I have a feeling that this sort of paper is the kind of thing the people who insist to me that "Economics is not a science" are pointing at. In this case, it's hard to have too much of a problem with that statement.
1. Did you time this to come out the same day as Yglesias post on innovation?
2. My dad's an entrepreneur, who somehow made it through 2008 only to recently wind down his operations. I gotta say I’m partial to the Scandinavian model. I think knowing his family would be taken care of (education, healthcare, etc.) were he to fail probably would’ve allowed him to take more calculated risk, not to mention unburdened him from an immense amount of psychological pressure.
I started a business and got it funded this year. There is tremendous upside if it works. Did I risk anything?
- I have substantial savings from my 30 year career in software engineering and engineering leadership roles
- My wife works in a big tech company as an executive, has been there over a decade
- My kids are grown, college is already paid for
- In tech, usually the worst case scenario is you run out of money and you get a company to acquihire you at a nice premium
- If none of that works out, I have a massive network in the off chance I'd even want a job later
- My overhead is low because my ego doesn't demand I own a private plane or a big house
What risk am I really taking?
Almost everyone I know in tech who created a company in the last 15 years has some version of that going on.
We are doing innovation because we want better software for people management, because we care about good people management. Don't tell our investors, but we would do this whether the payout was 10B or 10M. Our only motivation to go for the former is that it would allow us to allocate capital towards things that are good for the world.
It's much easier to quit your job and take a flyer on a business idea if you know that you (and more importantly your kids) won't starve in the street. The reason American tech is dominated by dudebros is because women who plan to have kids, and men who already have them, don't like taking that kind of risk.
It's true that "the bigger the risk from losing, the more people will try hard not to end up being losers". This is why people who didn't grow up rich are often too scared to quit their stable jobs to try building something new with no guarantee of success. How will we pay for rent? Or healthcare? Even in tech, it takes at least a few months to get funding, and that's by no means guaranteed. I know people who spent more than a year trying different things before they found something that investors would fund. And in all other fields, raising money is much more difficult. Having a strong safety net would allow more types of people to try.
If what we are talking about is innovation, there are better ways to measure it than just patents, and more factors to take into account are important as a cause or as a means of measuring innovation (in no specific order):
- The effects of a large domestic market and a strong economy that allows the creation of larger companies that can dedicate more investment to R&D per year.
- Effects of owning the world reserve currency.
-A high military spending.
-The effects of having the dominant language in the world, especially in scientific language.
- A position of prior scientific and technical mastery.
> Demonstrating that, though, requires a model whose assumptions are bound not to be very pleasing to liberals...although again, that's not necessarily the only reason that liberal bloggers criticized the paper.
You are one of a very small handful of liberal bloggers who have ever gone against the orthodoxy. So it is pretty valid for people to be skeptical of anyone else criticizing an idea on the basis that they're knee-jerking.
W.r.t this particular article, I absolutely think you're right that Acemoglu et al did not properly establish their case. That said, the alternative argument is exactly opposite, and you haven't given any sense of where the correct position really is for the dial. Which countries do it best? What is the correct amount of social safety net to encourage innovation?
Without some hint of a start of a way to answer those questions with data we're just arguing philosophy, and that's obviously useless.
I'm skeptical of the "welfare state encourages entrepreneurship" story because for the people who have the skills to start successful businesses, the fallback option in case of business failure is not welfare benefits, but gainful employment. What you actually risk losing is not your ability to earn a living, but your savings.
Promoters of tax-funded health care also overemphasize the role health care expenses play in barriers to entrepreneurship. Yes, if you start your own business, you should buy health insurance. But you absolutely need to keep up rent and mortgage payments, buy food, and pay a bunch of other living expenses that collectively cost much more than health insurance, not to mention paying your employees.
I doubt that the total tax level has much impact on whether people choose to work as employees or entrepreneurs. A highly progressive tax structure may increase risk aversion by limiting the upside, but flat and high taxes distort the trade-off between work and leisure, not the trade-off between employment and entrepreneurship.
I have a feeling that this sort of paper is the kind of thing the people who insist to me that "Economics is not a science" are pointing at. In this case, it's hard to have too much of a problem with that statement.
