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[2]The Future, Now and Then
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On giant piles of cash, and their origins
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On giant piles of cash, and their origins
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The trouble with venture capital is that it has gotten too big.
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[12][https]
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[13]Dave Karpf
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Apr 19, 2024
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66
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On giant piles of cash, and their origins
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[https]
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source: Unsplash https://unsplash.com/photos/100-us-dollar-bill-BRl69uNXr7g
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Technological innovation requires capital. A lot of capital. A giant pile of
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cash.
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There are, to a first approximation, only three places you can find of a giant
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pile of cash. There’s government money. There’s venture capital. And there’s
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big corporate R&D.
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[31][ ]
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Of the three, I would argue that government is clearly the best. The reason is
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simple: government funding doesn’t come attached to some rich asshole who
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inevitably screws things up later.
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Venture capital, for this same reason, is quite clearly the worst. Andy Baio’s,
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“[33]The Quiet Death of Ello’s Big Dream” is worth reading on this point. VC
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funding comes attached to VC revenue expectations. It makes unreasonable
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demands. Sometimes they work out for the investors. They very rarely work out
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for everyone else.
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Big corporate money is somewhere in the middle. I’d classify it as eh, fine I
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guess, so long as the marketplace is otherwise well-regulated and those large
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corporations are constrained. (Which, heh, ofcoursewedon’thaverightnow.)
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The examples of big corporate money that spring immediately to mind are [34]
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Bell Labs and [35]Xerox PARC. There was indeed a time when big companies
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invested a ton in basic science and R&D, with no immediate plans to turn the
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results into products. And, as [36]Ian Betteridge pointed out last month, this
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was because the big companies were rightly concerned about the antitrust cops.
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[37]A nervous monopolist is a (relatively) well-behaved monopolist.
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Still, there’s a bit of elegance to the big-pile-of-government-money approach.
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I first took notice of this with the passage of the Inflation Reduction Act
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(IRA). Fifteen years ago, everyone kind of thought that the only way to
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jumpstart the clean energy transition was to institute a carbon tax or
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cap-and-trade/cap-and-dividend system. (Basically, do some fancy tricks that
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the economists suggested, then let the market work its magic.) Cap-and-Trade
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failed for a whole lot of reasons, but one of the biggest was that the proposal
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was complex and boring in a way that appealed to the economists but were
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impossible to message. Most people were left thinking “this is probably gonna
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turn into weird corporate bullshit, right?”
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The IRA, by contrast, was just a big pile of money attached to industrial
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policy — directional instructions for how to spend the pile. That’s effectively
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all it could be, because of some vagaries in the Senate rules that let you
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avoid the filibuster and pass budget bills with a 51-vote majority. And while
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that big pile of money isn’t perfect, it is funding a lot of good things.
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And of course we can scan back in history for plenty of other examples. [38]The
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semiconductor industry and the internet were both built out of government
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grants and defense contracts. We have sputnik and the space race to thank for
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the computer age. The Human Genome Project was government funding. So was the
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National Nanotechnology Initiative. Some of these were big hits, some were
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glancing misses. But the general model of promising avenue —> government sets
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up a big pile of money —> research and development flourishes in that area is
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pretty well established. It works.
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The are, as far as I can tell, only three downsides to the
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government-pile-of-money approach:
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1. You’ll need to make the money back through taxes on the industries that
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develop as a result. And they won’t want to pay those taxes. And these
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industries will be popular, with a lot of capital to spend on pressuring
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government to give them special deals and tax breaks. So maintaining the
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equilibrium of establish big pile of government money —> industries
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flourish —> they pay taxes, which lets you set up the next big pile of
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government money is going to take constant effort to maintain. (This is an
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abbreviated version of Marianna Mazzucato’s [39]The Entrepreneurial State.
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Her book is excellent, btw.)
