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> Problem number two is that the economic system does not create incentives to produce the products or technology that generate the most utility. The economic s

> Problem number two is that the economic system does not create incentives to produce the products or technology that generate the most utility. The economic system produces the incentive to create products where the entrepreneur can capture as much of the consumer surplus/utility created as possible. This captures all that is wrong with most of current startups and VCs in two sentences. I have the impression that some 2/3 of the investments are being poured into yet another social product with advertising business model. I see little money being thrown at harder problems, and literally zero at art.

bokonist 14y ago
Kleiner Perkins invested in over 60 cleantech companies. Unfortunately, their cleantech portfolio seems to be having pretty lousy results - http://www.mercurynews.com/business/ci_22385874/kleiner-perkins-john-doerr-falling-behind-after-betting http://www.mercurynews.com/business/ci_22385874/kleiner-perk... I think the proportion of VC funded companies that are doing an advertising bases social product is a bit exaggerated. I'd say the majority of funding is for paid subscription based SaaS web apps and software, stuff that manages some part of the enterprise, analytics, advertising optimization, security, backups, data management, etc. etc. See, for instance, one first tier venture firm's portfolio - http://www.generalcatalyst.com/companies http://www.generalcatalyst.com/companies However, the point remains that few VC funded companies are attacking the areas that have the most potential for raising quality of life. I do not blame the VC firms for this - they are doing the economically smart thing. Software has a much greater potential for generating the high profits of natural monopoly with relatively low capital investment costs. Cleantech simply does not provide the same returns. In reality, the solution may be more Solyndras. Maybe we need some public institution - government or philanthropic - to grant loans at a 2 to 1 match for equity investment in companies that are tackling socially useful problems. Many of these companies will fail. But the knowledge, know how, and personal experience generated will create the base for the next round of companies, or the round of companies after that, to create products that change the world. But currently it is not rational for VC's to play the long game, because there is little chance than any particular company they invest in will capture the value created by new innovations. Since much the result of the product will end up as consumer surplus/public surplus, it makes sense that the public contribute to the initial funding if the public wants the investment to happen.
- waps 14y ago
  And what if "socially useful" - which effectively means whatever the current public opinion is - is ... wrong ? We are the very same people that once believed the earth is flat, and the people that proved that walking in a straight line between two points has to be less efficient than walking in a circle (the ancient Greeks. Why ? Because a circle is perfect. Despite proving that the shortest distance is just that straight line), were probably smarter than us, at least on average. Then it will just be a big net loss to everyone. Socially useful actually working is predicated on people's rational thinking actually producing good outcomes, and ... well, look at our history. The argument that "this time" we'll be right seems a bit unlikely to be true, doesn't it ? The good thing/massive problem with capitalism is that it's an "intelligent" algorithm in it's own right, and the conclusions it reaches (the balance on your and everyone else's accounts) are guided by the algorithm, which doesn't care about morals, especially not about the fickle current version (we're < 40 years removed from the prevailing opinion being that skin color determines your worth. In lots of regions that's still true, like large parts of India, or the vast majority of muslim countries). The differences of opinion between people and "the system" are not really different from the differences between a dictator and it's subjects. Except, of course that the capitalist algorithmic dictator has several advantages. First, he cannot go mad (before you disagree, read up on a few dictators. It'll put things like the Iraq wars and the patent system in the proper perspective). Second capitalism has actual, real information to base it's conclusion on, and nobody can unduly influence it's opinions for long. Third this dictator doesn't care about race, social status, ... (imho conservatives are not fair when it comes to race and religion ("the poor are immoral" argument), liberals are not fair when it comes to social status ("the poor are dumb" argument). I don't want either to stay in power for long). We're switching to a world in which the vast majority of the population is useless, economically. There is no reason for them to be alive, no value in it. There is no way to prevent our capitalist dictator from realizing this is so, and it will -my biology book uses the term "correct". That's the real problem.
  - mikecane 14y ago
    >>>We're switching to a world in which the vast majority of the population is useless, economically. There is no reason for them to be alive, no value in it. Then the algorithm is unfit for human use.

bokonist 14y ago

Kleiner Perkins invested in over 60 cleantech companies. Unfortunately, their cleantech portfolio seems to be having pretty lousy results - http://www.mercurynews.com/business/ci_22385874/kleiner-perkins-john-doerr-falling-behind-after-betting http://www.mercurynews.com/business/ci_22385874/kleiner-perk... I think the proportion of VC funded companies that are doing an advertising bases social product is a bit exaggerated. I'd say the majority of funding is for paid subscription based SaaS web apps and software, stuff that manages some part of the enterprise, analytics, advertising optimization, security, backups, data management, etc. etc. See, for instance, one first tier venture firm's portfolio - http://www.generalcatalyst.com/companies http://www.generalcatalyst.com/companies However, the point remains that few VC funded companies are attacking the areas that have the most potential for raising quality of life. I do not blame the VC firms for this - they are doing the economically smart thing. Software has a much greater potential for generating the high profits of natural monopoly with relatively low capital investment costs. Cleantech simply does not provide the same returns. In reality, the solution may be more Solyndras. Maybe we need some public institution - government or philanthropic - to grant loans at a 2 to 1 match for equity investment in companies that are tackling socially useful problems. Many of these companies will fail. But the knowledge, know how, and personal experience generated will create the base for the next round of companies, or the round of companies after that, to create products that change the world. But currently it is not rational for VC's to play the long game, because there is little chance than any particular company they invest in will capture the value created by new innovations. Since much the result of the product will end up as consumer surplus/public surplus, it makes sense that the public contribute to the initial funding if the public wants the investment to happen.

waps 14y ago
And what if "socially useful" - which effectively means whatever the current public opinion is - is ... wrong ? We are the very same people that once believed the earth is flat, and the people that proved that walking in a straight line between two points has to be less efficient than walking in a circle (the ancient Greeks. Why ? Because a circle is perfect. Despite proving that the shortest distance is just that straight line), were probably smarter than us, at least on average. Then it will just be a big net loss to everyone. Socially useful actually working is predicated on people's rational thinking actually producing good outcomes, and ... well, look at our history. The argument that "this time" we'll be right seems a bit unlikely to be true, doesn't it ? The good thing/massive problem with capitalism is that it's an "intelligent" algorithm in it's own right, and the conclusions it reaches (the balance on your and everyone else's accounts) are guided by the algorithm, which doesn't care about morals, especially not about the fickle current version (we're < 40 years removed from the prevailing opinion being that skin color determines your worth. In lots of regions that's still true, like large parts of India, or the vast majority of muslim countries). The differences of opinion between people and "the system" are not really different from the differences between a dictator and it's subjects. Except, of course that the capitalist algorithmic dictator has several advantages. First, he cannot go mad (before you disagree, read up on a few dictators. It'll put things like the Iraq wars and the patent system in the proper perspective). Second capitalism has actual, real information to base it's conclusion on, and nobody can unduly influence it's opinions for long. Third this dictator doesn't care about race, social status, ... (imho conservatives are not fair when it comes to race and religion ("the poor are immoral" argument), liberals are not fair when it comes to social status ("the poor are dumb" argument). I don't want either to stay in power for long). We're switching to a world in which the vast majority of the population is useless, economically. There is no reason for them to be alive, no value in it. There is no way to prevent our capitalist dictator from realizing this is so, and it will -my biology book uses the term "correct". That's the real problem.
- mikecane 14y ago
  >>>We're switching to a world in which the vast majority of the population is useless, economically. There is no reason for them to be alive, no value in it. Then the algorithm is unfit for human use.