We've had a lot of concerns about the broadband stimulus package, since it was shaping up to look like little more than a handout to incumbent operators who have a long history of grabbing public money, then not living up to the promises they made to get it. The real problem underlying most issues having to do with broadband in the US is a lack of competition, so any stimulus needs to address that, instead of just throwing money blindly at broadband providers. Mobile operators have already complained about anything that might force them to compete interfering with the government broadband giveaway; now BusinessWeek reports that several incumbent telcos are holding back from the stimulus, because they're afraid the government will attach strings to it to try and increase competition. Most of all, they're worried they may have to allow line-sharing, which, of course, they worked very hard to get tossed out in 2005. The rules are still under discussion, but we're optimistic that the opportunity to effect some positive change on the broadband market won't get left behind in the rush to throw money at it.

Earlier this week, I was on a fun panel put together by the Telecom Council of Silicon Valley, which was mainly focused on what the Obama Stimulus plan (and the broadband allocation specifically) would most likely mean for the industry. At one point, an attendee in the audience said that he was from a startup, and questioned how he might partake of the stimulus funds -- and I responded, perhaps flippantly, that he was out of luck: the stimulus isn't for startups. That's not entirely true, of course. There will be some token amounts of money handed out to startups, but pretty much everyone on the panel agreed, the administration has made clear that the stimulus package is about creating jobs as quickly as possible, and the administration has made it clear in so many words that this means handing it to incumbents. They've been pretty frank that the stimulus plan has a lot less to do with increasing broadband capabilities than with job creations -- and plans to get funds that show more job creation will get preference over those that actually increase broadband.

And that's why the stimulus package is not for startups -- and is potentially dangerous in the long run. Truly revolutionary startups don't immediately create jobs -- they destroy them. The process of creative destruction takes on those incumbent providers and wipes them out. We're seeing it with plenty of industries today that are challenged by new upstarts that have upset their old business models. And, while most economists should recognize that this process is good for the overall economy, in that it leads to economic growth and more efficiency, it does upset the status quo, and causes many big companies to contract or disappear altogether.

So, think about it from a government bureaucrat's perspective right now. Go back a few decades, and assume someone came to you with a plan to create the internet -- and even accurately described how it would allow a great free exchange of information. The reaction, if you were trying to deal with an economic crisis, would be to focus on all of the jobs it upset. People can share music online? Think of all the job losses in the music industry! People can read news for free? Think of all those newspapers shutting down! But they wouldn't consider all of the economic activity created by the internet -- the billions of dollars and millions of new jobs created thanks to it.

If, today, you had a concept for a totally new technology that would greatly increase broadband access across the globe, in a revolutionary way. It would allow anyone to have super high speed access anywhere. It wouldn't be that costly to create or build or even maintain... and it wouldn't even require making use of existing infrastructure. From any normal calculation this would be fantastic. It would spur enormous new economic growth opportunities and speed along our economy in massively useful ways. Yet, it's exactly the type of project the government would be against right now -- because it would make AT&T, Verizon and others obsolete... and think of how many people that would put out of work, at the same time that the gov't wants to claim how many jobs it's created.

That's an extreme hypothetical, but it's useful in illustrating the point. So, this focus on using the stimulus for short-term job creation is dangerous in that it will likely be used to prop up existing incumbent businesses, because they can create the most jobs most quickly -- by doing very inefficient things. The startups that do things more efficiently end up doing short term job destruction, even if the long-term results would be a much larger, more stable economy with larger job creation.

This probably isn't much of a surprise for most folks, but scammers have wasted no time at all in using news about the massive government stimulus plan to try to trick suckers into various scams. Many of these are scams trying to get people to sign up to pay a "fee" to find out how they can get their "stimulus check" even though the stimulus program isn't sending out checks to individuals. Expect to see plenty more similar scams as well.

Thomas Friedman has stirred up some controversy with his suggestion that the government (instead of giving it to dying automakers) should give $20 billion to top venture capital firms and have them invest in new innovation. The initial thought makes sense, and, in fact, we discussed something quite similar a few months ago -- though, concerning a new venture fund in the UK, rather than giving money to existing funds. Indeed, if we must throw money at the economy, it should be to invest in new innovation, rather than throwing good money after bad. However, Fred Wilson points out that the top VC firms don't want or need the cash, and in fact, adding more money to the venture investing pool at this point might cause a lot more harm than good.

