Disruption
The second-order impact of DOGE may dwarf the immediate changes to government.
Disruption
Someone once said to me that they loved new legislation and new government regulation because it created commercial opportunities. You could build a business around them. Perhaps it was software for compliance, for example. Or, a company could take advantage of a particular defense procurement requirement. People build whole corporations around catering to government bureaucracy.
It's not easy, either. Here’s a clip of an interview with Joe Lonsdale describing the early days of Palantir, the large government contractor.
““Everyone treated me like shit and I had to fly the cheapest ticket on JetBlue twice a week back and forth to DC to try to convince them of something for 3 years.”
It’s a “very long, very painful journey.”
You sweat for years to get your first contract. Hopefully, landing and expanding is easier once you’re inside. And the presumption is that the stickiness of bureaucracy is your friend.
People have built entire lives around the persistence of these rules.
If DOGE is successful, it will have two implications.
One, there are going to be a lot of businesses that blow up. They don’t need to exist. We’re not going to know what those are.
Two, there are going to be massive opportunities created as the seismic consequences of the deregulatory movement become clear.
The uncertainty as to whether DOGE can make things happen or whether they are just another well-intentioned project with zero impact is part of the tension.
There will be winners and there will be losers.
Palantir stock has doubled since the election.
What’s more, there will be winners and losers all over the world as this phenomenon cascades in what we’ve written about recently as “Better-thy-Neighbor” policy. Countries will have to (and will want to) deregulate.
This change will be painful. The losers here will fight tooth and nail. Not least among them will be the big defense powerhouses like Lockheed Martin and Boeing, unless they can become more nimble. And maybe they can! Perhaps this disruption leads to a breakup of Boeing in which the defense business splits off from the civilian and space lines.
It’s not just government. Imagine what it means for the energy sector. Who wins? Who loses? What happens if we permit nuclear power development?
Will startups be more nimble and ready to respond? Will the large players roll them up quickly?
The point here is that the disruption in government will have ancillary consequences in the private sector. This second order effect will be investable.
Happy New Year and all the best for 2025. Thank you for reading.