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2. The big pile of government money is tied up in bureaucracy, which means it
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isn’t especially nimble or responsive. This can be fixed through
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public-private partnerships and other administrative design choices. But
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it’s bound to be frustrating and sometimes wasteful. (Imagine if, circa
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2022, the Biden administration had set up a $30 billion fund for, like,
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metaverse research.) And that waste and frustration will be fodder for
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ideological opponents to the whole endeavor.
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3. The big pile of government money doesn’t glorify entrepreneurs and
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innovators as the very-special-boys who are heroically building the future.
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And that doesn’t feel very gratifying. They would much prefer an
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equilibrium where government provides the big pile of money, but then no
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one talks about it. Or gives the government any credit. Or taxes the
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windfall profits. It is not, in other words, a story that plays well at
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Davos. If those entrepreneurs get rich enough, [40]they’ll develop
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elaborate philosophical justifications for why the most important cause in
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the world is that everyone clap louder for them.
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But those three downsides just mean that the system will require political
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maintenance. It works quite well, but it isn’t self-sustaining. And this
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observation extends beyond science and technology. The
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big-pile-of-government-money is a return to how we approached public problems
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through much of the 20th century, before it was rejected as “tax-and-spend”
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liberalism and replaced by neoliberalism’s faith-based market fundamentalism.
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The basic proposition is as follows: we should provide public funding for
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public goods. Those public goods will make us a better, more productive
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society. And then we refill the public coffers through a system of taxation.
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The same approach can be applied to other public goods:
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• [41]There is no magic-unicorn funding model that will save journalism. It’s
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going to require public subsidy.
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• The crises facing the U.S. education system can mostly be reduced to the
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simple fact that we no longer fund public education like we used to. The
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idea that we are going to somehow innovate our way into a system that is
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both higher-quality and cheaper is as fantastical as it is flawed.
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• Ditto for higher education. If you think higher education is a public good,
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then you should demand public subsidy of higher ed. (Including, but not
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limited to, student debt cancellation.) If you do not think higher eduction
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is a public good, then that’s fine too. But you ought to go ahead and say
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as much.
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━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
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The VC approach is the prevailing model today. And I have become increasingly
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convinced that many of the problems with the current state of Silicon Valley
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are rooted in the venture capital-class simply acquiring too much capital. VC
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is fine (good, even!) when it is relatively small. But when VC is the primary
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source of funding new science and technology breakthroughs, the whole system
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gets skewed.
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As it stands today, the primary direction-setter for new advances in science
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and technology is “what do folks like Marc Andreessen and Peter Thiel and Gary
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Tan and Sam Altman find exciting?”
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The problem isn’t just that these guys are ideological fellow-travelers, hell
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bent on a shared political project that socializes all risk while privatizing
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all gain. (though, I mean… that would kinda be enough of a problem on its own.)
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It’s also that their eye for science, technology, and even consumer products
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just kinda sucks. Building toward their vision of the future means we’re going
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to end up with a lot of [42]silly investments in pretend-cities and [43]
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eugenics vaporware. It means we’ll have abundant funding for hail-mary attempts
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at developing cold fusion and geo-engineering, and practically nothing for
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helping cities remain habitable under extreme weather conditions.
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(Read Karen Hao, I’m begging you!: We’re [44]sapping all the remaining water
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from the desert to cool AI data centers. It’s good for Microsoft’s stock
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performance. It is counterproductive to the climate emergency.)
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This kind of VC-thinking works fine under limited conditions, and pretty
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terribly everywhere else.
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Take Sam Altman. Altman is not an engineer. He is not a scientist. He has no
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real training in either. He is an entrepreneur, with a flair for optimistic
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tech futurism. He places bets on where technology is headed, and then attempts
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to bend society in a direction that makes those bets pay off.
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The previous generation of venture capitalists were, for the most part, actual
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engineers and scientists. They had spent time in the lab. They had experience
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being “close to the metal.” They made some real money early, then started to
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point that money in the direction of funding audacious high-risk/high-reward
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projects that didn’t fit anywhere else. The sector was small, compared to
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government money and corporate R&D money.
