The crux of the article is this: "So the bottom line for me is that the venture capital business is not going to solve this problem we are in. We are going to play a role, possibly an important role, but we'll need more forms of job creation to get everyone back to work."
That, I wholeheartedly agree with. Unfortunately, it seems that it will take a while for housing prices to deflate enough and for people's wage expectation to decrease enough that utilizing American workers becomes cost effective again. Will there be enough capital around to finance the shift of production back home? Will other countries continue to underbid domestic goods? Are we in fact heading to a more "normal" level of unemployment (we have usually had a comparatively low rate, globally speaking) ?
IMHO, solving the problem will be much harder than that. US is highly based on a plan of idealized life through media. A typical lifestyle of the suburbs:
* Multiple cars per family and doing heavy commuting.
* Huge houses with high bills and maintenance.
* Consumerism based on filling those houses and cars with non-essential disposable items.
All those millions living with that mindset apply those same rules at work. There are great exceptions, but their size is not relevant to the national bottom-line.
Now apply that to venture and you get what doesn't work. PG is on this problem often. Perhaps a bit too Socratic-style for my taste. (http://en.wikipedia.org/wiki/Socratic_method)
I never understood how the economy worked in the US with so much waste. Now with this crisis I get it, it never did. US needs a culture shock urgently. (A bailout is more of the same, IMHO.)
Wich also means that America has a confortable margin to improve. Their own genius lies in pragmatism, I wouldn't bet against them when necessity joins the game.
Indeed! US was a beacon of freedom before the Bush administration, together with France. Making an analogy to free software, US is BSD and France is GPL. For example France forces its citizens to be free, like a recent case denying citizenship to a very submissive Muslim-traditionalist woman as she was admittedly waiving her rights for her husband's.
Also US has a gigantic human capital with well educated population. It is a bit hard, but IMHO the change has to start with media. Perhaps applying existing laws against the advertisement cartel. But this is the French-style of freedom. I don't know.
I've thought about these kinds of things often lately. Freedom defending itself, democracy defending itself & such. What should be done about anti-democratic parties in a democratic society? Those kinds of things.
I am coming to the conclusion that you hit a breaking point if this becomes to big an issue. Sure it's ok to handle it one way or another if the above party is at <5%. But once they near the 50% mark, it's game over. You cannot defend democracy or freedom without compromising it.
Same goes in this case. When it's a once a year case, that's one thing. But if you have a large number voluntarily relinquishing freedoms, it is no longer a free state.
My view is that as long as relinquishing one's own freedom does not impact the freedom of others, then it should slide. This assumes the person relinquishing is doing so voluntarily and with full knowledge of the alternatives.
Otherwise, it isn't really freedom in the libertarian sense, since people should be free to do what they want as long as it doesn't harm others. Plus, what makes a person feel free can vary from person to person, so if "freedom" is being mandated as in France, then it can actually become totalitarian in the name of "freedom."
Say you have a democratically elected anti-democratic party. Or even a large minority party. It's usually not so straightforward because democracies & demi-democracies normally disallow these. But they do exist. Currently theocratic movements lead the trend.
If you allow these to run, you get a theocracy. If you disallow it, you no longer have a democracy. As long as they're small you can suppress them in the name of defending democracy. But defending democracy against the demos really ends democracy if it is in any way substantial.
You're summing up 50 years of post WWII history into the last 10 years? Good luck with that.
The economy works just fine with hat you call "waste." Nothing humans do will ever be close to 100% efficient for any length of time. We're messy that way!
The bottom line is that most people the world over will generally live just within their means (or just over if there is sufficient credit) and you may as well get used to that. Living "efficiently" is normally done only by those who have little in the way of resources (in which case they're normally living barely within their means), or by the handwringing worriers who have plenty but feel guilty about it.
What we are seeing is the unraveling of that process -- since the 30 year fixed mortgage was widely available from the FHA and the VA, the amount of debt we've been willing to shoulder has increased over time.
