Why The Stimulus Package Isn't For Startups: The Gov't Doesn't Want Creative Destruction

from the startups-are-about-short-term-job-destruction dept

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.

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Comments on “Why The Stimulus Package Isn't For Startups: The Gov't Doesn't Want Creative Destruction”

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Easily Amused says:

Re: weird harold

You certainly live up to your name…
You are highly critical of almost every idea and statement Mike and the other posters put forward. You repeatedly ignore the facts and logic presented from all sides countering your arguments. You seem to be allergic to conscious thought in general. And yet… you are here hitting refresh often enough to get a moronic response posted in less than 60 seconds?

Why are you here again?

Rich Fat Porcine™ says:

Re: Re: weird harold

> You repeatedly ignore the facts and logic presented
> from all sides countering your arguments. You seem to
> be allergic to conscious thought in general.

In defense of Weird Harold, please know that
we are Republicans who digest Hannity and Rush info-memos every day, and we remember the talking points. We are the right wing, selfish, greedy bastards who make money from sitting on our asses and letting others innovate whilst we dream up new methods of getting our greasy palms on the profit from your hard work.

We know the facts, we just choose to ignore them and create our own.

WTF Out,
Rich Fat Porcine™

Big Mook (profile) says:

Re: Re: Re: weird harold

In defense of Rich Fat Porcine, please know that we are Democrats who digest Princess Pelosi, Dingy Harry, The Lord Almighty Obambi, the NY Times, SF Chronicle, CNN, MSNBC, and any other left-wing, nutbag source of info-memos every day, and we remember the talking points. We are the left-wing, benevolent, charitable angelic creatures who give other people’s money to those poor unfortunate souls left sitting on their asses (because of the greedy bastards), bringing innovation to everything we do, while we dream up new methods of getting our hairy palms on the profit of the hard work of every successful person we find.

We know the facts, we just choose to ignore them, because it’s much easier to keep the voting block happy by giving them a few crumbs now and then rather than real solutions to their problems.

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon.”

Winston Churchill

Hail Xenu!

Big Mook

Big Mook (profile) says:

Re: Re: Re:3 weird harold

Not if Obambi keeps running this country into the ground. Oh well, I’ve got a couple of guns laying around like any good right-winger, so I guess I can hunt squirrels and other small vermin after the new tax code starts really squeezing the life out of me.

Sorry, gotta run, I’ve no more time to read TechDirt, I’ve got to get busy sitting on my ass and trying to get my hands on the hard-earned money of those poor, wretched souls that are poor and wretched because of me. Uh-oh, I think I just soiled myself.

Hail Xenu!

Big Mook

Anonymous Coward says:

Re: Re: Re:4 weird harold

Haha, thanks for reminding me that with the tunnel vision of capitalism comes unwavering pride in the face of everything ethical, moral and just.

Instead of sitting on your hands maybe you should finish digging your mud hole or polish your guns.

You are an absolute waste of perfectly good sperm.

GeneralEmergency (profile) says:

Re: Re: Re:5 weird harold

HaHa.. Thanks for reminding -ME- that the left is populated by permanently miserable, mentally lazy, narcissistic, snarky little rude cretins like you who are SOOO unhappy with their own lives and their repeated failings that they have given up on bettering themselves and have instead decided to just blame everyone else.

It is from this very stew-pot of failure, self-loathing and second-rate mediocrity that you, most despots, dictators, Democrat Party leaders and Home Owner Association presidents emerge.

Big Mook (profile) says:

Re: Re: Re:5 weird harold

Ok, I lied. I’m still reading TechDirt. I rationalized that it only requires sitting on my ass, and typing a little if necessary/desired. And there aren’t any poor people handy just now that I can steal something from.

You’re illustrating exactly what I find reprehensible about the liberal mindset. You’ve assumed that I’m some rich capitalist who is only whining because I might have to sell my yacht or vacation home.

In reality, I’m firmly a lower-middle-class, working stiff, struggling to feed and clothe a family of 4 and pay the mortgage and car note, who has just lost over 40% of his retirement savings in this financial mess. Thank goodness I still have a job.

I’m just not blind to the fact that destroying the businesses and people who create the jobs and prosperity for the rest of us, will hurt us all in the end. I’m not blind to the fact that corporations DON’T PAY TAXES, they just pass them on to the consumer. I’m not blind to the fact that the types of entitlements that Obambi is enacting are the same old failed social experiments of Johnson and Carter. They don’t work, and they never will.

