Key early-stage investing questions:
Of all the things you could work on, why this?
How does this eventually become a $100 billion business?
What do you understand about this that others don’t?
What progress have you made in the last week?
What are you really great at?
— Sam Altman (@sama) February 4, 2022
Here is the link.
Here’s a new video, What is Public Choice? I cover the assumptions and goals of public choice, the nirvana fallacy, the relationship to Madison and the US founding fathers and more. This is part of a larger series which I will plug in the forthcoming weeks. Works well with our chapter on political economy in Modern Principles of Economics!
The answer here depends so much on how much money and how much time and how much interest you have that I can’t give you a simple formula. Nonetheless here are a few basic observations that might prove useful at varying levels of interest:
1. At some you should just start buying some stuff. You’re going to make some mistakes at first, treat that as part of your learning curve and as part of the price of the broader endeavor.
2. Don’t ever think you can make money buying and selling art. The bid-ask spread is a bitch, and finding the right buyers is a complex and time-consuming matching problem.
3. Art is strongly tiered in a hierarchical fashion. That means most fields are incredible bargains, at least relative to the trendy fields. A lot of HNW buyers are looking for large, striking contemporary works they can hang over their sofas in their second homes in Miami Beach or Los Angeles or Aspen. Good for them, as many of those works are splendid. Nonetheless that opens up opportunities for you. I find the price/beauty gradient ratio can be especially favorable for textiles, ethnographic works, Old Master drawings (and sometimes paintings), paintings from smaller or obscure countries, various collectibles, and many other areas.
4. As for the price/beauty gradient, prints, lithographs, and watercolors usually are much cheaper than original paintings. And they are not necessarily of lower quality. Figure out early on which are the artists whose prints can be as good or better than many of their original works (Lozowick, Picasso, and Johns would be a few nominees) and learn lots about those areas. A Goncharova painting can costs hundreds of thousands or millions of dollars, but one of her Ballet Russe designs — an original done by the same hand — can go for thousands.
4b. The “mainstream art market” still discriminates in favor of “original” works, but it already has started laying this convention aside for photographs, and I wonder if further erosion along these lines is not on the way. The “internet generation” is getting wealthier all the time, and do they all hate reproducibility so much?
5. Pick a small number of areas and specialize in them. Learn everything you can about them. Everything. Follow auction results. Read about their history. Read biographies of their creators. Go visit exhibitions. And so on. It is also a great way to learn about the world more generally.
6. If you are an outsider, you can’t just walk up to a gallery and buy the best stuff at a market clearing price. You have to invest in your relationships there. Or consider buying at auction. Whatever your choice, be aware of the logic and why things work that way. Selling practices are also an exercise in reputation management of the artist and of the gallery, and maybe they think you are not up to snuff as a buyer!
7. Visit other people’s art collections as much as you can. You will learn a great deal this way, and learn to spot new forms of foolishness that you had never before imagined.
8. Don’t treat art collecting as like shopping, or as motivated by the same impulses. If you do, you will accumulate a lot of junk very quickly. Thinking of it more as building out a long term narrative of what an artistic field, and a culture, is all about. Fine if you don’t want to do that! It is a demanding exercise, and if you wish to escalate your collecting to higher levels, you need to ask yourself if you are really up for that. Does it sound like something you would be good at?
9. Fakes are rampant in so many parts of the art world, but they are especially likely if the artist is “popular” (e.g., Chagall, Dali) or if the style is easily copied ex post (Malevich). In contrast, if you buy a piece of complex stained glass, it is probably the real thing. The major auction houses are usually reasonably good at rooting out fakes, but there is no institution you can trust 100 percent. And sometimes, as with the recently auction Botticelli and da Vinci paintings, no one really knows for sure (Botticelli pro and con; in any case I don’t like the work, certainly not for $45 million).
10. Don’t buy art on the basis of the artist’s name. This is a good way to end up with a lot of crap and, for that matter, fakes. Just about every famous artist has a fair number of mediocre works, overpriced at that. (That said, if you really just want to “collect names,” you will find it is remarkable on a limited income just how many top names you can wrack up.)
