Innovation and economic stimulus can coexist

I agree with everything in the video except the false dichotomy Musk presents between spending vs. innovation.

As the above Elon Musk clip shows, libertarian-leaning pundits create this false dichotomy that one much choose between social spending or the private sector–and or–that former comes at the cost of the later. But, in reality and practice, it’s not like one must choose between ‘building stuff’ and stimulus: the two can and have coexisted. This dichotomy is demonstrably empirically false. As far the the US is concerned, which can print money at negligible cost (interest payments relative to GDP at historic lows), it is possible to have simultaneously a booming private sector, low inflation (as measured by CPI[1]), and surging government spending to fund an ever-expanding social/welfare state. Memo to Musk: the stimulus programs and bailouts are not hampering innovation. The two are compatible, not mutually exclusive. Look at the the rise of Zoom, Facebook, Netflix, and Uber Eats, as examples of private sector innovation booming during the Pandemic in spite of increased government spending. It’s not like the founders of Zoom are saying “darn..the government just gave $2.5 trillion in stimulus checks..we must shut down! Business is dying!” It’s not like all these companies that are creating video conferencing apps or distance learning solutions, are threatened by stimulus. As another example, LBJ’s ‘great society’ programs were in retrospect of dubious efficacy, but it did not prevent the personal computer revolution from happening a decade later. The two have nothing to do with each other. The private sector can keep innovating even if the public sector is wasteful.

Pundits raised the same concerns in 2008-2010 during the bailouts. “Slippery slope to socialism! Hyperinflation!” they cried, clutching their Friedman, Misses, and Hayek books, yet in spite of bailouts and surging national debt, the private sector is stronger than ever, inflation is persistently low, and the US dollar is at multi-decade highs. Since 2008, trillions of dollars of private sector wealth has been created in Web 2.0, AI tech (such as machine learning), real estate, stocks (S&P 500 up 400% from 2009 lows), etc. With the exception of a handful of ‘too big to fail’ banks, there was zero socialism (as in the nationalization of profits, public/collective ownership of the private sector). If Musk’s thesis were correct, Tesla, which got a bailout 2008, should have gone bankrupt or been nationalized, yet Tesla is doing better than ever ($1 billion in annual free cash flows) and is worth $800/share, versus $20/share in 2010 during its IPO, and Elon Musk himself is richer than ever too, along with Bezos, Gates, and others. The Forbes 400 list, especially in tech, is much wealthier now than it was in 2008, in spite of the cries of socialism. Since 2008, there have been hundreds of innovative companies out of Silicon Valley, some of them worth billions of dollars: to say that stimulus and bailouts encumber innovation and private sector wealth is ludicrously, empirically false. My own opinion is, I oppose these small business bailouts because small business and entrepreneurship is generally a waste of money with a high failure rate, but the bailouts and stimulus checks do not threaten capitalism, private property, and innovation. Likewise, the stimulus checks will not hep the economy much, but will not hurt it either as Musk and others are predicting.

[1] The indicators show low inflation as measured by CPI, and inflation has been low for over a decade in spite considerable govt. spending and stimulus programs by Trump, Obama, and Bush. What is happening is, inflation is becoming bifurcated, in that tangibles such as clothes and food have low inflation but services such as education, insurance, healthcare etc. have higher-than-CPI inflation.