Elizabeth Warren Started Out as a Student of Henry Manne’s Libertarian Law and Economics Ideas

(p. A1) Never one to shy away from a fight, Elizabeth Warren had found a new sparring partner. She had only recently started teaching at the University of Texas School of Law, but her colleague Calvin H. Johnson already knew her well enough to brace for a lively exchange as they commuted to work.

Indeed, on this morning in 1981, Ms. Warren again wanted to debate, this time arguing on the side of giant utilities over their customers.

Her position was “savagely anti-consumer,” Mr. Johnson recalled recently, adding that it wasn’t unusual for her to espouse similar pro-business views on technical legal issues.

Then something changed. He calls it Ms. Warren’s “road to Damascus” moment.

“She started flipping — ‘I’m pro-consumer,’” Mr. Johnson said.

That something, as Ms. Warren often tells the story, was her deepening academic research into consumer bankruptcy, its causes, and lenders’ efforts to restrict it. Through the 1980s, the work took her to courthouses across the country. There, she said in a recent interview, she found not only the dusty bankruptcy files she had gone looking for but heart-wrenching scenes she hadn’t imagined — average working Americans, tearful and humiliated, admitting they were failures:

(p. A10) “People dressed in their Sunday best, hands shaking, women clutching a handful of tissues, trying to stay under control. Big beefy men whose faces were red and kept wiping their eyes, who showed up in court to declare themselves losers in the great American game of life.”

. . .

The revelations from her bankruptcy research, by her account, became the seeds of her worldview, laid out in her campaign plans for everything from a new tax on the wealthiest Americans to a breakup of the big technology companies.

. . .

In 1979, Ms. Warren recruited her parents from her native Oklahoma to her home in the Houston suburbs to help babysit her two young children.

Then a professor at the University of Houston, she would be spending several weeks at a luxury resort near Miami, one of 22 law professors selected to study an increasingly popular discipline known as “law and economics.’’ One of its central ideas is that markets perform more efficiently than courts.

Mr. Johnson, Ms. Warren’s former Texas commuting partner, believes that it was an important influence on her early thinking.

“Before Liz converted, she came to us from the decidedly anti-government side of law and economics,” he said.

The summer retreat was colloquially known as a “Manne camp,” after its organizer, the libertarian legal scholar Henry G. Manne. With financial support from industry and conservative foundations, Mr. Manne had formed a Law and Economics Center at the University of Miami. (He would later move operations to Emory University and then to George Mason University.)

The mission of the retreat was to spread the gospel of free-market microeconomics among law professors. One participant, John Price, a former dean of the law school at the University of Washington, described it as “sort of pure proselytizing on the part of dedicated, very conservative law and economics folks,” with an emphasis on an anti-regulatory agenda. One faculty member, he recalled, suggested eliminating the Consumer Product Safety Commission.

. . .

While some in the group have said Ms. Warren expressed skepticism at the libertarian ideology, Ms. Blumberg remembers someone very much developing the early stages of her career, who was “far more captivated than I” with the theories.

. . .

Ms. Warren . . . wrote to Mr. Manne in 1981, attaching a copy of her latest published article. She was sending him one article a summer, she wrote, and each “increasingly reflects my time at LEC.”

. . .

“This is really hard-core law & econ analysis,” Todd J. Zywicki, a law professor at George Mason who formerly served as executive director of the Manne Center, wrote in an email. “If you had given me this article with the author anonymized and asked me who wrote it, I would have answered that it was one of the leading scholars in the law & economics of commercial and contract law. Never, in a million years, would I have thought this article was written by EW.”

For the full story, see:

Stephanie Saul. “THE LONG RUN; Warren’s Awakening to a World of Desperation.” The New York Times (Monday, Aug. 26, 2019): A1 & A10.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “THE LONG RUN; The Education of Elizabeth Warren.”)

Netflix Flourished by “Unplanned” Leaps

(p. A17) Starting a business is tough enough. Why would any sane person choose to start a business in a dying industry?

One answer to that question can be found in “That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea,” a charming first-person account of the early days of one of the most successful tech startups ever.

. . .

Most of Netflix’s early business came from sales of DVDs, not rentals. The struggling company even considered selling to Amazon in 1998, but passed on the offer.

