Category: Economics

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.

Lyft Driver Fears California Law Will Destroy Her Work Flexibility

(p. B4) California lawmakers have hailed the law signed by Gov. Gavin Newsom this week that could require drivers of ride-hailing companies to be labeled as employees rather than independent contractors, saying the measure could raise wages and provide new workplace benefits.

But the drivers are divided about how it will affect them.

For Rachel Hudson, a 43-year-old driver for Lyft Inc. who struggles with arthritis and an anxiety disorder, the bill’s passage is unwelcome. Ms. Hudson has driven for Lyft for about five years and fears employment status could mean having to work in scheduled shifts that would wipe out the flexibility she needs.

“Sometimes, I need a two- to three-hour break. I can’t always be relied upon to be at work at specific times,” Ms. Hudson said. Driving for Lyft “is the only way I can afford a car. It makes a huge impact on my life.”

Ms. Hudson, who lives alone in Stockton, Calif., said that besides federal disability benefits, the earnings from Lyft are her only income.

For the full story, see:

Sebastian Herrera. “Uber, Lyft Drivers Torn Over Law Meant to Protect Them.” The Wall Street Journal (Monday, Sept. 23, 2019): B4.

(Note: the online version of the story has the date Sept. 21, 2019, and has the title “Uber, Lyft Drivers Torn as California Law Could Reclassify Them.”)

Strong Job Market Allows Lower-Income Workers to Change Jobs

(p. A3) The share of lower-income Americans leaving their jobs for new ones leapt earlier this year, pointing to rising confidence in the U.S. labor market among workers who were left behind earlier in the expansion.

A New York Fed survey released Monday showed the share of lower-income heads of household, defined as earning a household income of $60,000 a year or less, who moved to new jobs in April, May, June or July was 12%, up from 8% in the same period a year earlier and the highest rate for records dating back to 2014.

Meanwhile, job changes among higher-income workers have been declining since early 2018.

The lower-income workers had more opportunities: About 4% of lower-income Americans received three job offers in the four months ended in July, up from 1.4% over the same period in 2018, according to the data in the New York Fed Survey of Consumer Expectations.

For the full story, see:

Sarah Chaney. “Lower-Income Americans Are Job Hopping.” The Wall Street Journal (Tuesday, Sept. 24, 2019): A3.

(Note: the online version of the story has the date Sept. 23, 2019, and has the title “Lower-Income Americans Are Increasingly Job Hopping.”)

Newsboys “Were American Icons–Symbols of Unflagging Industry”

(p. A17) Thomas Edison was one. So were Harry Houdini, Herbert Hoover, W.C. Fields, Walt Disney, Benjamin Franklin, Jackie Robinson, Walter Winchell, Thomas Wolfe, Jack London, Knute Rockne, Harry Truman, John Wayne, Warren Buffett and many more familiar names. Besides being illustrious Americans, these men shared a calling—growing up, they were newsboys, delivering newspapers to subscribers or, more colorfully, hawking them on the streets for a couple of pennies, real money in those days.

In their time, newsboys (girls were rare) were American icons—symbols of unflagging industry and tattered, barefoot, shivering objects of pity. They had their own argot and better news judgment than many editors, because they had to size up the appeal of every edition to determine how many copies to buy from the publisher.

For the full review, see:

Edward Kosner. “BOOKSHELF; Street-Corner Capitalists.” The Wall Street Journal (Monday, Oct. 7, 2019): A17.

(Note: the online version of the review has the date Oct. 6, 2019, and has the title “BOOKSHELF; ‘Crying the News’ Review: Street-Corner Capitalists.”)

The book under review is:

DiGirolamo, Vincent. Crying the News: A History of America’s Newsboys. New York: Oxford University Press, 2019.

“Wealth Taxes Would Sap Innovation”

(p. A1) WASHINGTON — Progressive Democrats are advocating the most drastic shift in tax policy in over a century as they look to redistribute wealth and chip away at the economic power of the superrich with new taxes that could fundamentally reshape the United States economy.

As they compete for the Democratic presidential nomination, Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have proposed wealth taxes that would shrink the fortunes of the richest Americans. Their plans envision an enormous transfer of money from the wealthy to ordinary people, with revenue from the wealth tax used to finance new social programs like tuition-free college, universal child care and “Medicare for all.”

