With all the unspoken but obvious disdain for the ridiculous cryptocurrency schemes, I wonder if the HN crowd will recognize the elephant in the room here.
TFA illustrates that the venture capital/startup tech scene is arguably the biggest Ponzi scheme in the last 20+ years.
Even ignoring the financial losses, most of these companies have operated in a gray or fully illegal manner. So imagine that the financials don't work and the legalities don't work... and yet this is our HN universe.
Edit: (added) sorry to offend those of you who work for Uber or other companies which operate on fantasy funding with no actual profitable business model; sometimes I forget the illusion is so strong and people immersed don't know better.
> venture capital/startup tech scene is arguably the biggest Ponzi scheme in the last 20+ years
Between VC returns, at the top decile (where it outperforms) and broadly (where it simply performs), and the tangible track record of VC-backed companies from SpaceX to Moderna, this comparison is foundationally false.
Well, I'd rather ride in an Uber than a cab and until very recently stay in an Airbnb rather than a hotel. For better or worse, they truly did disrupt those industries for consumers, much as non-customers might complain.
In Netherlands, most (all?) Ubers are actually cabs. And many of my NL Uber rides have thankfully been in the taxi cars which are well maintained Mercedes E or S class cars rather than some dude's 1995 Toyota Corrola.
What Uber did that was great was provide an app where you could call a taxi. How they got ahead was by ignoring regulation which enabled them to provide lower fares and get more business.
But Uber could not exist without traditional cabs. Or at least, something would fill the void of Uber if there were no cabs. There are many places in cities where cabs congregate to wait for passengers. Airports are probably the best example.
People leaving airplanes often need a ride to their final destination. Imagine if everyone leaving the airport had to find a way to get local mobile service and then call an Uber. Eventually you'd end up with Uber drivers recognizing this need and parking themselves near the airport, ignoring calls, and choosing only nearby airport calls.
The taxi industry needed a kick in the ass; there is no question. But all they lacked was a good software company and service. They did not need a fleet of regular dudes who happen to own cars and who get deluded into thinking they can have a real income from driving people around. The news is full of sad stories of people who struggle to get by as Uber drivers.
> For better or worse, they truly did disrupt those industries for consumers, much as non-customers might complain.
Ignoring all the suffering caused by the externalities on rental market caused by Airbnb in very touristic areas (e.g.: Lisbon, Barcelona, etc.), it's great for consumers.
The issue is that none of these externalities are priced in, there is no compensation or fair counterpart for the victims of these companies. And somehow it all seems ok for some people...
>They aren't externalities and shouldn't be priced in.
If people in my city can't afford housing because of AirBnB, it has negative impacts on my city as a whole. This is an externality, which--by definition--is a thing that isn't priced in. An externality is defined as "a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey."
>Should the luddites have been compensated by those who operated mechanical looms?
UBI advocates might say yes; it's the whole idea that once some threshold of automation is passed, you won't have enough consumers to keep the economy running.
> If people in my city can't afford housing because of AirBnB, it has negative impacts on my city as a whole. This is an externality, which--by definition--is a thing that isn't priced in.
That's not an externality - the cost of housing is priced into AirBnB costs. Most "pricing out" happens because cities make it de facto illegal to build new houses, mostly because existing owners are quite happy with the resulting increase in their house prices (and renters don't vote).
I don't remember where it was in the US; maybe it was Cheyanne Wyoming or elsewhere, but it was a nature/mountain area popular with tourists. But their city leaders recognized the problem of tourist vs local housing prices, and they created regulation to ensure that there were enough local houses (affordable to locals).
The problem in popular tourist areas is that more wealthy people can afford to come and stay for short periods and are willing to pay a lot, so owners of houses and apartments can make more money off tourists than locals. Naturally they choose the higher income option and go with Airbnb (for example).
This leads to situations like Aspen, Colorado, where the "local" who work in Aspen have to live 30-60+ minutes away. They cannot afford to live where they work. And it means that in off seasons, these towns are just dead. Many shops close, there's no community, and there's little life. It might as well be a Disneyland which is only open for 8 months of the year.