With increased living expenses (college costs, et cetera) and flat wages, how have americans maintained their standard of living?? Home Equity lines of credit... MORE DEBT! Living on less isn't just for "handwringing worriers who have plenty but feel guilty about it", it is the prudent thing to do.
i think people don't think about how easy access to loans/funds inflates the price of a good. banks were falling over themselves to give people money, and realtors were happy to take as much of it as they could; if no one has $500,000 for a house, houses aren't going to cost $500,000.
If Americans, engaged in their current lifestyles, constituted the entire 6.7 billion head population of the world, less land would be required than is required today.
He probably means the amount of acres required to support the suburban lifestyle. For example it demands more roads, more mining operations, more resource extracting for goods and energy. You don't see it as much because that gets outsourced, too. China is already suffering the consequences of this with the worst pollution levels in history. Remember this affects us all in the long run.
to support the suburban lifestyle [...] demands more roads, more mining operations, more resource extracting for goods and energy.
A mine is not a permanent use of land. Greater demand for mined materials does not imply greater numbers of mines. Existing mines might simply be made deeper. http://en.wikipedia.org/wiki/Bingham_Canyon_Mine And the minerals in greater demand might also be substituted (e.g. copper for telecommunication wires by silicon for fiber optics).
of the 2.3 billion acres in the U.S. as of 1987, all the land taken up by cities, highways, non-agricultural roads, railroads, and airports amounts to only 82 million acres - just 3.6 percent of the total. Clearly there is very little competition between agriculture on the one side, and cities and roads on the other.
Concerning the trends: from 1920 to 1987, land in urban and transportation uses rose from 29 million acres to 82 million acres - a change of 2.3 percent of the total area of the U.S. During those fifty-seven years, population increased from 106 million to 243 million people. Even if this trend were to continue (population growth has slowed down), there would be an almost unnoticeable impact on U.S. agriculture, just as in past decades (see figure 9-2).
Concerning the notion that the U.S. is being "paved over," as of 1974 the U.S. Department of Agriculture's official view was that "we are in no danger of running out of farmland."
You conveniently skipped the outsourced bit (China.) And that is a very shallow investigation. For example, the fertile arable land available is running out. That is as hard a fact as there is.
Cities grow usually on fertile land, and large suburbs make this problem several times bigger.
In the last couple of years there were thousands of protests around the globe because of food prices. You might not notice it as it's probably only a fraction of your costs, but for many (most?) people in the world it is their main expense. And most of the food gets sent to the best payer automagically. The quota system to cope with hunger is gone:
>> all the land taken up by cities, highways, non-agricultural roads, railroads, and airports amounts to only 82 million acres - just 3.6 percent of the total.
> You conveniently skipped the outsourced bit (China.)
U.S. urban sprawl is outsourced to China? If so, how so?
Fertile arable land is made out of rock. The earth is made out of rock. If the earth - as you imply - is running out of itself, where do you suppose it - rock - might be going? Does rock get used up by farming in it, and thereby disappear?
Normally, when something is becoming scare ("running out"), people 1) make more of it, 2) use it more efficiently, and 3) substitute other things for it. In the case of arable land, we have observed people 1) making fresh arable land out of rock, 2) reclaiming arable land from wetlands/lakes/oceans/hillsides/mountainsides, and 3) substituting in the forms of vertical and soil-free agriculture and other forms.
Both ignorance and mysticism enter importantly into conventional thinking about farmland. For example, one hears that "once it's paved over, it's gone for good." Not so. Consider the situation in Germany, where entire towns are moved off the land for enormous stripmining operations. After the mining is done, farmland is replaced, and the topsoil that is put down is so well enriched and fertilized that "reconstituted farmland now sells for more than the original land." Furthermore, by all measures the area is more attractive and environmentally pure than before.
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that is a very shallow investigation. [...] Cities grow usually on fertile land
But what about the fertility of the land used for human habitation and transportation? Even if the total quantity of land used by additional urban people is small, perhaps the new urban land has special agricultural quality. One often hears this charge, as made in my then-home town in the 1977 City Council election. The mayor "is opposed to urban sprawl because 'it eats up prime agricultural land.'"
