Meet the Visionary Venture Capitalist Inspired by Marx and Keynes
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On the contrary, what DoD did so well in the digital revolution was the opposite -- not to provide capital to targeted, wanna-be winners, but to be a creative, collaborative customer. So it would set a specification and offer a request or a proposal (whether it was a microprocessor or today what would be called a battery with energy density of such-and-such) – and whomever could meet that spec, whether it’s General Electric or three young people in a garage—it would buy some, test it, see if it worked, buy some more, and pull the competitive sector down the learning curve. It would prove the technology to where it could be reproduced reliably and cheaply enough to be available to the commercial market economy.
That’s the kind of program that we need. The DoD has been doing a little bit of this with solar technology, for example, to equip the troops in Afghanistan, but it has been on a trivial scale compared to what was done in the 50s and 60s.
LP: You say that austerity policies are self-defeating. How does economic theory help us to understand that?
Keynes is the key figure in this. I wrote my doctoral thesis at Cambridge University on British economic policy (1929-1931) when Keynes was a very vocal and active player. Keynes won the logical argument against the establishment figures who were principally embedded in the British Treasury , the dominant department of British government then and today. They had said that even with ten percent unemployment, and going to 20 percent unemployment, that government programs to borrow and spend money would squeeze out private investment.
This was obviously nonsense. If you have 20 percent unemployment, the government borrowing and spending will put resources to work, which will generate new flows of profits back to private industry. So the logic of the argument was completely flawed, and Keynes won that argument. But he lost the policy debate because even if the logic were wrong, the opponent of any action (the proponents of the status quo) invoked the argument that because the government couldn’t be trusted to spend money efficiently, it would therefore scare businessmen and investors, invite what in more recent time have been called “bond market vigilantes.”
This was the same argument that Paul Krugman has characterized as the invocation of the “Confidence Fairy”: If we cut the government back and reduce the government's wasteful spending, then the Confidence Fairy will descend and bestow the confidence needed for businessmen to increase their investments. Well, we’re four years now into the post-crisis world and it’s perfectly apparent that the Confidence Fairy is fast asleep – or perhaps even worse—and none of our clapping will bring Tinker Bell back to save the economy.
Keynes wrote the General Theory in good part out of the loss of that policy debate, to demonstrate the powerful requirement for stabilizing an inherently unstable economy. If we persist in tolerating the waste represented by unemployment, it will reduce investment in research and development and innovative new technology.
LP: If you had to make an immediate policy change now that would help spur innovation, what would it be?
WJ: The available transformational turning point mission does relate to climate change. To take seriously getting invested upstream and in the deployment of the infrastructure that will reduce energy consumption, carbon consumption.
I can see two lines of attack. One is long-term structural investment – not just short-term corrections -- that can include public transit and the kinds of investments that will reduce carbon consumption. I’d like to see that at least get into the policy debate. The other concerns taxes. Nationally we have highly regressive tax policies. Suppose we could trade the payroll tax for a carbon tax? We have actually done something like this. We have a perfect model for this, which President Obama did invoke to get higher fuel consumptions standards, despite a lot of game playing and outrageous rent-seeking. I am an optimistic venture capitalist, and I think it may be possible to find paths forward that can raise the living standards for everyone.