Amsterdam is a hugely popular tourist area. Granted the atmosphere, architecture, and museums are high value; but sadly I think also the weed focus is high (sorry). Whatever the reason, it means a LOT of tourists. In my small 10 years, I have seen an immense growth. Airbnb and cheap airlines like Ryanair have made it far worse.
But to your point of housing prices, there has also been a lot of Chinese and other foreign property investment in Amsterdam (where the owners never intend to live there). Of course they seek to rent their properties, and short term rentals like Airbnb are generally more profitable in tourist areas. Still, this is not good for the cities or locals, and whether it's beneficial for visitors or not is effectively irrelevant. The city is nothing without happy locals.
I've never really understood this locals-as-utility-monsters perspective. Disneyland is great! We should have more Disneylands, and if a town contributes more to human happiness as a Disneyland than it would as a town, that's something to celebrate.
Long commutes suck (and I'm 100% in favour of land value taxes and legalised homebuilding so that we can build more homes near where the jobs are), but presumably if people are choosing to work in Aspen despite a long commute then the wages or other benefits are worthwhile even without that.
I'm not sure I understand the "monsters" bit... But "if a town contributes more to human happiness as a Disneyland" I can speak to.
The people who live in small towns in the mountains in Colorado do want and need work, but they also want and need to be able to live. When there are some tourists, it helps provide work. And the locals typically do different jobs depending on the season.
But when the area becomes "hot", and remote wealthy people start buying up local property, the locals get priced out. It's essentially gentrification on a small scale.
One could argue that the remote wealthy people deserve to have a good life anywhere they go because they can afford it, but it absolutely comes at a cost to local poor people in the areas they travel to.
With proper regulation, you have hotels and formal tourist stay locations which extract taxes that can be used to help ensure the local workers get a decent life while catering to the visitors. But without proper regulation or planning, the locals get priced out of their own towns.
Realize that low wage workers usually cannot just say, "oh well, it's too expensive here now, so we'll move cross country to find affordable housing and jobs".
Airbnb made it worse, because not only is there the traditional gentrification but now also people who own apartments can seek higher rents from tourists than with locals.
> With proper regulation, you have hotels and formal tourist stay locations which extract taxes that can be used to help ensure the local workers get a decent life while catering to the visitors. But without proper regulation or planning, the locals get priced out of their own towns.
It's actually mostly the opposite. More money coming into a town tends to lift all boats - unless, like many contemporary American towns, building more homes in town is made de facto illegal through regulations and planning.
> Airbnb made it worse, because not only is there the traditional gentrification but now also people who own apartments can seek higher rents from tourists than with locals.
Equally those higher rents are possible because you're making tourism possible for people who probably couldn't afford to travel otherwise. The people staying in (regular apartment) Airbnbs tend to be lower-middle-class at best, and I don't think we should automatically care more about locals than tourists just because they happened to be born somewhere nice.
The sad part is that the most common solution is to simply raise property taxes and subsidize rent for local workers.
This does nothing to address the underlying problem, so worker wages remain low, housing prices increase. As a result, the affordability for locals gets worse, and they become more dependent on on wealth transfers with no end in sight.
Is the cost of housing the people who can no longer afford rent or houses because of AirBnB factored into the cost of AirBnB? No. Therefore, externality.
> Is the cost of housing the people who can no longer afford rent or houses because of AirBnB factored into the cost of AirBnB?
Yes - the market-clearing price of housing reflects all the demand for housing, whether that's being paid by renters, AirBnB, local authorities or whoever.
People often mistake causality for externality, so much so the outside of Economics circles the two are being conflated. Airbnb can cause rent to go up, but that doesn't make it an externality. An externality is an input that you're using up or an output that you're not paying for.
Businesses and individuals can have all kinds of negative effects on others that are not externalities.
Hotels and boarding houses do make an imposition on their surrounding communities. Having taxes and zoning requirements on them to compensate for that is reasonable, and most of AirBNB's "edge" comes from violating those laws.