New cropland is created, and some old cropland goes out of use, as we have seen. The overall effect, in the judgment of the U.S. Department of Agriculture, is that between 1967 and 1975 "the quality of cropland has been improved by shifts in land use ... better land makes up a higher proportion of the remaining cropland."
The idea that cities devour "prime land" is a particularly clear example of the failure to grasp economic principles. Let's take the concrete (asphalt?) case of a new shopping mall on the outskirts of Champaign-Urbana, Illinois. The key economic idea is that the mall land has greater value to the economy as a shopping center than it does as a farm, wonderful though this Illinois land is for growing corn and soybeans. That's why the mall investors could pay the farmer enough to make it worthwhile for him or her to sell. [...]
The person who objects to the shopping mall says, "Why not put the mall on inferior wasteland that cannot be used for corn and soybeans?" The mall owners would love to find and buy such land - as long as it would be equally convenient for shoppers. But there is no such wasteland close to town. And "wasteland" far away from Champaign-Urbana is like land that will not raise whornseat - because of its remoteness it will not raise a good "crop" of shoppers (or whornseat or corn). The same reasoning explains why all of us put our lawns in front of our homes instead of raising corn out front and putting the lawn miles away on "inferior" land.
Um, according to standard economic theory in the long-run equilibrium the unemployment rate is the rate of frictional unemployment and that is more-or-less of a constant. What we have is cyclical unemployment, which is temporary. http://en.wikipedia.org/wiki/Unemployment_types
Look, someone who doesn't have a job will lower his/her price until he/she gets a job. If you are really on the verge of starvation you will become willing to work for $1, and someone will probably become willing to hire you for that little. Just like any other market, price will fluctuate and equilibrate supply and demand, clearing the market. It's just that in the short run there is price inflexibility, so the market temporarily goes out of whack. In the long-run wage is only determined by worker productivity (which is function of amount of capital and technology level), and anyone who wants a job can have one, though it may not be as high paying as she wants.
The price inflexibility is deeply ingrained in housing prices, and the regulation by the state. No matter how desperate you are, you cannot legally work for as little as someone in many foreign lands.
We are not even close to there yet. If that does become a problem, if min-wage causes 30%+ of the workforce to be unemployed, the government will lower it. They are stupid, but not that stupid. Besides, housing prices are also shaped by supply and demand. If unemployment becomes very high, housing prices will drop. Essentially what you are talking about is short-run price inflexibility.
"They are stupid [ the government] , but not that stupid."
Don't count on it. There is something about government that attracts and concentrates stupidity. They discount reality, blank out unintended consequences, operate with stolen wealth, and shift blame AND cost for its failure onto its victims. In that environment its almost impossible not to be terminally stupid.
The problem is that 'standard economic theory' is not in complete agreement here. As the article you linked says, classical economists (whose argument about the market clearing is the one you put forward) do not believe in cyclical unemployment. Those who do believe in it don't believe that the employment market clears of its own accord.
A separate issue is that people can't lower their wage demands to any level. To get a job you must have a home, a means of commuting and the basic necessities of life. There are also costs associated with employing someone, so even if someone worked for free, the employer could not necessarily justify the cost of employing them.
These are theoretical issues though. The existence of unemployment benefit means that the only people who will reach these depths are the homeless.
Fred is probably underestimating the number of jobs created by companies he funded. Companies always also create jobs in peripheral industries-- in their suppliers, for example, and in industries that use whatever tools they're building. The latter was particularly obvious to us at Viaweb. Lots of people based businesses on our software.
He is also probably overestimating because he isn't including any competitors that were put out of business. That's okay, any estimate of a total number of jobs impacted is going to be fuzzy.
You can't inflate one number that way one without doing the same for the other. I suspect there are more peripheral jobs created per startup-job than are destroyed per manufacturing-layoff, though.
