Bridgewater Associates and the "soul of a hedgefund 'machine'"

An interesting look inside Bridgewater and its founder Ray Dalio - particularly as I've been doing a lot of research lately about systematization and processes (WSJ):

How do you build the world's largest hedge fund? Bridgewater Associates founder Ray Dalio says he did it by creating a culture of "radical truth and radical transparency." Mr. Dalio's perhaps radical belief is that "everything is a machine"—including organizations and even the individual people within them. At his firm's Westport, Conn., headquarters, we are discussing the human machines at Bridgewater and the equally fascinating machine known as the U.S. economy.

As for the people at his firm, the idea is to encourage everyone to accept unvarnished criticism as a treasured opportunity to learn and to solve problems. This is intended to allow constant refinement of business processes—also known as machines within the firm—from how Bridgewater buys office furniture to how it evaluates the world oil market.

But human machines don't always welcome complete candor. And at Bridgewater they have to get used to internal software that conducts a non-stop evaluation of their performance based on daily entries from colleagues and even rates their credibility on particular issues. This doesn't mean the software makes all decisions. When the system recently reported that the company's head receptionist was underperforming, executives decided that it was a case of the software not being calibrated to effectively measure her work.

What makes a great leader?

According to Andreessen Horowitz (Ben Horowitz via David Jaxon):

What makes people want to follow a leader? We [Andreessen Horowitz] look for 3 key traits:

The ability to articulate the vision. Can the leader articulate a vision that’s interesting, dynamic, and compelling? More importantly, can the leader do this when things fall apart? More specifically, when the company gets to a point when it does not make objective financial sense for any employee to continue working there, will the leader be able to articulate a vision that’s compelling enough that the people stay out of curiosity?

The right kind of ambition. Truly great leaders create an environment where the employees feel that the CEO cares much more about the employees than she cares about herself. In this kind of environment, an amazing thing happens: a huge number of the employees believe that it’s their company and behave accordingly.

The ability to achieve the vision. The final leg of our leadership stool is competence, pure and simple. If I buy into the vision and believe that the leader cares about me, do I think she can actually achieve the vision? Will I follow her into the jungle with no map forward or back and trust that she will get me out of there?

Clayton Christensen's response to the New Yorker

A response to an (attempted) takedown by Harvard historian Jill Lepore of the idea of "disruptive innovation" (Businessweek).

Conquering chronic procrastination

Yeah I'll admit it... this is could be quite useful: "5 weird (but effective) ways you can conquer chronic procrastination" (Time).

A reminder that innovating isn't just about the technology

It's not just Apple. Why GoPro's success isn't really about the cameras (Wired). Hint: it's about the experience.

"High taxes redistribute people, not wealth"

Observation by Fraser Nelson, in the Telegraph (via ASI)

'Organic' isn't clean or toxin free

If environmentalists really care about the environment, they might not want to promote organic food (Bloomberg):

Like all farms, those that grow organic products rely on fertilizer. Often, organic farmers use animal manure rather than chemicals derived from petroleum or minerals.

In one study of greenhouses in Israel, the use of manure led to much more nitrogen leaching into groundwater compared with use of conventional fertilization. Nitrogen contamination, the study noted, is one of the main reasons for closing drinking-water wells. And by the way, nitrogen from all sorts of farming is one of the main pollutants behind algae blooms, fish kills and dead zones in bodies of water from local farm ponds to the northern Gulf of Mexico.

A broader study of 12 different farm products in California found that in seven cases, those using conventional methods had lower greenhouse-gas emissions. A big reason for the difference? Conventional farming tends to be more efficient than organic farming, meaning fewer inputs are needed to generate the same amount of food.

That hits on a critical issue for organic farming, as noted in a 2012 analysis of more than 100 studies of farming methods across Europe: Getting the same unit production from organic farming tended to lead to "higher ammonia emissions, nitrogen leaching and nitrous oxide emissions." And while organic farming tends to use less energy, it also leads to "higher land use, eutrophication potential" -- that's the dead zones mentioned above -- "and acidification potential per product unit."

So what killed the American dream?

From the WashingtonPost: "For the first time in a very long time, Americans aren't so sure their kids will have better lives than they do." Again, if it's dead, it's because of self inflicted wounds.

IMF: Apparently UK 'austerity' worked

There has been much to study and debate over the response governments have had to the "great recession" - and there undoubtedly will continue to be. But for Keynesians, an unexpected setback in the UK's growth and recovery (even if the austerity" wasn't quite so austere according to Reason). The IMF has since acknowledged its growth forecasts in response to 'austerity' were wrong (Telegraph):

Christine Lagarde has asked whether she needs to grovel on her knees before George Osborne over the IMF’s incorrect warnings on the UK economy, as she warned against raising taxes.

“Do I have to go on my knees?” Ms Lagarde, the head of the International Monetary Fund said, when asked whether she has apologised to George Osborne over the fund’s low growth forecasts and calls to adopt a ‘Plan B’ of less austerity – calls the body now accept it got wrong.

In a blow to Ed Miliband, who has called for higher rates of personal taxation and new levies on banks, Ms Lagarde said tax rises are “not recommendable”.

The growth the UK is enjoying now has “resulted” from George Osborne’s policies, she said. The growth now appears to be “pretty sustainable” because it is being driven by private sector investment as well as households consuming more.

A year ago Oliver Blanchard, the IMF’s chief economist, warned Mr Osborne was “playing with fire” with austerity and downgraded Britain’s growth forecast to just 0.7 per cent for 2013. Instead, it grew by 1.7 per cent, and is expected to hit 2.7 per cent this year.

While I think it's laudable that Lagarde has acknowledged the error, it's really the British who are benefiting substantially from the reduced debt burden that was advocated and the stronger economic growth. I can't help but wonder how much better the global economy would be without the seemingly neverending rounds of stimulus funded by debt that will one day need to be repaid.

John Stossel: It's income mobility that matters

More on why income inequality shouldn't matter (reason.com):

It's true that today the rich are richer than ever. And the wealth gap between rich and poor has grown. Now the top 1 percent own more assets than the bottom 90 percent!

But focusing on this disparity ignores the fact that over time, the rich and poor are not the same people. Oprah Winfrey once was on welfare. Wal-Mart founder Sam Walton was a farmhand. When markets are free, poor people can move out of their income group. In America, income mobility, which matters more than income inequality, has not really diminished.

Economists at Harvard and Berkeley crunched the numbers on 40 million tax returns from 1971-2012 and discovered that mobility is pretty much what The Pew Charitable Trusts reported it was 30 years ago.

Today, 64 percent of the people born to the poorest fifth of society rise out of that quintile—11 percent rise all the way into the top quintile. Meanwhile, 8 percent of people born to the richest fifth fall all the way to the bottom fifth.

The poor got richer, too [...] over the last 30 years, incomes of rich people grew by more than 200 percent, but according to the Congressional Budget Office, poor people gained 50 percent. That growth should matter more than the disparity. Piketty's data reveal times in our history when income inequality decreased: during world wars and depression. Do we want more of that?

On inequality and the Piketty mess

For anyone who has been following the news in the last few weeks, those who favor redistribution over wealth creation have been dealt a setback with the Financial Times' review of the data Piketty used in his book "Capital in the Twenty-First Century" (Amazon). In a way his book has been a Rorschach test (Qz). While many of his supporters have been reduced to name calling (or dismissing the criticisms, HuffingtonPost) despite some fundamental problems with his claims, I'm not sure why it matters.

As Scott Adams, author of Dilbert points out (Dilbert):

If you could snap your fingers and magically double the wealth and income of every human on earth while somehow keeping inflation in check, would you do it?

Before you answer with some version of "Duh, yes." keep in mind that you would be severely worsening income inequality. And that, as we are often reminded by the media, will destroy civilization.

I'm not entirely clear why income inequality leads to doom, all other things being equal, but I hear it has something to do with the French. The analogy, as I understand it, is that Marie Antoinette and her historically inaccurate philosophy "Let them eat cake" is exactly like Bill Gates pledging his fortune to eradicating malaria, fixing education, and providing clean water to the poor.

Further, as Prof Deirdre McCloskey asks, in the context of the fact we are so much wealthier today at effectively every socioeconomic group than our ancestors, how much does inequality matter?