Noise pollution and additional crime experienced by neighbors from the short-term guests staying at Airbnb locations would qualify as an externality. Higher occupancy in Airbnb locations stresses capacity in pools, parking, gyms and other amenities of the neighborhood or complex is also an externality.
How is it not an externality that local communities in Lisbon, Barcelona, Venice (among many others), who work and used to live in the city, are being pushed out of their own cities purely by landlords renting out their properties on AirBnB instead of offering as housing. Emptying cities is not great for any part of society, not even for the tourists that are the driving force of this.
Venice is a hollow city, there's very few real people anymore in the center. Lisbon has been suffering for years with ever-increasing rents mostly driven by tourism pricing out the local population. There might not be enough dwellings and the housing market is much more complex than this but it's an enormous externality on local populations that they don't get close to fair compensation compared to being kicked out from your home.
How exactly is this not an externality?
Luddites and looms is a very different issue than a necessity as basic as shelter. When you found an analogy related to food or water we can use it instead.
> How is it not an externality that local communities in Lisbon, Barcelona, Venice (among many others), who work and used to live in the city, are being pushed out of their own cities purely by landlords renting out their properties on AirBnB instead of offering as housing.
Increased demand pushing up the price is not an externality.
> Venice is a hollow city, there's very few real people anymore in the center.
And it contributes a lot more to overall human happiness that way.
> Luddites and looms is a very different issue than a necessity as basic as shelter. When you found an analogy related to food or water we can use it instead.
The Luddites were losing their whole livelihood - you can say all they lost was money, but without money they couldn't buy food or water or shelter. (Also, outside of a few climates cloth and clothes are every bit as much a basic human necessity as those)
> And it contributes a lot more to overall human happiness that way.
That's not the metric I look to optimise for, not sure why you believe I should take "overall human happiness" as the ultimate goal, some kind of weird min-maxing of real life, even less when dealing with things such as whole cities and communities, seems quite ideological to me. I really don't buy it.
Any coherent approach to morality min-maxes something. You either do it explicitly or you do it implicitly and make dumb mistakes; the only reason to do the latter is it lets you avoid thinking about the unpleasant parts of your worldview. The view implicitly underpinning "Venice for the Venetians" is "One of this handful of sophisticated upper-middle-class Europeans is morally worth far more than dozens or hundreds of boorish tourists"
> The view implicitly underpinning "Venice for the Venetians" is "One of this handful of sophisticated upper-middle-class Europeans is morally worth far more than dozens or hundreds of boorish tourists"
Not at all, this is an oversimplification trying to equate and analyse a social issue in purely economical terms, which is inhumane and unempathetic.
A place like Venice, or Lisbon, or Barcelona, so on and so forth, are only desirable exactly due to generations of people who lived there and built them up. You are trying to force a pure economical view on this issue which I completely disagree with. It's not that morally the residents of Venice are worth far more than tourists, it's that these places only became somewhere tourists would go due to the collective effort of generations of people who are now being forced out so some tourists can pass by, consume and part away with their money after a week. Leaving nothing else in its wake.
Also, the people being pushed out are not the "upper-middle-class Europeans", those have the means to afford living in the city for longer than the poorer ones who are pushed out first, those poorer ones might be elderly, or low-income workers (such as is in Lisbon the past 5-8 years, and Barcelona maybe for longer) who might have been born and lived in those places until a rich landlord purchased a bunch of flats to rent out for 3-5 months of the year on AirBnB and make a buck. You destroy local communities to allow what? Some economical activity due to tourism and enrichment of a wealthy class.
Yes, morally I believe that's wrong, you are min-maxing the return in purely economical terms to a class of people who in large part had no hand in creating what they are profiting from, indiscriminately hollowing out cities for pure profit-seeking motive with no regards for the social issues that will be created in 10-20 years for those people who are forced out just due to a lack of regulation of AirBnBs.
The issue is not boorish tourists, the issue is allowing the rental market be completely distorted in favour of short-term rentals for a tourism industry that exists solely due to the generational work of whomever built those communities and cities, and who actually live there, day in and day out.