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Folks like Altman approach the future much like bad sci-fi. They begin from a
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prediction of where they’d like to end up, and then work backwards. Altman has
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faith that we’re going to end up at world-changing Artificial General
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Intelligence. That means we’ll need transformative breakthroughs in chip
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production and energy production. Ergo, he invests in cold fusion companies and
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sets out to raise $7 trillion to build his own manufacturing empire.
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That’s actually a fine approach, as private investment strategies go. (Hey,
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you’ve got a prediction for where the world is heading, and you want to make a
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bunch of correlated bets that support the prediction? Go ahead and spend your
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own money that way. God bless.) But when it becomes the primary source of
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funding for basic science and/or applied technologies, then the whole system
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gets warped in the direction of a few billionaires’ speculative fantasies.
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Venture Capital is not inherently better than government funding. That’s a myth
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that was popularized during the neoliberal era. It has now become impossible to
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sustain. (Just look at all the [45]stupid bullshit they fund and all the nice
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things that they ruin!)
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Big Tech only got so big because we stopped enforcing antitrust 20+ years ago.
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If the current reemergence of antitrust enforcement has staying power, that
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will be good for society and also good for Big tech funding of basic research.
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But, most of all, we should get back to enthusiastically celebrating large
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piles of government money, paired with substantial taxes on the companies that
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flourish as a result. Government money isn’t perfect. It can be slow and
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inefficient. But nothing is perfect. And of all the potential big-pile-of-money
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sources, it is the one that does the most good, while putting power in the
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hands of people who are at least supposed to have the best interests of the
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public in mind.
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Thanks for reading The Future, Now and Then! Subscribe for free to receive new
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posts and support my work.
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On giant piles of cash, and their origins
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davekarpf.substack.com
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13
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13 Comments
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[https]
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[ ]
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[66]
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Kaleberg
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[67]Kaleberg’s Substack
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[68]Apr 19Liked by Dave Karpf
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There's an old saying, "The customer is always right about what they
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wish to purchase." That is, people know their own needs. Being a
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[65] customer requires money. When the US had a growing middle class, they
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[https] were the customers individually and collectively. We were able to buy
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all kinds of nice things. Now, the wealthy have all the money, and
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they're the customers for symbolic stuff, not physical stuff. So, we
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have a crappy consumer market and a wasteful efflourescence of venture
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capital backed crazes.
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Expand full comment
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[71]
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Ralph Haygood
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[72]Apr 20·edited Apr 20Liked by Dave Karpf
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"The basic proposition is as follows: we should provide public funding
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for public goods." However, public funding tends to involve taxation,
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and the rotten core of "conservatism" is myopic selfishness, so denying
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public goods even exist is typical of "conservatives". Moreover, the
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USA is so collectively brainwashed in this regard that even ostensible
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liberals often fall into thinking of public goods as if they weren't.
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For example, it's common to say things like "higher education is the
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single best investment that you can make in yourselves and your
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future"*, which may be correct as far as it goes, but it leaves out
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that education is foremost a public good, something we the people fund
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because it benefits all of us to live in a society where most people
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are well educated, to whatever level suits their talents and interests.
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So as a matter of realpolitik in the USA, good luck getting much
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traction with the eminently reasonable arguments you've presented here.
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"It's also that their eye for science, technology, and even consumer
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[70] products just kinda sucks." I'll be blunter: the guys you've mentioned
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[https] are just kinda dumb. For example, Peter Thiel famously cheered for
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Candidate Trump but was disappointed with President Trump, declaring
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the latter and his shambolic administration "incompetent"**. Um, yeah,
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no shit, Sherlock. But the way Cheetolini governed, if you call it
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that, was perfectly consistent with his public conduct for decades
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prior. Only dullards were surprised. Evidently, Thiel is one of them.
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"The big pile of government money is tied up in bureaucracy, which
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means it isn't especially nimble or responsive.": Often but not always.
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In my experience, DARPA and NSF have been fairly nimble and responsive.
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It can be done!
