Worst Argument for Regulation Ever
We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value. But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die. Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation
I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:
Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.
Drum says, well this may be good or may be bad. Look, it HAS to be bad. All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value. This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.
The language he is using, of shaking things up, is a bit like that of chemistry. He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse. I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent. And impossible to spot, even if it did exist. Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.
