VC (at that scale) are just a pipe for the Fed's cheap money, ie. we all subsidize your rides. Strangely, it does seem to result in overall improvement to the society and economy.
The plain truth is that inflation is low. And inflation has been consistently low for years.
Sure, the Fed rapidly expanded the base money supply from 2008 to 2014. But the reason they expanded the money supply is that demand for dollars (a safe asset) had skyrocketed. Increasing the supply of money was done to match rising demand for money, in order to keep prices stable. Without that new money, we would have faced deflation (see Japan and Europe) and probably even lower interest rates (again, see Japan and Europe).
Monetary policy and monetary theory are complicated. You can argue that inflation is mismeasured somehow. You can argue that people are irrational. You can argue that an increasing money supply will have disparate impacts on industries (e.g., affecting VCs differently than the aggregate economy). But all of these arguments are complicated, subtle, and second-order. It's not enough to say that a rising money supply causes cheap money which causes increased investment. By itself, the logic doesn't hold.
Obviously compared to a hypothetical higher Fed rate, but that's not much of an argument.
Fed keeps the interest rate low. That means low borrowing costs for those that can borrow, but also lower yields on debt instruments. Doing so keeps money in equity markets where VCs obviously play, because the risk-adjusted returns are favorable to investing in debt. At the same time, it's doubtful that the sorts of businesses that VCs back could raise debt funding at reasonable rates (they're not borrowing at the Fed overnight rate, nor do they have any real assets to collateralize the debt), so VCs come in and buy equity instead.
If there's some path to which the Fed is printing money and directly washing it through VCs, I'd love to hear how that works. To me it's just more of a market dynamic with low interest rates (which the Fed drives).
The Federal Reserve has kept interest rates artificially low through its programs, in order to nudge economic growth. In turn, companies have used these low interest rates to borrow vast sums of money. Most have spent it on share repurchases but others have used it to fund acquisitions to chase higher growth. It is in this environment that VC money has thrived, funding candidates for future acquisitions or providing money to large companies (like Uber) to continue growing their business.
I am by no means a professional economist. I am just trying to interpret the current situation with the little bit of knowledge I have. I welcome other opinions telling me I am wrong and why.
The low federal funds rate (federal reserve interest rate) results in new Treasury bills being issued at very low interest rates. Large banking institutions must maintain certain capital reserves, which they hold in these TBills, and the low interest rates mean the banks earn tiny returns on the capital.
Banks, being commercial ventures, are expected to return a certain profit. The low interest rates from the TBills are too low of a rate, and won't cover inflation or operating expenses. So banks must chase riskier investments (in general, risky investments return higher interest rates) with their remaining capital to return high enough profits.
The riskiest investments are startups. Very high returns, if a startup succeeds and exits in an IPO, but failure is more common. Banks don't invest in startups though, they are too risky, but banks end up investing in all the less risky assets available. This demand for "medium" risky assets (sovereign debt, corporate or municipal bonds) drives other investors out of the market, they can't compete with the volume banks can purchase at, and are forced to chase the even riskier assets banks won't touch.
So low rates -> low interest tbills -> banks chasing risky assets -> investors chasing startups
http://thehill.com/policy/finance/337790-fed-raises-rates-fo...
and
https://www.nytimes.com/2017/09/20/business/economy/fed-bond...
So the current Fed policy is not in fact indirectly subsidizing ride sharing.
(Video) https://www.bloomberg.com/news/videos/2017-09-27/what-yellen...
These rates are moved slowly and incrementally. You can't just raise the rate 3%.
That video in your link says nothing about keeping rates low, its about the nature of inflation.
Now, you can argue that that is in part because a rapid increase to non-low rates would be disruptive given the status quo ante, but that's a justification for keeping rates low, not a rebuttal to the claim that that is what the Fed is doing.
Lyft isn't public transportation, and there was an article a few days ago which demonstrated that, in some cities, Uber and Lyft were causing a net decrease in public transportation use.
Darned consumer choice getting in the way of multi-billion dollar political handouts again [1].
[1] https://www.utrc2.org/publications/final-second-avenue-subwa...
I wasn't even advocating public transportation necessarily - just pointing out that Lyft doesn't qualify as public transportation.
But, since you're bringing it up, I'll point out that glibly referring to the Second Ave line as a "political handout" is reductive. The Second Ave project is[0] a disaster for a whole lot of reasons, not just "political handouts", and it's also not at all representative of public transportation either in NYC or in general.
[0] not was - is... Phase II and III have still not happened
The beauty of this scheme is that the quasi fascist entities are "private" and thus not subjects to laws governing "public" platforms: "it's a private company and they can refuse service to whomever they want."