Tech Billionaires Are the New Welfare Queens

🌈 Abstract

The article discusses the role of the U.S. government as the world's premier funder of technological and commercial innovation, highlighting how it has been a driving force behind the development of many groundbreaking technologies and industries. It argues that the government's investments, through programs like DARPA, the Department of Energy, and the Human Genome Project, have been instrumental in the success of numerous tech companies and innovations, despite the criticism from some tech billionaires who have benefited from these government initiatives.

🙋 Q&A

[01] The U.S. Government as a Venture Capital Firm

1. What are some of the key technologies and industries that the U.S. government has funded and supported?

• The U.S. government has funded the development of the computer, the internet, speech recognition, last-mile distribution, mapping the human genome, the core technologies of fracking, and the first horizontal shale drill. It has also been driving down the cost of solar and wind power below that of coal.
• The government has invested over $3 billion in wind power R&D since 1976 and has been offering tax credits for wind and solar since the 1990s, which has contributed to the 85% drop in the cost of solar and the halving of the price to harness wind energy since 2010.
• The government has also invested in the Human Genome Project, which cost $3.8 billion but has generated $966 billion in economic activity and $59 billion in federal tax revenue.

2. How does the government's investment approach compare to that of private venture capital firms?

• The article argues that the government is willing to take on riskier, long-term, and future-leaning research that private industry struggles to justify, as it can afford to have a higher tolerance for failure.
• The government's investments have a track record of generating significant economic returns, with the $3.3 billion in annual spending on genetics projects estimated to generate $265 billion in economic activity annually.
• However, the article also notes that the economic model of venture capital, where investors and VCs get 80% and 20% of the gains on capital respectively, has been flipped on its head when it comes to public investment, where investors (taxpayers) often get less than the VCs and entrepreneurs they back.

[02] Criticism of the Government's Role

1. What are some of the criticisms of the government's role in funding innovation, and how does the article respond to them?

• Some tech billionaires, such as Elon Musk and Peter Thiel, have been critical of the government, with Musk advocating for the elimination of all government subsidies and Thiel claiming the U.S. government is "socialist" and has "much worse outcomes than the Soviet Union in the 1950s."
• However, the article points out that these billionaires have been significant beneficiaries of government support, with Tesla and SpaceX relying heavily on government funding and subsidies, and Palantir, Thiel's company, being a major government contractor.
• The article argues that these tech billionaires are the "new welfare queens," benefiting from government investments while disparaging the very system that has enabled their success.

2. How does the article address the criticism that government investment in innovation is a poor use of taxpayer money?

• The article acknowledges the failure of the Solyndra solar company, which received a $528 million loan from the Department of Energy, as a notable miss for the government's investment strategy.
• However, it argues that failure is inherent to venture investing, and that the key difference between the best-performing VC firms and average funds is the magnitude of their successes and aggregate portfolio returns.
• The article points out that the $30 billion Department of Energy loan program that funded Solyndra ultimately turned a profit, and that one of the program's other investments, Tesla, has been a major success story.