Forbes: Profile of Nick Woodman, billionaire founder of GoPro

The remarkable story of the founder of GoPro, including the dips before finding success (Forbes):

That’s how Woodman can now fly via G-III, versus the days he spent sleeping out in his 1971 Volkswagen bus or driving Penske trucks to set up trade show booths with accessories he would later return to Home Depot after use. Back then he was a trade show fiend, learning to sweet-talk executives and sell his passion on the floors of conference centers from San Diego to Salt Lake City. His big break: REI. Woodman spent months messaging executives and shooting over progress reports before the outdoor sports giant succumbed, giving the company (which is still technically called Woodman Labs) a huge dose of validation.

Read more here.

Marc Andreessen: 'Do what contributes - not what you love'

Apparently his tweets were controversial - but I'd agree... plus it helps to actually love doing something that contributes (BusinessInsider):

Better career advice may be "Do what contributes" -- focus on the beneficial value created for other people vs just one's own ego. People who contribute the most are often the most satisfied with what they do -- and in fields with high renumeration, make the most $. Perhaps difficult advice since requires focus on others vs oneself -- perhaps bad fit with endemic narcissism in modern culture? Requires delayed gratification -- may toil for many years to get the payoff of contributing value to the world, vs short-term happiness.

Self driving cars and the future of logistics

It's difficult to see the downside, especially if the technology is showing that it's better than human drivers (MITTechReview) - even if driving through the downtown of any major metropolitan city, it doesn't seem like a high bar to reach. But it's fascinating to follow the iterations the Google team has been making in testing its prototypes:

The idea was that the human drives onto the freeway, engages the system, [and] it takes them on the bulk of the trip—the boring part—and then they reëngage,” said Nathaniel Fairfield, a technical lead on the project, speaking at the Embedded Vision Summit in Santa Clara, California, on Thursday.

That approach had to be scrapped after tests showed that human drivers weren’t trustworthy enough to be co-pilots to Google’s software. When people began riding in one of the vehicles, they paid close attention to what the car was doing and to activity on the road around them, which meant the hand-off between person and machine was smooth. But that interest faded to indifference over weeks and months as people became too trusting of the car’s abilities. “Humans are lazy,” says Fairfield. “People go from plausible suspicion to way overconfidence.”

And so Google’s new vehicle design takes a leaf out of NASA’s design book to cope with such eventualities. “It doesn’t have a fallback to human—it has redundant systems,” said Fairfield. “It has two steering motors, and we have various ways we can bring it to a stop.”

While Wired calls it sneaky, incremental technology improvements are already making their way into mass produced cars. The developing technology also seems to seeping into other industries where we may see more immediate gains with technologies that are allowing trucks to drive in platoons reducing wind drag and increasing fuel efficiency as much as 10% for the rear truck (MITTechReview). Exciting developments to watch...

Developing space, profitably

It's pretty exciting watching the emerging space industry literally get off the ground (MITTechReview):

The Explorers Club event provided a snapshot of what may be a new industry in the making. In an era when NASA no longer operates its own spacecraft and government funding for unmanned missions is tight, a host of startups—most funded by space enthusiasts with very deep pockets—have stepped up in hope of filling the gap. In the past few years, several have proved themselves. Elon Musk’s SpaceX, for example, delivers cargo to the International Space Station for NASA. Both Richard Branson’s Virgin Galactic and rocket-plane builder XCOR Aerospace plan to perform demonstrations this year that will help catapult commercial spaceflight from the fringe into the mainstream.

The advancements being made by space companies could matter to more than the few who can afford tickets to space. SpaceX has already shaken incumbents in the $190 billion satellite launch industry by offering cheaper rides into space for communications, mapping, and research satellites.

However, space tourism also looks set to become significantly cheaper. “People don’t have to actually go up for it to impact them,” says David Mindell, an MIT professor of aeronautics and astronautics and a specialist in the history of engineering. “At $200,000 you’ll have a lot more ‘space people’ running around, and over time that could have a big impact.” One direct result, says Mindell, may be increased public support for human spaceflight, especially “when everyone knows someone who’s been into space.”

US economy becoming less entrepreneurial, more businesses being destroyed than created

Not good (WashingtonPost).

If the decline persists, "it implies a continuation of slow growth for the indefinite future." This lack of economic dynamism, particularly the steep drop since 2006, may be one reason why our current recovery has felt like much less than a recovery. As Matt O'Brien noted on Wonkblog last week, annual job growth rates have stubbornly refused to budge above 2 percent for the duration of the recovery.

The authors of the Brookings study dug beyond the national numbers to look at the change in new firms at the state and metro levels and found that they generally mirrored the national trends.

The carbs that divide the north and south in China

I'm a bit skeptical but apparently people in the north and south of China have different personality traits driven by the staple carbs they have historically cultivated (WSJ):

A study published Friday by a group of psychologists in the journal Science finds that China’s noodle-slurping northerners are more individualistic, show more “analytic thought” and divorce more frequently. By contrast, the authors write, rice-eating southerners show more hallmarks traditionally associated with East Asian culture, including more “holistic thought” and lower divorce rates.

The reason? Cultivating rice, the authors say, is a lot harder. Picture a rice paddy, its delicate seedlings tucked in a bed of water. They require careful tending and many hours of labor—by some estimates, twice as much as wheat—as well as reliance on irrigation systems that require neighborly cooperation. As the authors write, for southerners growing rice, “strict self-reliance might have meant starvation.”

A bit of warranted skepticism from Sarah Hoyt guest blogging at Instapundit: "’d need to see a lot more studies done before I thought it was even a major influence. Also, culture is not genetic. Yes, certain propensities might be genetic, but the human individual can still shape himself to a great degree."

A randomized study comparing cash and food transfers

Interesting study (SSRN via Chris Blattman):

Drawing on data collected in eastern Niger, we find that households randomized to receive a food basket experienced larger, positive impacts on measures of food consumption and diet quality than those receiving the cash transfer. Receiving food also reduced the use of a number of coping strategies. These differences held both at the height of the lean season and after the harvest. However, households receiving cash spent more money on agricultural inputs. Less than 5 percent of food was sold or exchanged for other goods. Food and cash were delivered with the same degree of frequency and timeliness, but the food transfers cost 15 percent more to implement.

Using the word "so" undermines your credibility

According to Hunter Thurman (FastCompany):

Beginning your sentence with “so” orients your message and subconsciously alerts your audience that what you’re about to say is different than what you’ve been talking about up until this point.

Why we should fear China's economic implosion...

What you should know about entrusted loans (WSJ) and the potential slowdown to commodity purchases globally (Seattle Intelligencer) but also why we needn't fear (WSJ).

Humanitarians, for a price

The cynical side of me wonders how this is any different than normal. But it does seem at least considerably cheaper and more innovative than the way things have been done in the past (NPR):

When a famine swept through Somalia in 2011, it was hard for aid workers to get food distributed. Most of the country was too dangerous for non-Somalis to do the work. Instead, the United Nations looked at satellite images of camps filling up with tents and dispatched locals to deliver the food. A local industry around distributing aid and sheltering the poor sprung up.

On today's show, we visit a country with almost no government, but a lot of entrepreneurs. And we see what happens when locals decide to make money by becoming humanitarians for profit.

Nobel Prize winning economist Gary Becker (1930-2014)

One of the greatest economists of the last century, passed away today. Sad (WashingtonPost via Instapundit). More from Greg Mankiw.

Update: More from Freakonomics. Also ASI.

Why inequality isn't a problem but a sign of progress

With, I think, the qualifier of a relatively free market governed by rule of law and property rights (Telegraph via Instapundit):

almost all inequality in developed economies does not arise by the wealth of almost anyone else declining. (That does happen in less socially and politically developed societies, in which wealth arises from political control of resources or access to corruption.) In modern developed economies inequality arises when someone – a Gates or Zuckerberg or Cowell or Ronaldo or Rowling or just an ordinary businessman or professional – finds some way (some skill or invention or investment) that adds considerable value, and that value is not then shared equally.

In our modern globalised economy, the gains from a new idea or skill can now be leveraged over enormously more people. Instead of your new and better mousetrap being sold just to the fair folk of Wolverhampton, the whole world beats a path to your door. In such a world, improved added value creates large inequalities. But that is precisely because the added value of a Windows or Facebook or awesome evening's football skill benefits so enormously many people – even if each only benefits a little compared with the huge aggregate benefits benefits taken by the value-creator.

