Well, there goes the neighborhood

Welcome to Cautious Optimism, a newsletter on tech, business, and power.

• 📈 Trending Up: Self-harm … crypto liquidations … Deep Research from OpenAI … corruption … SoftBank-OpenAI … European inflation …

• 📉 Trending Down: The stock market … corporate spine/a free market … governance by experts … Shein … Temu … real estate in China …

From before the weekend:

• Elon Musk and His Allies Storm Into Washington and Race to Reshape It [NYT, January 29th]

• Trump and Elon Musk Just Pulled Off Another Purge—and It’s a Scary One [New Republic, January 31st]

From the weekend through this morning:

• Elon Musk’s Team Now Has Access to Treasury’s Payments System [NYT, February 1st]

• Trump slaps tariffs on Canada, Mexico, China, risking higher prices for U.S. consumers [NBC, February 1st]]

• Trump Kicks Aside Congress With Sweeping Claims of Presidential Power [WSJ, February 2nd]

• Thousands of U.S. Government Web Pages Have Been Taken Down Since Friday [NYT, February 2nd]

• Musk says Trump has "agreed" to shut USAID down [Axios, February 3rd]

And then to cap off the latest economic news, counter-tariffs from Canada, China, and Mexico are brewing, the stock market is a mess, and it seems that the United States is set to tariff Europe next.

• That last bit after the United States has publicly agitated for Denmark to surrender a large portion of its territory to the United States. With friends like us, who needs enemies?

• Why are we fighting our allies instead of fighting our enemies?

It’s tough to put into words how quickly the national government is being taken apart. The above links and notes are merely a taste of what came over the weekend.

Founder mode does not mesh with how the United States’ government is set up

Past allowing a bunch of unelected folks access to the critical arteries of government, there’s a major crisis gathering in Washington about who controls the purse, be it Congress or the President.

The question of whether the legislative or executive branch holds spending control is no small point. By dividing up power at the Federal level, the national drafters set the three branches of government as checks to one another.

The idea was a system where no single branch of government could rule, forcing the President and Congress to compromise while the Judiciary called balls and strikes to ensure that both stayed in their respective constitutional lanes.

This is where startups enter the picture, and the current cheering from technology circles at the hack-and-slash of the Federal apparatus comes into focus. Let me explain:

• In both venture and startup circles, founders are held sacrosanct. This is because the act of willing a company into existence, building something that the market wants, and quickly scaling the enterprise against incumbents is hard. Very hard. Most people fail. Some succeed, and so long as venture folks back the successful companies too, then the money works out and everyone wins.

• Because it is so hard to build a market-changing startup to maturity and exit, founders are given lots of room to pursue their vision and hold onto power. This has taken the form of super-voting shares to ensure founder control even after an IPO, venture funds being incredibly hesitant to remove founders from companies due to the potential of appearing non-founder-friendly, and even legal battles over who is, and who is not, a founder.

• But it’s more than just voting power. Last year, an essay discussing founder mode went viral in startup circles, arguing that instead of distributing authority to deputies and letting them work, founders should stay in the decision-making loop for a large portion of their business and keep a hand at the tiller even after they have thousands of employees.

• The gist in all this is that founders and their venture backers are big on constraining control in the hands of a select few (themselves), and limiting the influence of those who do not hold the reins of power.

In a business context, this can work. There are myriad examples. There are even more examples of the method failing, but that’s just startups.

Now, contrast the founder mode concept to government. In a system where the President (founder and CEO equivalent) is not supreme, compromise must be constantly sought, other people listened to, rules followed that the President did not set, and other loci of authority respected.

Boo, hiss, goes the startup crowd.

The startup folks are pretty good at making money, thanks I would allow in part to founder mode. But our government was set up to avoid singular leaders moving quickly and without check. Government is, therefore, the opposite of a startup in how it functions. And much like how startups have made a lot of money (their goal), the government has mostly maintained democratic norms, held to its core principles, and allowed the business folks to do as they will under its original system and remit (its goal).

• Notably, it’s very patriotic to be in favor of separated powers in our central government because that is how our nation was designed by its founders. Sadly as they are not currently appearing on the safe-space venture podcast circuit, they don’t have a lot of clout over on X.

So, what to make of Elon Musk taking over government and running it like he did Twitter? It’s not good.

What we’re seeing is not even the elected President going off the rails and working to weaken Congress and embolden the Executive Branch. No, an unelected bureaucrat is doing the hatchet work, and no one really knows what he’s up to unless he tweets about it. This is not even having an anointed king; this is being run by the king’s vizier.

As a complete aside, has anyone seen The Two Towers recently?

I’ll leave the discussion of USAID, Treasury payment systems, the importance of respecting national secrets and clearance thereof, and the like to the experts in those areas. But what I can tell you is that the current folks who run the government spent a portion of the weekend undermining national soft power while also antagonizing our allies. As a result, the nation is now more isolated than before, both economically and politically, at a time when despots run a number of global-critical nations. I find that troubling.

Anyway, what’s the stock market doing?

Puking. The DJIA is set to open around 600 points lower as I write to you. The Nasdaq is set to drop 1.75%. And there’s other carnage out there:

The market really didn’t think that Trump would put blanket tariffs on critical trading partners; else it would have been priced in. It wasn’t.

For startups and the business community, this is pretty bad news. Not only are the value of startup exit comps in decline, but business uncertainty just ratcheted higher. That means that companies looking at an IPO now might wait a quarter or two to see what happens both domestically and globally.

And when interest rates aren’t coming down due to concerns about sticky inflation, and the government seems hellbent on raising consumer prices through import taxes, you aren’t heading for a situation in which dealmaking will get cheaper or easier. The opposite, I’d reckon.

If you wake up in the morning afire with the goal of gutting the national apparatus, you had one hell of a weekend. If you, like myself, would rather our government move cautiously so as to avoid too much centralization of authority, you had a bad weekend.

Just don’t forget that what we call a founder in startup nomenclature, we call a king in political language. And the United States is historically skeptical of monarchy.

What else?

OpenAI dropped something it calls Deep Research over the weekend. It’s similar to what Google has on offer. (The Information has new reporting on how quickly OpenAI is growing, by the by, if you were curious. The answer is very.)

And more, I presume. I am off to prep today’s This Week in Startups docket. Onward, friends. — Alex