If you don't believe this is fucked up I feel we have very different moral compasses...
> only desirable exactly due to generations of people who lived there and built them up.
Disagree. Much of what makes these cities so desirable was built on the backs of vast numbers of poor peasants in the surrounding countryside, or looted from foreign lands, or generated by travelling merchants, or built by people who were expelled from that city between then and now.
And even if someone does happen to be descended from some distant ancestor who contributed something to creating a place, well, so what? Just as no-one should be punished for the crimes of their ancestors, no-one is entitled to be treated better than others just because their ancestors did something good.
There seems to be a personality type that is willing to entertain wild ideas and ignore "reality". Sometimes that results in actual new possibilities that nobody else was crazy enough to consider before. So there is potential value.
But often it just means ignoring reality and reallocating the resources that are available in favor of a few.
Tesla was a great company because they proved that electric cars could not only succeed but could accel (and accelerate! ... I do love seeing a family car kick a stupid ICE car's ass on the dragstrip.
But they pushed too far, promoting self driving at the cost of lives.
And for the anti-government people out there, Tesla would not exist had it not been for government funding.
Even so, the guy at the helm had enough chutzpah to believe his own crazy big ideas and follow through with them. Unfortunately, he followed through well beyond the real successes and far into lunatic territory.
I don't know what the actual economic term is (or if there is one), but what I am referring to is when a loss-running firm undercuts the competition until the competition no longer exists, and then because they have a monopoly, charges more and/or delivers a worse service than previously.
Musk was a visionary, but a visionary without funding is nothing. His funding for Tesla came from the US taxpayers in the amount of $451 million.
This turns out to have been a good investment for the US and Tesla and arguably the world in general, because it proved the capability of electric cars (as well as their market desirability).
But make no mistake, without that investment and the success of Tesla, Musk would not have a fraction of the "success" he appears to have now.
SpaceX is something to appreciate as well, but as they say - it takes money to make money. Building a space company is even more crazy than an electric car company. So to do that, you need a TON of money or a lot of powerful investors (or both).
Musk should have sat quietly with his successes in Tesla and SpaceX, but instead it seems he has bighead syndrome. He believes his wealth and success means that he is an expert in everything.
> His funding for Tesla came from the US taxpayers in the amount of $451 million.
This is wrong. Tesla was founded in 2003. Around 2009 they received a loan from the DoE for $451 million to build the Model S but this money they only started getting around 2011 if I remember correctly.
By that point Musk had already put in 90million of his own money plus some more money from friends.
The government just happened to have a program for this and Tesla took advantage. Tesla re-paid this loan in full ahead of schedule, so the DoE made a nice profit on this.
And btw, the same program made much bigger loans out for GM/Ford and they still have not paid it it back.
> But make no mistake, without that investment and the success of Tesla, Musk would not have a fraction of the "success" he appears to have now.
I don't think this is accurate. By that time Tesla had a number of funding option. It might have cost stock payers more or Tesla would have to pay more interest. Tesla might have been slowed down slightly but I don't think it would have changed as much as you suggest.
> SpaceX is something to appreciate as well, but as they say - it takes money to make money. Building a space company is even more crazy than an electric car company. So to do that, you need a TON of money or a lot of powerful investors (or both).
SpaceX was almost fully self funded. Musk initially wanted to invest 70 million $ but had to invest an additional 20 million $. He got some additional investment but not that much.
Until the received the COTS program they had very little ability to raise cash.
> Musk should have sat quietly with his successes in Tesla and SpaceX, but instead it seems he has bighead syndrome. He believes his wealth and success means that he is an expert in everything.
I think he believes he can become an expert in everything if he focuses on it.
> This turns out to have been a good investment for the US and Tesla and arguably the world in general, because it proved the capability of electric cars (as well as their market desirability).
Did the taxpayers get shares for this investment? If not, I fail to see this as an investment … it would be a gift to Tesla shareholders.