11. Few of the important art collections were built by just throwing tons of money at the task. That is a recipe for being ripped off, and it attracts poor quality sellers to your orbit. You have to understand something more deeply than other people do. Obviously money helps, but you can’t rely on outbidding others as your most important ally.
12. Maybe sometime I’ll tell you the story of how I obtained an especially fine, rare work by throwing a stone at a wild dog in rural Mexico. Or how I tracked another painter down at the mental hospital.
13. Get a mentor!
There is much more I could say of relevance (e.g., how to present yourself to dealers? how to avoid winner’s curse?), but I’ll stop there for now.
At least pre-Covid, most of the faculty would get together and rate the graduate students (I am not sure how it has operated for the last two years, though I suspect the same, only over Zoom). Some but not all of the students would be designated as “should work at a top school.” If you were not so rated, your chance of being hired at a top school was slim. Other schools, of course, would know not to pursue the top candidates, and would shoot lower, though some foolhardy places might try to lure them anyway. But basically if you were hiring at a high level, you would call the placement officer at a top school, and they would tier the candidates, based on where you were calling from, and recommend accordingly.
Of course this process has very little transparency and not much in the way of appeal, or even competition, or for that matter accountability to outside parties. Might it also be a factor behind a lot of the academic conformism we witness? You go through the early part of your career knowing that you are auditioning for a committee. Can any voice wreck you? Or is it majority rule? You will never know!
Unlike a lot of the whiners, I am not saying this system is necessarily bad — I am genuinely unsure, in part because of the lack of transparency, not to mention that the relevant alternative is possibly something worse yet. In any case, I find it striking how little discussion this method has received. It allocates most of the best jobs in the economics profession, and it does not obviously satisfy many of the ideals that at least some of us pay lip service to. John List, now tenured at the University of Chicago, received his initial Ph.D from University of Wyoming, not a top school, but that kind of climb up the academic ladder is extremely rare in economics.
Most lesser ranked schools, including GMU, do not rank their candidates collectively in the same manner. There is no collective ranking, rather individual faculty, or perhaps small working groups, recommend their favored candidates. In part they are competing against the other recommending faculty in their own department. There is no “secret, collusive meeting,” and so you might think there is an incentive to over-recommend and to deplete the collective credibility of the department. The market, however, understands that and takes it into account, and in that sense the credibility of the department “starts off depleted” to begin with. The recommendations then have to be somewhat exaggerated simply to “break even” in the resulting signal-jamming equilibrium.
Lower-ranked schools don’t have the option of sending most of their Ph.D. students to Tier 1 research universities, so the notion of a uniform ranking probably doesn’t make sense there. And if you have only three graduating Ph.D. students in a year, and two of them are returning home to Asia, as is the case in many of the lower-ranked programs, does it really make sense to rank them? Furthermore, the lower-ranked schools may have a higher variance of faculty quality, which would render a consensus ranking of the graduates more difficult to achieve. In contrast, almost all of the faculty at Harvard have a pretty good sense of “what it takes” to succeed at MIT or Princeton as a junior faculty member.
Which method is better? Is the current state of affairs, with a split system, optimal? Is the current system due to break down in some way? Why don’t the economists at top schools talk about this much? Is the whole thing just a plain, flat outrage? Here is one of the few discussions I can find, and yes it does affirm that the practice occurs, though it overstates its universality.
What do you all think?
That is the topic of my latest Bloomberg column, here is one bit:
For all the talk about how political and media bias distort people’s perceptions of current events, another kind of bias may have an even greater impact: recency bias. Put simply, recency bias is the practice of giving disproportionate weight to the events of the recent past when formulating expectations and plans.
I fear we are committing a form of recency bias by not focusing more on nuclear weapons and the policies surrounding nuclear proliferation and nuclear-weapons use. Atomic bombs have not been used against humans since 1945, and so for many people they are not a major concern, having been supplanted by fears of climate change. But a broader lesson of human history is that, if a weapon is available, sooner or later someone will use it.
The plan for overcoming recency bias is pretty straightforward. Spend less time scrolling through news sites and more time reading books and non-news sites about how your issues of concern have played out in the distant past. If you are young, spend more time talking to older people about what things were like when they were growing up. If you had applied those techniques, Russia’s interest in taking over more parts of Ukraine would not be very surprising.