Average U.S. household spends more on federal regulations than for health care, food or transportation

Troubling - but to be fair, this presumes that there are zero benefits to regulation as well (WashingtonExaminer via Instapundit):

Crews estimates the annual cost of compliance with the record number of new federal rules and regulations issued under President Obama at $1.863 trillion.

That works out to a $14,974 “hidden tax” every year for the average U.S. household. That’s 23 percent of the $65,596 annual average household income in America.

Why does 1% of history have 99% of the wealth?

A reasonable question to ask (YouTube via Instapundit):

Entrepreneurs power the best economies

Should this be surprising? (Telegraph)

Indeed, entrepreneurialism is strongest in countries that share the English common law tradition – five times higher than those with a French legal origin. There is also a strong correlation between high rates of entrepreneurship in a country and low taxes. Equally, a low regulatory burden correlates strongly with high rates of entrepreneurship. On the other hand, those government and supranational programmes that politicians love to announce to encourage entrepreneurship – such as the EU’s Lisbon Strategy – tend to fail.

The lesson is clear: to encourage innovation and entrepreneurialism, governments should do as little as possible, beyond cutting taxes and regulations.

Longtime US politician "discovers the profit motive"

Among other things. Kind of a neat story (WashingtonPost):

Bonior said if he had the power, he would lighten up on pesky regulations.

“It took us a ridiculous amount of time to get our permits. I understand regulations and . . . the necessity for it. But we lost six months of business because of that. It’s very frustrating.”

Bridging the gap between economists and ecologists

Written by an ecologist turned economics journalist: And why we're not running out - (WSJ):

In 1972, the ecologist Paul Ehrlich of Stanford University came up with a simple formula called IPAT, which stated that the impact of humankind was equal to population multiplied by affluence multiplied again by technology. In other words, the damage done to Earth increases the more people there are, the richer they get and the more technology they have.

Many ecologists still subscribe to this doctrine, which has attained the status of holy writ in ecology. But the past 40 years haven't been kind to it. In many respects, greater affluence and new technology have led to less human impact on the planet, not more. Richer people with new technologies tend not to collect firewood and bushmeat from natural forests; instead, they use electricity and farmed chicken—both of which need much less land. In 2006, Mr. Ausubel calculated that no country with a GDP per head greater than $4,600 has a falling stock of forest (in density as well as in acreage).

Haiti is 98% deforested and literally brown on satellite images, compared with its green, well-forested neighbor, the Dominican Republic. The difference stems from Haiti's poverty, which causes it to rely on charcoal for domestic and industrial energy, whereas the Dominican Republic is wealthy enough to use fossil fuels, subsidizing propane gas for cooking fuel specifically so that people won't cut down forests.

Part of the problem is that the word "consumption" means different things to the two tribes. Ecologists use it to mean "the act of using up a resource"; economists mean "the purchase of goods and services by the public" (both definitions taken from the Oxford dictionary). [...] human activities actually increase the production of green vegetation in natural ecosystems. Fertilizer taken up by crops is carried into forests and rivers by wild birds and animals, where it boosts yields of wild vegetation too (sometimes too much, causing algal blooms in water). In places like the Nile delta, wild ecosystems are more productive than they would be without human intervention, despite the fact that much of the land is used for growing human food. If I could have one wish for the Earth's environment, it would be to bring together the two tribes—to convene a grand powwow of ecologists and economists. I would pose them this simple question and not let them leave the room until they had answered it: How can innovation improve the environment?

Not a coincidence?

Heh. Chris Blattman notes the overlap between the CIA's SOP for civilian operatives on sabotaging enemies with bureaucracy and the UN's SOPs (Chris Blattman).

How culture does matter

Heh. Communication patterns around the world (BusinessInsider via SwissMiss).

A good discussion on startup culture

Starting with the advice to one startup from Peter Thiel: Don't f*** up the culture (HN).

Psychological traits of successful startup founders

Makes sense (Stanford, PDF via DavidJaxon):

Personal Exceptionalism. Definition: A macro sense that you are in the top of your cohort, your work is snowflake-special, or that you are destined to have experiences well outside the bounds of “normal”; not to be confused with arrogance or high self-esteem. Benefit: Resilience, stamina, charisma. Deadly risk: Assuming macro-exceptionalism means micro exceptionalism; brittleness.

Dichotemous Thinking. Definition: Being extremely judgmental of people, experiences, things; highly opinionated at the extremes; sees black and white, little grey. Benefit: Achieves excellence frequently. Deadly risk: Perfectionism.

Correct Overgeneralization. Definition: Making universal judgments from limited observations and being right a lot of the time. Benefit: Saves time. Deadly risk: Addiction to instinct and indifference to data.

Blank Canvas Thinking. Definition: Sees own life as a blank canvas, not a paint-by-numbers. Benefit: No sense of coloring outside the lines, creates surprises. Deadly risk: “Ars gratis artis”, failure to launch, failure to scale.

Schumpeterianism. Definition: Sees creative destruction as natural, necessary, and as their vocation. Benefit: Fearlessness, tolerance for destruction and pain. Deadly risk: Heartless ambition, alienation.

Related: 35 habits of highly productive people (with a somewhat dizzying infographic). (Entrepreneur)

In blind test, soloists prefer new violins over old

In a way it's sad (as an erstwhile violinist), it's kind of romantic to think that the history some of these old violins have seen, resonate in the music they carry. On the other hand, it's massively democratizing (phys.org).

In praise of inconvenience?

Services that provide convenience or rich experiences give people a reason to pay more for products or services. But would you pay more just because it's local? Posts like this from the swissmiss strike me as silly. Not only does she infer that ordering from services like Amazon is something to "feel guilty" about, she bemoans the convenience its new Amazon Dash adds.

Certainly it's her right and prerogative to support local businesses - but all things being equal, isn't that rewarding them for their lack of efficiency, their lack of differentiation and an admission of expectations that they can't actual provide anything else of value for their customers? What's next? Trashing automated looms because they destroy jobs? (Wikipedia)

While I celebrate her freedom to choose, I can't help but wonder if she would do the same for other consumers when it comes to stores like Walmart.

The psychological price paid by many entrepreneurs?

Quoting Jessica Bruder (AFoundersNotebook):

According to researchers, many entrepreneurs share innate character traits that make them more vulnerable to mood swings. “People who are on the energetic, motivated, and creative side are both more likely to be entrepreneurial and more likely to have strong emotional states,” says Freeman. Those states may include depression, despair, hopelessness, worthlessness, loss of motivation, and suicidal thinking.

More at the link.

Beyond parody... anti-growth protesters in San Francisco

Anti-tech protesters circulate flyers claiming tech founder is a "parasite" for investing in startups/creating jobs that pay more than so-called "service workers" (TechCrunch). Successful tech workers are being turned into scapegoats for others.

More from Instapundit: "At core, their politics are based on envy, resentment, and a wholly-earned sense of inferiority."

An irrational fear of too big to fail?

An author at Forbes.com makes a curious argument for "too big to fail" without even addressing the issue of "moral hazard" ([Wikipedia], not only of bank managers but their clients) or the fact that "too big to fail" is a direct response to regulation.

EconTalk: Education in poor countries

After the last talk with Jeffrey Sachs, I have poked around more - and found another fascinating discussion on education in the developing countries:

Lant Pritchett of Harvard University and author of The Rebirth of Education talks with EconTalk host Russ Roberts about the ideas in the book. Pritchett argues that increases in years of schooling for students in poor countries do not translate into gains in education, learning, or achievement. This tragic situation is due to corruption and poor incentives in the top-down educational systems around the world. School reforms that imitate successful systems fail to take into account the organic nature of successful school systems that cause various external attributes to be effective. The conversation concludes with a discussion of school systems in rich countries and possible lessons for reform that might apply there.

Jeffrey Sachs gets defensive about Millennium Villages

Podcast from Russ Roberts interviewing Jeffrey Sachs, with the original interview of Nina Munk here (Econtalk).

How Canada successfully (and dramatically) reduced the size of government

Much of the hard work was even done by a Liberal government under the hands of Jean Chretien and Paul Martin (WashingtonTimes).