And, that brings up an important point, worth discussing, that the government seems to be missing: throwing money at problems is very rarely the best solution. Often the problems are caused by too much money sloshing around (see: Wall Street). Dumping more money into the system just encourages the same inefficiencies and bad decision making. The real fix to problems is to wipe out the broken parts of the system, not fund them further. Yes, letting some of these businesses fail will have rippling effects into other parts of the economy -- but shouldn't the focus be on helping out those aspects, rather than rewarding companies like GM and Chrysler that have screwed up dreadfully?

While there's something to be said for taking money when it's available, plenty of experienced entrepreneurs know that having too much money on hand is almost as bad as not having enough. Having too little money makes you focus and makes you creative out of necessity. Having too much money makes you lazy and puts you in a position to hide or ignore the real issues for way too long. What we should be working on right now is fixing the systemic problems throughout our economy -- not papering them over with cash.

Broadband over powerline has gotten lots and lots of attention and investment over the past decade or so, but remains little more than a black hole of hype. Every once in a while, a story comes along to remind us that despite its near-total lack of traction, BPL abides. Now it could apparently be in line to get some money from the economic stimulus bill. We've been skeptical of any broadband stimulus, in large part because it looked more like handouts to incumbents than anything meaningful. But putting more money towards BPL, given its market failure and lack of progress, would be shambolic.

As was widely expected, President Obama signed the stimulus bill into law yesterday. And, with it, the administration has set up Recovery.gov in an effort to be transparent. That's leading to some reasonable confusion because the bill actually called for an independent Recovery Accountability and Transparency Board to create a website for transparency. Recovery.gov is not at all independent and is maintained by the White House.

But, I think there's a more important issue to be discussed here: which is that this is transparency after the fact. If the administration were serious about transparency in this process why wasn't their transparency and openness during the process? The success of the Obama campaign was, in part, because it included people in the process, and let them help define where things went. There was no evidence (at all) of that happening in this case. Instead, nearly a trillion dollars of debt was allocated through backroom dealing all done by long-term politicians, with no input from outsiders. Then, we the people were given almost no time to actually look at or review the content.

That's not transparency. That's not participation.

To then tell us after the fact that you've set up a website to hear from people and be transparent seems way too little and way too late. It's not about providing the data after the decisions have been made. It's about letting people at least share their thoughts before such decisions have been made.

One of our big fears with the stimulus bill was that with such a huge deal, there would be plenty of small opportunities for lobbyists to slip in absolutely awful language. Well, it's happening. Sen. Feinstein has inserted language into the stimulus bill that would officially "allow network management" for "deterring unlawful activity" including "copyright infringement." Of course, right before "copyright infringement" it also lists "child pornography" because no politician wants to be seen as voting against something that stops child pornography. As Public Knowledge points out, the whole thing doesn't make much sense. Network management tools are different than content filtering tools -- so saying that the use of network management tools is necessary for the sake of content filtering is a red herring. And, if this does involve deep-packet inspection, as is implied by the amendment, it seems like a huge privacy violation, allowing an ISP to spy on everything you do online. Public Knowledge is trying to get out the word that this should not be allowed in the stimulus bill.

There's a pretty widespread belief that President Obama hasn't done a particularly good job convincing people of the need for the "stimulus" plan he's pushing. This is definitely seen in the incredibly lukewarm reaction to Obama's calls for nationwide house-parties to try to drum up support for the stimulus plan. Such meetups and house-parties worked during the election, because people believed in Obama the candidate -- but the evidence so far is that they don't believe in the stimulus plan. At all.

There are some interesting theories as to why that might be. My favorite economics reporter, David Warsh, has proposed an interesting (and somewhat compelling) theory: which is that most of the economists in Obama's inner circle believe in an economic theory of boom/bust cycles that the rest of the country doesn't believe in. Specifically, the new Keynsians don't put much weight in the "hangover theory," which is what Paul Krugman nicknamed the Austrian theory of business cycles, greatly simplified into:

In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity -- of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process: The excess capacity gets worked off, prices and wages fall from their excessive boom levels, and only then is the economy ready to recover.

