Pursuit of Truthiness

my gut tells me I know economics

The ACA and Entrepreneurship

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In a newly published paperDhaval Dave and I tried to assess how the Affordable Care Act affected entrepreneurship. Many people have been speculating about this, but very few have actually tried to measure it. Part of the reason for this is that the appropriate data only recently became available; most earlier work, including my dissertation, had to focus on the relatively minor parts of the ACA that started earlier, while the biggest provisions didn’t kick in until 2014.

So, did the ACA help or hinder entrepreneurship? In short, it probably helped, but with huge heterogeneity. In our paper we compare entrepreneurship rates for people in their early 60’s (who might benefit from the availability of individual insurance through the ACA) with a “control group” of people in their late 60’s (who are eligible for Medicare and presumably less affected by the ACA). We find that the ACA led to a 3-4% increase in self-employment for people in their early 60’s.

So, should we take that estimate and extrapolate it to everyone, and use that to imply that the ACA created a million businesses? I don’t think so. I expect that the biggest positive effect of the ACA was for exactly the group we studied- people in their early ’60s. Both because they are old enough to have substantial average health costs and health insurance premiums  (so they will factor health insurance into their decisions more strongly than younger people) and because of the community rating provisions of the ACA (which generally reduced individual premiums for older people while raising them for younger people). The other new papers on the ACA and entrepreneurship use identification strategies that let them study adults of most ages, and they generally find no effect or smaller positive effects.

If I do more work on the ACA specifically, it will be to probe the effects on other subgroups that I expect to have particularly positive effects (e.g. less healthy people) or negative effects (e..g young, health people). Alternatively, we can start to look to post-ACA data and assess to what extent entrepreneurship lock remains a problem even after the full ACA implementation.

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Written by James Bailey

September 25, 2018 at 2:04 pm

Cod

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The book is surprisingly great, mostly because I learned even more about history than about fish. Above all, that a lot of the original exploration of the North Atlantic was for fishing purposes; the Vikings were catching cod on their way to Greenland and North America and the Basques many have discovered America before Columbus and simply not told anyone so as not to give away their best fishing spot.

There was also some adventuring the other way by cod fishermen; in 1876 one sailed  across the Atlantic solo on a dare, from Gloucester to Wales. Later, another crossed the Altantic not only solo but single-handed, having previously lost his hand while cod fishing.

“The year after the Plymouth landing, 1621, while the Pilgrims were nearly starving, ten British ships were profitably fishing cod in New England waters”

Though the Pilgrims themselves were slow to recognize the value of marine resources- “In 1622, Bradford reported with shame that conditions were so bad for the settlers that the only ‘dish they could presente their friends with was a lobster'”

Once they finally did, “In Cod [New England] had a product that Europeans wanted…. this is what built Boston…. by the eighteenth century, Cod had lifted New England from a distant colony of starving settlers to an international commercial power.

“The entire Newfoundland economy was based on Europeans arriving, catching fish for a few months, and taking those fish back to Europe….. typical of the difference between New England and Newfoundland, Newfoundland imported Jamaican rum for local bottling, and still does, wheras New England imported molasses and built its own rum industry.”

 

Written by James Bailey

September 25, 2018 at 12:43 pm

Shoe Dog: Founding Nike

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Many people recommended Phil Knight’s memoir about starting Nike; I found it entertaining and surprising. At first it seemed more like a cross between The Graduate and Zen and the Art of Motorcycle Maintenance than a business book.

It turns out that Knight didn’t set out to make Nikes, but rather to import existing shoe brands from Japan back in the 1960’s when Japan was a low-wage country. He had that idea in an entrepreneurship class at Stanford; his class project on it got an A, unlike every other business I’ve heard of that started in a classroom.

