Month: March 2019

The Brother Earnings Penalty

This paper examines the impact of sibling gender on adolescent experiences and adult labor market outcomes for a recent cohort of U.S. women. We document an earnings penalty from the presence of a younger brother (relative to a younger sister), finding that a next-youngest brother reduces adult earnings by about 7 percent. Using rich data on parent-child interactions, parents’ expectations, disruptive behaviors, and adult outcomes, we provide a first step at examining the mechanisms behind this result. We find that brothers reduce parents’ expectations and school monitoring of female children while also increasing females’ propensity to engage in more traditionally feminine tasks. These factors help explain a portion of the labor market penalty from brothers.

That is by Angela Cooks and Eleonora Patacchin in Labour Economics.  Once again, family niche effects seem to matter.  Via the excellent Kevin Lewis.

Writers vs. entrepreneurs, publishers vs. venture capitalists

Henry Oliver asks:

In what ways are writers and entrepreneurs similar? Why doesn’t publishing have more of a VC structure and attitude? Could authorship be made more productive and better quality with VC in publishing and theatre? Are movies better at this?

Publishing has one feature in common with venture capital, namely that most financed undertakings are failures and the most profitable successes can be hard to predict in advance.  Furthermore, publishers are always on the lookout for the soon-to-be-hot, hitherto unpublished author, the next Mark Zuckerberg so to speak.  And books, like software and also successful social networks, are rapidly scalable.  You can sell millions with a big hit.  But here are a few differences:

1. A lot of VC is person-focused.  The VC company builds a relationship with a young talent, and in some cases the hope is that the second or third business makes it, or that the person can be steered in the proper direction early on.  Authors, in contrast, are more mobile across publishers, and the publisher usually is buying “a book” rather than “a relationship with the author.”  Some wags would say that a publisher is buying a title, a cover, and the author’s social media presence.

2. Entrepreneurs commonly have more than one VC, but authors, for a single book, do not have multiple publishers.

3. For the vast majority of books which do not make a profit, this is evident within the first three weeks of release or perhaps before release altogether.  The publisher may drop its resource commitment to the author very quickly, and even yank the PR people off the case.  This further loosens the bond between the talent (the author) and the funders of the talent (the publisher).  In contrast, VC rounds can last five or ten years, with commitments made in advance and possibly a board seat as part of the deal.

4. Venture capitalists will introduce their entrepreneurs to an entire network of supporting talent and connections.  Publishers will edit and advise on a manuscript, but it is much more of an arm’s length relationship, and a publisher might do very little to bring an author into any kind of network.

5. The major publishing houses are clustered in Manhattan, just as the major venture capitalist firms are clustered in the Bay Area.  But the publishers don’t find a pressing need to have their authors living in or near NYC, though for some other reasons that is convenient for the author doing eventual media appearances.

6. Publishers often care a great deal about an author’s preexisting platforms, such as Twitter followers or ability to get on NPR.  Venture capitalists realize that a very good product can overcome the lack of initial renown.  When Page and Brin started Google, they didn’t, believe it or not, have any Twitter followers at all.  In fact, you couldn’t even Google them.

What else?

Theranos was Fraudulent, What About Its Patents?

In Launching the Innovation Renaissance I argued that patents should be given for specific inventions rather than just for broad “ideas”:

Thomas Edison invented and patented numerous products: the light bulb, the phonograph, movie film and much else besides. (At one point the patent office required that patents be accompanied by working models.) The invention of products typically requires the expenditure of sunk costs in a way that the creation of ideas does not. Today it is not necessary to implement an idea to patent it, and many patentable ideas are so broadly phrased that they could not be implemented in a model.

Edison famously said that “genius is one percent inspiration, ninety-nine percent perspiration.” A patent system should reward the 99 percent perspiration, not the 1 percent inspiration. In inventing the light bulb, for example, Edison laboriously experimented with some 6,000 possible materials for the filament before hitting upon bamboo. If Edison were to patent the light bulb today, he would not need to go to such lengths. Instead, Edison could patent the use of an “electrical resistor for the production of electro-magnetic radiation,” a patent that would have covered oven elements as well as light bulbs.

Daniel Nazer, who holds the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation, points out in an excellent article that giving patents for vaguely stated ideas was exactly the problem with Theranos and its so-called patents.

Holmes found a more receptive audience at the USPTO. She says she spent five straight days at her computer drafting a patent application. The provisional application, filed in September 2003 when Holmes was just 19 years old, describes “medical devices and methods capable of real-time detection of biological activity and the controlled and localized release of appropriate therapeutic agents.” This provisional application would mature into many issued patents. In fact, there are patent applications still being prosecuted that claim priority back to Holmes’ 2003 submission.

But Holmes’ 2003 application was not a “real” invention in any meaningful sense. We know that Theranos spent years and hundreds of millions of dollars trying to develop working diagnostic devices. The tabletop machines Theranos focused on were much less ambitious than Holmes’ original vision of a patch. Indeed, it’s fair to say that Holmes’ first patent application was little more than aspirational science fiction written by an eager undergraduate.

