Links to Consider, 5/6
Morgan Housel on skewness in business outcomes; Richard Hanania vs. government schools; David P. Goldman on the spirit of innovation; Niccolo Soldo on the imperial role of NGOs
Correlation Ventures crunched the numbers. Out of 21,000 venture financings from 2004 to 2014, 65% lost money. Two and a half percent of investments made 10x-20x. One percent made more than 20x return. Half a percent – about 100 companies – earned 50x or more. That’s where the majority of the industry’s returns come from. It skews even more as you drill down. There’s been $482 billion of VC funding in the last ten years. The combined value of the ten largest venture-backed companies is $213 billion. So ten venture-backed companies are valued at half the industry’s deployed capital.
…J.P. Morgan Asset Management published the distribution of returns for the Russell 3000 from 1980 to 2014. Forty percent of all Russell 3000 stock components lost at least 70% of their value and never recovered. Effectively all of the index’s overall returns came from 7% of components. That’s the kind of thing you’d associate venture capital. But it’s what happened inside your grandmother’s index fund.
Pointer from Moses Sternstein.
you don’t need to be a libertarian to be against public education. If you make the basic default assumption that markets are better than central planning in most industries and areas of life, you should apply that lesson here as well. It’s difficult for me to imagine why one would believe that the information problem and a lack of incentives would prevent government from being able to wisely decide how much concrete or steel to produce and how to distribute it, but then trust the state to have a role in scheduling half of the waking hours of a substantial portion of the population for five days a week.
It is a long, eloquent essay that attempts to make the case for school vouchers to someone on the moderate left. I am sure that the attempt will fail.
Suppose you approach a parent at random and ask, “On a scale of 1 to 10, where 10 is high, how confident are you that you know what would be a good school for your child?” My prediction is that the answer will be at least an 8. Maybe the parent will complain that they cannot afford the school they prefer, but they will tell you that the school they prefer would be a good choice.
But ask a parent, “How confident are you that the typical parent other than you knows what would be a good school for their child?” My prediction is that the answer will be at most a 6.
I think that FOOL (fear of others’ liberty) is a major factor in the support for public schools. People do not trust other parents to know what is best for their kids. They are not so unhappy with what they see in public schools that they want the government to give up control over other people’s kids.
Contrary to my cynical view, Rick Hess reports,
Polling consistently shows that the lion’s share of parents say they’d grade their kids’ schools an A or a B. At the same time, last year, more than seven in ten endorsed education savings accounts, school vouchers, and charter schools. In short, parents tend to like both their child’s public school and school choice policies. They don’t see a tension between the two.
the generation now entering the workforce is the least risk-friendly in American history. “Likely due to their risk aversion, iGen is actually less likely to want to own their own business than previous generations: only 30% of high school seniors in 2016 believed that being self-employed was desirable, down from 48% in 1987. Instead, iGen wants stable jobs in enduring industries,” argues Professor Jean Twenge of the University of California San Diego.
It’s worse than that. The kids don’t want to work in profit-seeking business at all. They only want to work for non-profits.
Every person reading this has by now developed a reflex mechanism whereby they involuntarily ask themselves “who is funding this NGO?” whenever they see this term flash across their screen. We have learned just how much funding from NGOs comes from governments, large corporations, and the very, very wealthy. We also now know that NGOs serve as a end-run around actual democracy. We are no longer naive.
We also see just how well-connected people who find themselves in these NGOs are, and they are in fact not your local mother who serves on the PTA, or your little league baseball coach father concerned about pollutants in the air from the nearby factory. The best and most important NGOs are staffed by elites, with these organizations serving as collection points for the overflow of elite overproduction.
But at least they don’t earn that dirty thing called profits.
Substacks mentioned above:
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Re: the long tail, there is also a good paper about this.
From “Do stocks outperform Treasury bills?”,
“I calculate that the approximately 25,300 companies that issued stocks appearing in the CRSP common stock database since 1926 are collectively responsible for lifetime shareholder wealth creation of nearly $35 trillion, measured as of December 2016.
However, just five firms (Exxon Mobile, Apple, Microsoft, General Electric, and International Business Machines) account for 10% of the total wealth creation. The 90 top-performing companies, slightly more than one-third of 1% of the companies that have listed common stock, collectively account for over half of the wealth creation. The 1092 top-performing companies, slightly more than 4% of the total, account for all of the net wealth creation.
That is, the remaining 96% of companies whose common stock has appeared in the CRSP data collectively generate lifetime dollar gains that matched gains on one-month Treasury bills.”
https://www.sciencedirect.com/science/article/abs/pii/S0304405X18301521
There is a simple reason why "parents tend to like both their child’s public school and school choice policies. They don’t see a tension between the two. " Because they think their school would be chosen when there is choice. And they are right!
Education is a very strange business because the whole point is that the consumers are ignorant. By definition, the consumers don't know what a good product is. Also, when there is choice in K-12, the consumers pretty much aren't the choosers; the consumer's parents are. The choosers pretty much leave it up to the experts to decide what a good education is and how a good education is delivered. What they do perceive and what they do want is for teachers to say nice things and not to fail their children. This is what they do today, which is one reason so many people graduate without knowing much.