I’m old enough to remember the Carter years, and Obama has started up the time machine and we’re headed right back there again. Only this time, it’ll be much worse, and there won’t be any nice photo ops between Isreali and Arab countries trying to work out peace. But by God, the poor are going to have their handouts restored to them. Forget personal responsibility, Obama will take care of it. Can’t pay your mortgage (because you bought a home you couldn’t afford)? No problem, He’ll take care of that for you. Can’t pay your student loans? See above.

And please don’t talk about ethics and morality. Democrats are the party that holds nothing sacred. Marriage, family and even human life must hold no special place if you want to align yourself with them. Destruction of the nuclear family and abortion with no restrictions must be your preferences if you want to have a conversation with the likes of Pelosi or Obama.

I don’t need to dig a hole, Obama is doing that already quite well, and when he’s done, quite possibly the entire country will fit inside it. I’ll keep the gun handy, though. I might need it when the revolution starts, and for squirrels and such.

Hail Xenu and His Lordship, The Almighty Obambi!

Big Mook

Anonymous Coward says:

Re: Re: Re:6 weird harold

“In reality, I’m firmly a lower-middle-class, working stiff, struggling to feed and clothe a family of 4 and pay the mortgage and car note, who has just lost over 40% of his retirement savings in this financial mess. Thank goodness I still have a job.”

I had you exactly pegged as such hence the mud hole comment.
If I thought you were benefiting from capitalism I would have told you to go polish your throne.

And yes, I let you choose if you should have kids or an abortion. It is none of my business and the choice is completely up to you. Marriage is the same as far as I am concerned, your business. That is freedom.
Pushing your personal beliefs and structure down anyones throat is not freedom, quite the opposite.

You are obviously a religious mud hole resident and this fuels my belief in you being a very small person with a 20/20 tunnel vision.

The worst thing about people like you are that when Obambi does manage to pull us out of this mess, your will claim you did it in spite of his efforts.

Since you are so old as you claim I guess I can find peace in the thought, that your mentality is about reaching its sell by date.

Big Mook (profile) says:

Re: Re: Re:7 weird harold

If you want to polish something, try to polish up Obambi for me. Oh, that’s right: You can’t polish a turd; it only gets you covered in shit and smells really bad.

Choice in abortion, you say? Bullshit, plain and simple. Nobody asked me if I want my money to fund abortions. I’m less free because of the supposed freedom you espouse? I would expect nothing less from a left-wing wingnut, though.

I suppose you believe it was Carter’s policies finally coming to fruition that brought the country back into prosperity in the 80’s, not Reagan’s polar shift from Carter’s failed social agenda. That’s cool. Revisionist history is also necessary for the left wing.

Obama is tanking this nation, and I guarantee his policies won’t work. Socialism/Collectivism/Communism, whatever you’d like to call it, it doesn’t work and never has in the history of mankind. Just because Obambi can read a teleprompter real good doesn’t mean it will work this time.

Let’s talk again in a few years when we have double-digit inflation, unemployment and interest rates.

From the mud hole,

Big Mook

Big Mook (profile) says:

Re: Re: Re:9 weird harold

I don’t need a month to tell you that these states have been in decline since the 70’s. This is another trick employed by supporters of socialism, but it’s been debunked so many times there’s no need to even go there.

But I don’t think you knew that. Somewhere, long ago, someone told you that Scandinavia has it going on, and socialism has triumphed. But quite the opposite is true. They have tax rates in line with what Obambi wants to give us here in America, but their governments are cash-poor because no one has any incentive to start up a business or invest where the government is going to take the lion’s share away. Can you say Stagflation?

If you want a good economic model for taxation, look no further than Ireland, which has the 2nd lowest tax burden, yet has very high tax revenue. Wonder how that happened? There was this guy named Reagan…you’ll never get it.

When you figure it out, please let Obambi in on the secret.

Big Mook

Big Mook (profile) says:

Re: Re: Re:11 weird harold

So, while you were there, did you take advantage of everybody else to stay home and collect sick pay, as is common practice in Sweden, where fully 20% of the workforce can be found home sick every business day of the year?

Hey, who wouldn’t love that life? Stay home from work 1 day a week, get free health care and housing, subsidized prescription drugs, etc. Too bad that there are shortages of doctors and long waiting lists for most major surgeries, but hey, you’ll be much healthier because of all that rest you get on your sick days. And since the government is taking more than half of your pay off the top, maybe you won’t have enough left over to engage in many extra-curricular activities that might cause you great bodily harm.