One thing I liked about reading this book is I was able to narrow down my disagreements with Bryan to a smaller number of dimensions. And to be clear, I agree with a great deal of what is in this book, but that does not make for an interesting blog post. So let’s focus on where we differ. One point of disagreement surfaces when Bryan writes:
Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.
Critique: Unless government requires discrimination, market forces make it a marginal issue at most. Large group differences persist because groups differ largely in productivity.
I would instead stress that most of the inequity occurs upstream of labor markets, through the medium of culture. It is simply much harder to be born in the ghetto! I am fine with not calling this “discrimination,” and indeed I do not myself use the word that way. Still, it is a significant inequity, and it is at least an important a lesson about labor markets as what Bryan presents to you.
But you won’t find much consideration of it in Bryan’s book. The real problems in labor markets arise when “the cultural upstream” intersects with other social institutions in problematic ways. To give a simple example, Princeton kept Jews out for a long time, and that was not because of the government. Or Princeton voted to admit women only in 1969, again not the government. What about Major League Baseball before Jackie Robinson or even for a long while after? Much of Jim Crow was governmental, but so much of it wasn’t. There are many such examples, and I don’t see that Bryan deals with them. And they have materially affected both people’s lives and their labor market histories, covering many millions of lives, arguably billions.
Or, the Indian government takes some steps to remedy caste inequalities, but fundamentally the caste system remains, for whatever reasons. Again, this kind of cultural upstream isn’t much on Bryan’s radar screen. (I have another theory that this neglect of culture is because of Bryan’s unusual theory of free will, through which moral blame has to be assigned to individual choosers, but that will have to wait for another day!)
We can go beyond the discrimination topic and still see that Bryan is not paying enough attention to what is upstream of labor markets, or to how culture shapes human decisions.
Bryan for instance advocates open borders (for all countries?). I think that would be cultural and political suicide, most of all for smaller countries, but for the United States too. You would get fascism first, if anything. I do however favor boosting (pre-Covid) immigration flows into the United States by something like 3x. So in the broader scheme of things I am very pro-immigration. I just think there are cultural limits to what a polity can absorb at what speed.
If you consider Bryan on education, he believes most of higher education is signaling. In contrast, I see higher education as giving its recipients the proper cultural background to participate in labor markets at higher productivity levels. I once wrote an extensive blog post on this. That is how higher education can be productive, while most of your classes seem like a waste of time.
On poverty, Bryan puts forward a formula of a) finish high school, b) get a full time job, and c) get married before you have children. All good advice! But I find that to be nearly tautologous as an explanation of poverty. To me, the deeper and more important is why so many cultures have evolved to make those apparent “no brainer” choices so difficult for so many individuals. Again, I think Bryan is neglecting the cultural factors upstream of labor markets and in this case also marriage markets. One simple question is why some cultures don’t produce enough men worth marrying, but that is hardly the only issue on the table here.
More generally, I believe that once you incorporate these messy “cultural upstream” issues, much of labor economics becomes more complicated than Bryan wishes to acknowledge. Much more complicated.
I should stress that Bryan’s book is nonetheless a very good way to learn economic reasoning, and a wonderful tonic against a lot of the self-righteous, thoughtless mood affiliation you will see on labor markets, even coming from professional economists.
I will remind that you can buy Bryan’s book here, and at a very favorable price point.
I start with about ten minutes of remarks, and then for fifty minutes or so answer questions from Yale students. This was at Yale’s William F. Buckley group.
The author is Bryan Caplan and the subtitle is Essays on the World’s Greatest Market. It is a collection of his best blog posts on labor markets over the last fifteen years or so. A Bryan blog post from 2015 gives a good overview of much of the book, which you can read as pushback against a lot of doctrines held by other people, including the mainstream:
What are these “central tenets of our secular religion” and what’s wrong with them?
Tenet #1: The main reason today’s workers have a decent standard of living is that government passed a bunch of laws protecting them.