France: au revoire, mes entrepreneurs?

From the NYT: why entrepreneurs leaving France. Spin here (Rude Baguette). And yet more here (TechCrunch).

Age and startups

Great post from Fred Wilson on ageism with the accompanying graphic (AVC):

Update: It's a response New Republic's article on ageism.

In search of a better toilet

A better approach to problem solving - contests... but in Bill and Melinda Gates' Foundation's case - "challenges". I think they could have done better at unleashing innovation - but it's a start (Techcrunch):

Use of technology to solve real world problems in the developing world is nothing new. Several attempts have been made to tackle the challenges of education, computer literacy and speedy Internet access. Developing the next-generation toilets may not be as fancy as the One Laptop Per Child mission for instance, but it does address a very basic and long-ignored problem that’s now become too massive to be solved by just one government. As this AP story noted, India has more than 640 million people defecating in the open and producing a stunning 72,000 tons of human waste each day.

To be sure, identifying innovative ideas and technologies that help the world reinvent toilets is not the biggest challenge for Gates and his team — it’s going to be more about providing affordable and sustainable solutions that do not have to depend on annual grants and beg users to embrace them. For its part, the Gates Foundation is betting on solutions that cost less than 5 cents per user per day and are aspirational in terms of design and ease-of-use, not just for the developing world, but also the developed nations.

Improving property rights for women has led to increased suicide rates in India?

Troubling study (NBER via Chris Blattman). Obviously the response can't be to reduce property rights either for women or men, but I wonder if it has to do with the more rigid class structures, bankruptcy laws that exist in India?

How a former Wired editor became an entrepreneur

Cool profile of Chris Anderson and "how he turned a hobby of building robots and drones into an actual business." (TechCrunch)

Handwringing over the private funding of science

Interesting discussion over at ASI:

For the basic problem here is that scientific research, or at least the results from it, is a public good. It's non-rivalrous and non-excludeable meaning that it's very difficult indeed to make a profit from it. Thus there will be too little private investment in this sphere. This is the argument in favour of government funding of science, that scientific results are a public good. But if we can gain private finance, despite the public good problem, then we've solved that public good problem, haven't we? And therefore private funding, to the extent that it happens, is indeed entirely and actually a substitute for government funding.

To the extent that science is getting private funding this is indeed the perfect argument in favour of cutting public funding. And given the increased efficiency coming from not having to worry about race and gender perhaps cutting by more than is donated.

NYT's article "Billionaires with big ideas are privatizing American science" that started the discussion. But more from the Cato Institute advocating the "End of government science funding" (1997), the Scientific American asking "Are we entering a Golden era of private science funding?" and an article at Berkeley - "Who pays for science?".

The role governments can take in revitalizing their economies

Venture capitalist Fred Wilson posts on how governments can rebuild their local economies (AVC):

We’ve seen that things can be turned around. The economic and cultural juggernaut that is Brooklyn right now is a perfect example. The grandchildren of the people who fled Brooklyn in the fifties and sixties are now coming back in droves, attracted to its lifestyle, its coffee shops, bars, restaurants, art and culture, parks, and affordable real estate. And the tech companies are coming too. Attracted by all the talent that is there.

I’ve been asked by civic leaders from places like Newark, Cleveland, Buffalo, and a number of other upstate NY cities that have suffered a similar fate how they can do the same thing. They all talk about tax incentives, connecting with local research universities, and providing startup capital. And I tell them that they are focusing on the wrong thing.

You have to lead with lifestyle. If you can’t make your city a place where the young mobile talent leaving college or grad school wants to go to start their career, meet someone, and build a life, all that other stuff doesn’t matter.

But I don't think Wilson has the whole picture. At a more macro level, Stephen Green blogs about failing Abenomics. In doing so, Green may have struck one one of the biggest barriers to change that can result in economic growth (via Instapundit):

Deregulate. Simplify the tax code. Protect the value of your currency. Those three steps are all it takes to achieve prosperity, but as Glenn Reynolds like to say, politicians don’t like them because they provide too few opportunities for graft.

Brooklyn's renaissance was driven by cheap real estate and a reduction in crime but also obviously, easy access to its neighbor borough - Manhattan. There's been another discussion on HN over one startup's decision to build their business outside the US (thenitai.com), in a country with substantially higher taxes after the hurdles to compliance and visa restrictions made it effectively prohibitive to do so.

I think people make conscious trade-offs in value. Explicit dollar figures aren't the only costs being analyzed. There's real value to lifestyle but people need jobs first (having been one of the people who once made the commute into Manhattan from Brooklyn). Making regulations simple to understand and follow also goes a really long way in reducing the barriers to entry for businesses of all stripes and is probably the least (explicitly) expensive step for communities to take.

The skills used to promote managers aren't the skills that make for great managers

Not exactly surprising. But the benefits for getting it right, are substantial (HBR via HN):

If great managers seem scarce, it’s because the talent required to be one is rare. Gallup finds that great managers have the following talents:

1. They motivate every single employee to take action and engage them with a compelling mission and vision.
2. They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
3. They create a culture of clear accountability.
4. They build relationships that create trust, open dialogue, and full transparency.
5. They make decisions that are based on productivity, not politics.

Gallup’s research reveals that about one in ten people possess all these necessary traits. While many people are endowed with some of them, few have the unique combination of talent needed to help a team achieve excellence in a way that significantly improves a company’s performance. These 10%, when put in manager roles, naturally engage team members and customers, retain top performers, and sustain a culture of high productivity. Combined, they contribute about 48% higher profit to their companies than average managers.

"Why you might not want to incorporate in the USA"

There are tradeoffs of course... but the internet has augmented regulatory arbitrage (thenitai.com) - balancing off taxes and the functional costs of regulation with the access to customers and people in those markets. Discussion at HN.

"An unintended lesson in the advantages of private property rights"

The US government owns massive amounts of land that's worth possibly trillions that it doesn't even know it owns spending billions a year maintaining it. I wonder how much better Canada is. Ilya Somin writes (WashingtonPost):

The whole situation is an unintended lesson in the advantages of private property rights. If a private owner has a piece of unused property, he or she has strong incentives to find some valuable use for it. If he can’t, he has a strong incentive to sell it to someone else who can do better. In both cases, he gets to keep the profit. For that reason, he also has incentives to keep track of the property he owns, and avoid imposing burdensome bureaucratic procedures that make it difficult to sell unused land.

By contrast, government officials get little or no reward for finding better uses for underutilized government land. Indeed, a conscientious bureaucrat who tries to do so may just end up annoying his colleagues and superiors, for whom it means extra hassle with little chance of any gain. For similar reasons, government agencies sometimes have little incentive to even keep track of the land they own, or to make it easy to sell unneeded property.

In theory, voters could incentivize efficient use of government-owned resources by using the power of the ballot box to punish politicians who let them go to waste. In reality, however, widespread voter ignorance makes this unlikely. Most voters have little if any idea of how efficiently the federal government uses the vast amount of land it owns. Like government bureaucrats, voters have little incentive to keep track of government-owned property and assess whether it is being used effectively. Each individual voter has only a tiny chance of affecting the results of an election, and this leads to rational political ignorance.

More on cash transfers

Chris Blattman addresses the skepticism towards cash transfers. I think he gets it right - cash should be a baseline, with the aim towards better results.

How the US government fails Native Americans

It's incredible that the basics for development that have worked for other Americans and that are often ideas shared with developing countries - are the same ideas being denied Native Americans - it's a wonder they aren't poorer. Read the whole thing (Forbes):

Imagine if the government were responsible for looking after your best interests. All of your assets must be managed by bureaucrats on your behalf. A special bureau is even set up to oversee your affairs. Every important decision you make requires approval, and every approval comes with a mountain of regulations.

How well would this work? Just ask Native Americans.

The federal government is responsible for managing Indian affairs for the benefit of all Indians. But by all accounts the government has failed to live up to this responsibility. As a result, Native American reservations are among the poorest communities in the United States.

"To the People of New Jersey"

Elon Musk at Tesla Motors fights back (h/t HN). Kudos to him.

Aerospace eyecandy: video animation of air traffic in Europe over 24 hours

Too bad the view isn't nearly as cool or pretty from inside any one of these planes (via core77):

Europe 24 from NATS on Vimeo.