…Two legal doctrines are relevant here. The “utility” requirement of patent law requires that the invention work. And the “enablement” requirement means that the application has to describe the invention with enough detail to allow a person in the relevant field to build and use it. If the applicant herself can’t build the invention with nearly unlimited time and money, it does not seem like the enablement requirement could possibly be satisfied.

The USPTO generally does a terrible job of ensuring that applications meet the utility and enablement standards.

Despite never having built a working product, Theranos accumulated hundreds of patents. These patents are now the only thing of value left but the patents aren’t valuable because of breakthrough science, the patents are valuable because they can be used to force people who do breakthrough science to cough up part of their return.

As Nazer puts it:

Accused of having lied to investors and endangered patients, the company leaves us with a parting gift: a portfolio of landmines for any company that actually solves the problems Theranos failed to solve.

The real threats to free speech on campus

That is the topic of my latest Bloomberg column, here is an excerpt:

…being at a state school is hardly a guarantee of tolerance. Teaching at a state university does widen the scope of what a professor can say without being fired. But ongoing student protests or unfavorable treatment from colleagues can make continued employment so unpleasant that a person simply decides to leave. In my experience, most professors aren’t in it for the money — rather, they love their work. Loving your work is a gift that can be taken away rather easily, regardless of whatever formal legal protections there may be.

Or consider the position of a student. You might have the legal right to start a pro-Trump group on campus. But you might be dissuaded from doing so if you fear your professors would respond by writing you mediocre letters of recommendation.

What really matters on campus is what the most obstreperous participants in these debates consider to be acceptable behavior and speech, and how far they will take their protests. These individuals are usually those with relatively little to lose from strident behavior, and perhaps some local status to gain. They may be students, or they may not; they can be student counselors, or faculty members, or even low-level university bureaucrats.

I explain in the piece why my own university, George Mason, has been strong in this regard.  And I am not crazy about the new proposed Trump executive order:

The relevant troublemakers are hardly ever university administrators. Yet they would inevitably become entangled in any tighter federal free-speech regulations. I have found such administrators to be pragmatic and able to see multiple sides of an issue, even if I do not always agree with their stances. Their primary goal is usually to get the rancor and protests to go away, so the business of the university can return to normal. Placing more constraints on their behavior could actually weaken their hand — by limiting their ability to mollify unruly student groups, for instance.

The full piece offers several additional arguments of note, so do read the whole thing.  Here is my conclusion:

I’m all for free speech, whether for public or private schools. But the fight has to be won in the hearts and minds of students and workers, not by the federal government.

Work isn’t so bad

Although we spend much of our waking hours working, the emotional experience of work, versus non-work, remains unclear. While the large literature on work stress suggests that work generally is aversive, some seminal theory and findings portray working as salubrious and perhaps as an escape from home life. Here, we examine the subjective experience of work (versus non-work) by conducting a quantitative review of 59 primary studies that assessed affect on working days. Meta-analyses of within-day studies indicated that there was no difference in positive affect (PA) between work versus non-work domains. Negative affect (NA) was higher for work than non-work, although the magnitude of difference was small (i.e., .22 SD, an effect size comparable to that of the difference in NA between different leisure activities like watching TV versus playing board games). Moderator analyses revealed that PA was relatively higher at work and NA relatively lower when affect was measured using “real-time” measurement (e.g., Experience Sampling Methodology) versus measured using the Day Reconstruction Method (i.e., real-time reports reveal a more favorable view of work as compared to recall/DRM reports). Additional findings from moderator analyses included significant differences in main effect sizes as a function of the specific affect, and, for PA, as a function of the age of the sample and the time of day when the non-work measurements were taken. Results for the other possible moderators including job complexity and affect intensity were not statistically significant.

That is from a new paper by Martin J. Biskup, Seth Kaplan, Jill C. Bradley-Geist, and Ashley A. Membere.  Such meta-analyses have their problems, but I consider other kinds of analysis, with complementary results, in my forthcoming book Big Business: A Love Letter to an American Anti-Hero.

Via Rolf Degen.

Hypnotist markets in everything

Those new service sector jobs:

This hypnotist charges half a bitcoin for helping you remember your lost cryptocurrency password…

“If you’ve got, you know, $100,000, $200,000, $300,000 worth of bitcoin in a wallet and you can’t get access to it, there’s a lot of stress there,” he says. “So it’s not just as simple as saying, okay, we’re going to go do a 30-minute hypnosis session and enhance your memory.”

Miller declined to specify the exact number of participants in his bitcoin password recovery program or how much money he’s recovered, citing client confidentiality. However, he says that there are currently “several people” in his program, who are experiencing varying degrees of success.

