
The startup economy is fundamentally broken and the virus will make it worse - SQL2219
https://theweek.com/articles/915265/startup-economy-fundamentally-broken-virus-make-worse
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jrochkind1
I appreciate the comments about what these kind of startups to do the
'reliability' of the pricing system, per Hayek.

I suspect the pricing system has always been more 'broken' than many,
certainly Hayek, would like to believe. Selling under the 'true cost' because
of subsidy from investors is in some sense just another form of
'externalization', like not paying for environmental devastation byproducts
which has always been traditional, since at least 1492. (Or 'artificially' low
prices due to a labor force held hostage by enslavement, or violent
retaliation to organizing, at different points in history).

The 'true cost' ends up being a pretty slippery notion, as the OP later
approaches a bit in suggesting the price system is not in fact a "naturally-
occurring phenomenon".

> In turn, the major reason for that situation is for years there has been far
> more investor capital than there have been high-quality investments for that
> capital. "We find ourselves in a liquidity surplus,"

Also interesting. Marxist economists have been talking about this since Marx.

"A crisis of overaccumulation of capital occurs when the rate of profit is
greater than the rate of new profitable investment outlets in the economy"

—
[https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_c...](https://en.wikipedia.org/wiki/Capital_accumulation#Marxist_concept)

~~~
gridlockd
The pricing system still works just fine, for the most part you cannot do
predatory pricing for long because of arbitrage. If you sell stock below cost,
I can buy it all up till you are out of money, then sell it at a profit.

Even for those things where you cannot arbitrage (like Uber rides), the money-
losing can't go on forever and prices will rise again, unless Uber figures out
a way to cross-subsidize like Amazon.

~~~
vertex-four
You can only buy it up and sell it at a profit if what is being sold is a
good, not a service or licensed code with attached terms and conditions. And
with the advent of small enough computers, nearly nothing is a pure good.

~~~
gridlockd
Sure, maybe in the future every Banana is bluetooth-enabled and will be sold
exclusively at branded Banana stores - at a massive loss.

We can talk about market failure again if that actually happens. For now, I
don't see it.

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benjaminjosephw
Investors have a clear interest in turning their companies into monopolies and
supporting anti-competitive behaviour. As long as they are allowed to create
unfair advantages by distorting market conditions they will. Those that play
by the rules have the odds stacked against them and will loose unless the
rules of the game itself change.

The fact that there isn't a level playing field is becoming more obvious and I
think the backlash against "big tech" is an inevitable result. This will
result in either a reform of antitrust laws or a code of ethics being
subscribed to by all the big players.

I think Tethics is the answer and I'm really looking forward to finding out
who will be the real-life Gavin Belson Professor of Ethics in Technology at
Stanford[0].

[0] Silicon Valley: Ten Years Later -
[https://www.youtube.com/watch?v=ab1H602yc_Y](https://www.youtube.com/watch?v=ab1H602yc_Y)

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gregoriol
Is it far fetched to say that Uber's business is actually taking money from
the rich and giving it back to the people?

~~~
bhl
Yes, Uber is more of a reverse Robinhood: its a net positive for those who
skew to the right of the income distribution, and a net negative for those in
the left. Who benefits from Uber? Uber employees, stockholders, riders. Who is
worse off? Mainly Uber drivers, and maybe the vision fund (but who cares).

~~~
sokoloff
Uber drivers are made worse off by Uber yet they join and drive in droves and
overall seem happy about it. Do you have an explanation for this apparent
contradiction?

~~~
AlexandrB
Information asymmetry and failure to consider depreciation as a “real”
expense.

~~~
rightbyte
Ye I think this is a good point. They use their cars as a credit card. I.e
wear for 100USD to get a similar amount in cash.

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maehwasu
Wait, the government gives investors essentially infinite cheap credit,
resources get allocated in an incredibly perverse manner, and it's _Friedrich
fucking Hayek_ who has it wrong????

I certainly don't think Hayek is above criticism, but this author definitely
is not making the point he thinks he is.

This isn't some kind of "no true Scotsman" thing either. The current market is
exactly what someone like Hayek would expect given the monetary manipulations
of the past 10+ years.