I think/hope the crime companies are a minority. I wish the industry would do more to root them out, but I guess there's no profit motive in it. I've never understood why the government didn't come down hard on Uber/AirBNB/etc. and those who invested in them. (Isn't this why RICO exists?)
The venture capital investment rounds are absolutely Ponzis.
Every round is for a higher valuation, and so every investory knows they are paying more for the same number of shares as a previous round. But they believe that a future scenario (investment round) will increase the valuation such that their investment will become profitable.
Show me _any_ startup where an investment round was at a lower valuation than the previous round. Unless you can do that, and show that the company was currently profitable, then it is a Ponzi scheme.
Why would an investor invest in something that has no profit? They would only do that if they believed that in the future there would be enough profit to increase their value given the time cost.
If you look at Uber, the amount of investment, and the 8+ years of zero profit, the only conclusion you could reach is that each round believed that there would be a subsequent round that would increase valuation and provide a profit for them.
Offering drivers generous bonuses to sign-up, encouraging them to take on loans to buy cars (even extending credit - as they did here in India) - and then pulling it all away, leaving poorly educated drivers with loans they can’t service anymore - that’s the definition of recruitment.
Uber, AirBnb, Door dash etc. have added tremendous value to my life and society in general. That’s not a Ponzi scheme. At worst you could call it a social wealth redistribution program of sorts.
Look at Uber's funding rounds. They have had round after round, and each round increases the valuation such that previous rounds' investors make a "profit" (their stock value increases). Yet, Uber isn't making a profit.
Airbnb did the same on a much smaller scale.
Ignoring the investment round topics of both companies, they also both made their actual financial progress by blatantly ignoring local laws.
Airbnb walked right past hotel laws even though their hosts were clearly party to those laws. Uber drove right past the local taxi laws.
On the human side, life got far worse for people living in cities where Airbnb became popular. I lived in Amsterdam for a few years as Airbnb was growing, and very rapidly you started to see people buying apartment just to rent out for tourists through Airbnb. That pushed apartment rates up, and it added a lot of really shitty short term visitors to the neighborhoods.
Every tourist destination has confronted this problem, and now many laws exist specifically because of Airbnb. I would not tout this as a "success".
And in some parts of the world, the ability to sign up and become an Uber driver has resulted in harm to passengers. Prior to Uber, many of these places had regulations which made it difficult enough to become a commercial driver that no driver would risk their business for the opportunity to rob or rape a passenger.
If you take out all the crime (unlicensed taxis/hotels) and subsidies, is there any value left? I never used them but I've seen a lot of people saying that e.g. airbnb isn't actually any cheaper or easier than a hotel nowadays.
Once in a while you can find a good Airbnb which you would not find an equal to in the many hotel apps. But over time, more and more legitimate 'homestay' rooms can be listed on real hotel apps.
I'm a hotels.com or booking or agoda user, and I've booked dozens of stays in the last few years. My partner has some hippie fetish which leads her to start with Airbnb in searches for stays. 9 times out of 10, the Airbnb opportunities are far less than they appear to be. Less often, the hotel options are.
The ancient original Airbnb idea was good - someone comes and stays at your place (while you are there), and you make a little extra money while they get a decent place to stay. But unsurprisingly that got corrupted into maximizing profits. Airbnb also recognized early that they could not make $$$ with their original idea, so they pivoted to the broader "take my whole apartment" concept which is the current norm.
You mean, the fucked housing and rental markets? Or perhaps you were referring to the rent seeking on the restaurant industry? Or do you mean the "contractors" who subsidize Uber with their cars? Or was it the taxi drivers whose livelihoods were destroyed?
TFA illustrates that the venture capital/startup tech scene is arguably the biggest Ponzi scheme in the last 20+ years.
Even ignoring the financial losses, most of these companies have operated in a gray or fully illegal manner. So imagine that the financials don't work and the legalities don't work... and yet this is our HN universe.
Edit: (added) sorry to offend those of you who work for Uber or other companies which operate on fantasy funding with no actual profitable business model; sometimes I forget the illusion is so strong and people immersed don't know better.