Two Things:
1. Did you time this to come out the same day as Yglesias post on innovation?
2. My dad's an entrepreneur, who somehow made it through 2008 only to recently wind down his operations. I gotta say I’m partial to the Scandinavian model. I think knowing his family would be taken care of (education, healthcare, etc.) were he to fail probably would’ve allowed him to take more calculated risk, not to mention unburdened him from an immense amount of psychological pressure.
I started a business and got it funded this year. There is tremendous upside if it works. Did I risk anything?
- I have substantial savings from my 30 year career in software engineering and engineering leadership roles
- My wife works in a big tech company as an executive, has been there over a decade
- My kids are grown, college is already paid for
- In tech, usually the worst case scenario is you run out of money and you get a company to acquihire you at a nice premium
- If none of that works out, I have a massive network in the off chance I'd even want a job later
- My overhead is low because my ego doesn't demand I own a private plane or a big house
What risk am I really taking?
Almost everyone I know in tech who created a company in the last 15 years has some version of that going on.
We are doing innovation because we want better software for people management, because we care about good people management. Don't tell our investors, but we would do this whether the payout was 10B or 10M. Our only motivation to go for the former is that it would allow us to allocate capital towards things that are good for the world.
One of my favorite articles from the last decade:
https://www.inc.com/magazine/20110201/in-norway-start-ups-say-ja-to-socialism.html
It's much easier to quit your job and take a flyer on a business idea if you know that you (and more importantly your kids) won't starve in the street. The reason American tech is dominated by dudebros is because women who plan to have kids, and men who already have them, don't like taking that kind of risk.
It's true that "the bigger the risk from losing, the more people will try hard not to end up being losers". This is why people who didn't grow up rich are often too scared to quit their stable jobs to try building something new with no guarantee of success. How will we pay for rent? Or healthcare? Even in tech, it takes at least a few months to get funding, and that's by no means guaranteed. I know people who spent more than a year trying different things before they found something that investors would fund. And in all other fields, raising money is much more difficult. Having a strong safety net would allow more types of people to try.
If what we are talking about is innovation, there are better ways to measure it than just patents, and more factors to take into account are important as a cause or as a means of measuring innovation (in no specific order):
- The effects of a large domestic market and a strong economy that allows the creation of larger companies that can dedicate more investment to R&D per year.
- Effects of owning the world reserve currency.
-A high military spending.
-The effects of having the dominant language in the world, especially in scientific language.
- A position of prior scientific and technical mastery.
- Number of scientific publications per year.
It's kind of telling that there isn't even an agreed definition established for how to measure things like innovation.
> Demonstrating that, though, requires a model whose assumptions are bound not to be very pleasing to liberals...although again, that's not necessarily the only reason that liberal bloggers criticized the paper.
You are one of a very small handful of liberal bloggers who have ever gone against the orthodoxy. So it is pretty valid for people to be skeptical of anyone else criticizing an idea on the basis that they're knee-jerking.
W.r.t this particular article, I absolutely think you're right that Acemoglu et al did not properly establish their case. That said, the alternative argument is exactly opposite, and you haven't given any sense of where the correct position really is for the dial. Which countries do it best? What is the correct amount of social safety net to encourage innovation?
Without some hint of a start of a way to answer those questions with data we're just arguing philosophy, and that's obviously useless.
I'm skeptical of the "welfare state encourages entrepreneurship" story because for the people who have the skills to start successful businesses, the fallback option in case of business failure is not welfare benefits, but gainful employment. What you actually risk losing is not your ability to earn a living, but your savings.
Promoters of tax-funded health care also overemphasize the role health care expenses play in barriers to entrepreneurship. Yes, if you start your own business, you should buy health insurance. But you absolutely need to keep up rent and mortgage payments, buy food, and pay a bunch of other living expenses that collectively cost much more than health insurance, not to mention paying your employees.
I doubt that the total tax level has much impact on whether people choose to work as employees or entrepreneurs. A highly progressive tax structure may increase risk aversion by limiting the upside, but flat and high taxes distort the trade-off between work and leisure, not the trade-off between employment and entrepreneurship.