Monday, October 27, 2008

George Gilder on why we should be optimistic about the economy

George Gilder can always be counted upon for a positive view of just about anything, but particularly on the economy. Here he is once again explaining why things aren't as bad as they seem.

Because the U.S. remains
the world's largest economy and still leads the world in business and
technological creativity, the current crisis is mostly confined to
boondoggles of finance. It will pass rapidly and evolve into a new
boom. Emerging is a parallel unregulated financial system based on
entrepreneurial creativity and invention.

At the heart of this multitrillion-dollar engine of growth are 741
venture capital firms that traffic in creativity as a business. These
firms command $257 billion under management and have launched companies
generating $2 trillion-plus in revenues. Complementing the venturers
are some 10,000 hedge funds and private equity players, with upwards of
$2 trillion under management. Like everything else, the hedge funds are
down this year. But collectively losing 12%, they have succeeded in
preserving the bulk of their capital. More important, these funds
represent a vast laboratory of capitalist ferment and experimentation
beyond the heavy hand of politics. (Full disclosure: I run several
hedge funds and have financial interests in two companies discussed
below--Seldon Technologies and iCrete.)

At some 0.2% of U.S. GDP, the amount of venture capital is tiny
compared with the oceans of debt and money commanded by other
institutions. But venture funds are fertile and catalytic. Data
gathered and tracked by Thomson Financial shows that the revenues of
companies created by the venture industry generated 17.6% of U.S. GDP
in 2006. For every venture dollar invested between 1970 and 2001,
venture-backed companies produced $7.90 in U.S. revenue in 2006.

1 comment:

Lee said...

I have always considered Gilder to be a very bright man, and an extraordinary critic of conventional wisdom. We had a pretty nasty recession in the early 1980s, and he came out with "Wealth and Poverty", in which he brazenly suggested the greatest days of our economy were in front of us. And then came the booms of the 1980s and 1990s.

I hope he's right this time, too.