Generally, a person who created their password more recently will have an easier time unlocking this memory, he says. Likewise, a client who is feeling low stress will have an easier time remembering their password than one under high stress.

Miller is located in Greenville, South Carolina.

For the pointer I thank Nick Glenn.

Tech and economic growth in the Book of Genesis

That is the topic of my latest Bloomberg column, worth reading as an integrated whole.  Here is one excerpt:

The stories have so much religious significance that it is easy to miss the embedded tale of technology-led economic growth, similar to what you might find in the work of Adam Smith or even Paul Romer. Adam and Eve eat of “the tree of knowledge, good and evil,” and from that decision an entire series of economic forces are set in motion. Soon thereafter Adam and Eve are tilling the soil, and in their lineage is Tubal-Cain, “who forged every tool of copper and iron.”

Living standards rise throughout the book, and by the end we see the marvels of Egyptian civilization, as experienced and advised by Joseph. The Egyptians have advanced markets in grain, and the logistical and administrative capacities to store grain for up to seven years, helping them to overcome famine risk (for purposes of contrast, the U.S. federal government routinely loses track of assets, weapons, and immigrant children). It is a society of advanced infrastructure, with governance sophisticated enough to support a 20 percent tax rate (Joseph instructs the pharaoh not to raise it higher). Note that in modern America federal spending typically has run just below 20 percent since the mid-1950s.

Arguably you can find a story of quantitative easing in Genesis as well. When silver is hard to come by, perhaps because of deflationary forces, the Egyptian government buys up farmland and compensates the owners with grain.

Most of all, in the Genesis story, the population of the Middle East keeps growing. I’ve known readers who roll their eyes at the lists of names, and the numerous recitations of who begat whom, but that’s the Bible’s way of telling us that progress is underway. Neither land nor food supplies prove to be the binding constraints for population growth, unlike the much later canonical classical economics models of Malthus and Ricardo.

There is much more at the link.

The complacent class

The students who had taken over her office were a conscious throwback to the activism of the 1960s, when Hampshire [College] was conceived as an experiment in higher education. Now they were fighting for its survival in a different time, and it was not looking good. The college announced in January that it was facing “tough financial trends” and was looking for a partner to stay afloat…

Founded in 1965 and opened to students five years later, Hampshire, a liberal arts college in western Massachusetts, is an embodiment of the progressive education principles that arose from the spirit of individualism and self-expression of that era. There are no grades, only narrative assessments, and there are no prescribed majors; students design their own courses of study.

Hampshire and a few dozen other schools founded on similar principles were once the cutting edge of academia. But now, families facing sky-high tuitions are looking for a more direct link between college and career, college officials say. As a result, many of these small, experimental schools are being forced to re-examine their missions, merge with more traditional institutions or, in some cases, shut down.

Here is more from Anemona Hartocollis at the NYT.

The culture and polity that is Arlington, Virginia

Arlington officials say Amazon’s arrival will boost the number of visitors staying in hotels, motels and other lodgings. Starting in June 2019, 15 percent of any increase in its “transient occupancy tax” would go to Amazon, if the company meets specific targets for how much office space the new headquarters facility occupies.

The agreement says Amazon needs to occupy 64,000 square feet of office space by July 31, 2020, in order to qualify for the 15 percent payment. The required amount of space increases to 252,800 square feet by July 31, 2021, and to 5.576 million by July 31, 2034, the last year of incentive payments.

Here is more from WaPo.

Tuesday assorted links

1. Status networks and proof of work.

2. Zack Beauchamp interviews Brad DeLong.  And commentary from Ross (NYT).

3. “…unfunded pension benefits grow faster under Democratic-party mayors.

4. Summers on MMT.  And Scott Sumner on MMT.

5. Boston is the most politically intolerant place in the U.S.

6. The average age of U.S. college presidents is rising rapidly.

7. David Brooks on Medicare For All (NYT).

Modern Principles of Economics

If you are teaching principles of economics next year do check out our textbook, Modern Principles of Economics.

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High-quality videos integrated directly into the textbook make Modern Principles a new kind of textbook, one born in the age of the internet. No other textbook has the quantity and quality of supplementary material available with Modern Principles. Whether you are looking to flip the classroom or just for the occasional video to grab the student’s attention before the lecture, you will find what you need in Modern Principles. The superb course management system also makes it easy to assign videos and grade questions.

Teachers can request a free examination copy here.

Here’s a video overview of Modern Principles of Economics:

The value of exploitative loans

I show that the same bias that causes someone to take an exploitative loan may also imply that the loan benefits them by causing them to purchase a product or service that they should, but wouldn’t otherwise, buy. I demonstrate the importance of this effect in a study of tax refund anticipation loans. I find that regulation curtailing these loans reduced the use of paid tax preparers and the takeup of the earned income tax credit, which is the second largest federal transfer to low-income households.

That is from a paper by Andrew T. Hayashi, via the excellent Kevin Lewis.