Little of the so-called capitalist world, including and especially the US, operates on free-market principles. Historically, the biggest US recipients of corporate welfare are agriculture, telecoms, and petroleum, though banking will catch up in a couple years at this rate. Only small businesses operate in something resembling a free market, though on the disadvantaged end of that spectrum.

The business cycle precedents will hold for tiny, IP-intensive, capital-free, credit-free startups, i.e. dotcoms. We’ll be hiding at the signal-noise threshold by the thousands, riding Moore’s Law into cloud-hosted productivity gains.

Extremely well-written and superbly argued post. That said, things still fall apart if the current crisis lies outside normal business and, especially, VC investment cycles. I may be spending too much time listening to the likes of Nouriel Roubini, but what worries me is not only the global dimension of the current crisis but also the more inarticulate sense I have that financial systems are backed up against a wall worldwide.

We have several further rounds of write-downs to come, stemming from further transparency in subprime, credit card write-offs, and those looming CDS and hedge fund losses (to wit, what will AIG tell us it spent its rescue package on?). And these will reverberate through developed and emerging markets and economies. It’s not clear international coordination will succeed in pre-empting further panic as leverage is unwound.

There just seems, and I’m predisposed to see a sooty lining, to be a sense that we have way overspent on highly-leveraged credit. And to make matters worse, capitalism itself has to find a way to work the planet onto the balance sheet if it is to continue operating on free market principles.

Historical cycles are valid as long as the trend holds — I’m worried by signs that we might break the trendlines this time around. The sheer amount of uncertainty that would introduce into existing predictive and operating business models is hard to fathom.

cheers,
adrian