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"I completely agree with the point that if taxing the private sector to raise money to fund startups only works if the public sector is better at predicting suc

"I completely agree with the point that if taxing the private sector to raise money to fund startups only works if the public sector is better at predicting success than the private sector. And I think the public sector is worse at that." I can think of a number of flaws in this logic - for one, the public sector may not be as good at predicting winners and losers, but public investment can still be valuable if the overall level of investment is too low. The comparison is not strictly with the same amount of money being invested by the private sector - it is also the same amount of money being used in non-startup investment ways in either the public or private sector. Additionally, while the private sector will exclusively target companies with the greatest potential return on investment in cash terms, opportunities will be lost where the social benefit of the startup does not translate directly in to revenue, cash and profit. That's assuming that the private sector is in fact better at picking winners, and as I allude to in my last point, that their definition of a "winner" is the most beneficial, neither of which are proven.

btilly 17y ago
If you're measuring success by GNP, then it is trivial that the government taxing then spending on something is only worthwhile if the government is making more effective decisions on that something than the taxed people would have through the free market. You're right that that reasoning ignores social benefits other than GNP. However my experience suggests that it is easier to claim social benefits than measure them. And when you can't reliably measure a benefit, delivery tends to be very inefficient. That isn't to say that government can't meet that bar. Economic theory says that private enterprise deals poorly with externalities. It is hard for a private enterprise to recoup the value provided by national defense, police, clean water supplies, public health inspectors, etc. For that reason it is economically efficient for us to be taxed so that the government will supply us those services. However startups are a case where a person who is good at picking then nurturing entrepreneurs recoups the value from doing it well. Therefore there is every reason to believe that free enterprise does that job well, and so no reason to believe that the government is likely to do it better. In that situation underinvestment is a signal that the market doesn't believe that the returns are there. Artificially improving those returns therefore should stimulate investment. And I believe would do it more efficiently than attempting to directly pick winners and losers.

btilly 17y ago

If you're measuring success by GNP, then it is trivial that the government taxing then spending on something is only worthwhile if the government is making more effective decisions on that something than the taxed people would have through the free market. You're right that that reasoning ignores social benefits other than GNP. However my experience suggests that it is easier to claim social benefits than measure them. And when you can't reliably measure a benefit, delivery tends to be very inefficient. That isn't to say that government can't meet that bar. Economic theory says that private enterprise deals poorly with externalities. It is hard for a private enterprise to recoup the value provided by national defense, police, clean water supplies, public health inspectors, etc. For that reason it is economically efficient for us to be taxed so that the government will supply us those services. However startups are a case where a person who is good at picking then nurturing entrepreneurs recoups the value from doing it well. Therefore there is every reason to believe that free enterprise does that job well, and so no reason to believe that the government is likely to do it better. In that situation underinvestment is a signal that the market doesn't believe that the returns are there. Artificially improving those returns therefore should stimulate investment. And I believe would do it more efficiently than attempting to directly pick winners and losers.