Ahh the joy of manufacturing. Each manufacturing plant pays for tons of raw materials, engineers to design the product, engineers to design the machine the workers are working, security inspectors to make sure the machines are safe, government regulators, now cascade that down to the machine makers. I haven't even got to the-general public side of things (food, shopping).
I seriously doubt that more peripheral jobs are created per startup than those destroyed per manufacturing. But hey maybe I'm biased I did grow up right outside of Detroit.
One of the beauties of startups, as labeled by pg, is that they can be begun with almost no capital but time -- because they don't require almost anything in the way of external equipment & services. They can be very self-contained, rather than interdependent; no supply chain needed, etc.
You're thinking about the demand side (to be able to do X, you must do the following job-creating activities), but I'm talking about the supply side (once you've done X, it enables people to do the following job-creating activities). So a company like Wufoo or Weebly can make it cheaper for other companies to grow, adding more jobs.
In fact, I'm certain Wufoo has helped create jobs, in the sense that I've filled out job applications built on Wufoo forms. The fact that Wufoo was chosen over other solutions means that, in at least some cases, the existence of Wufoo will lead to job applications being created that otherwise would not have been.
This is the point PG was making. He didn't talk about how Viaweb created lots of jobs because they bought a bunch of servers and had to pay their rent; he's talking about how they let other people cheaply start stores that otherwise wouldn't have started, connect to customers they otherwise wouldn't have found, sell products that otherwise would have sat on a shelf, and make wealth that otherwise would not have existed.
That may be true because Viaweb was the first, and for a long time, only thing that fit that description.
Wufoo, on the other hand, is just one of about 20-30 choices for online forms. Including, of course, paying a lackey on elance $15 to do it. (Now elance, they haven't created jobs, but they did do a lot to move labor around.)
There is also the pressure on the other side that many disruptive technologies require less jobs. For example when manufacturing machines took over previous manual work, or MSN Encarta and Wikipedia affecting the number of door to door encyclopedia salesman.
I think job creation/destruction should be looked at independently from innovation.
The VC industry is at the heart of creative destruction. And the job creation that results goes well beyond the jobs created in the VC companies themselves. There is a trickle down effect.
The most sucessful VC companies are the most innovative. They produce a product or service more competitively than the alternative at a cheaper cost.
Companies which consume these products or services save money. As a result they can offer their products/services more competitively, which results in hiring (or at the very least fewer layoffs).
The bottom line is that innovation acts as a stimulus in times of recession. During times of expansion (when the economy is at full employment) it simply results in increased standards of living. I agree with barbie17 that the unemployment rate is more or less constant in the long term.
It should at least be mentioned that an out of work wal-mart greeter is not equal to an out of work surgeon. This never seems to be brought in in the "lost x jobs" debate.
He suggests at the end that we need a lot more entrepreneurship. This is similar to what PG has been saying for a long time. PG says we need startups so hackers can reach their potential. Fred says the economy needs entrepreneurship. We've talked a lot about PG's ideas, but is Fred right?
>Well, what if there are no openings come this May--literally none. No job postings. No on campus interviews. No job fairs. This isn't a fantasy. It's happening right now.
Been there when I was in school in the late 70's and early 80's. it sucks but it didn't last forever (that time anyway).
On the flip side, that is one guy that created 40 000 jobs in his career so far? that is really quite amazing. If that was me I would sleep very soundly with a smile on my face. He should just get up, and do it again.
i did not creat 40,000 jobs. i was at venture firms that financed roughly 200 companies over the past 22 years that created that many jobs. it's a big difference and i want to make sure people understand that
while getting booted sucks for sure, those guys are usually in a great spot and can parlay that success into a new venture or join another successful startup / company at a C level.
That, I wholeheartedly agree with. Unfortunately, it seems that it will take a while for housing prices to deflate enough and for people's wage expectation to decrease enough that utilizing American workers becomes cost effective again. Will there be enough capital around to finance the shift of production back home? Will other countries continue to underbid domestic goods? Are we in fact heading to a more "normal" level of unemployment (we have usually had a comparatively low rate, globally speaking) ?