Knight says that he wasn’t a natural entrepreneur or CEO, and was terrible at sales and negotiating. So many of the key moves on the way to Nike becoming a multi-billion dollar company seem like blind luck. They only started making their own shoes 7 years into the business, then called Blue Ribbon Sports, after their Japanese supplier threatened to cut them off. A lot of key steps were taken by the first full-time employee, Johnson, without Knight’s knowledge or only after Johnson spent weeks persuading Knight- running their first ad, opening their first retail store, the very name Nike (Knight wanted to call the new shoes “Dimension 6”).

While I always saw Nike as driven by marketing and branding, the early executive team was made up almost entirely of accountants and lawyers; Knight actually worked elsewhere full time as an accountant and accounting professor through the early years of the company. Nike also seems to have driven a lot of true innovation in the shoes, much of it coming from co-founder Bill Bowerman (Knight’s college track coach).

I read this immediately after The Hard Thing About Hard Things, Ben Horowitz’ book about founding a tech company that sold for a billion dollars, and saw a lot of commonalities. Both founders thought they weren’t natural CEO’s, made lots of mistakes, and spent much of their time under extreme stress, convinced the business was within weeks of failure. To some people this might seem like encouragement to start a business (if they succeeded without knowing what they were doing, maybe you could too) but to me it was another indication that I’d never want to run a large business even if I were good at it (which I wouldn’t be). I always thought that the initial startup would be the most precarious time, but once you had millions in revenue and dozens of employees you’d feel more secure, like the business had made it and would be sticking around. In fact the existential crises seem to keep coming- key partners pulling away, new competitors emerging, a lawsuit, a threatening letter from the government, financiers cutting you off or making demands.

Another commonality was the importance of personal relationships within the company and with key customers and suppliers. Knight makes it sound like his executive team were his closest friends, drinking together every night. Any time one big company is doing a deal with another big company, there is usually one person on each side who is the key decision-maker, so it makes sense that they spend time together face-to-face. In Nike’s case, this meant lots of travel between Japan and the US. In Horowitz’ case, this meant spending $6 million while in a cash crunch to buy another company so that they could give away its software free to make that one guy (who from the outside was only a mid-level executive and not the obvious person to deal with) happy.

Both thought vulgarity and management not taking themselves seriously were important. “How many multimillion dollar companies can you yell out “Hey, Buttface” and the entire management team turns around?”

For Knight, a key to success was finding a cause he believed in, so that work didn’t feel like work:

Driving back to Portland I’d puzzle over my sudden success at selling. I’d been unable to sell encyclopedias, and I’d despised it to boot. I’d been slightly better at selling mutual funds, but I’d felt dead inside. So why was selling shoes so different? Because, I realized, it wasn’t selling. I believed in running. I believed that if people got out and ran a few miles every day, the world would be a better place, and I believed these shoes were better to run in. People, sensing my belief, wanted some of that belief for themselves.

Written by James Bailey

September 11, 2018 at 2:40 pm

Productivity Notes to Past-Me

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I’m not the most productive academic out there, but my improvement from the start of graduate school 9 years ago is huge. I used to chronically procrastinate, saving problem sets and studying for the last minute and so not spending enough time on them to do well. I spent most of graduate school stressed about how I should be working more and worrying about failing out (which I almost did 3 times).

Now I’m able to publish several papers per year while teaching 3 classes and chasing a toddler, all with much less stress and anxiety. What happened?

Honestly, part of it is likely just a few more years of brain development together with a kind of work that I find more enjoyable. But think another part is the discovery of some tricks that would have been helpful all along.

1. The idea that you should be working 80 hour weeks is actually harmful. 30-40 hours is plenty if it is quality time. Rather than thinking you should be working all the time and feeling bad when you don’t, set specific realistic goals (solve these problems, or write this section, or work for 3 hours) and be happy when you accomplish them and ready for more the next day, setting up a virtuous circle. The classic “work smart, not hard” advice applies.

