I have heard from various quarters recently that one important, stimulative thing the government should do is to adjust the tax code so that investors can be persuaded to back small businesses.

The idea that the government has to do so represents a failure of the venture capital industry, as eloquently described by Umair Haque, director of the Havas Media Lab:

Imitation – not innovation – is woven into the fabric of the 20th century venture economy. Why are venture investors failing to seed new industries and markets? Because venture funds invest not just in all the wrong places, ignoring clear supply and demand signals – but, worse, in all the wrong and same places. Where one pioneer invests, a slew of imitators follow, and so tremendous amounts of cash are poured into the same business design or market space – ad exchanges, social networks, and blogging/vlogging platforms to name just a few recent fads. That striking homogeneity reflects an almost total lack of strategic imagination by venture players.

Sound familiar? It should: it’s just like any other lazy, moribund, oligopolistic industry bereft of the incentive for innovation. Except in the case of venture capital, the dulling of incentives causes a persistent structural misallocation of venture capital itself.

There are any number of lessons that we ought to be learning from the collapse of American capitalism, circa September 2008. There is the point made by Haque, that the love affair with instant gratification that has taken over the allocation of capital is a major contributing factor to the mess.

There is also the minor matter of the way the federal government has enabled that particular addiction, thanks to being (as Haque describes both Wall Street and venture capitalists) “[l]eft unmonitored, thinly regulated, opaque, unaccountable, myopic, and cronied to the max … .”

Rather than creating incentives for innovation in technologies, in business models and business structures, Congress has chosen to cede economic policy to well-connected buddies in moribund but well-heeled industries.

Instead of encouraging investors to take us into tomorrow, Congress has chosen to reward the pursuit of short-term returns on investments in the last century’s titans.

That is one important reason why microbusinesses are consistently ignored. And it is why there is no real reason to think that tax goodies for investors will help very much.

It’s cute and quaint to think of microbusinesses as nothing more than the “Mom & Pop” restaurant down the street. And many of them are precisely that. But the fact is that microbusinesses are also developing new business models, new ways of structuring businesses, new products and services, and new ways to add value to existing products and services.

Microbusinesses are cutting edge; they are leading the way into the future. If American capitalism were working properly, these should be the very last firms that have trouble accessing capital.

The fact that they are, instead, the first is yet another indication of the price we all pay for a million American dreams deferred.