~~~
jcfrei
Exactly. I'm not a libertarian or Hayek fanboy by any means but these types of
companies are what you would expect in a world of shrinking investment
opportunities and lots of excess capital (as evidenced by the falling interest
rates). Add to that a few oil rich countries which desperately try to
diversify their economies and therefore put lots of their petro dollars into
various VC funds.

~~~
thu2111
Are investment opportunities really shrinking or is this a result of central
banks never having really unwound their whole QE programmes, in fact many of
them buy up as many 'safe' assets as possible.

I'm pretty sure Hayek would identify the issue as government intervention.
It's not only central banks with their massive buy-ups of high quality
corp/gov debt that's the matter here (forcing investors into ever riskier
asset classes like VC funds). Given current world events I'm pretty sure a
part of it is academia is broken too.

One thing that puzzled me for a long time is why there aren't more biotech
startups, or why there aren't any (it seems) unicorn biotech firms. The
potential of biotech seems unlimited. One day I found out a possible reason -
VCs are afraid of biotech firms because they virtually all start by taking
some academic paper that sounds promising, and building a lab to try and
replicate it. But the papers don't replicate, so the company tanks and the VC
loses everything. The figure I heard is around 50% of the papers don't
replicate, which seemed shockingly high at the time.

Well, later I encountered an even worse figure: AmGen Oncology claimed only
11% of cancer papers replicated.

The cost of trying to find the next big idea in biotech seems astronomical
with those kinds of odds. In effect the biotech world is flooded with ideas
that sound good but fall at the first hurdle. No wonder investors prefer the
software world, it's way less dependent on universities. Not many startups get
started by saying, "we're going to commercialise this amazing sounding paper
put out by the U of X". Even AI startups which I suppose come the closest are
mostly being driven by corporate research labs, and even then, a16z dunked
cold water on AI as a startup category.

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tech-historian
ZIRP has created a lot of this madness across the tech landscape.

~~~
alexmingoia
Yup. In a free market all lending would require having money, thus interest
rates would be driven by a lending firm’s ability to successfully invest,
which would allocate capital to ventures with better risk/reward profiles.
Firms that lost most investments would go broke. But instead the central bank
prints money to ensure solvency for lenders that would go bankrupt (fractional
“reserve” banks).

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m4nu3l
I'm struggling to fully understand the point. The author states that
accumulation of capital led to this economy where investors are almost forced
to lose money because they don't have enough good investment opportunities.
That implies there is a transfer of wealth from those investor to the workers
in those money-burning companies. The author also states that this probably
won't work for Uber to gain monopoly status anyway. This really sounds like a
redistribution mechanism naturally occurring in the market itself. Then the
author pushes for this to be regulated out of existence. What am I missing?

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zhdc1
How though. Their unit economics should be easy to manage.

I understand spending money on customer acquisition, but why can't they just
take 5-10% on top of whatever a driver wants to charge, and be done with it?

~~~
MattGaiser
I suspect they keep having to win back the business from competing rideshare
services.

I dropped Uber for a month in the Toronto Area as Lyft gave me a pile of
coupons. Then I dropped Lyft when those coupons ran out and Uber was giving me
discounts to come back.

Whenever I visit a major US city like New York, I check if there is an
alternative provider like Via. They also have coupons. I went from NYU to
Laguardia for $15 + tip last time I was there. The Uber trip without coupons
would have been 60.

The lack of customer loyalty means that you have to win the customer every
ride or they go somewhere else.

~~~
newsclues
Lack of loyalty means the end game is monopoly.

~~~
sokoloff
This phenomenon has played out exactly the opposite in retail gasoline
purchase behavior I think.

~~~
newsclues
Aren’t most gas stations, independently owned franchises scraping by on tiny
margins while the big gas companies profit?

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friendlybus
I cant find a source for the claimed figure that customers pay 41 percent of
the ride's cost. The links bottom out in intrasite articles.

This reads like investors want to have their cake and eat it too. Burn cash
for market share, then regulate the competiton for market share closed when
they have taken the lead.

If they dont want to burn money, then don't. There's plenty of other hard
problems that take big money to solve that payoff decades later. What happened
to fiscal responsibility on the investor side?

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gridlockd
Foolish foreign investors subsidizing rides and pizza deliveries? Why would
you want to regulate that away?

This is the market working very efficiently, the resource (money) is in the
wrong hands and must be allocated to literally anyone else.