2. A lot of “working smart” is finding ways to avoid or minimize non-crucial work. You want to have clear medium-term goals (like pass this class, or get this paper to a journal) and figure what the most important proximate step is to accomplish it. This sounds obvious but it is amazing how much work does not proceed in this manner. For coursework, the most important proximate step is usually doing problem sets; if you are spending your time doing something else like reading the notes/textbook this should be because you think it is actually the best way to solve a specific problem. Reading blogs is definitely not work.

Right now, I have a paper I want to get published. If that’s going to happen, it must be submitted to a journal; for that to happen, I absolutely need to update the background/theory section to indicate how I expect the variable of interest to affect the dependent variables. There are all kind of other things I could do that I could call “working on the paper”, like reading more of the literature or running more regressions. Doing those things might improve the paper 10% but only the background/theory section is going to bump it from unpublishable-at-a-legitimate-journal to publishable, so that’s what I’m going to start with (and possibly, end with; I have other things to get to).

3. Related to this, the Pareto Principle is everywhere- there are just so, so many situations where putting in 20% of the effort gets you 80% of the way there. A big part of what “working smart” means is to figure out what that 20% is and always do it, and do it first; then to figure out what is the 80% of the work that gets the last 20% and do it second or possibly not at all.

4. This is probably a good time to talk about exercise. You think you are “too busy”, but you’re wrong. For one, in the long-run exercise up to at least 1hr/day is a free lunch because it puts you in a mental state that improves your productivity that much (the same thing applies to 8hrs/night of sleep). And yes, you should be thinking about the long-run and not just the next deadline; there is always a next deadline and you’ll be at this for a lifetime. Also, the Pareto principle goes even further with exercise than it does with most of the rest of life. You don’t bother lifting weights because you imagine you need to spend 1hr/day in the gym to make a difference, but actually 0.5hrs/WEEK is enough to make huge improvements if you’re doing it right and consistently.

5. You’re reading a lot less than you used to, with non-fiction books going almost to zero, because it feels like reading is using the same mental muscles that work/school does. I’m reading more non-fiction than ever, largely because I’m not reading but listening (audiobooks). You have this vague prejudice against them, thinking that you don’t absorb the material as well this way. This might actually be true, but think Pareto- better to absorb 80% of all the books I’m listening to than 100% of the zero books you are reading. Lots of free audiobooks at the library, now downloadable to your phone. E-books on the phone also provide a higher quality of distraction than e.g. social media.

6. I know you want to hear about software, since that seems like the easiest thing to change, and in some way’s you’re right. The combination of Google Calendar and Workflowy has made me much less likely to totally forget about things while also reducing stress somewhat (I’m not worrying about what I’m forgetting to do). The challenge is to remember to enter events and deadlines into the calendar as soon as you hear about them, and to remember to check it every day for what’s happening; this is hard at first but soon becomes second nature. The same applies for to-do lists in Workflowy, which is also a great way to take notes or keep things like paper ideas (I now have 11k words worth of paper ideas stored in there; coming up with ideas might sound hard now but once you start reading the recent literature and going to conferences you’ll get plenty). Workflowy is free to use, but charges $5/month for a pro version, which you’ll only need if you actually find it super useful. Which makes this a good time to talk about money…

7. You’re super-cheap, which isn’t a bad thing generally but is pretty dumb when it comes to anything likely to enhance productivity. Think what better productivity means for your expected lifetime income and happiness. Anything that could detectably improve it is likely to be quite valuable, whether that is software or coffee or books or proper climate control. Think- if it were logistically and ethically possible to buy outputs like higher grades or more papers, wouldn’t your willingness to be huge? Now, there are all these inputs that are easily and ethically available that will probabilistically raise those outputs, so shouldn’t your willingness to be be an appreciable fraction of that huge number? Also, if you’re such a fan of Milton Friedman, maybe you could at least 10% act like the Permanent Income Hypothesis is true.

8. Some things just work differently for different people or different types of work. I feel like there has to be a lot you can learn from how Eleanor does what she does, but 2018 me still hasn’t figured that one out.

Overall though, it does get much better, keep at it.