Critique: High worker productivity plus competition between employers is the real reason today’s workers have a decent standard of living. In fact, “pro-worker” laws have dire negative side effects for workers, especially unemployment.
Tenet #2: Strict regulation of immigration, especially low-skilled immigration, prevents poverty and inequality.
Critique: Immigration restrictions massively increase the poverty and inequality of the world – and make the average American poorer in the process. Specialization and trade are fountains of wealth, and immigration is just specialization and trade in labor.
Tenet #3: In the modern economy, nothing is more important than education.
Critique: After making obvious corrections for pre-existing ability, completion probability, and such, the return to education is pretty good for strong students, but mediocre or worse for weak students.
Tenet #4: The modern welfare state strikes a wise balance between compassion and efficiency.
Critique: The welfare state primarily helps the old, not the poor – and 19th-century open immigration did far more for the absolutely poor than the welfare state ever has.
Tenet #5: Increasing education levels is good for society.
Critique: Education is mostly signaling; increasing education is a recipe for credential inflation, not prosperity.
Tenet #6: Racial and gender discrimination remains a serious problem, and without government regulation, would still be rampant.
Critique: Unless government requires discrimination, market forces make it a marginal issue at most. Large group differences persist because groups differ largely in productivity.
Tenet #7: Men have treated women poorly throughout history, and it’s only thanks to feminism that anything’s improved.
Critique: While women in the pre-modern era lived hard lives, so did men. The mating market led to poor outcomes for women because men had very little to offer. Economic growth plus competition in labor and mating markets, not feminism, is the main reason women’s lives improved.
Tenet #8: Overpopulation is a terrible social problem.
Critique: The positive externalities of population – especially idea externalities – far outweigh the negative. Reducing population to help the environment is using a sword to kill a mosquito.
Yes, I’m well-aware that most labor economics classes either neglect these points, or strive for “balance.” But as far as I’m concerned, most labor economists just aren’t doing their job. Their lingering faith in our society’s secular religion clouds their judgment – and prevents them from enlightening their students and laying the groundwork for a better future.
I will say this: Labor Econ Versus the World, while not written as a book per se, still is the best free market book on labor economics I know of. And it is very reasonably priced. I agree with much of what is in this book, but by no means all of it. I’ll consider my differences with it in a separate blog post, to come tomorrow.
I am hearing various Twitter reports that in the absence of AEA scheduling coordination, the junior economics job market is involving a lot of departments jumping the gun, interviewing early, and then making “exploding offers” with a short fuse, hoping to snap up desperate candidates. I am not personally involved in that market this year, but my sources seem credible. In any case, this is a problem worth thinking through.
As an economist, how should we think about exploding job market offers?
1. If you are a decently strong candidate who is highly risk-averse, you will end up with too low quality a job. That said, the market is satisfying your risk-averse preference just as it does when you buy insurance. And if you are so risk-averse, maybe your research record won’t be so important anyway, even if you manage to publish well. I guess I am not that worried about these people. I am happy enough to tax their risk-aversion, and in fact I suspect we should tax their risk-aversion all the more.
2. You might argue there are “thick market externalities,” and so it is efficient if most of the offers/trading occur closely bunched in time (see Niederle and Roth). After all, many asset price markets have designated trading hours, rather than full blast trading 24/7. While I find that analogy plausible, keep in mind what the efficiency here consists of, namely placing the more highly rated candidates in the more highly rated schools. Is it so terrible if a “market inefficiency” shakes up that system a bit? I thought the system was too elitist anyway. Some would say “too white male patriarchical, etc.” anyway. That is not exactly my view, but I agree that status quo ex ante methods were hardly sacrosanct.
2b. I am not one to trust a “managed intervention” into the previous job market methods more than a general disruption of trading. Of course if you are an AEA elite leader, you might differ on this.
3. Private sector offers for economists are “always there,” as for instance Amazon and Uber are not locked into the same hiring schedule as academic departments are. So at the margin these exploding offers will push more economists into the private sector. I am fine with that, as arguably economists are currently excessively subsidized into academic institutions by government support.
