Category: Economics

Andreessen Venture Funds Succeed Modestly

In an Andrew Ross Sorkin column, Sean Parker urged successful entrepreneurs to become serial entrepreneurs, rather than to semi-retire as venture capitalists. In that column, Marc Andreessen was quoted as sympathizing with Parker’s view.

(p. A1) Andreessen Horowitz’s first three venture funds have nearly doubled their investment capital or better since inception, according to documents reviewed by The Wall Street Journal that provide a rare look at the performance of one of Silicon Valley’s top venture-capital firms.
But an analysis of its returns, compared with funds from top rivals and industry averages, shows that Andreessen Horowitz hasn’t yet earned its reputation as an elite firm.
The firm, co-founded by web pioneer Marc Andreessen in 2009, is routinely mentioned among the pantheon of great startup investors with the likes of Sequoia Capital, a status that has allowed it to command higher fees than some of its peers.
Sequoia has separated itself from the pack thanks to its consistently high returns. Its 2003 and 2006 venture funds have both risen eightfold net of fees, according to a person familiar with the matter.
. . .
(p. A2) Venture-capital firms raise money from universities, pension funds and other institutions to wager on startups. They typically raise a new fund every few years, operating a handful at the same time with each expected to wind down after 10 years.
Though they fall short of their top-notch rivals, all three Andreessen Horowitz funds–whose bets include Instagram, Airbnb and Pinterest Inc.–have outperformed the average of venture funds raised in the same years, according to benchmark data from investment adviser Cambridge Associates. The earliest fund, raised in 2009, ranks in the top 5% of venture funds from that year; the second fund, raised in 2010, ranks in the top 50%; and the third from 2012 ranks in the top 25%.

For the full story, see:
Winkler, Rolfe. “Andreessen’s Venture Firm Trails Rivals.” The Wall Street Journal (Fri., Sept. 2, 2016): A1-A2.
(Note: ellipsis added.)
(Note: the online version of the article has the date Sept. 1, 2016, and had the title “Andreessen Horowitz’s Returns Trail Venture-Capital Elite.”)

The views of Sean Parker and Marc Andreessen on venture capital, that I mention at the top, are summarized in:
Sorkin, Andrew Ross. “Dealbook; Taking a Risk, and Hoping That Lightning Strikes Twice.” The New York Times (Tues., July 24, 2012): B1 & B4.

College Admissions Process Encourages Superficial Service

(p. 3) This summer, as last, Dylan Hernandez, 17, noticed a theme on the social media accounts of fellow students at his private Catholic high school in Flint, Mich.
“An awfully large percentage of my friends — skewing towards the affluent — are taking ‘mission trips’ to Central America and Africa,” he wrote to me in a recent email. He knows this from pictures they post on Snapchat and Instagram, typically showing one of them “with some poor brown child aged 2 to 6 on their knee,” he explained. The captions tend to say something along the lines of, “This cutie made it so hard to leave.”
But leave they do, after as little as a week of helping to repair some village’s crumbling school or library, to return to their comfortable homes and quite possibly write a college-application essay about how transformed they are.
. . .
Hernandez reached out to me because he was familiar with writing I had done about the college admissions process. What he described is something that has long bothered me and other critics of that process: the persistent vogue among secondary-school students for so-called service that’s sometimes about little more than a faraway adventure and a few lines or paragraphs on their applications to selective colleges.
It turns developing-world hardship into a prose-ready opportunity for growth, empathy into an extracurricular activity.
And it reflects a broader gaming of the admissions process that concerns me just as much, because of its potential to create strange habits and values in the students who go through it, telling them that success is a matter of superficial packaging and checking off the right boxes at the right time. That’s true only in some cases, and hardly the recipe for a life well lived.
. . .
Richard Weissbourd, a child psychologist and Harvard lecturer who has studied the admissions process in the interest of reforming it, recalled speaking with wealthy parents who had bought an orphanage in Botswana so their children could have a project to write and talk about. He later became aware of other parents who had bought an AIDS clinic in a similarly poor country for the same reason.
“It becomes contagious,” he said.
A more recent phenomenon is teenagers trying to demonstrate their leadership skills in addition to their compassion by starting their own fledgling nonprofit groups rather than contributing to ones that already exist — and that might be more practiced and efficient at what they do.
. . .
In many cases they are compelled. Tara Dowling, the director of college counseling at the Rocky Hill School in East Greenwich, R.I., said that many secondary schools (including, as it happens, Dylan Hernandez’s) now require a minimum number of hours of service from students, whose schedules — jammed with sports, arts, SAT prep and more — leave little time for it.
Getting it done in one big Central American swoop becomes irresistible, and if that dilutes the intended meaning of the activity, who’s to blame: the students or the adults who set it up this way?