Of course, there is also the cost in self-esteem and pride in accomplishment. Scandinavia is like a huge college frat party, except the professors don’t make you attend class or even do a fair share of work to get a grade.

So, I guess if you’re lazy, Scandinavia is the right place for you. Why aren’t you still there?

From the forbidden zone of conservatism,

Big Mook

broadband says:

Re: Re: Re:12 weird harold

hey mook, i thought this was about telecoms. you have obviously worked so much harder than most of us. after all, i can see that by the times of your posts that you hardly have a free minute. you better grab the, “guns” you have “laying around like any good right-winger” b/c you may need them… if “obamai’s” plan doesn’t work, do you have enough training to use your weapons? have you ever actually hunted for food…

Big Mook (profile) says:

Re: Re: Re:7 weird harold

Just to add one more thought to this already too long thread:

AC says if he thought I was benefiting from capitalism, he would have told me to polish my throne. (At my house, the throne is this little white, porcelain stool used for the disposal of excrement).

What he fails to realize, is that I, and every other citizen of this country including him, are benefiting from it. Without it, we would be another Cuba, Venezuela, “name the socialist country”, with the majority of the population living in filth and poverty, while the “party” members live a life of luxury and ease.

America is in trouble, but if we could make it past the gigantic blunders of some past presidents, including Bush, then we can make it through the Obama years, too. It will just take a lot longer to recover, probably a decade or more, just as FDR’s failed policies sunk the country deeper in depression while creating make-work jobs for the short term.

Hail Xenu and The Lord Almighty Obama (praise be unto Him)!

From the bottomless pit,

Big Mook

Anonymous Coward says:

Heard a good idea from somebody:
(Idea) When politicians are elected, all their real property and liquid assets gets completely put aside–they have access to none of it. After their term(s), they will receive the amount confiscated at election time after recalculation for economic growth/contraction (but not inflation) during their time in office.

I think if something like this was enacted; suddenly our politicians would start to give a shit about the ACTUAL economic prosperity of our citizens.

J. Freeman (profile) says:

Re: Meanwhile, back at the ranch...

This would be fine, if we were socialists. Since the politicians would actually be in control of the economy, more soup in my cup should mean more reward (or, in your bizarre scenario, less punishment). But we have, for now, and in theory, a free market system.

Politicians like to think they have the power to influence the economy, but their actions are akin to a kid thinking he can make a speeding semi change lanes by hitting it with a bottle rocket. Even sinking gargantuan sums of money – the $11,600,000,000,000.00 pledged so far (and counting) – into the problem has, so far, made scant difference in ‘conditions on the ground.’

So, no, confiscating politicians’ property upon their entrance to term is not the answer. That would only ensure that Washington would be filled with people so hungry for power and influence that they would give up all their possessions for it. Frightening. If you want economic prosperity now, quit expecting 15% annual ROI on the investments you chase after and, as Dave Ramsey says, act your wage.

rick says:

Hypothetical loss vs real gain

Well, if there actually was a revolutionary high speed connectivity innovation that could be rolled out in the next 3-4 months that wasn’t being funded because the company proposing it was a startup, then I can see your point.

But there isn’t.

Since there’s not, the immediate goal of increasing employment has no real downside.

And, if someone *does* introduce this revolutionary thing 12 months from now, then they’ve laid some fiber that will go underutilized in the near term. (But not forever, since all bandwidth gets used eventually).

If there truly was an innovative thing available at a better price, I’d drop my current hi speed provider in a second — and I’m in an urban area.

jota says:

Re: Hypothetical loss vs real gain

Rick, Did you miss the fact that this article actually has nothing to do with internet access? That was a case study to demonstrate the larger problem. This type of situation could be (and probably is) present in any industry. The companies that are established and should be dying are kept afloat thanks to government funds. The small fry who would normally come along and take the place of the incumbent company doesn’t get the chance because the established companies aren’t allowed to die.

Jon says:


“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.”

Isn’t this the type of thinking that got the economy into the situation it is in now? Short-term tunnel vision with no consideration for the long-term implications.

Bill O'Reilly says:

I don't care anymore

I’m old, white, and rich. So I don’t have to care what happens to the poor people. I don’t have to support abortion because I know I’ll never need one. I don’t have to support welfare or pay social security or nationalized health care because I’ll always be rich enough to not worry about it.