In desperation, Netflix tested monthly subscriptions. To its surprise, customers eagerly forked over their credit-card details. The little company turned on a dime, dropping sales and one-off rentals almost immediately. “If you had asked me on launch day to describe what Netflix would eventually look like, I never would have come up with a monthly subscription service,” Mr. Randolph claims. Netflix’s innovation with a subscription model would point many other internet-based companies to a reliable source of revenue.

Another unplanned leap soon followed: a predictive algorithm that offered to each user individualized recommendations based on reviews by customers with similar preferences. This feature helped hook customers, but it had a less obvious benefit for Netflix: By directing the user to a less popular film that happened to be in Netflix’s inventory, it allowed the company to buy fewer of the most popular DVDs. Yet profits were elusive. Video-store giant Blockbuster, unconvinced about the online business model, turned down a chance to buy the company in 2000, and the dot-com meltdown short-circuited a public offering. In September 2001, Netflix had its first layoffs, cutting costs and steadying the ship.

Mr. Randolph himself left in 2003, not long after Netflix finally went public. By then, he says, he had figured out that he loved starting companies, not running them. “I missed the late nights and early mornings, the lawn chairs and card tables. I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description,” he writes. The chaos of a startup enthralls him. A company with hundreds of employees and the demands of quarterly reports to investors is not his thing.

For the full review, see:

Marc Levinson. “BOOKSHELF; Streaming Ahead.” The Wall Street Journal (Monday, Sept. 23, 2019): A17.

(Note: ellipsis added.)

(Note: the online version of the review has the date Sept. 22, 2019, and has the title “BOOKSHELF; ‘That Will Never Work’ Review: Streaming Ahead.”)

The book under review is:

Randolph, Marc. That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. New York: Little, Brown and Company, 2019.

STEM Skills Are Quickly Obsolete

(p. B8) In a recent working paper with a Harvard doctoral student, Kadeem Noray, I calculated how much the skills required for different jobs changed over time. Help-wanted ads for jobs like software developer and engineer were more likely to ask for skills that didn’t exist a decade earlier. And the jobs of 10 years ago often required skills that have since become obsolete. Skill turnover was much higher in STEM fields than in other occupations.

We can also see this by looking at changes in college course catalogs. One of the largest and most popular courses in the Stanford computer science department is CS229 — Machine Learning, taught by the artificial intelligence expert and entrepreneur Andrew Ng. This course did not exist in its current form until 2003, when Professor Ng taught it for the first time with 68 students, and very little like it existed anywhere on college campuses 15 years ago. Today, the machine learning courses at Stanford enroll more than a thousand students.

. . .

Liberal arts advocates often argue that education should emphasize the development of the whole person, and that it is much broader than just job training. As an educator myself, I agree wholeheartedly.

But even on narrow vocational grounds, a liberal arts education has enormous value because it builds a set of foundational capacities that will serve students well in a rapidly changing job market.

For the full commentary, see:

David Deming. “Engineers Start Fast, but Poets Can Catch Up.” The New York Times, SundayBusiness Section (Sunday, September 22, 2019): B8.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated on Oct. [sic] 1, 2019, and has the title “In the Salary Race, Engineers Sprint but English Majors Endure.”)

The working paper referred to above, is:

Deming, David J., and Kadeem L. Noray. “Stem Careers and Technological Change.” National Bureau of Economic Research, Inc, NBER Working Paper # 25065, June 2019.

Humana Founding Entrepreneur Said Notion That Non-Profit Hospitals Are Better Than For-Profit Hospitals, Is “Baloney”

(p. 26) Mr. Jones was a genial but extremely competitive executive. During the years that Humana owned hospitals, several in Louisville, he vigorously defended the for-profit hospital model, contending that Humana’s facilities could deliver better care at lower costs.

“The notion that being nonprofit adds some weight to what you do is baloney,” he once said.

For the full obituary, see:

Richard Sandomir. “David Jones, Health Care Entrepreneur Behind Humana, Is Dead at 88.” The New York Times, First Section (Sunday, September 22, 2019): 26.

(Note: the online version of the obituary has the same date and title as the print version.)

Entrepreneur Helped Firms Lower Costs of Firing Executives

(p. A6) James Challenger had tried law, advertising and manufacturing of gas heaters before dreaming up in the mid-1960s what he called a wild idea: persuading companies to pay him to help find new jobs for executives and middle managers they were laying off.

His firm, Challenger, Gray & Christmas, offered what came to be known as outplacement services. The initial reaction from companies, he said later, was why should we help people we’re firing?

