Thomas Friedman this weekend wrote a column asking for more stimulus money to go to start-ups rather than bailout failing car companies and banks (again).  Originally I was just go to praise and agree with Friedman until some bloggers came out criticizing his position.  So now I actually have to be persuasive.

Friedman’s argument is we need to stop giving public money to companies that screwed themselves up.  GM and Ford and begging for another $20 billion.  Friedman says let them fail and rightfully so. GM and Ford spent billions lobbying Congress to avoid fuel regulation and letting Toyoda out-innovate them.  After laying of 50,000 employees, these companies want more public money (on top of the $15 billion they already got) for no other reason that avoid economic catastrophe in Michigan.  But why are we rewarding companies that were run so badly?

Silicon Alley Insider says most start-ups are bad and investing them will lead to misallocation of resources.  My question – how much worse than GM and Ford can than these start-ups be?  These massive firms are laying off tens of thousands with little plan on how to fix themselves.  Start-ups, even likely to fail, provide widespread job creation, at least short term,  and creativity and experimentation leading to long term benefits in technology, innovation, and new business models.  Friedman points out, Intel and Google both grew out of recessions – harder economic times make start-ups more grateful for the opportunity and aggressive to succeed.  There’s less a flood of new companies, allowing the cream to truly rise to the top.

Stimulus money shouldn’t hand out money to just anybody.  It should function just like a venture capital firm (with the ability to offer tax credits on top of grants and subsidies).  Money rewards smart business plans that serve the public good – by creating jobs and long term benefits, and even failures can be learned from.  And just like any venture firm, we’re banking on one or two companies actually taking off and paying back the taxpayers with equity.  When do we expect GM, Ford, and all the banks to pay us back?

Risk alone should never be a reason not to do something.  Even failure has benefits; failure is also why we diversify so no loss alone is catastrophic. This means still helping larger companies that provide a tangible plan for how to succeed.  Fixing 10-20 years of bad management can be just as hard as starting a business from scratch – just think about how many start-ups could be built with $20 billion.  This is what risk-benefit analysis is all about.  We are not comparing our risk to benefit.  Rewarding smart and innovative businesses sounds like a good risk to make.

It’s a sad time to try to put a silver lining on job losses, especially when many of my friends are accepting unemployment for the first time.  But there is a silver lining for our economy few look at.  New, better jobs.

Slate posted a list of all the industries that have been hurt or put out of business because of improving technology. This includes typewriters to turntables to toll collectors (replaced by E-ZPass) and film cameras.  They don’t even mention horse and buggy.  Agriculture is the best example. Once the dominant economic force in this country, now agriculture is less than one percent of its GDP.

The economy keeps growing because new industries create new jobs, and often these new jobs are better. They require more skill and pay more money, lifting the living conditions of the nation as a whole.  This is why loosing toll workers and bank tellers to automatic systems isn’t a bad thing. It’s an opportunity.

Technology helps free human labor for the jobs technology can’t do.  As technology improves, it can replace human labor more and more.  Humans used to have to ride their horse or bike themselves, but soon let automobiles do the hard work. We used to do hard math on paper until calculators and computers did the work for us. This doesn’t make us lazy or stupid or worthless. It lets us move on to the next job.

Technology can’t problem solve or think on its feet like humans can (not yet at least).  More people can now work as problem solvers, as nurses, technicians, or repairmen for all our gadgets. These jobs require training, so there’s also trainers to hire. Because of the qualifications, these jobs pay more than being the toll worker or bank teller.  That is a good thing.

Thomas Friedman showed in his book The World is Flat why outsourcing isn’t the bad word, but a benefit to the United States and the world. China, India, and other countries take the jobs we don’t want. They take simple accounting, doctoral, or easy-to-do customer service jobs that Americans want higher wages for but don’t enjoy doing. To an Indian coming out of school, these outsourced jobs are the ticket out of poverty. They are fought over by thousands of applicants for a fraction of the pay Americans get.  When they get the job, they are excited and motivated because the job is so prestigious.  They make more money than they would have without the outsourced job, work more productively, saving companies money.  These workers then use their new middle-class wages to buy more goods (some American even) and educate their children allowing the next-generation to have more.  This is how a country builds wealth.