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*[73]https://obamawhitehouse.archives.gov/the-press-office/2014/06/09/
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remarks-president-opportunity-all-making-college-more-affordable
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**[74]https://www.buzzfeednews.com/article/ryanmac/
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peter-thiel-and-donald-trump
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Expand full comment
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Reply
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References:
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[1] https://davekarpf.substack.com/
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[2] https://davekarpf.substack.com/
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[12] https://substack.com/profile/672568-dave-karpf
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[13] https://substack.com/@davekarpf
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[20] https://davekarpf.substack.com/p/on-giant-piles-of-cash-and-their/comments
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[21] javascript:void(0)
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[22] https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Ff0a27821-16b9-4428-9fbd-2b827c0b4a04_5274x3516.jpeg
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[33] https://waxy.org/2024/01/the-quiet-death-of-ellos-big-dreams/
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[34] https://www.amazon.com/Idea-Factory-Great-American-Innovation/dp/0143122797
|
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[35] https://www.amazon.com/Dealers-Lightning-Xerox-PARC-Computer/dp/0887309895/ref=pd_lpo_sccl_1/130-4281032-0312943?pd_rd_w=bQShS&content-id=amzn1.sym.1ad2066f-97d2-4731-9356-36b3edf1ae04&pf_rd_p=1ad2066f-97d2-4731-9356-36b3edf1ae04&pf_rd_r=QQW6HS3GCGN3TEE8NT7X&pd_rd_wg=wlvhQ&pd_rd_r=82c1a85f-ab39-40d4-b2bf-189e1644f181&pd_rd_i=0887309895&psc=1
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[36] https://ianbetteridge.com/2024/03/22/a-few-thoughts-on-the-apple-doj-antitrust-case-from-someone-who-isnt-riding-his-first-rodeo/
|
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[37] https://medium.com/@davekarpf/the-infowars-purge-and-life-among-responsible-information-monopolies-ddaa14f6cf0
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[38] https://www.penguinrandomhouse.com/books/534709/the-code-by-margaret-omara/
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[39] https://marianamazzucato.com/books/the-entrepreneurial-state/
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[40] https://davekarpf.substack.com/p/why-cant-our-tech-billionaires-learn
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[41] https://mattdpearce.substack.com/p/we-cant-save-journalism-by-just-begging
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[42] https://www.theatlantic.com/magazine/archive/2024/03/silicon-valley-billionaires-building-cities/677173/
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[43] https://www.wired.com/story/this-woman-will-decide-which-babies-are-born-noor-siddiqui-orchid/
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[44] https://www.theatlantic.com/technology/archive/2024/03/ai-water-climate-microsoft/677602/?utm_campaign=weekly-planet&utm_source=newsletter&utm_medium=email&utm_content=20240301&utm_term=The+Weekly+Planet
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[45] https://davekarpf.substack.com/p/the-money-has-to-come-from-somewhere
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[62] https://davekarpf.substack.com/p/on-giant-piles-of-cash-and-their/comments
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[63] javascript:void(0)
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[65] https://substack.com/profile/9557634-kaleberg
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[66] https://substack.com/profile/9557634-kaleberg
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[67] https://writtenstuff.substack.com/?utm_source=substack&utm_medium=web&utm_content=comment_metadata
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[68] https://davekarpf.substack.com/p/on-giant-piles-of-cash-and-their/comment/54340792
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[70] https://substack.com/profile/58303485-ralph-haygood
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[71] https://substack.com/profile/58303485-ralph-haygood
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[72] https://davekarpf.substack.com/p/on-giant-piles-of-cash-and-their/comment/54384920
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[73] https://obamawhitehouse.archives.gov/the-press-office/2014/06/09/remarks-president-opportunity-all-making-college-more-affordable
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[74] https://www.buzzfeednews.com/article/ryanmac/peter-thiel-and-donald-trump
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[76] https://davekarpf.substack.com/p/on-giant-piles-of-cash-and-their/comments
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[91] https://substack.com/privacy
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[96] https://substack.com/
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[103] https://enable-javascript.com/
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