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I couldn't agree more, Paul Graham's article really was, as Kevin Rose put it, "spot on." Scrappy startups based off honest, truly valuable ideas benefit from the lack of competition and otherwise overwhelming noise that the masses of companies forming during economically favorable times produce. It's definitely harder to start a company during a recession, but struggling and working through hardship builds strength.
I agree too, but it only becomes true when people stop believing it. Until then, you're still going to see lots of startups fragmenting the early-adopter market. You need to wait until everyone's so depressed by the real economy that they can't even think of starting a startup, and then it's a good time to start one.

So everybody - it's a terrible time to start a startup. Go home and get jobs, or failing that, move into your mom's basement and play video games. You'll never see another boom like 1995-2000, or 2004-2007. Become a corporate whore and don't launch new things. It's just not worth it. ;-)

He made a lot of sense, except for one point. He said, "if you're not a developer, go out and find one on Elance for $15-20/hr."

Sure, this could work out, but the chances of an arrangement leading to a successful startup are pretty low. He got very lucky.

I wouldn't say lucky. I'd say dishonest.
Well, you know best ;)
Well, you know - I liked Kevin. We were friends and collaborators and I think in the first half of 2005 we did great stuff. If I had to say who built digg into what it is, it was really a collaboration between Kevin, Daniel Burka and me, with valuable support from Ron Gorodetsky. By the time of the series A we had huge, huge momentum.

It was in a way sort of like the Beatles, just the right people put together mostly by accident and we worked magic. Then Yoko (Jay Adelson) came along, and the ego stroking began. Kevin was a genius, I was just a "contract programmer."

And I'd say the results speak for themselves. Digg is stagnant and boring. Almost every feature on there was actually created in that early 2005 timeframe, though obviously greatly refined since then.

I'm trying to move on, involved in a great project again, with great people, and I regret saying nasty stuff or sounding bitter, but sometimes I'm reminded how much fun it was, and how easily it was turned to not-fun.

"I'm trying to move on, involved in a great project again" What's next?
Launch in Jan or early Feb. Can't really talk about. Except its for a BigCo, we have a really small (and kickass!) group, but working with bureaucracy is challenging sometimes.

Hired Engineer no. 2 from digg too ;-)

finding good people is hard, very hard. Finding good people for below market wages is even harder. It's possible, though. It is much easier if you have the skill set you are looking for. I bet that if you just hire blind and fire the people who don't work out, you will end up paying for a lot of unproductive hours.

It also adds a sense of urgency. The thing is, once these good people working for below market wages get some good experience (working for you) they will get jobs that pay market rates. This has happened to me many times. Expect and understand this. Don't feel betrayed because someone with little or no equity abandons you for several times as much money. Be honest, you would do the same. Give good references. The best resource I've found for finding people who are both skilled and poor is other people who are skilled and poor.

I'd actually like some advice on how to handle equity in this case. I've always done handshake kind of deals, which is asking for trouble if you become successful. If the company does succeed, it seems fair to me to give some equity to the people who were working for below market wages. (now, personally, I still think I should have more equity, because I was both the investor and one of the workers.)

As with a lot of such things, it is only true if a lot of people don't believe it is true. The very reason Flickr etc succeeded in 2003-4 was because dotcom became such a dirty word by then. I have to admit even I was very skeptical at that time so I played my microscopic part in helping them succeed, by reducing the amount of noise they had to contend with!

So if hundreds of start-ups hang on with grim determination that times will get better, times won't get better, the start-ups will just prolong their agony. The very reason some survive to emerge stronger is because others made way for them.

Be honest: isn't it harder today to get attention than it was in 2003? What does that indicate for the average start-up, however good it may be?

It is so much easier to put everything in perspective in retrospect. I agree with Kevin Rose 100% on the startup environment during the web 2.0 "boom". Market saturation was a killer.
I can digg it!