4. Possibly the longer-term equilibrium is that everyone is pushed into acting in November, and perhaps with fewer flyouts. I am not sure that is a bad option. Is much extra, true information revealed between November and January? If you are a good department and afraid of losing good candidates to exploding offers, can’t you just hurry up yourself? That speed-up of the entire process also gives the secondary market, for those who did not get offers on the first round, more time to operate. Surely there is room for the entire process to hurry up, yes?
4b. The more quickly the first tier of offers is cleared up, the more efficiently the queued candidates (say second or third in line for an offer) will be allocated. Isn’t that important too? For an egalitarian maybe more important? And rapid, exploding offers may take some top candidates off the market more quickly, in a good way, and stop the places that have no chance at them from chasing after them and wasting time?
5. A speedier overall job market presumably would help the job candidates who are anti-procrastinators and hurt the candidates who are procrastinators. I am fine with that! On the offering side, maybe it would help private universities, which tend to be speedier, and hurt public universities? YMMV.
6. Through the use of letters and phone calls and exclusivity norms, there has been a de facto preemptive market for the top schools for a long time. And now others are jumping in early!? Just exactly who is supposed to be fooled here?
7. What is the actual initial job market distortion we might want any change to address or improve? Might it be that job market candidates are too “Top Five” oriented and too risk-averse? I am genuinely unsure here. But if that is the problem, I don’t see why having more exploding offers should be so terrible.
8. Aren’t a lot of the most important opportunities in your life to come similar to “exploding offers”? Is it so terrible if you have to get used to this method early on?
9. If you really hate exploding offers, work on weakening the supposition that a candidate is not allowed to take one and then a month later “quit” and take another, better job. Discussed here.
10. The best argument for a coordinated market is simply that it serves the interests of the top schools, and makes sure they get the best candidates, even the risk-averse ones. Yet everyone is afraid to come out and make this explicitly elitist, anti-egalitarian, and so they resort to a lot of loose moralizing rhetoric (“ooh, it stresses people!” or “ooh, it’s unfair!”) that does not really befit how economists ought to be thinking about the problem.
Here are my earlier remarks on related issues.
Being a natural non-dualist, I have been pondering this question. For instance, I know someone who almost always gives charismatic and “thunderous” answers to questions posed. These are typically smart answers, whether or not you agree, but I suspect over time that talk style makes this person somewhat stupider and more dogmatic.
I believe if you yell your answers all the time you are also likelier to become stupider. Might the same be true for perpetual whisperers? For a steady barking yelp?
Is it better to be smiling or frowning during your discourse?
Should you always sound polite and thoughtful and well-reasoned? Even if your private conversations? Maybe those people don’t generate enough new, disagreeable ideas. And don’t many of the smartest and most successful people you know get plain, flat out excited in many of their best intellectual moments?
Keep in mind I am not discussing your optimal public image, I am focusing on how you should talk in order to think better.
What is the optimum median length of remark? Number of humorous remarks you should be inserting? Preferred volume?
If you have a really good point, does it make you smarter or stupider to lean forward while making it?
Should you ever start sentences with the exclamation “Look!…”? With giggles?
You might think there would be thirty excellent pieces on this topic, but can you think of one?
Medical school graduates typically owe six-figure student loans but that doesn’t mean they are poorer than high-school graduates who did not go to college. Wealth, properly measured, should include the value of educational investments students borrowed to make. Measured appropriately, student debt is concentrated among high-wealth households and loan forgiveness is regressive whether measured by income, educational attainment, or wealth. Across-the-board forgiveness is therefore a costly and ineffective way to reduce economic gaps by race or socioeconomic status.
…Accounting correctly for both human capital and effect of subsidies in student lending plans, almost a third of all student debt is owed by the wealthiest 20 percent of households and only 8 percent by the bottom 20 percent. Across-the-board student loan forgiveness is regressive measured by income, family affluence, educational attainment—and also wealth.
That’s from those well known right-wing misers at Brookings.
Here is the audio, video, and transcript, here is the CWT summary:
In this special crossover special with EconTalk, Tyler interviews Russ Roberts about his new life in Israel as president of Shalem College. They discuss why there are so few new universities, managing teams in the face of linguistic and cultural barriers, how Israeli society could adapt to the loss of universal military service, why Israeli TV is so good, what American Jews don’t understand about life in Israel, what his next leadership challenge will be, and much more.