Watching entire industries crash is frustrating, but inevitable.  The U.S. automotive industry wants a bailout for their lack of innovation and market success, but what about newspapers and the recording industry. Do they get bailouts too? The United States needs to encourage the next-generation of technology to flourish so it can replace these jobs with more, better jobs increasing our economy and wealth.  There is a silver lining to even this economic collapse. It gives the nation and world a chance to learn from mistakes (however unlikely) and build a stronger nation with better jobs tomorrow. Now accepting applications.

John Grapper of the Financial Times points out (registration required) U.S.’s lagging infrastructure from worn out roads to spotty cell coverage and poor broadband penetration.

If anyone doubts the problems of US infrastructure, I suggest he or she take a flight to John F. Kennedy airport (braving the landing delay), ride a taxi on the pot-holed and congested Brooklyn-Queens Expressway and try to make a mobile phone call en route.

That should settle it, particularly for those who have experienced smooth flights, train rides and road travel, and speedy communications networks in, say, Beijing, Paris or Abu Dhabi recently. The gulf in public and private infrastructure is, to put it mildly, alarming for US competitiveness.

Throw this on the pile with healthcare and green technology and it’s scary to think how the richest country in the world can keep calling itself that.  Creative Class Exchange and Economist’s View echo Grapper’s concerns. Thomas Friedman wrote in The World is Flat how he traveled up and down Japan on the bullet train, easily sending emails all along the way.  I compare London’s amazing subways with a new train every 2-3 minutes to Boston’s horrendous 10-20 minute waits, even during peak hours (and don’t get me started on the $20 billion Big Dig).

This faulting infrastructure costs U.S. money and productivity.  We can’t get municipal wireless into major cities and the FCC would rather limit cable companies than let them spread broadband around the country.

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Environmental activists threw pies at New York Times columnist Thomas Friedman while he was speaking about energy at Brown University Tuesday. Friedman spoke about the need for green and sustainable technology (his Power of Green article is a must read), believing developing green technology will make America “stronger, more innovative, [and] more energy secure.”

Protestors threw two green-colored pies at Friedman at the start of his speech, though he managed to dodge most of the dessert. A flier circulated by the protestors said:

“Thomas Friedman deserves a pie in the face because of his sickeningly cheery applaud for free market capitalism’s conquest of the planet, for telling the world that the free market and techno fixes can save us from climate change.”

I want to know what the protestor’s alternative is to Friedman’s suggestions. Alterative power sources are inefficient and expensive still. Even as oil jumps in price, coal remains cheap but dirty and developing nations like China just want power, at the cheapest price. In the Power of Green, Friedman’s argument for market forces is the need for green technology at the “China price,” namely at the price China currently pays for coal plants. China could make cleaner coal plants, but they cost 40 percent more to build and are 20 percent less efficient. And when they’re building two 500-megawatt power plants a week, they need every drop of power they can get.

It’s not that China, India, or America don’t want to become green (well, certain oil companies might be against it). The problem is we don’t want to sacrifice. China estimates pollution costs its economy $67 billion, so fixing the problem is in the nation’s interest, but it’s just too expensive - the technology isn’t there yet. Friedman wants the government, especially the American government, to take an active role in developing green technology at the China price, creating something like the Manhattan Project but around green offering a market incentive to get companies and technologists working on the climate crisis.

Friedman regularly promotes free market ideals, recognizing benefits from outsourcing and free trade helping build up developing countries to match the developed world faster. I agree oil companies, who are making record profits, have little incentive to invest in new technology - its likely we’ll have enough oil during current oil executive’s lifetimes (even if it costs $10 a gallon). With government leadership and incentive, in the form of tax breaks and research grants, can spurn a new green industry that can literally save the planet.

But throwing pies is totally rational. After all, it’s not like we’re also in the middle of a food crisis.

Update: April 24th, 2008, 2:50 p.m. - Here’s a shaky video of the pieing.