Let Start-ups Fix the Economy
By Tommy Leung on March 3rd, 2009 in Economics, Liberty
The Washington Post had an interesting article written by Reid Hoffman, founder of LinkedIn, about letting start-ups bail us out. I wouldn’t be calling what he talks about a bail out–it would be a real stimulus. I love start-ups and have made it a point to only work for small companies–the smaller the better.
While I absolutely agree that it will be up to new businesses and innovative entrepreneurs to bring the United States and world economy out of this crisis, I do not agree with the means by which Hoffman suggests. The last thing we need is for governments to create more bubbles–we are living the result of the last government created bubble.
Hoffman says that “we need incentives for business innovators.” That is very true. However, the incentives should not be to “encourage small business with loans”. The SBA has always attached terms to their loans and it must be used for specific purposes that they deem important. This is influencing the flow of capital to industries or sectors that the government wants. This is creating a bubble.
Secondly, where is the government getting the money to lend? The government has no money today. It didn’t have money yesterday either but, it is in worse shape now than it has ever been. If the only means to get this money is to tax, borrow, or print then one group will be made worse off for another. Redistribution of capital never makes the economy better off. If an idea has merit, capital will find its way there–that is how the free market works.
While this proposal is a better alternative to creating jobs using war or public works projects, there is still an infringement of Liberty as long as the government needs to take from one group in order to lend money to another.
“Venture capitalists are biding their time — not for want of good ideas, solid management or stable capital but to ensure that they can get the most bang for their buck. Similarly, venture capital firms are waiting for the slide to stop and the recovery to begin before investing.”
I’m not sure if that is entirely true. As the founder of LinkedIn, I will assume that he knows better than I do. I am not in the VC circle. Regardless of whether that is the truth, there is an economically sound reason why people don’t want to lend.
No one knows when or how the economy is going to turn north again. The government is intervening on a weekly–if not daily–basis thus creating an environment of uncertainty. It is much riskier to make long term investments that VC’s generally make if no one knows what the rules are going to be six months from now.
Start-ups are going to lead us out of our current predicament but, it will not be because of government “stimulus” or loans. If these companies can find a way to flourish it will be inspite of the government and not because of it.
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Tags: economy, linkedin, reid hoffman, start-ups, vc, venture capital