"400 years of Chinese economic history in 79 pages"

Amazing stuff. Ungated version (via Chris Blattman)

Video: "Inclusive Growth" conference at Columbia Business School

This is a series of interesting speakers and discussion on how to create opportunities for entrepreneurs in developing countries (via Chris Blattman):

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Other videos here: Part 1, Part 2, Part 3

Why fears of Chinese domination are overblown

According to the former editor of the South China Morning Post, Jonathan Fenby, quoted in the WSJ:

Fixing some of the country’s more difficult problems, such as agricultural reform and revamping the hukou household-registration system, which would allow residents to move more freely, could cause trouble in a system as connected as China’s.

“You pull one brick out of the wall and the rest comes crumbling down,” Mr. Fenby said. “Of course, that’s what [President] Xi [Jinping] will want to avoid.”

Another theme is what Mr. Fenby calls China’s “trust deficit,” which stretches from air pollution to food safety to the government.

“Having gone through the first generation of very strong growth, you obviously run into problems.” People now don’t want just material advancement, but less deception, he said.

Of course, every potential superpower has gone through growing pains. But the difference with China, Mr. Fenby said, is that there aren’t independent organizations to spur change. During America’s industrial revolution, for example, muckraking journalists exposed problems in the meatpacking industry and mental institutions, which helped to spur reform. In China, that is unlikely to happen.

“Everything is enclosed within the system,” Mr. Fenby said. “They don’t have the mechanisms to deal with it.”

Personally I worry that an implosion is far more likely when it comes to China's political future. It's a likelihood I suspect policymakers elsewhere also fear.

Why Europe wants American cheese producers to stop using "old world" names

Regulatory capture (Instapundit). From FoxNews: "As part of trade talks, the EU wants to ban the use of names like Parmesan, feta and Gorgonzola on cheese made in the United States. The argument is that the American-made cheeses are shadows of the original European varieties and cut into sales and identity of the European cheeses."

But as Reynolds points out, "the real problem is the opposite: Like American beer-making, American cheesemaking has advanced to the point where it’s often superior to the European product."

They would have nothing to fear if their product were distinct and superior.

Will robots steal all our jobs?

Shockingly, probably not (NationalJournal via Instapundit):

Oxford's Frey and Osborne agree. "Our findings thus imply that as technology races ahead, low-skill workers will reallocate to tasks that are non-susceptible to computerization—i.e., tasks requiring creative and social intelligence. For workers to win the race, however, they will have to acquire creative and social skills," they conclude.

But the flip side of blaming the robots is what Dean Baker, codirector of the liberal Center for Economic and Policy Research, worries about: that the robots-will-take-our-jobs story provides a convenient excuse for policymakers to avoid casting the blame for widening inequality on themselves. If the people who make and own robots get rich, it's because patent laws allow people to charge a lot for them, Baker says. "If that's the basis of inequality, I don't see that much as an excuse, in the sense that that's policy-driven and not robot-driven."

Everyone agrees the world will look different as it fills up with these technological advances. Will it be one of mass unemployment? Not necessarily, and some economists are taking heart from the fact that robots don't seem to be cropping up in the latest worrisome data about the labor market. Now, will the robots one day rise up and revolt against us? That's a different question.

Delivering energy through entrepreneurs in developing markets

A great look at how power is now being successfully distributed to the poor in developing countries (Nature via HN):

The quest is on to find the best way to bring clean power to rural areas. Mixing local development work with Silicon-Valley-style entrepreneurship, engineers, scientists and economists are setting up independent 'microgrids' that can be deployed quickly and cheaply one community at a time. Those leading such electrification schemes aim to create small-scale renewable-energy systems, building an archipelago of light across the developing world and helping remote communities to kick their dependence on fossil fuels.

Such efforts have often failed in the past, as subsidies lapsed or infrastructure collapsed. But today's entrepreneurs are better placed to succeed. A new generation of cheaper photovoltaic panels and wind turbines can be managed with simple smart-grid devices. The price of fossil fuels has soared over the past decade, making renewable energy more competitive. And the United Nations has set a goal of achieving universal access to electricity by 2030, providing political impetus.

“The ambition is there, and the economics are making a lot more sense now than they were a few years ago,” says Richenda Van Leeuwen, executive director for energy access at the United Nations Foundation. But the challenge remains extreme. A 2012 analysis by the International Energy Agency projects that, on the basis of current plans, the percentage of people without access to electricity will fall from 19% in 2010 to 12% in 2030 — leaving nearly 1 billion people still in the dark. Achieving universal energy access would mean increasing investments from a projected $14 billion to $49 billion a year, the agency says. Centralized grids are expected to provide only about 30% of the solution in rural areas.

The real genius (and foundation) behind the American Constitution?

Property rights? (Hoover via Instapundit):

Private property is the central institution of classical liberal theory. The Constitution contains the explicit guarantee of the Fifth Amendment, which provides: “nor shall private property be taken for public use, without just compensation.” It is easy to discern the theory behind this provision. It compromises between an absolutist libertarian vision of private property that holds that the state can never take it from its owner, even with full compensation, and the totalitarian vision that routinely allows the government to take private property for public use without paying any compensation at all. The just compensation requirement splits the difference, letting the government force the transfer of property, but only upon payment of just compensation. The state thus avoids the holdout problem, without creating the alternative risk of expropriation.

This elegant compromise can, however, be eviscerated if read in ignorance of the legal theory on which it rests. Just such an evisceration was perpetrated by Justice Brennan, whose inexcusable ad hockery trampled over private property rights on more than one occasion. Any developed system of private property facilitates enormous gains from trade among individuals by allowing the division of property into its constituent parts. Thus, outright ownership can be divided between a landlord and tenant or a mortgagor and mortgagee. It can also be divided between the holder of air rights (with an easement of support) and ground rights. That division was at stake in the most important takings case of the last half-century, Penn Central Transportation Co. v. City of New York (1978). Justice Brennan’s landmark decision was virulently anti-theoretical and has severely undermined the constitutional protection of private property.

Regulatory innovation: why the shale revolution happened in the US

A fascinating look at how (among other things), property rights allowed for the development of shale in the US as it stagnates elsewhere (WalterRussellMead via Instapundit)

America remains the sole state to capitalize on its shale oil and gas resources, and difficulties in countries like the UK and China remind us that the shale revolution was more than just the result of applying the dual techniques of hydraulic fracturing and horizontal well drilling to underground hydrocarbon reservoirs. Rather, the US energy revolution was the product of a mature oil and gas drilling industry, replete with robust supply chains. The boom depended on a unique set of mineral rights that provided landowners with a financial incentive to invite drillers on to their land, on a deep pool of capital, and on a variety of small wildcatting firms willing to take on the risk of drilling exploratory wells. . . .

Regulatory capture: Tesla's New Jersey Edition

New Jersey blocks Tesla from selling directly to consumers (TechCrunch):

New Jersey is the third state to ban the practice of selling cars directly to consumers, joining Arizona and Texas in preventing their residents from easily buying a more environmentally friendly ride. The New Jersey Coalition of Automotive Retailers was in favor of the rule change, unsurprisingly.

Update: Instapundit links to Popular Mechanics, accurately calling it crony capitalism.

"Structuring successful policy interventions is a surprisingly difficult task"

Well, duh (Economist):

The authors focus on an experiment run by the British government in the early 2000s: an RCT that offered incentives to disadvantaged people to stay in work. A group of 3,500 single mothers, who were either out of work or working part-time, were split into two groups. The control group was given nothing; the treatment group was given coaching and financial incentives to work. Individuals working more than 30 hours per week, for example, could receive a tax-free payment of £400 ($666). All forms of treatment lasted, at best, just under 3 years.

Five years after the experiment started, the authors checked up on their subjects. The treatment group reported significantly lower levels of well-being, even though those individuals ended up with higher earnings than the control group. The treatment group were less happy with their lives and worried more about budgeting and debts. Helping people, in other words, seemed to hurt them.

Why? The results may be to do with the quality of the training on offer. Even if people end up earning more, the experience of being bossed around by a uncaring counsellor may make people unhappier.

