Marc Andreessen on what everybody gets wrong about the US economy
Source: Paul Sakuma

Venture capitalist Marc Andreessen gave a long interview that Vox published Wednesday about artificial intelligence, but the most interesting part was actually about something different: the bifurcated US economy.

From Silicon Valley, the economy looks great. Tech wages are plump, housing prices are skyrocketing, and construction cranes are everywhere, while the five most valuable companies in the US are related to tech: Apple, Alphabet (Google), Microsoft, Amazon, and Facebook.

But in much of the country, wages are stagnant, good jobs are scarce, and people's paychecks are being eaten up by skyrocketing prices.

Overall, growth is sluggish and interest rates have been close to zero for eight years. What's going on?

Andreessen argues that there are actually two economies side by side, and the poorly performing one is dragging everything else down.

Prices are dropping rapidly in some industries: consumer electronics and computer gear, food, and media.

People look at these changes and blame innovation for killing jobs or shipping them overseas and then blame the economy's sluggishness on those lost jobs.

But as Andreessen pointed out, prices are rising rapidly in other sectors: mainly healthcare and education. He believes these rising prices cancel out the benefits of technological innovation, making the entire economy sluggish.


college graduatesPaul Sakuma
Why are these industries so slow to innovate? Because, as he puts it:

"You've got monopolies, oligopolies, cartels, government-run markets, price-fixing — all the dysfunctional behaviors that lead to rapid increase in prices. The government injects more subsidies into those markets, but because those are inelastic markets, the subsidies just cause prices to go up further, which is what is happening with higher education."

So in Andreessen's view, the answer is to set markets free — by eliminating government-enabled distortions on one hand and busting up monopolies or oligopolies on the other. Then, he said, lowered prices should lift all boats.

He also disagrees that increased automation will kill jobs. Rather, he thinks it will increase the need for people to provide higher levels of service than the machines can do. His evidence: There are more retail clerks and bank tellers, even as those industries get more automated.