Internet in large part due to US Government research. Once an idea becomes
marketable and profitable, private companies can swoop in, like Microsoft or
Apple with Computers.

But decades of unprofitable research is not feasible in a corporation. You
would need the government to fund that.

~~~
Robotbeat
"Interesting that he mentions Elon Musk when his companies are literally kept
alive by billions in government subsidies and contracts."

Your point would be stronger without this falsehood. Both SpaceX and Tesla
could do business without subsidies and government contracts. There were times
during the worst parts of the Great Recession when this WAS true (and both
businesses benefited from the technology and general environment enabled by
government investment), but it's not "literally" true any longer that they're
"kept alive" by government subsidies or contracts. Most of SpaceX's are non-
US-govt satellites now, and SpaceX doesn't receive launch support subsidies
like ULA. Tesla would still sell a lot of cars without the EV tax credit
(which goes to the consumer, not Tesla, by the way... and is a bigger
proportion of their competitors' car value than their own). Both companies
would need to pull back growth without govt contracts and incentives, but to
say they are today literally kept alive is blatantly false.

And your false claim undermines your central point, actually. If innovative
corporations need government subsidies indefinitely to literally stay alive,
then government-funded innovation isn't competitive and all government is
doing is propping up industries instead of making R&D investments that pay off
in long-term growth.

~~~
otalp
Without the NASA contract in 08, SpaceX would have gone down, according to
Musk himself. It's true that they are increasingly less dependant on the
government, and they hopefully reach a point soon where they are completely
independent. But in the early stages when they weren't making profits,
government contracts were crucial in keeping SpaceX alive and is the reason
they exist today.

>If innovative corporations need government subsidies indefinitely to
literally stay alive

I didn't say they need subsidies indefinitely. It's clear that once they start
making large profits, it's not a necessity- but they take it anyway. I think
SpaceX and Tesla are good examples of companies that governments _should_
subsidise, because they are focussed on innovation in fields which are
important for long term sustainability. I don't think they should subsidise
Exxon or oil companies, for instance.

My point was you can't dismiss government subsidies as irrelevant when in
comes to innovation. It is necessary to support companies that carry out
important research, but aren't able to make profits yet.

~~~
Robotbeat
"Without the NASA contract in 08, SpaceX would have gone down, according to
Musk himself."

Yeah, that's what I said in my above post. In the depths of the Great
Recession, both were on the razor's edge, and the government helped a lot for
both (particularly SpaceX). But this situation was temporary, not current.

------
Crye
I'm tired of these articles. Seriously. Government has funded hi-tech through
the military for the last 70 years. That's not a secret and we wouldn't have
what we have now with out it. The government knows this and the large
corporations who benefit from it know it.

Corporations are not willing to take on the risk to sink billions of dollars
to develop a technology which may or may not pay out. Plus once it does pay
out, who is to say China isn't going to steal the tech and then undercut the
very thing they just developed.

He cites SpaceX as this idea of private investment, completely overlooking the
fact that the government is subsidizing the whole endeavour. Please....

~~~
kbenson
> He cites SpaceX as this idea of private investment, completely overlooking
> the fact that the government is subsidizing the whole endeavour. Please....

Take your pick of any of the major US industries. Chances are the successful
players they take a lot in subsidies. None of the Musk companies are really
outliers in this, they just get a lot more attention (e.g. GM, Boeing, and GE
all take a _lot_ of subsidies).

~~~
otalp
True that Musk is absolutely not an outlier. But you can't really use him as
an example of a company doing all their innovation without any government
help. I'd rather the government fund SpaceX and Tesla than Exxon anyway.

~~~
kbenson
You know, I was fully in agreement with you, but I just went looking for
numbers and apparently Space X has only received about $20 million in local
incentives and rebates for a space launch facility in Texas (although I'm not
sure about the "only". That info is generally prefaced by a note that Space X
doesn't disclise financial info, and I'm not sure if that implies there could
be more or not). Almost all of the $4.9 billion that it's been reported his
companies have received in subsidies is for Tesla and Solar City.

So, apparently the example is actually better than it seemed to both of us.

~~~
otalp
Subsidies are one thing, contracts are another form of support. Government
contracts are what kept SpaceX afloat in 08, when they couldn't find private
clients, and these contracts can be excess of 100 million.

~~~
kbenson
If we start counting government contracts as "support", there's a whole bunch
of companies that need to be viewed in a different light. Every defense
contractor for one. Every company that sells to the public school system for
another.

