Pursuit of Truthiness

my gut tells me I know economics

Archive for the ‘America’ Category

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.

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Written by James Bailey

September 11, 2018 at 2:40 pm

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

 

Want single-payer? Figure out how to fix Medicare.

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The biggest barrier to single-payer in the US, other than politics, is the inefficiency of Medicare. Medicare alone spends more than $2000 per American but only manages to cover 14% of us. Yes, they are a particularly costly 14%- but some governments, like Greece and Portugal, manage to cover 100% of their population by spending similar amounts.

Medicaid spends just under $2000 per American and manages to cover 20% of the population. Together our two big government health programs spend about $4000 per American and cover 34% of the population. Almost every country with universal coverage manages to achieve it while their government spends less than $4000 per person.

This means that Medicare and Medicaid are collectively either 3 times better, or 3 times more inefficient, than the government health programs in other rich countries. Which do you think it is?

The problem isn’t that American taxpayers aren’t willing to finance universal coverage. The problem is that they already pay enough for a competent government to bring about universal coverage, but our government does not seem to qualify.

Written by James Bailey

March 1, 2017 at 11:11 pm

Stop Feeding the Trolls

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So many of the problems of this decade could be fixed by people learning not to feed the trolls.
Most obviously, internet comment sections would only be half as terrible as they are now.
Donald Trump wouldn’t have got the nomination without the huge amount of free airtime from news channels covering his latest outrageous statement.

Growing political polarization is partly due to how the straw man / weak man fallacy is amplified by trolls. Many actual news stories are about the outrageous thing some random Twitter egg on the other side said.
Terrorism would be cut in half if shooting a bunch of innocent people weren’t the quickest way to get famous.
….
I just wish there were an easy way to fix this without censorship. The necessary culture change sounds incredibly difficult, but I hope that with time we will learn how to adapt to social media and 24 hour news.

For a start, I plan to never do terrorists’ jobs for them by sharing stories of their terror. I encourage my friends to do likewise.

Written by James Bailey

July 22, 2016 at 3:12 pm

Craft-Beer-O-Nomics

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A new article in the Journal of Wine Economics gives an informative and interesting history of beer in the United States, with a special focus on craft beer. While they do some statistical analysis at the end, most of the article tells a story that everyone should be able to understand. I could give you the basics of the story but I think their graphs do that best:

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We have gone from the dark ages of 1979 when Americans only drank Bud and Miller to the amazing variety of beer available today. Check out the article for stories of the people behind the craft beer revolution, and for an attempt to explain why it happened and why it happened in the states where it did.

Written by James Bailey

January 6, 2016 at 4:37 pm

Took our jobs, took our businesses? American entrepreneurs and immigration.

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Just about everyone has heard something of the debate over how immigrants affect the jobs and wages of natives. The general consensus in economics is that immigration has neutral to positive effects on the average native. This can happen because immigrants aren’t just substitutes for the native labor supply- they can also be complements for native labor, and their consumption increases the demand for American goods. Much ink has been spilled over the remaining contentious point of whether any major group of natives is harmed even if most Americans aren’t, with Borjas and some others finding that low skilled Americans see a slight wage decline, and Peri and others arguing they don’t.

One often-cited reason that immigration can benefit natives is that immigrant entrepreneurs start businesses that end up hiring Americans. But this point relies on one crucial assumption- that the immigrant-founded businesses aren’t simply displacing native-founded ones. While there has been a huge body of research on whether immigrants take American jobs and wages or not, there has been drastically less written on whether immigrants “take” American businesses. Perhaps immigrants willing to accept lower profits push out native businesses.

Keshar Ghimire, an economics PhD candidate at Temple University, answers the question in his innovative job market paper. A straightforward way to go about this would be to see whether states with more immigrant-founded businesses have fewer native ones. Keshar does this and finds that states with more immigrant-founded businesses actually have more native ones. But, he argues, this may simply be because some states are better for business and so attract both types of entrepreneurs, rather than immigrant entrepreneurs actually causing natives to start businesses.

To determine the real effect of immigrant businesses on native ones, he needs to find a change in the number of immigrant entrepreneurs in a state that wasn’t just caused by changing business conditions affecting everyone; it should be something that only affected immigrants. He finds such a change following the 1996 welfare reform. The national reform largely removed immigrants from eligibility for welfare. But 15 “generous” states allowed immigrants access to the new State Children’s Health Insurance Program (S-CHIP), which provides insurance for children whose families have relatively low income but who are too wealthy to qualify for Medicaid. Keshar finds that these states got a huge 22% increase in immigrant entrepreneurship. While my own work shows that health insurance isn’t always a barrier to entrepreneurship, one good study found that Medicare leads to a similar increase, so I find this plausible.

So what happened to native entrepreneurs in the 15 states that got this big influx of immigrant entrepreneurs? Keshar finds that they were not scared off. There was no change in the amount of unincorporated businesses owned by natives in these states relative to the others. The number of natives with incorporated businesses actually went up- so much that every two new immigrant businesses lead to one new native business. It turns out that just like workers, businesses can complement each other rather than only compete.

In sum, more immigrant entrepreneurship actually attracts native entrepreneurs rather than scares them away. I hope that this finding will make it in front of states considering S-CHIP eligibility, and in front of the US Congress debating immigration- especially on whether we should create a “founder visa” easing the way in for those who plan to start businesses, as some other countries have.

Written by James Bailey

December 17, 2015 at 1:04 pm

Open Borders and the Welfare State: Must We Choose?

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“You can’t have both open borders and a welfare state” –Milton Friedman

Friedman’s concern is that immigrants are disproportionately poor, and would overwhelm the resources of the welfare state.

Friedman’s dictum has been widely accepted across the political spectrum. Modern liberals might like to have both open borders and a welfare state, but have settled for just a welfare state, partly out of this concern. Conservatives have used the trade-off to argue against both immigration and the welfare state, though neither is a goal many hold dear these days. A few people, mostly libertarians, actually want open borders and see the trade-off as an argument against the welfare state- noting that the welfare state isn’t really pro-poor if it supports the relatively rich first-world poor while keeping others trapped in third-world poverty.

But I haven’t seen many people question Friedman’s welfare/immigration trade-off in principle, except for open borders advocates noting that immigrants can be legally excluded from welfare (in fact to some extent they already are in the US).

But consider the United States- we have open borders within the country, from Maine to Hawaii. US welfare programs are largely administered at the state and local level, and the generosity of these programs varies widely (see Medicaid expansion, for instance). I’ve been all over the US, and I’ve heard many people complain about welfare being too generous, and worry about immigrants coming here just to get on welfare. But I can’t say I’ve ever heard someone complaining about people migrating from other US states to get on welfare in their state, even in a relatively generous state like New York or California.

Am I just living in a bubble, or do people really never worry about this? And if so, what does this imply for the Friedman immigration/welfare trade-off?

Written by James Bailey

November 7, 2015 at 6:45 pm