Another plausible explanation is, in layman’s terms, related to unrealistic expectations. People in the treatment group enjoyed the advantage from taking the government subsidy. The extra money probably allowed them to buy better things and worry less about making ends meet. But the subsidy came to an end. When it did, the control group found living without the subsidy harder to bear. They had to live with the curse of raised aspirations.

How regulation and bureaucracy can drive corruption: Bangladesh edition

A somewhat random excerpt in a Forbes article:

With gusto he describes how he and Nobel Peace Prize-winner Muhammad Yunus hatched a plan to build a humane clothing factory, where all profits would go back into the community for schools and hospitals. At best, the Otto Group would recoup its initial investment. Immediately they faced red tape. Electricity would take five years. Officials wanted bribes. Otto refused to base a social business on a corrupt footing and walked away. “It’s unbelievable,” says Otto, pounding on his wooden desk in his corner office in Hamburg, Germany. “You would think the government must be happy somebody is building such a company and leaving the money in the country.”

Unfortunately stories like this are far from being confined to Bangladesh. These are stories echoed repeatedly through the developing world because governments have chosen to condemn their own people to poverty.

Jurisdictional competition, regulatory capture, and a VC in Iceland

Brad Burnham from Union Square Ventures, makes the argument to policy makers of how and why Iceland could develop their info tech hub (via AVC).

Soft bigotry of low expectations: finance edition

Paul Bucheit, known best for creating Gmail wants to lend to entrepreneurs in Africa at a "more affordable" interest rates of 5%. Currently the top comment on HN nails it :

I think 5% is below market rate for what you are doing. By establishing 5% as the rate, you crowd out any local investment options which would need to charge above 5% (but not 60%). By making the subsidy non explicit, you make it even harder for local lenders to compete.

Not only do you make it harder for local lenders to compete, but as the case when you attempt to sell something below market prices, you drive up demand.

In the case of finance, this means that entrepreneurs who are able to do more with the money (as evidenced by higher returns) are also crowded out of getting it, while less worthy 'living dead' competitors make it more difficult to successful firms to thrive.

BusinessInsider: How airfares are decided

Just in case like everyone in the world you're trying to game airfare pricing - a few bits of useful information particularly this passage (BusinessInsider):

[Q:] Why is it that sometimes I can wait until the last minute and find a cheap fare, but other times the fare goes up?

Well, most of the time the fare will go up because the flight will be filling up or the advance purchase restrictions will be kicking in. But on routes with significant competition -- New York to Los Angeles for example -- airlines may have sales or "dump seats" at the last minute to fill the plane if it's not particularly full. It also depends on the day of the week. Tuesday, Wednesday and Saturday are often the cheapest days to fly because we carry fewer business passengers those days.

Update: So apparently a recent study shows how prices fluctuate prior to flights with a few consistent patterns (HuffingtonPost)

Fifty-four days before takeoff is, on average, when domestic airline tickets are at their absolute lowest price. And if you don’t hit 54 days on the head, you should usually book between 104 to 29 days before your trip -- within the “prime booking window” -- for the lowest possible prices. In this window, ticket prices typically hover within $10 of the lowest price they’ll ever reach. [...]

If you’re going somewhere incredibly popular at an incredibly popular time -- like spring break in Florida, for example -- you should book well before the “prime booking window” begins. When there’s constant, strong demand for a flight, the researchers explain, airlines have no incentive to lower ticket prices as time goes on. The same principle holds true for flights to hard-to-reach airports in small cities: there’s little airline competition here, so ticket prices don’t drop nearly as much over their lifespan.

Foreign countries are incredibly popular destinations with hard-to-reach airports, so the researchers suggest booking much earlier than the 54 days recommended for domestic flights.

Here are the “magic numbers” for some common international destinations:

Europe: 151 days before your flight
Asia: 129 days before your flight
The Caribbean: 101 days before your flight
Mexico: 89 days before your flight
Latin America: 80 days before your flight

Redfin: Not all industries can be revolutionized with just an app

Doing research for something else, I came across this profile of Redfin blending technology with people working through the challenges of scaling both while realigning incentives in a broken industry (WSJ):

If you're touring a neighborhood and see a house for sale, you can order up a Redfin agent to drive over to show you the property quickly. In the company's most-established markets, Seattle, for instance, the agent can be at your service within an hour. (It takes longer in Redfin's newer markets, like Dallas). This works thanks to a blend of technology and management. Just as the Uber online ride service maps its drivers, Redfin keeps track of its agents' calendars and real-time locations. Unlike a traditional real-estate brokerage—in which agents essentially are contractors of a brand, not employees—Redfin's agents are salaried workers. The company can tell them where to go and what to do.

Redfin helps soothe other home-buying frustrations as well. Redfin compiles detailed histories on competing brokerages' pricing strategies, strengthening Redfin agents' negotiating prowess. Redfin also conducts most of the home-buying process online, reducing paperwork. And if you're selling your house, Redfin can test offer prices on the Web, helping you to home in on the optimal price.

The biggest opportunity is price. Mr. Kelman says the incentives of traditional real-estate agents are misaligned with those of customers. If you're selling your house, your agent, who gets paid on commission, will prefer that you take a lowball offer over no offer. If you're buying, your agent will want you to bid higher than you might otherwise want—or need—to pay. Economists call this the Principal-Agent Problem, and it has proved stubbornly intractable in real estate.

Mr. Kelman says Redfin has a solution. About half a typical Redfin agent's pay comes through salary. The rest comes through commissions. But crucially, commissions are linked to detailed reviews that Redfin customers complete after sales. The reviews are posted online and affect each agent's future business. Your agent always has an incentive to please you. If pushing a client to close a deal will produce a bad review, the agent would rather not close.

Winner takes all: how technology is driving returns to talent

An article that could provide some of the clues of why inequality is growing as it "enable[s] the best producers to extend their reach" (NYT via GregMankiw):

Analogous forces help explain the surge in income inequality that began in the late 1960s. In domain after domain, we reasoned, technology has enabled innovative business models to serve broader markets. Local accountants have been displaced by tax software, brick-and-mortar shops by Amazon.com and other online retailers. And now, there is even worry that live, in-theater HD broadcasts of Metropolitan Opera performances could displace local opera companies across the land.

But similar advances in production and distribution methods also exert countervailing effects. As the former Wired magazine editor Chris Anderson explained in his 2006 book, “The Long Tail” (the title refers to a property of statistical distributions), digital technology has made music, books, movies and many other goods economically viable on a much smaller scale than before.

For example, films once generated revenue only by mustering large-enough audiences to justify screenings in theaters. Many niche offerings, like Hindi-language movies in medium-size American cities, were simply not viable. Services like Netflix, however, changed all that. Because digital movies cost next to nothing to ship, people can now watch them without having to assemble a posse of ticket buyers.

"The automation doesn’t replace us. It makes us better."

From Wired: What UPS Drivers Can Tell Us About the Automated Future of Work:

Many of us are a lot like UPS drivers in our daily lives: The only difference is we spend our days shepherding virtual bits between destinations rather than driving physical boxes around. But we still face many of the same prioritization and optimization challenges.

Yet one of the biggest misconceptions about software-enabled decision making is the idea that it’s far removed from us. Many people think of data as something technical that only accountants, warehouses, data scientists, or the latest slew of tech technology-as-a-coach startups need to worry about. We don’t recognize the strategic connection between information collection and decision making, or see how data can help increase our own performance.

This skepticism was in evidence during UPS’s first roll out of ORION. In hindsight, Levis admits that he bears some of the blame for that. “We’d go in the morning and say, here’s your planned number of miles,” he recalled. Telling a driver with years of experience that an algorithm knew how to plan a route better than he did struck them as more than a little dismissive.

Levis’s team decided to change approaches and tackle the drivers’ resistance head-on by issuing a challenge: “beat the computer” by combining ORION’s suggestions with their own. One driver who used ORION’s suggestions ended up subtracting 30 miles from his daily route.