It's not like these companies are getting something for nothing, they still
have to provide a good or service.

------
stephen_g
Classic Austrian economics. There's a clear misunderstanding throughout the
whole article about how money works, which is typical of the entire school.
This sentence is illuminating: "... monetary expansion, the latter of which
causes prices to go up and the purchasing power of the dollars in my pocket to
go down."

That is not necessarily true, and in fact is often false. That is called the
'quantity theory of money', and for all its faults even mainstream economics
doesn't buy into that anymore... It does _appear_ intuitive - if there is more
money in existence then existing money is worth less, right? There's even an
identity that 'proves' this, PY = MV. Well, no. For price rises to be the
case, the economy must be both at full capacity and full employment. It is
also thinking about the problem statically, assuming that the amount of goods
and services in the economy does not change to respond to an increase in
demand.

In the real world, economies actually have a lot more capacity to absorb extra
money than people think (many people are spooked by cases like Zimbabwe and
Venezuela, whose problems in reality were caused by completely different
factors). And the Austrian mistake of assuming that monetary expansion ==
price inflation is dangerous, because if implemented the kind of policy leads
to effectively controlling inflation by causing unemployment.

~~~
padobson
>For price rises to be the case, the economy must be both at full capacity and
full employment.

Who's using intuition now? Stagflation in the 70's is a pretty jarring
counter-example.

We're living in an interesting economic time where Keynesian policies seem
intuitively more effective than Austrian economics. Afterall, the Fed has been
printing money like mad for the last 20 years, and there's no worrying
inflation to be found.

But there's an argument to be made that prices should be much lower than they
are - that the scale of automation and globalization that we've seen has put
enormous downward pressure on prices, and the currency devaluing effects of
Fed monetary policy have put upwards pressure on prices without resultant
inflation.

So we can still afford a loaf of bread without having to push a wheelbarrow
full of greenbacks up to the register, but the problem has manifested itself
in different ways. Most obviously in the growing wealth gap, where those who
are most capable of taking advantage of the Fed's cheap currency (the
financial industry) have gotten all of the gains from automation and
globalization, while the rest of us are stuck with a devalued currency.

~~~
colorint
Stagflation was associated with two things: high spending on the Vietnam War,
and OPEC oil price hikes. To illustrate this, let's take for granted that
inflation is "too much money chasing too few goods." That's really a statement
about two things: inflation very much can be driven by having fewer goods with
the same amount of money. This is why Germany and Zimbabwe are bad examples,
because both of them involved a real goods collapse. Likewise, oil supply
shock can easily drive large inflation.

In other words, the way to reconcile stagflation with the text you quoted is,
"full capacity" was lower in the 70s, so we had inflation without full
employment. And to be fair, the text you quoted should be "full capacity OR
full employment."

Quantitative easing is also very different from what you might think, but in a
sense, QE was also the ultimate refutation of, at least, the money multiplier
view. The Fed injected far more base money than necessary to maintain the
prime rate, and what happened? The money multiplier fell. So really the Fed
had the story backwards there, or else they were trying to invoke some voodoo
magic.

------
atmosx
> When the government floods the economy with cheap money printed out of thin
> air, it distorts market indicators, making many unprofitable projects appear
> profitable.

Oh, is that a new one? It's the first time I read someone stating that when
VCs get high on drugs and spend their money on stupid ideas, it's because of
something the government did.

~~~
padobson
It's not new at all. It's actually fairly easy to demonstrate. I recommend
Murray Rothbard's America's Great Depression[0] from 1963.

The quick hit is this: A. US Monetary policy provides large banks with
extremely cheap capital B. Large banks competing with each other in the free
market must make use of that capital C. Only so many investments are good
investments, because in the end, there's only so much consumption, but the
unnatural levels of capital driven by US monetary policy push banks to make
bad investments (see every financial crisis since the Fed was founded). D.
Those bad investments fail, and mass margin calls lead to an economy-wide de-
leveraging that destroys economic growth for months or years.

Systemic financial crises can't happen without cheap, printed money.

It's also reasonable to question whether giant companies could exist at all
without US monetary policy. Companies of that size are almost completely
dependent on the financial industry, which is completely dependent on the
Fed's cheap currency.

[0][PDF][https://mises.org/files/americas-great-
depressionpdf-0/downl...](https://mises.org/files/americas-great-
depressionpdf-0/download?token=rwW4UjXa)

Edit: added PDF label

~~~
atmosx
> C. Only so many investments are good investments, because in the end,
> there's only so much consumption, but the unnatural levels of capital driven
> by US monetary policy push banks to make bad investments (see every
> financial crisis since the Fed was founded).