For the full commentary, see:
Bruni, Frank. “To Get to Harvard, Go to Haiti?” The New York Times, SundayReview Section (Sun., AUG. 14, 2016): 3.
(Note: ellipses added.)
(Note: the online version of the commentary has the date AUG. 13, 2016.)

When Minimum Wage Rises, So Does Crime

(p. A13) By significantly reducing the available stock of job opportunities at the bottom end of the career ladder, a higher minimum wage increases the likelihood that unemployed teens will seek income elsewhere. A 2013 study by economists at Boston College analyzed increases in state and federal minimum-wage levels between 1997 and 2010. It found that low-skill workers affected by minimum-wage hikes were more likely to lose their jobs, become idle and commit crime. The authors warn that their results “point to the dangers both to the individual and to society from policies that restrict the already limited employment options of this group.”

For the full commentary, see:
MARK J. PERRY and MICHAEL SALTSMAN. “The Fight for $15 Will Hit North Philly Hard; Not far from Democrats’ soiree, teen unemployment is at 42%. What if the minimum wage doubles?” The Wall Street Journal (Weds., July 27, 2016): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 26, 2016.)

The 2013 study by Boston College economists, mentioned above, was published in 2014. The published version is:
Beauchamp, Andrew, and Stacey Chan. “The Minimum Wage and Crime.” B.E. Journal of Economic Analysis and Policy 14, no. 3 (July 2014): 1213-35.

American Indians Suffer from Lack of Property Rights

(p. A15) There are almost no private businesses or entrepreneurs on Indian reservations because there are no property rights. Reservation land is held in trust by the federal government and most is also owned communally by the tribe. It’s almost impossible for tribe members to get a mortgage, let alone borrow against their property to start a business. The Bureau of Indian Affairs regulates just about every aspect of commerce on reservations.
Instead of giving Indians more control over their own land–allowing them to develop natural resources or use land as collateral to start businesses–the federal government has offered them what you might call a loophole economy. Washington carves out a sector of the economy, giving tribes a regulatory or tax advantage over non-Indians. But within a few years the government takes it away, in many cases leaving Indian tribes as impoverished and more disheartened than they were before.
. . .
What American Indians need first is less regulation. There is a reason that Native Americans say BIA, the initials for the Bureau of Indian Affairs, really stands for “Bossing Indians Around.”

For the full commentary, see:
NAOMI SCHAEFER RILEY. “The Loophole Economy Is No Jackpot for Indians; Running casinos or selling tax-free cigarettes can’t substitute for what tribes truly need: property rights.” The Wall Street Journal (Thurs., July 28, 2016): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date July 27, 2016.)

The above commentary by Riley is related to her book, which is:
Riley, Naomi Schaefer. The New Trail of Tears: How Washington Is Destroying American Indians. New York: Encounter Books, 2016.

87% of Billionaires Inherited Less than Half of Wealth

(p. C6) Billionaires controlled 3.9% of the world’s total household wealth in 2015, slightly down from 4% in 2014, according to Wealth-X, a consulting group that uses public records and research staff to manually track the habits of ultra-high-net-worth individuals, or people valued at more than $30 million.
. . .
For most billionaires, however, it takes more than an inheritance to join the so-called three-comma club, according to the census; 87% of billionaires, up from 81% in 2014, made the majority of their fortunes themselves.
Todd Morgan, senior managing director at Bel Air Investment Advisors LLC in Los Angeles, says several of his billionaire clients are entrepreneurs and they are “very driven” and typically opt to keep working long after they’ve made their fortune.
“It’s not, ‘I’m worth a billion, now I’m going to sit on a beach and relax.’ It’s more of, ‘What can I create or achieve next?'” he says.

For the full story, see:
VERONICA DAGHER. “Ranks of Billionaires Grow, and They’re Getting Richer.” The Wall Street Journal (Weds., Aug. 8, 2016): C6.
(Note: ellipsis added.)
(Note: the online version of the story has the title “The Rich Get Richer as Billionaires Increase in Number.” There are minor differences in wording between the online and print versions. The sentences quoted above, follow the online version.)

Cancer Is Not Due to Modernity

(p. 1A) Scientists’ conventional opinion about cancer was that it’s a relatively recent phenomenon caused by the stresses of modern life.

Dietary changes, behavioral changes and man-made changes to our environment have subjected humans to toxins that contribute to cancers, they say.

But new findings from researchers at South Africa’s University of the Witwatersrand published in the South African Journal of Science challenge that assumption.