Profile of Elizabeth Holmes, founder of Theranos

Inspired (Wired):

Even the word sounds archaic—and that’s nothing compared to the slow, expensive, and inefficient reality of drawing blood and having it tested. As a college sophomore, Elizabeth Holmes envisioned a way to reinvent old-fashioned phlebotomy and, in the process, usher in an era of comprehensive superfast diagnosis and preventive medicine. That was a decade ago. Holmes, now 30, dropped out of Stanford and founded a company called Theranos with her tuition money. Last fall it finally introduced its radical blood-testing service in a Walgreens pharmacy near the company headquarters in Palo Alto, California. (The plan is to roll out testing centers nationwide.) Instead of vials of blood—one for every test needed—Theranos requires only a pinprick and a drop of blood. With that they can perform hundreds of tests, from standard cholesterol checks to sophisticated genetic analyses. The results are faster, more accurate, and far cheaper than conventional methods. The implications are mind-blowing. With inexpensive and easy access to the information running through their veins, people will have an unprecedented window on their own health. And a new generation of diagnostic tests could allow them to head off serious afflictions from cancer to diabetes to heart disease. None of this would work if Theranos hadn’t figured out how to make testing transparent and inexpensive. The company plans to charge less than 50 percent of the standard Medicare and Medicaid reimbursement rates. And unlike the rest of the testing industry, Theranos lists its prices on its website: blood typing, $2.05; cholesterol, $2.99; iron, $4.45. If all tests in the US were performed at those kinds of prices, the company says, it could save Medicare $98 billion and Medicaid $104 billion over the next decade.

Kenya's "first mockumentary" takes aim at the NGO world

A script that can ring far too close to home for those who have worked in the NGO space (Africascountry.com via FB):

Labs in free(er) markets

Walter Russell Mead posts on the new Pacific Alliance - an economic pact between Mexico, Peru, Chile, and Colombia (and coming soon: Costa Rica) that Mead "has the potential to recolor Latin America’s economic map and introduce some new regional powerhouses to the world stage" (via Instapundit):

The newly formed bloc is made up of Latin America’s fastest growing economies. These states boast the region’s most competitive, business-friendly economies and the lowest inflation rates. Current transactions between these countries represent a mere 4 percent of their total trade; the potential for increased financial cooperation is immense. They have already eliminated 92 percent of trade tariffs.

Meanwhile, Reason.com discusses a meta-study on American state taxation and regulation:

Of the 112 academic studies we found on overall state or local tax burdens, for example, 72 of them-64 percent-showed a negative association with economic performance. Only two studies linked higher overall tax burdens with stronger growth, while the rest yielded mixed or statistically insignificant findings.

On smaller categories of taxation, the trend was similar: There was a negative association between economic growth and higher personal income taxes in 67 percent of the studies. The proportion rose to 74 percent for higher marginal tax rates or tax code progressivity, and 69 percent for higher business or corporate taxes.

Some of the strongest negative results appeared when scholars were able to isolate policy variables from background effects. For example, a 1996 study in the American Economic Review exploited the fact that some foreign countries gave domestic tax credits to companies that pay taxes in the United States, so those companies would be expected not to care much about state tax rates. In other countries, companies didn't receive such credits and would thus be subject to greater variation in state tax burdens. By looking at the behavior of firms based on their home country, author James Hines of the University of Michigan found that "state taxes significantly influence the pattern of foreign direct investment in the U.S." A 1 percent change in the tax rate was associated with an 8 percent change in the share of manufacturing investment from taxed investors.

People respond to incentives: ABBA edition

From the National Post: ABBA singer says group wore outlandish costumes to avoid tax: ‘Nobody was as badly dressed as we were’.

When it comes to forecasting the economy, entrepreneurs don't have an "optimism bias"

Unfortunately this ability to forecast accurately, doesn't hold true to our own businesses (HBR):

The researchers drew on survey data from 1996 to 2009 asking Swedish citizens whether the Swedish economy had improved from 12 months prior, as well as whether they believed it would improve in the 12 months ahead. Not surprisingly, entrepreneurs — defined as those self-employed — were more optimistic in both cases, and this relationship held even once gender, age, education, and income were accounted for.

To examine whether this amounted to an actual bias, the researchers then compared these answers to changes in GDP to assess the accuracy of respondents’ beliefs. “Entrepreneurs make smaller forecast errors than non-entrepreneurs,” the authors write, a finding that once again held when gender, age, education, and income were taken into account.

Perhaps the biggest contribution of this research is the simple reminder that just because someone is optimistic, that doesn’t mean they’re wrong. Though pessimists tend to claim the mantle of “realism” to justify their beliefs, in some cases it’s actually the optimists who deserve the title. There remains evidence that entrepreneurs are unrealistically optimistic when it comes to the fate of their own businesses, but in terms of the economy, their optimism has historically been justified.

Changing how pharmaceutical drugs are delivered

Introducing PillPack (Wired via Instapundit):

A startup pharmacy called PillPack hopes to change this archaic process. For $20 a month, PillPack will deliver prescription drugs to patients with the efficiency of Amazon Prime. Pillpack came to life thanks to a new incubator program at the famed design consultancy IDEO and the core of their service is a small blue box that organizes all of your med into “dose packets,” little plastic baggies marked with the date and time they’re to be taken. A jumble of amber bottles are replaced by an efficient to-do list made of drugs. [...]

The technical backbone of PillPack is a suite of drug-dealing robots. A large, beige machine in PillPack’s New Hampshire office is filled with a cornucopia of curatives which are dispensed into the plastic packets. The strip of dose packs is then fed through another robot that reviews each plastic packet for quality control purposes before a team of pharmacists double check the prescriptions and send them off to patients.[...]

Despite his desire to get his hands dirty designing, Parker knew that his skills weren’t commensurate with the task at hand. In return for equity in the company, IDEO’s Boston office incubated the startup, providing key feedback on everything from the sign up experience on the website to the packaging details while the company was at its formative stage.

Does "doing what you love" devalue work and hurt workers?

Apparently... though I'm not sure I agree with the definitions here. The basic argument is that the value in work is reflected not in self actualization but how well it serves others. But why can't you love solving the problems others have? And wouldn't it be far more efficient and sustainable to love doing so? (Slate via Instapundit)

There’s little doubt that “do what you love” (DWYL) is now the unofficial work mantra for our time. The problem with DWYL, however, is that it leads not to salvation but to the devaluation of actual work—and more importantly, the dehumanization of the vast majority of laborers.

Superficially, DWYL is an uplifting piece of advice, urging us to ponder what it is we most enjoy doing and then turn that activity into a wage-generating enterprise. But why should our pleasure be for profit? And who is the audience for this dictum?

DWYL is a secret handshake of the privileged and a worldview that disguises its elitism as noble self-betterment. According to this way of thinking, labor is not something one does for compensation but is an act of love. If profit doesn’t happen to follow, presumably it is because the worker’s passion and determination were insufficient. Its real achievement is making workers believe their labor serves the self and not the marketplace. . . . If we believe that working as a Silicon Valley entrepreneur or a museum publicist or a think-tank acolyte is essential to being true to ourselves, what do we believe about the inner lives and hopes of those who clean hotel rooms and stock shelves at big-box stores? The answer is: nothing.

But as Glenn Reynolds points out - "Well, there’s work, and then there’s work. Work need not be self-actualizing to be valuable, to the worker and to others. But even when you love your work as much as I love mine, there are days when you’d really rather just stay in bed."

Are American tech startups endangered?

Apparently, and alarmingly (WashingtonPost).

Why they're complaining about Amazon

The real reason why they're complaining about Amazon (AuthorEarnings via Instapundit):

What this chart shows is that indie and small-publisher titles dominate the bestselling genres on Amazon. We can clearly see that the demand from readers for more of these works is not being fully met by traditional publishing. . . . Some obvious things immediately jump out. The first is that Amazon has an incredible ability to market their own works, which shouldn’t be too surprising, considering it’s their storefront. We see from this and the previous chart that their 4% of titles command an amazing 15% of the sales. That’s impressive. It’s nearly 4 times the average unit sales volume per book. Now look at the Big Five, who with all their marketing efforts and brand recognition actually end up with pretty average per-book sales: a mere 1.2 times the overall average. The other eye-popper here is that indie authors are outselling the Big Five. That’s the entire Big Five. Combined. Indie and small-press books account for half of the e-book sales in the most popular and bestselling genres on Amazon. . . . Indie authors are earning nearly half the total author revenue from genre fiction sales on Amazon.