We didn’t shy away from the tough stuff, here is one question:
COWEN: Let me ask you another super easy question. Let’s say we think that under current circumstances, a two-state solution would not lead to security either for Israel or for the resulting Palestinian state. Many people believe that. Let’s say also, as I think you believe, that a one-state solution where everyone votes would not lead to security for a current version of Israel or even a modified version of it.
Let’s say also that the current reliance of the Palestinian territories on the state of Israel for protection, security, intelligence, water — many important features of life — prevent those governing bodies from ever attaining sufficient autonomy to be a credible peace partner, guaranteer of its own security, and so on. From that point of view, what do we do? We’re not utilitarians. We’re thinking about what’s right and wrong. What’s the right thing to do?
Do read Russ’s answer! (Too long to excerpt.) And:
COWEN: Now, the United States has about 330 million people, yet there are more Israeli TV shows I want to watch than American TV shows. There’s Srugim, there’s Shtisel, there’s Prisoners of War, there’s In Judgment, there’s Tehran. There’s more. Why is Israeli TV so good?
ROBERTS: I’m glad you mentioned Prisoners of War, which doesn’t get enough — Prisoners of War is in my top five. If I had to list my top five, I’d pick Shtisel, Prisoners of War, The Americans, probably The Wire, and The Crown. Do you have a top five that you could reel off?
COWEN: The Sopranos would be my number one. Srugim and Prisoners of War plausibly would be in my top five.
We then consider the Israeli topic at hand. Interesting throughout, a very good dialogue.
I will be doing a Conversation with her, and here is part of her Wikipedia page:
Lydia Davis (born July 15, 1947) is an American short story writer, novelist, essayist, and translator from French and other languages, who often writes extremely brief short stories. Davis has produced several new translations of French literary classics, including Swann’s Way by Marcel Proust and Madame Bovary by Gustave Flaubert.
So what should I ask her?
From a reader:
Re your observation that most people don’t know what their strengths are and your interest in finding and fostering talent:
I haven’t done the two things I’ve recently come to think I’d have the greatest comparative advantage in – marry and stay married to a very talented male and raise very talented kids. As a 36-yr-old female with no potential mate at present, I’ve decided I need to be more intentional about this.
What are your thoughts on the best strategies to maximize my chances of success? How to approach dating sites- multiple with different types of profiles and levels of info; deep on just 1 or 2? Focus more on new sites/established sites/niche sites? Best questions/methods for weeding out and attracting potentials online- especially deeper cultural/moral/values questions? Seek out more in-person opportunities instead? What kind? Groups, orgs I should join? What should I be most/least picky about? Other considerations I’m likely over- or under- rating? I’m in the Dallas area, finishing up my PhD in [redacted], free to move most anywhere.
You haven’t set yourself up as an expert on this, but I know you’ll answer. Also open to suggestions of who else to ask for such advice.
This one is far outside my expertise, but I have a few comments:
1. Are you sure this is what you really want? I don’t know you at all, but surely you are smart and skilled and so far it hasn’t happened. (What is your theory of why not? Maybe you wanted it less before, but keep in mind part of what men want is women who have really wanted this all along.) That said, if you don’t really want this, I don’t see the harm in trying to make a match of the sort you indicate. Your own intuitions will save you in time, conditional on you not really wanting this.
2. Use on-line dating. I’ve seen a graph indicating a trend line marching straight upwards for how many matches, in percentage terms, come from on-line dating (might any of you know the link? Here it is.). That is very often how the trend line looks for a dominant trend that is still underrated. On-line dating simply seems better than any other method, for the same reason you are reading this blog.
2b. I have no idea which services you should use, but since network effects in this market are strong, plenty of your same-age friends should know the right answers without much hesitation.
3. If you are considering doing more “in person” things, such as joining clubs and associations, do things you would wish to do anyway. If you are doing those activities as part of your effort to be “intentional,” they are dominated by doing more on-line dating. So just do what you want in this regard.
Other people to ask might be clergy? Recently married same-age friends? All the other econ bloggers?