Paleontologists found a benign tumor in a 12 or 13-year-old boy specimen that dates back almost 2 million years.

More significantly, they also found a malignant tumor that’s 1.7 million years old on the little toe bone of a left foot.

Previously the oldest discovered human cancer was between 780,000 and 120,000 years old.

. . .

(p. 2A) “The evidence is out there that these conditions have been with us a long time and we’ve been kind of hoodwinked that cancer is a modernity,” said Patrick Randolph-Quinney, one of the study’s authors. “These things are ancient.”

The greatest predictor of cancer, the study argues, even in our ancestors, is longevity. The longer we live, the more chances something in our bodies goes wrong, the more chances that something is a tumor.

For the full story, see:
The Washington Post. “Ancient tumor upends notion of cancer as modern affliction; 1.7-million-year-old malignant growth is causing scientists to rethink diseases and human history.” Omaha World-Herald (Sat., JUNE 20, 2016): 1A & 2A.
(Note: ellipsis added.)

The scientific article mentioned above, is:
Patrick, S. Randolph-Quinney, A. Williams Scott, Steyn Maryna, R. Meyer Marc, S. Smilg Jacqueline, E. Churchill Steven, J. Odes Edward, Augustine Tanya, Tafforeau Paul, and R. Berger Lee. “Osteogenic Tumour in Australopithecus Sediba: Earliest Hominin Evidence for Neoplastic Disease.” South African Journal of Science (July/Aug. 2016), DOI: http://dx.doi.org/10.17159/sajs.2016/20150470.

VCRs Let “You Create Your Own Prime Time”

(p. B1) Many new technologies are born with a bang: Virtual reality headsets! Renewable rockets! And old ones often die with a whimper. So it is for the videocassette recorder, or VCR.
The last-known company still manufacturing the technology, the Funai Corporation of Japan, said in a statement Thursday [July 21, 2016] that it would stop making VCRs at the end of this month, mainly because of “difficulty acquiring parts.”
. . .
In 1956, Ampex Electric and Manufacturing Company introduced what its website calls “the first practical videotape recorder.” Fred Pfost, an Ampex engineer, described demonstrating the technology to CBS executives for the first time. Unbeknown to them, he had recorded a keynote speech delivered by a vice president at the network.
“After I rewound the tape and pushed the play button for this group of executives, they saw the instantaneous replay of the speech. There were about 10 seconds of total silence until they suddenly realized just what they were seeing on the 20 video monitors located around the room. Pandemonium broke out with wild clapping and cheering for five full minutes. This was the first time in history that a large group (outside of Ampex) had ever seen a high-quality, instantaneous replay of any event.”
At the time, the machines cost $50,000 apiece. But that did not stop orders from being placed for 100 of them in the week they debuted, according to Mr. Pfost.
. . .
A consumer guide published in The Times in 1981 — when the machines ranged in price from $600 to $1,200 — explained the appeal:
“In effect, a VCR makes you independent of television schedules. It lets you create your own prime time. You set the timer and let the machine automatically record the programs you want to watch but can’t. Later, you can play the tape at your convenience. Or you can tape one show while watching another, thus missing neither.”

For the full story, see:
JONAH ENGEL BROMWICH. “Once $50,000. Now VCR, Collects Dust.” The New York Times (Mon., JULY 21, 2016): B1 & B2.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JUNE 19, 2016, and has the title “The Long, Final Goodbye of the VCR.”)

Monopolist Ede & Ravenscroft Had 98% of Legal Wigs Market

(p. A1) British barristers and judges have worn wigs since Charles II Imported the idea from France in the 1670s. A London company, Ede & Ravenscroft Ltd., today claims 98% of the market for legal wigs in the United Kingdom. The wigs distinguish barristers from solicitors, lawyers who ordinarily don’t appear In court.
Ede & Ravenscroft, 300 years old, pursues its monopoly from a narrow London shop whose carved mahogany paneling, brass rails and chest-high counters hark back to the Victorian era.
. . .
(p. A7) In a stuffy loft two floors above, six women fabricate about 1,000 wigs a year on pockmarked wooden blocks resembling shrunken skulls. The wigmakers attach rows
of tightly rolled curls and a pair of ponytails with painful hand stitching, using 12-yard lengths of bleached curls made from horses’ tails and manes.
They strictly follow a pattern conceived by Humphrey Ravenscroft in 1822 when he invented the “modern” horsehair wig with fixed curls. It replaced ones made of goat hair, which had to be powdered and dressed with scented ointment every day to conceal the filth.

For the full story, see:
Lublin, Joann S. “Who Has Means and Motive to Steal in Halls of Justice?; British Barristers, It Seems, Can’t Resist Purloining Each Other’s Ratty Wigs.” The Wall Street Journal (Weds., Oct. 4, 1989): A1 & A7.
(Note: ellipsis added.)