If the US government in 2008 had let Goldman Sachs (and others) to get what
they really deserved, possibly keeping afloat tiny investors/victims for
social reasons, I think investment would be pretty balanced.

I would argue that the problem is a _revolving door_ between Goldman and the
US Gov that benefits very specific ppl and not the FED's policy.

~~~
padobson
I agree with the revolving door.

The way I see it, the Fed is inflating bubbles by pumping cheap money into the
financial sector, and then the US Gov is bailing out the financial sector when
the bubbles burst.

It's hard to distinguish between the government and big finance, that's for
certain.

------
sharemywin
The problem is the VC, stock market and the economy are becoming a giant
monopoly(monopsony) engine. It's stupid to invest in competition.

VCs invest "small"(way larger than the average person can afford to start)
bets on a few companies so they can dump a large amounts on the winners. Once
the companies have passed the test they go to the stock market to raise even
more money to further entrench their monopoly.

It used to be the market was justified because competition drove innovation
and choice, but investors don't invest in competition.

~~~
sharemywin
Think of it like a systems problem. You'll only find local minima/maxima with
greedy algorithms.

------
throwaway47861
> _Other than Juicero and some sweeping statements about the technology,
> energy, and pharmaceutical industries benefitting from government research,
> Tarnoff offers little evidence to back up these claims._

The "debunked" article is not scientific in 100% of the meaning of the word,
that's a fact -- but if we go by the message of this "debunker" this means we
must doubt every single deduction we make in our lives, on the grounds of
what? Oh, none of us can't access all the information on the planet in real
time. Legit as hell, lol. Let's face it, none of us is Skynet-like and yes we
will _always work with sparse data_. Trying to make a good use of those is not
a bug. It's a damn good feature.

Far too often I am seeing a very perverse and backwards "arguing" on HN these
days -- people grossly underestimate our innate human ability to draw rather
good conclusions based on incomplete data, and constantly require "scientific
proof" about pretty much anything. Science doesn't have data on most of what's
happening on this planet however. And that won't change for a long time still.

We make do with what we have. The rest are yelling "give me evidence!" in non-
deterministic areas like country/world economics. Heh, OK.

------
pvnick
Henry Hazlitt, one of the economists quoted in the article, wrote a book
called Economics in One Lesson [1]. It is a brilliant, and very approachable,
piece of writing that should be read by everyone interested in the basics of
economic theory.

[1] [https://www.amazon.com/Economics-One-Lesson-Shortest-
Underst...](https://www.amazon.com/Economics-One-Lesson-Shortest-
Understand/dp/0517548232)

------
frgtpsswrdlame
>My point being, these examples show that, without market forces, the
government has no indicator as to what’s worth allocating resources to and
what’s not.

This supposes that the only things worth allocating resources to are things
which would be successful in the market place. He mentions public goods in
this essay so I know that he's aware of them, why does he ignore their
existence here?

>Shifting focus from the public sector to the private, the idea that
entrepreneurs and corporations are somehow worse at innovating, or don’t
invest enough in R&D, is also called into question by many examples to the
contrary. Like SpaceX, the aerospace company founded by Elon Musk with the
goal of one day colonizing Mars,which recently accepted a $1 billion
investment from Google and Fidelity.

 _Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp.,
known as SpaceX, together have benefited from an estimated $4.9 billion in
government support, according to data compiled by The Times._

[http://www.latimes.com/business/la-fi-hy-musk-
subsidies-2015...](http://www.latimes.com/business/la-fi-hy-musk-
subsidies-20150531-story.html)

Hmm. He also presupposes that public R&D spending will drive out private R&D
but that is actually an open economic question. (lots of studies showing them
to be complements and lots showing them to be substitutes)

 _This short survey demonstrates that existing empirical studies do not allow
for a definitive conclusion regarding the sign of the relationships between
publicly and privately funded R &D. Hence, it is still an open empirical
question as to whether public R&D funding increases or decreases privately
funded R&D. In order to answer this question, more research with more
comprehensive datasets is needed._

[http://aei.pitt.edu/6736/1/1195_30.pdf](http://aei.pitt.edu/6736/1/1195_30.pdf)

>As Ludwig von Mises so eloquently put it...