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Network Externalities Can Be Negative

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Economists often explain tech monopolies by reference to (positive) “network externalities”- basically the idea that the more people that use a service, the more valuable it is to each person. So, I want to use Windows not because it has the best features of any operating system in principle, but because most people use it and so lots of programs are made for it, there will be few compatibility issues working with others, et c.

Social media is often said to have the same network externality feature- I want to be on Facebook and Twitter because thats where everyone else is, so I’ll stay there even if some other site has some better features. If everyone else thinks the same way, Facebook and Twitter will maintain durable monopolies.

Network externalities are very important in social media, in that other consumers have a huge influence on how much I enjoy a site. But the externality isn’t always positive; often other users make the experience much worse by saying things that are mean, stupid, or boring, not to mention deliberately trolling.

In a way I’m just saying what’s blindingly obvious to everyone on social media: hell is other people. But I haven’t heard anyone put it this way before, in particular during the recent flurry of conversations about breaking up or regulating “tech monopolies“.

To me this actually seems like a great time to be starting a new, more selective/restrictive/smaller social network (think “the Facebook” starting out only available at Harvard- great filter). In the sea of information that is the modern internet, so much value comes from filtering and curation, and the biggest networks aren’t doing a great job here. Reddit is a great example of both the pitfalls of scale and virtues of being small and well curated- the default front page is a classic reference for what “lowest common denominator” looks like, but the site makes it easy to form small, strongly curated sub-Reddits and many of them are wonderful. It seems like someone figuring out how to implement a new, small Facebook or Twitter competitor would at least have a fighting chance if they can attract the right people and not simply try to grow as quickly as possible.

The Long Tail of Criticism

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One of the many bizarre features of our current political and cultural moment is that every side feels like they’re losing.

One of the generally wonderful features of the internet is the Long Tail– lower costs of search distribution have made it easier to find things that were previously obscure, or didn’t exist at all in mediums like TV, radio, and print publishing that had relatively high fixed costs and strict gatekeepers.

But I’m realizing there is a dark side to this Long Tail feature of the internet- the Long Tail of Criticism. No matter how small or obscure a group is, they have been criticized somewhere on the internet. A group like economists, psychologists, or English professors, who number at most in the low hundreds of thousands, have now been the subject of literally hundreds of critical articles. In politics, people can branch out beyond criticizing Democrats and Republicans to complain about ever-smaller groups like libertarians, Bernie Sanders supporters, “the alt-right”, or fans of whatever public intellectual you don’t like.

Unlike with the classic Long Tail phenomenon where the growth in niche products comes at the expense of mainstream ones, the growth in niche criticism seems to coincide with a near-constant barrage of criticism at large/mainstream groups (genders, races, religions, nationalities, major political parties). Social media seems to ensure that critical pieces reach those they target, if nothing else because members of targeted groups fell the need to denounce them; Twitter is a spectacular engine for making sure people let you know the dumbest or most offensive thing anyone said today so that they can tell you how dumb or offensive it was.

Because people tend to identify more strongly with the smaller groups they are a part of, this Long Tail criticism may be felt more strongly. Sometimes it starts to seem like the internet is bent on attacking the specific groups I identify with, but probably people in every group feel the same way.

I’d love to hear from anyone who thinks “actually, my group is winning and people on the internet love us”. You must be a cat.

Cats heart

Written by James Bailey

May 21, 2018 at 10:05 am

The US Spends 3x the OECD average on Outpatient Care

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You’ve probably heard that the US spends twice what other rich countries do on health care, and this is true. But we actually spend a normal amount on inpatient and long-term care, while spending more than three times as much as other rich countries do on outpatient care: 7.5% of GDP for the US vs 2.5% for the average OECD country. In fact, we spend more than twice as much as the next-highest-spending countries, Portugal and Switzerland, which each spend 3.5% of GDP on outpatient care.

I’m working on a book that will explore why we spend so much.

OECDoutpatientSpending

Source: OECD Health Statistics 2015