September 11, 2017

MEGAN MCARDLE: Here’s Why Silicon Valley Loves Big Government: The tech industry assumes others will bear most of the costs.

Silicon Valley titans, suggests Farhad Manjoo of the New York Times, are really quite liberal. But there is one major exception to their liberalism: They aren’t very fond of regulation. Especially, one might add, regulation aimed at the tech industry.

This supposition is based on a single paper that is still under peer review. But I suspect that Manjoo was willing to write about it because it fits his anecdotal impression of these people, counterexamples like Peter Thiel notwithstanding. It certainly fits with mine. . . .

Why is the tech-industry so government-friendly? And why, if they think that government would do such a splendid job at regulating the distribution of wealth in society, do they not think that it would do an equally splendid job regulating them?

One reason that Silicon Valley moguls may be more redistribution-friendly than the old robber-barons has to do with a fundamental difference between their industries. The Gilded Age tycoons had largely come up in businesses that had considerable variable cost to their operations. If you wanted to make more steel, you had to hire more workers, buy more iron ore and coal, and pay railroads to ship all those raw materials in, and your finished product out.

Heavy taxation would thus considerably cut into your production. You couldn’t buy so many raw materials; you couldn’t afford so many workers; you would not be able to ship as much finished product to your customers. Taxation, in other words, had very high costs, not just to your personal wealth, but to the means by which you produced more of it. It’s true that if everyone had to pay the tax, your relative position among your fellow millionaires probably wouldn’t slip much. But the absolute amount you could produce would fall.

Silicon Valley, on the other hand, is among a growing number of industries where the variable cost approaches zero. Once you’ve written the software, you can sell a thousand copies or a million with barely any difference in the amount of money you have to spend on operations. A friend recently pointed out the curious dilemma that Google has: it has a core business that throws off enormous sums of cash and needs relatively little investment to keep doing so, and at the same time, it’s hard to imagine that anything they invested that cash in could generate a similarly massive income stream. The same could be said of Facebook.

Read the whole thing.

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