It’s easy for me to sit back on my high horse and talk about how there’s a caring and important God because bad things don’t happen to people like me. I respect life…unless you’re an animal, soldier dying in an unjust war, or have been convicted of a crime.

I favor big companies because I know they are run by criminals who have the interest of my stocks in mind and will crush anyone who dares challenge them.

My right to do anything can never be infringed upon. However, the rights of others should be set aside daily. Wiretap others, torture them, force them to pledge allegiance to God, whatever it takes to make them see that I’m right.

When anyone says that they care about anything related to humanity or the environment I dismiss them as a hippy or crybaby.

right wing jerkoff

Big Mook (profile) says:

Re: I don't care anymore

O’Reilly gives a ton of money to charity, but I guess you missed that. Let’s see how some of the Democrats fared…

From USA Today:

Democratic vice presidential candidate Joe Biden and his wife gave an average of $369 a year to charity during the past decade, his tax records show.

Democratic presidential nominee Barack Obama’s campaign today released 10 years’ worth of tax returns for Biden, a senator from Delaware, and his wife Jill, a community college instructor. The Bidens reported earning $319,853 last year, including $71,000 in royalties for his memoir, Promises to Keep: On Life and Politics.

The Bidens reported giving $995 in charitable donations last year — about 0.3% of their income and the highest amount in the past decade. The low was $120 in 1999, about 0.1% of yearly income.

Over the decade, the Bidens reported a total of $3,690 in charitable donations, or 0.2% of their income.

Biden spokesman David Wade said in an e-mail that the Bidens “also contribute to their favorite causes with their time as well as their checkbooks.”

How nice. From the same article:

Then-Vice President Al Gore came under fire when his 1997 tax return showed only $353 in donations to charity; he and his wife, Tipper, gave $15,000 to charity, or nearly 7% of their income, in each of the following two years.

A little further down:

John McCain reported giving more than $202,000 — a quarter of his income — to charity in 2006 and 2007, the only years for which his campaign released his tax returns. His campaign didn’t release information about his wife’s charitable contributions, however. In 2006, her total itemized tax deductions, a category which includes charitable contributions and other deductible items such as mortgage interest, was $569,737, or 9.3% of her income.

Anonymous Coward says:

Re: Re: I don't care anymore

“O’Reilly gives a ton of money to charity, but I guess you missed that. Let’s see how some of the Democrats fared…”

Pics or it didn’t happen..

Seriously though..

Funny.. the first 40 or so google search results for Mr. Charity Giver Bill O’Reilly have zero mention of donations. Their are only 2 references to charity and his name. 1. Speaking at some inner city school and 2. Bashing Obama’s charity giving. Taking a quick look at his Wikipedia entry, the only mention of the word Charity is in the page footer of the WikiMedia foundataion asking for donations. For someone who has as big as a mouth as he does, I am certain everyone on this planet would we aware that Bill “The Giver” O’Reilly gave to charity.

Based on what you have posted, even Biden has given more than O’Reilly at .01% of his income and he makes $9 million.


In short…. never mind.. I have already spent too much time thinking about this fuckwad.

Big Mook (profile) says:

Re: Re: Re: I don't care anymore

That’s it? You’re giving up so easily? And it was just getting to be fun.

The point is that left-wingers like to say how evil successful people are just for the fact that they are successful, but the affluent among the left-wingers who can afford to be generous seldom are, while conservatives tend to give much more of their money to worthy causes.

It’s simple really. I believe that with great wealth comes great responsibility; giving to charities, churches, and other worthy causes is a moral responsibility. That would be a conservative viewpoint.

The opposite viewpoint, which is true of Obama and his ilk, would be that with great wealth comes great evil, and only the government should decide how much to take and to whom it should be given. It becomes a government-mandated responsibility, and the freedom to choose has been taken away.

Hope that clears it up for you.

From way down in Obama’s bottomless pit,

Big Mook

Anonymous Coward says:

I would like to see Techdirt to focus more on the underlaying question whether it is economically reasonable to expect any benefits (or damages) from the governments reallocation of the resources. Try to understand crisis and proposed cures and based on that understanding provide insightful and valuable advice for business like you are brilliantly doing in the field of the non scarce goods.

One more thing. Please do not assume that readers understand basics of the economy. Even though I like to think that I have some basic understanding of the economy it is for me often very difficult to apply these basic laws to the current events. As you prove with every article from the music and news industry the ability to see underlying laws in the real word event is where the strength of the Techdirt lies.

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