Now, Krugman then goes on to suggest why this theory is wrong, but Warsh and I both have trouble with his explanation. It's not very convincing (though, I'll be the first to admit that I'm pretty sympathetic to the arguments from the "Austrian school" of economics). I could go through why I think our most recent Nobel Prize winning economist is wrong, but this post is already getting pretty long (short answer: he ignores how certain parts of the economy are interconnected, and incorrectly brushes off the time that it takes to understand where new investment opportunities lie). In fact, as Warsh points out, the "hangover theory" makes an awful lot of intuitive sense to most people. But the problem is that the stimulus plan doesn't seem to be responding to the hangover effect. Instead, it's very much focused on what Krugman and the "new Keynesian" economists believe the real problem to be (everyone wants cash). Thus, the stimulus idea is get cash into the economy, pronto. But for everyone who believes in the "hangover theory" this sounds just awful. It just prolongs the problem by dumping cash into a system that's still adjusting, and simply fuels the next boom (and, eventual bust).

I think Warsh is definitely correct on the gut reactions many people are having to the stimulus package -- which is that it doesn't seem to be addressing the real problem at all, and seems ripe for abuse. I don't deny that getting more money into the system will stimulate something -- I'm just afraid of what.

However, I think there's also a second reason why the country remains incredibly apprehensive towards the stimulus package. That's because for all the talk about how this was a new era of transparency and how Obama was going to use the same participatory tools that help got him elected to govern, this stimulus package didn't do that at all. Instead, it was done in the same old way. The details were all worked out in the backrooms by the same beltway insiders, and then presented to the public as something to take or leave -- or maybe argue about at the margins. We were never invited to participate in the process at all. We weren't really given a chance to weigh in with our thoughts.

And, thus, we feel that this is politics as usual -- something many people were hoping would go away for a while -- on one of the biggest, most important efforts to deal with a huge economic mess. The best the administration could do was ask everyone to help support the plan he handed down -- rather than having everyone help him build the plan. That was a huge mistake, and it's reflected in how the plan has been presented and how it's been debated.

While I don't necessarily agree with everything that Steven Pearlstein says in his latest column, I do have to second the request that if we're going to dump so many hundreds of billions into a "stimulus" plan, could we also spend some money on educating our members of Congress on basic economics? Pearlstein's idea is to put another $53.5 million (or $100,000 per elected Congressional Representative or Senator) to allow them to hire an economics "personal trainer." I'd actually like to take that argument further, and see if there might be some way to educate the wider population on economics a bit more -- so that we'd avoid silly self-damaging proposals like adding "buy American" requirements.

Separately, I'd like to point to the open letter written to President Obama and Senate Majority Leader Harry Reid, which asks them to publish whatever stimulus bill is finally agreed to for five full days to allow for public comment. This matches up with Obama's earlier promise (which he has unfortunately failed to live up to) to let the public comment on any legislation for five days before passing it. So much of the action on the stimulus bill has been done behind closed doors, involving various horse trading deals that it seems only fair. We saw with the TARP "rescue" package that the more Congress talked, the more pork was included -- and the early results from that all-too-rapid taxpayer cash dump hasn't been good at all. If the new administration is really committed to transparency, it seems only reasonable to let the public read and provide feedback on the stimulus. Related to this, another excellent source to follow is StimulusWatch.org.

This doesn't mean that the gov't should change the stimulus plan based on exactly what the "most" people want (a recipe for a disaster), but let's let some smart ideas start to bubble up by trusting that when more people are allowed to push ideas forward, some good ideas will come out of the mix. Limiting the discussion to just those inside the Beltway has proven to be a huge disaster for quite some time. Let's get more people involved -- recognizing that there will be plenty of terrible ideas -- but as a way to let some good out-of-the-box thinking emerge.

We're certainly on the record as being quite skeptical of the proposed broadband stimulus, which seems like it's mistargeted and a bit of a gift to incumbents, rather than stimulating much needed competition in the space. Of course, the Obama administration has made it clear that the short-term focus of the plan is less about dealing with the big broadband issues, and more about creating jobs.

Turns out there's a problem there too: the guy whose research the administration is using to claim that the broadband stimulus will create 300,000 jobs is now claiming that his research has been taken out of context. Shocking. It turns out that the study in question was talking about adding broadband to non-rural areas in 2005, helping to create a ton of new jobs. However, since then, plenty of broadband services have been deployed, meaning that the job creation impact is greatly diminished. And, even worse, much of the focus of the stimulus plan is on those rural communities that were excluded from the report, and which would have a much lower impact on job creation.