Economist Removed from Plane for Scribbling Math

The seatmate was wrong to think the scribbling was Arabic, but was right to be alarmed.

(p. A13) In May [2016], an Italian economist from the University of Pennsylvania was removed from an American Airlines flight in Philadelphia after his seatmate became alarmed, thinking that the math he was scribbling on a piece of paper was Arabic, The Washington Post reported.

For the full story, see:
CHRISTINE HAUSER. “American Airlines Orders 2 Muslim American Women Off a Long-Delayed Flight.” The New York Times (Sat., AUG. 5, 2016): A13.
(Note: bracketed year added.)
(Note: the online version of the story has the date AUG. 5, 2016, and has the title “2 Muslim American Women Ordered Off American Airlines Flight.”)

Brazilians See Government as a Father Who Should Hand Out Subsidies to His Favorites

(p. 9) . . . “Brazillionaires” offers more than a flat collection of billionaire tales. Cuadros shrewdly presents his collage of immense wealth against an underlying background of corruption. There are kickbacks for government contracts. There are gigantic taxpayer subsidies: In 2009 alone, the state-run development bank, BNDES, lent out $76 billion, “more than the World Bank lent out in the entire world.” And of course there are lavish campaign contributions, attached to the inevitable quid pro quos. JBS, which leveraged government loans to become the largest meatpacking company in the world, spent $180 million on the 2014 elections alone. “If every politician who had received JBS money formed a party,” Cuadros writes, “it would be the largest in Congress.”
In his telling, Brazilians seem to embrace the cozy relationship between business and government as a source of pride rather than a risk for conflicts of interest. In one passage, Cuadros underscores the contrast between Adam Smith and the 19th-century Brazilian thinker José da Silva Lisboa, viscount of Cairu. Lisboa’s “Principios de Economía Politica” was meant to be an adaptation of Smith’s “Wealth of Nations.” But rather than present a paean to the invisible hand of the market, the viscount offered a rather paternalistic view of economic progress.
“The sovereign of each nation must be considered the chief or head of a vast family,” he wrote, “and thus care for all those therein like his children, cooperating for the greater good.” Swap “government” for “sovereign” and the passage still serves as an accurate guide to the Brazilian development strategy. It’s just that some children — the Marinhos, the Camargos — are cared for better than ­others.
. . .
It would be wrong, . . . , to understand Brazil’s plutocracy as the product of some unique outcrop of corruption. The hold on political power by the rich is hardly an exclusive feature of Brazil. ­Latin America has suffered for generations from the collusion between government and business. Where I grew up, in Mexico, it is the norm.

For the full review, see:
EDUARDO PORTER. “Real Rich.” The New York Times Book Review (Sun., JULY 24, 2016): 9.
(Note: ellipses added.)
(Note: the online version of the review has the date JULY 22, 2016, and has the title “Watching Brazil’s Rich: A Full-Time Job.”)

The book under review, is:
Cuadros, Alex. Brazillionaires: Wealth, Power, Decadence, and Hope in an American Country. New York: Spiegel & Grau, 2016.

Certificate-of-Need Regulations Protect Incumbents and Hurt Consumers

(p. A11) An important but overlooked debate is unfolding in several states: When governments restrict market forces in health care, who benefits? Legislative majorities in 36 states believe that consumers benefit, because restrictions help control health-care costs. But new research confirms what should be common sense: Preventing qualified health-care providers from freely plying their trade results in less access to care.
Most states enforce market restrictions through certificate-of-need programs, which mandate a lengthy, expensive application process before a health-care provider can open or expand a facility. The story goes: If hospitals or physicians could choose what services to provide, competition for patients would force providers to overinvest in equipment such as MRI machines–and the cost could be passed on to patients through higher medical bills.
. . .
These restrictions have largely failed to reduce costs, but they certainly reduce services. A 2011 study in the Journal of Health Care Finance found that certificate-of-need laws resulted in 48% fewer hospitals and 12% fewer hospital beds.

For the full commentary, see:
THOMAS STRATMANN and MATTHEW BAKER. “Certifiably Needless Health-Care Meddling.” The Wall Street Journal (Tues., Jan. 12, 2016): A11.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Jan. 11, 2016.)

The “new research” mentioned by Stratman in the passage quoted above, is:
Stratmann, Thomas, and Matthew C. Baker. “Are Certificate-of-Need Laws Barriers to Entry?: How They Affect Access to MRI, CT, and Pet Scans.” Mercatus Working Paper, Jan. 2016.