Burning out

Nope, it's not about me. I think there are a few solutions to this - a deep and strong sense of purpose, someone to balance you off, and other activities like CrossFit for release... but this is a "cautionary tale" (FourHourWorkWeek):

It’d be very easy for me to manufacture a villain in this story. I could tell you that I was pushed too hard, or that no one cared about how I felt. But that’s not the truth. I was the one who chose to stay up until 4:00AM. I was the one pouring caffeine down my throat four times a day. I was the one who secretly ordered brain pills. I was the one who isolated myself from friends and kept my feelings hidden. Everything I did that fueled my anxiety was my choice.

The truth is that all of my emotional issues would have unfolded for me at some point in my life, regardless of whom I was working with. I was the creator of my own anxiety, and I was the one who broke myself with my workaholic habits. I just didn’t recognize how destructive my behavior was because I thought it was normal.

Update - more on dealing with overwhelming amounts of work (FourHourWorkWeek).

The 1,000 hour rule for would be entrepreneurs

Pretty good advice... being an entrepreneur is a marathon, not a sprint (Lifehacker):

I was chatting with my friend David from Greenback Tax Services the other day about these misconceptions. I said: "people don't understand they need to be poor for 1000 days." Our basic hypothesis: you'll be doing worse than you were at your job for 1000 days after you start your muse business.

I've seen it happen a bunch of times. For many of us it's been almost exactly those 1000 days it took for us to get back to the level of income we enjoyed in our corporate days.

The whining of an elitist gatekeeper

The New Yorker publishes what amounts to a long whine over Amazon's effect on empowering consumers:

At the moment, those people are obsessed with how they read books—whether it’s on a Kindle or an iPad or on printed pages. This conversation, though important, takes place in the shallows and misses the deeper currents that, in the digital age, are pushing American culture under the control of ever fewer and more powerful corporations. Bezos is right: gatekeepers are inherently élitist, and some of them have been weakened, in no small part, because of their complacency and short-term thinking. But gatekeepers are also barriers against the complete commercialization of ideas, allowing new talent the time to develop and learn to tell difficult truths. When the last gatekeeper but one is gone, will Amazon care whether a book is any good?

I'll volunteer an answer: No. Why should they? Why does the author think that commercialism and letting consumers decide for themselves whether a book is worth their time such a bad thing?

Further, Amazon has power only because consumers have given it to them because they trust Amazon - a trust that is earned but also easily taken away. The technology that has given consumers that empowerment is so easily replicated - so how powerful is Amazon when it comes to the "control of American culture", really?

Counterpoint: is the yuan overvalued?

While I think that often the people who hope for a substantial yuan appreciation have little understanding of what that will mean for them, I'm not sure this thesis is quite on the mark either... but it's tough to say what will happen as capital controls lessen in China (WSJ):

“The free movement of capital is much more likely to result in Chinese capital outflows exceeding inflows, pushing the yuan down and domestic interest rates up,” Ms. Choyleva wrote in the report.

That chimes with estimates by Tamim Bayoumi and Franziska Ohnsorge of the International Monetary Fund. In a paper published last year, they argued that although capital-account opening would lead to massive flows in both directions, outbound capital would dominate. Net outflows could be as much 11% to 18% of China’s GDP, they estimated. That would put downward pressure on the currency.

A weaker yuan would reinvigorate China’s flagging export sector but push up the cost of imports, holding back the transition from a growth model turbocharged by high rates of investment to one that serves consumers.

An intervention in development that works?

Educating local residents on how to resolve property rights disputes and providing alternatives in countries with weak rule of law has reduced violence - Chris Blattman quoting a paper he did with Alex Hartman and Rob Blair:

Dispute resolution institutions help reach agreements and preserve the peace whenever property rights are imperfect. In weak states, strengthening formal institutions can take decades, and so state and aid interventions also try to shape informal practices and norms governing disputes. Their goal is to improve bargaining and commitment, thus limiting disputes and violence.

Mass education campaigns that promote alternative dispute resolution (ADR) are common examples. We study short-term impacts of one such campaign in Liberia, where property disputes are endemic. From 246 towns, 86 randomly received training in ADR practices and norms, training 15% of adults.

One year later, treated towns have higher resolution of land disputes and lower violence. Impacts spill over to untrained residents. We also see unintended consequences: more extrajudicial punishment and (weakly) more non-violent disagreements. Results imply mass education can change high-stakes behaviors, and improving informal bargaining and enforcement behavior can promote order in weak states.

The real public servants

James Huffman at Hoover via Instapundit:

Tocqueville recognized what nineteenth-century Americans understood and practiced—the public good is served by the individual pursuit of ‘self-interest well understood.’ Among our most public-spirited citizens are those who work with others, without the intervention or aid of government, in creating and sustaining the businesses upon which our economic and social prosperity rest. We should celebrate their public service.

The robots that saved Pittsburgh

A fascinating article on the re-emergence of Pittsburgh (Politico via Justin on fb).

People respond to incentives: American healthcare edition

From the Congressional Budget Office (via Greg Mankiw):

CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

To which Greg Mankiw adds:

Implicit in this estimate are elasticities that measure how much people respond to incentives. My sense is that CBO is typically conservative when it come to gauging these incentives effects. So I would take their estimate of the impact on hours worked as a lower bound. The actual figure may be higher.

Overwork and productivity

I've been realizing that I have to do better at defining boundaries between work and play - or at least different levels of work/play to avoid burnout (New Yorker via GTD):

The perplexing thing about the cult of overwork is that, as we’ve known for a while, long hours diminish both productivity and quality. Among industrial workers, overtime raises the rate of mistakes and safety mishaps; likewise, for knowledge workers fatigue and sleep-deprivation make it hard to perform at a high cognitive level. As Solomon put it, past a certain point overworked people become “less efficient and less effective.” And the effects are cumulative. The bankers Michel studied started to break down in their fourth year on the job. They suffered from depression, anxiety, and immune-system problems, and performance reviews showed that their creativity and judgment declined.

On the effects of for profit micro-lending (at Compartamos, Mexico)

Ever since its public offering, there's been a debate on the supposed morality of the profitability of Banco Compartamos (CGAP) to which I offer three points:

1. Compartamos' clients chose (ie but weren't forced to use) Compartamos, not their competitors
2. Compartamos grew dramatically faster than their competitors because they were tremendously profitable and reinvested those profits.
3. Given Compartamos' interest rates were competitive with others, it isn't Compartamos that should be held accountable, but their supposed not-for-profit competitors who have chosen to divert profits towards expanding bureaucracies, lavish management compensation packages or highly unprofitable business models.

From a recent study on the effects of microfinance loans from Compartamos on their clients (PDF from Poverty-Action.org via Freakonomics):

Our results suggest modest but generally positive average effects on our sample of borrowers and prospective borrowers. We make five broad inferences. First, increasing access to microcredit increases borrowing and does not crowd-out other loans. Second, loans seem to be used for both investment—in particular for expanding previously existing businesses—and risk management (through a reduction in asset fire sales). Third, there is evidence of positive average impacts on business size, reliance on/need for aid, lack of depression, trust, and female decision making. Fourth, there is little evidence of negative average impacts: the only “negative” impacts are reductions in asset purchases and temptation goods, and these results have normatively positive or neutral interpretations as well. Fifth, the positive effects are not sweeping or transformative. Although some of the AIT effects are economically large, and all of the statistically significant effects are likely large in treatment-on-the-treated terms, we find statistically significant effects on only 12 of the 35 more-ultimate outcomes we evaluate, and no positive effects on household/business income, consumption, or wealth.

These results, taken together with a paper showing strong price elasticities of demand for Compartamos credit (Karlan and Zinman 2013), contribute to a strong business and policy case for lowering interest rates: profits do not decrease, and social impact presumably increases (slightly). One missing piece for this case is evidence on heterogeneous treatment effects. If average impacts mask dispersion where some (potential) borrowers are much better off and others worse off, this would have important implications for modeling and policy concerned with the effects of expanded access to credit on inequality. We are undertaking further research to identify the presence or absence of heterogeneous treatment effects from Compartamos credit and hope that others will pursue similar inquiries in other settings.

I'd add a few additional thoughts. There has been tremendous pressure on Compartamos to reduce its interest rates but as this study suggests, the social impact of decreasing those rates would be "slight":

• Wouldn't this mean that forgoing that additional profitability would mean fewer people would be served?
• Does the "slight" improvement offset the benefits the additional borrowers that would otherwise be served?