Ah come on, I am so tired of libertarians whose entire economic education
comes from reading other libertarian blogs online. Please quote some living
economists, maybe even an economist who is still publishing papers. When will
we realize this (specific) sort of libertarian for what they are, a utopian.
The market can't solve every problem, that's why we have governments in the
first place.

------
lilei2
I don't really follow this:

> First, it confuses technological innovation (impressive to engineers) and
> economic innovation (valuable to consumers). Second, it confuses gross and
> net benefit — of course, when government does X, we get more X, but is that
> more valuable than the Y we could otherwise have had?

[...]

> And don’t forget Bitcoin and the underlying blockchain technology that has
> the potential to decentralize everything from web apps to logistics.

The latter here seems like a rather good example of the former. EU is about to
introduces the revised payment services directive (PSD2) which is set to force
banks to interface with third parties. I would expect this action to have far
greater value to people than the blockchain.

------
Quanttek
Many already mentioned (at least partially) the fundamental flaws in the
economic theory he bases his text on, and also his bad examples (completely
ignoring you could provide as many counterexamples of staet-funded innovation
and private sector waste) but I just want to emphasize his quotes: Being so
obsessed with trying to point out logical fallacies, they don't provide any
proof or actual arguments for their side.

For example, the third quote literally provides zero evidence for the fact
that the market's failures are primarily attributable to government
intervention. Collective action theory alone points out how at least parts of
the failures will be the market's.

------
AmIFirstToThink
Government does engage into efforts/projects that end up being wasteful.

But, market forces should not be heralded as panacea of there being no-waste.

Every private sector bankruptcy is wasteful for its investors.

Yahoo, HP, Former Dell, Anderson

Ton of examples of failed efforts, pure waste, nepotism, bribery and downright
illegal (civil/criminal) behavior in private sector.

I look at it this way... The will of the people also acts as a market force. I
think most would agree with that.

Whether there is waste or if it is most efficient, is immaterial. Will of the
people, in terms of government's willingness to legislate, will always be a
market force. Push and pull is given and is to be expected. Let the battle
rage on.

~~~
subverter
The market is certainly not perfect. There is waste, bad investment, etc.
There's no avoiding that. Unlike government, however, the market is much more
efficient in realizing and correcting for that.

~~~
ska
If only we had the evidence to support this sort of sweeping generalization.
It's a nice theory on paper, in practice it seems to be more complicated
depending on time scales and type of goal. There is a lot of no-true-scotsman-
ing in support of the dogma, which muddies the waters. For people who want to
affect actual change and believe in evidence-based approaches, it's really
hard to avoid the conclusion that (today at least) you are best off with a
mix.

This empirical mismatch is either handled by engaging in no-true-scotsman
support for the dogma, or engaging

------
acomjean
America: Good for innovation! except for the predatory patent lawsuits which
as a small business you won't be able to afford the legal bill to defend
against.

~~~
subverter
A good topic for a future article!

~~~
acomjean
I think there is some interesting things going on with patents that need
looking into. Especially the root cause.

Someone should look at wisdom of making the Patent office self funding,
seemingly incentivizing them to give out more patents (if they're valid or
not), and having them being seeming immune to penalties for issuing bad
patents.

------
mjfl
> The truth is government and the public sector is where innovation, and the
> money that fuels it, comes from.

Bell labs? Xerox Parc?

~~~
subverter
What you quote is part of the summary of the article I critique. To avoid any
confusion, that's certainly not what I believe. :)

That said, both of those are good examples that I don't even mention in the
article.

------
mcguire
CompuServe called. This internet thing is a government boondoggle. They want
their article back.

------
sschueller
Why does he list Bitcoin as an American innovation? Or did I miss read that.

~~~
burkaman
It's sort of a stretch, but nobody knows who Satoshi is and many of the major
players are American. The Bitcoin Foundation is American, the first user[1] is
American, the predecessor to Bitcoin was developed by an American[2].

[1]
[https://en.wikipedia.org/wiki/Hal_Finney_(computer_scientist...](https://en.wikipedia.org/wiki/Hal_Finney_\(computer_scientist\))

[2]
[https://en.wikipedia.org/wiki/Nick_Szabo](https://en.wikipedia.org/wiki/Nick_Szabo)

~~~
ska
For this sort of distributed project, it's mostly inept to attempt to
nationalize any claim to innovation anyway. Not that it will stop countries
from doing it, but it's all rather silly.