The aptly named Mr. Challenger, who died Aug. 30 [2019] at age 93, struggled for years to persuade companies it was good business to be nice to people heading involuntarily out the door.

For the full obituary, see:

Hagerty, James R. “Wild Idea Created Outplacement Services.” The Wall Street Journal (Saturday, Sept. 21, 2019): A6.

(Note: bracketed year added.)

(Note: the online version of the obituary has the date Sept. 20, 2019, and has the title “James Challenger Helped Create Market for Outplacement Services.”)

“No One Has the Stomach to Challenge the Status Quo”

(p. B14) Before precision-scheduled railroading, or PSR, locomotives had been run the same way for more than a century. Trains waited for cargo at the rail yard, then left when customers brought their shipments and loaded them up. It was an unreliable business with plenty of inefficiencies. But that started to change early this decade, when Mr. Harrison teamed up with William Ackman’s Pershing Square Capital to take control at Canadian Pacific Railway.

“No one has the stomach to challenge the status quo,” Mr. Harrison, who started his railroad career as a 19-year-old laborer in 1963, said several years ago.

Rather than leave the departure times up to clients such as factories, farms and mines, Mr. Harrison demanded they be ready or miss their trips, much like airline passengers. This didn’t win many friends among clients, but after successfully implementing the model in Canada, Mr. Harrison moved on to take the helm of Jacksonville, Fla.-based CSX in 2017. Tragically, his tenure this time was short-lived. Mr. Harrison died just a short time after joining the company.

For the full story, see:

Lauren Silva Laughlin. “Late Railroad Guru’s Legacy Is Losing Steam.” The Wall Street Journal (Saturday, Aug. 24, 2019): B14.

(Note: the online version of the story has the date Aug. 23, 2019, and has the title “Hunter Harrison’s Train Overhaul Starts Running Out of Steam.”)

Top 0.1% Have 15% of U.S. Wealth

(p. A1) The income tax is the Swiss Army Knife of the U.S. tax system, an all-purpose policy tool for raising revenue, rewarding and punishing activities and redistributing money between rich and poor.

The system could change fundamentally if Democrats win the White House and Congress. The party’s presidential candidates, legislators and advisers share a conviction that today’s income tax is inadequate for an economy where a growing share of rewards flows to a sliver of households.

For the richest Americans, Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate.

. . .

In the real world, a wealth tax would emerge from Congress riddled with gaps that the tax-planning industry would exploit, said Jason Oh, a law professor at the University of California, Los Angeles. For example, if private foundations were exempted, the wealthy might shift assets into them.

“We’ve never seen in the history of taxation a pristine tax of any form,” Mr. Oh said. “People who want to pursue a wealth tax for the revenue may be a little disappointed when we see the estimates roll in.”

European countries tried—and largely abandoned—wealth taxes. They struggled because rich people could switch countries and because some assets were exempt. Mr. Zucman said Ms. Warren’s tax would escape the latter problem by hitting every kind of asset, from artwork to stock to privately held businesses to real estate.

While he and fellow economist Emmanuel Saez assume 15% of the tax owed would be avoided, former Treasury Secretary Larry Summers and University of Pennsylvania law professor Natasha Sarin wrote a paper estimating the plan would raise less than half what Mr. Zucman projects, based on how much wealth escapes the estate tax.

A paper by economists Matthew Smith of the Treasury Department, Eric Zwick of the University of Chicago and Owen Zidar of Princeton University contends top-end wealth is overstated. Acccording to their preliminary estimate, the top 0.1% have 15% of national wealth, instead of the 20% estimated by Mr. Zucman. Their findings imply that Ms. Warren’s tax might raise about half of what’s promised.

For the full story, see:

Richard Rubin. “Democrats’ Tax Idea: Target Wealth, Not Just Income.” The Wall Street Journal (Wednesday, Aug. 28, 2019): A1 & A8.

(Note: ellipsis added.)

(Note: the online version of the story has the date Aug. 27, 2019, and has the title “Democrats’ Emerging Tax Idea: Look Beyond Income, Target Wealth.”)

The paper co-authored by Smith, and mentioned above, is:

Smith, Matthew, Owen Zidar, and Eric Zwick. “Top Wealth in the United States: New Estimates and Implications for Taxing the Rich.” Working Paper, July 19, 2019.