The wealth taxes under discussion would deal a major blow to the balance sheets of American plutocrats like Jeff Bezos, Bill Gates and Warren Buffett. If the tax that Ms. Warren has called for had been in place since 1982, the net worth of the 15 richest Americans in 2018 would have been half as much, according to two economists who helped develop her plan. The Sanders wealth tax, which was released last week, would have eroded their fortunes even further, to barely one-fifth of their 2018 total.

. . .

(p. A18) But redirecting such vast sums could have unintended effects on the United States economy that go beyond promulgating economic fairness. While Ms. Warren ticks off the social programs that can be funded if the richest Americans pay just 2 cents on every dollar they have above $50 million — a number that is unimaginable to most Americans — skeptics warn of economic stagnation, depressed business confidence and a legal battle that would go to the Supreme Court.

At a conference sponsored by the Brookings Institution in September, N. Gregory Mankiw, a Harvard economist, debated Mr. Saez and Mr. Zucman about the merits of taxing wealth. Mr. Mankiw, the former head of President George W. Bush’s Council of Economic Advisers, offered a searing critique, arguing that a wealth tax would skew incentives that could alter when the superrich make investments, how they give to charity and even potentially spur a wave of divorces for tax purposes. He also noted that billionaires, with their legions of lawyers and accountants, have proven to be experts at gaming the system to avoid even the most onerous taxes.

“On the one hand it’s a bad policy, and then the other thing is it’s a feckless policy,” Mr. Mankiw said.

Left-leaning economists have expressed their own doubts about a wealth tax. Earlier this year, Lawrence Summers, who was President Bill Clinton’s Treasury secretary, warned in an article with Natasha Sarin, a law professor at the University of Pennsylvania, that wealth taxes would sap innovation by putting new burdens on entrepreneurial businesses while they are starting up. In their view, a country with more millionaires is a sign of economic vibrancy.

“Turning the tax code into a vehicle for confronting what some call ‘oligarchic drift’ would undermine business confidence, reduce investment, degrade economic efficiency and punish success in ways unlikely to be good for the country or even to be appealing to most Americans,” they wrote.

For the full story, see:

Alan Rappeport and Thomas Kaplan. “For or Against, Taxing the Rich Rouses Passion.” The New York Times (Wednesday, October 2, 2019): A1 & A18.

(Note: ellipsis added.)

(Note: the online version of the story has the same date as the print version, and has the title “Democrats’ Plans to Tax Wealth Would Reshape U.S. Economy.”)

The “article” by Sarin and Summers, mentioned above, is:

Sarin, Natasha, and Lawrence H. Summers. “Fair, Comprehensive Tax Reform Is the Right Path Forward.” Entry on larrysummers.com, March 29, 2019. http://larrysummers.com/2019/04/01/fair-comprehensive-tax-reform-is-the-right-path-forward/ .

Amazon Has 30,000 Open Permanent Jobs, and Half “Are Tech Oriented”

(p. A1) SEATTLE — Engineers in the Bay Area. Advertising managers in Chicago. Freight specialists in Arizona. The job listings keep piling up at Amazon, a company that is growing in many directions amid one of the tightest labor markets in memory.

On Monday [Sept. 9, 2019], Amazon said it had 30,000 open positions in the United States, including full- and part-time jobs at headquarters offices, technology hubs and warehouses.

Although the company has positions to fill across the country, Amazon’s job boards list many more openings in the Seattle area and California and by its new campus near Washington, D.C., than it does anywhere else.

The vacancies, which Amazon said it hoped to fill by early next year, are permanent jobs and do not include seasonal positions for the warehouse workers and drivers that the company typically hires to handle the spike in orders it gets around Christmas. More than half the jobs are tech oriented, and roughly a quarter are for warehouse work, the company said.

For the full story, see:

Karen Weise. “Amazon’s Work Force Has 30,000-Job Hole.” The New York Times (Tuesday, September 10, 2019): B3.

(Note: bracketed date added.)

(Note: the online version of the story has the date September 9, 2019, and has the title “Amazon Has 30,000 Open Jobs. Yes, You Read That Right.”)