7 ms·

Why Silicon Valley needs Washington DC

30 points by nickoakland 13y ago

rayiner 13y 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 13y 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.
- agorabinary 13y 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.
  - rayiner 13y 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/LPReturnsJanuary2013.pdf http://fisher.osu.edu/supplements/10/12707/LPReturnsJanuary2... (p. 1).
- yetanotherphd 13y 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.
  - rayiner 13y 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.
dlsx 13y 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.
- AsymetricCom 13y 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.
  - agorabinary 13y 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.
    - nknighthb 13y ago
      > You need to first show how our present road system isn't a complete nightmare. This is reversing the burden of proof. You are the one who wants to alter the status quo, you should have to prove why your solution would be "better". From my perspective, I can get anywhere I need to, and anything I need can get to me, consistently, reliably, and at the cost of a tiny fraction of my income. Seems fine to me. I see no reason to radically alter the system, and doing so introduces obvious risks I am not willing to accept. So not only is the burden of proof on you, it's a very heavy burden.
mixmastamyk 13y ago
We need a Washington DC much better than we have.
- saraid216 13y 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 13y 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 https://www.youtube.com/watch?v=VSJjlaggbK0

30 points by nickoakland 13y 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 13y 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.
agorabinary 13y 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.
- rayiner 13y 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/LPReturnsJanuary2013.pdf http://fisher.osu.edu/supplements/10/12707/LPReturnsJanuary2... (p. 1).
yetanotherphd 13y 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.
- rayiner 13y 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.

dlsx 13y 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.

AsymetricCom 13y 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.
- agorabinary 13y 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.
  - nknighthb 13y ago
    > You need to first show how our present road system isn't a complete nightmare. This is reversing the burden of proof. You are the one who wants to alter the status quo, you should have to prove why your solution would be "better". From my perspective, I can get anywhere I need to, and anything I need can get to me, consistently, reliably, and at the cost of a tiny fraction of my income. Seems fine to me. I see no reason to radically alter the system, and doing so introduces obvious risks I am not willing to accept. So not only is the burden of proof on you, it's a very heavy burden.

mixmastamyk 13y ago

We need a Washington DC much better than we have.

saraid216 13y 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 13y 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 https://www.youtube.com/watch?v=VSJjlaggbK0