CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press David Brooks' Concern for Entrepreneurial Spirit

David Brooks' Concern for Entrepreneurial Spirit

Print
Friday, 21 September 2012 04:09

David Brooks devotes his column today to profiling Elon Musk. Musk emigrated to Canada from South Africa when he was 15, eventually coming down to attend school in the United States. According to Brooks, he was one of the leading figures in PayPal. He later helped finance SpaceX, a space exploration company; Tesla, an electric car company, as well as several other companies.

After describing Musk's extraordinary career and lifestyle, Brooks tells readers:

"Today, grandiosity is out of style. We’ve just been through a financial crisis fueled by people who got too big for their britches. We’ve got an online and media culture that specializes in ridiculing grand people.

Caution rules. The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents. The World Economic Forum ranks the competitiveness of nations, and the U.S. has lost ground in each of the last four years.

But, if growth is ever going to rebound, the U.S. will need a grandiosity rebound and the policies that encourage rich people with brass: immigration policies that attract people like Musk, tax rates that encourage risk and government policies that boost them along (SpaceX has benefited greatly from NASA, and Tesla received a big government loan).

Most of all, there has to be a culture that gives two cheers to grandiosity."

These comments raise several important points. First, Brooks obviously missed the collapse of the housing bubble. Otherwise he would not have killed trees to tell us:

"The number of jobs created by business start-ups under President Obama is much lower than under the three previous presidents."

Yes, and agricultural yields fall in a drought. We had a collapse in demand that preceded President Obama coming into office. News for Brooks: businesses expand less in downturns than in upturns. If Brooks wants to tell us that even when we adjust for the collapse of the housing bubble that business start-ups have created fewer jobs under President Obama than prior presidents, let's see the evidence.

The second question is whether Brooks hero, Elon Musk, is really the sort of meek pathetic character that Brooks seems to be describing when he worries that we are discouraging entrepreneurialism. After all he tells us that:

"We’ve got an online and media culture that specializes in ridiculing grand people."

Does this mean that we shouldn't expect to see Musk and his fellow ambitious creative types start new businesses because someone might make fun of them on the web? Are these folks really that sensitive? Should we have a national fund that awards gold stars to bold entrepreneurs that they can wear on their foreheads? Brooks seems to think so. He could be right, I don't know many (any?) of these people, but it would be a bit scary if our bold entrepreneurial types are really this sensitive.

The other point to raise about Brooks paean to Musk is that some of his ideas seem pretty crazy. Brooks tells us:

"Musk also told Businessweek about two other project designs he is working on. The first is something called the Hyperloop, a tube capable of taking people from downtown Los Angeles to downtown San Francisco in 30 minutes. The second is a vertical lift-off supersonic passenger jet that would surpass Boeing. He also hopes to open up a space colony on Mars within 10 or 15 years."

I don't know the details of any of these plans and these certainly are not my areas of expertise, but on the surface they don't sound like viable enterprises. This point is important. Many entrepreneurs, big and small, come up with business plans that don't make sense. In a well-working economy, they don't get funding for these plans.

If entrepreneurs do get funding for nutty ideas, as was the case at the peak of the stock bubble in 1998-2000, then this is wasting resources that could have otherwise been used productively. It has the same effect on the economy as creating a department of waste, fraud and abuse that pays people to write up documents that get passed back and forth to each other and then thrown into the garbage. This creates jobs (people are getting paid to write up documents) but it is a net drain on the economy. 

The idea that more entrepreneurship is always better than less entrepreneurship is ridiculous on its face. More good entrepreneurship is always better, but much entrepreneurship is not good.

In fact, the story is somewhat worse than just wasting resources as an abstract economic issue. Many people are persuaded to leave secure stable jobs to pursue ill-considered business ventures. The vast majority of new businesses fail. These failed entrepreneurs can find themselves mid-career unemployed, with no savings and few good job prospects. (In other words, they could become part of the 47 percent.) That is not a happy situation. It would not be a good thing if we had more people in this situation.

Brooks and many other entrepreneur worshippers don't seem to appreciate the way business works. They seem to have a naive view that having more entrepreneurs or that allowing entrepreneurs to have greater access to capital is always good. This is obviously not true. A well-working economy allows entrepreneurs to get capital when they have good ideas, but it prevents them from raising capital when they are off the mark. If the economy doesn't do the latter, then resources will be wasted, lives will be ruined, and the economy will not maintain good growth rates.

 

Comments (19)Add Comment
Pining Over a Great Gatsby Myth of Entrepreneurs: Who Built That?
written by Last Mover, September 21, 2012 6:45
Brooks and many other entrepreneur worshippers don't seem to appreciate the way business works. They seem to have a naive view that having more entrepreneurs or that allowing entrepreneurs to have greater access to capital is always good.


Brooks et al idolize the role of individuals as if it were merely a matter of will power from the supply side. They refuse to accept the winner-take-all economy of today has essentially crushed the role of entreprenuership in the past.

Even the best and brightest face a labrynthian maze of market power and market failure barriers that must be perforated somehow to surface at the other end as a successful entrepreneur.

And when they do arrive at the top of the heap like Elon Musk, they will be setting at the top of some economic entity that survives not due to traditional head-to-head competition, but a complex configuration of deregulated technological market power designed to extract economic rent from consumers that chose that particular person among thousands of contenders who could have done the same thing, but were crowded out in todays winner-take-all economy.

The next time a politician or journalist like Brooks fawns over some entrepreneur who is given credit for "building that", he or she should be asked why the thousands of others who could have have built it as well are forced to bite the economic dust in this Great Gatsby world contrived to worship winners-take-all at the expense of everyone else.
Building a better America
written by Robert Salzberg, September 21, 2012 7:05
Elon Musk did fine so America must have a decent breeding ground for entrepreneurs.

But of course we could do better. We could allow all foreigners trained in America in STEM graduate school programs the chance to stay and become American citizens. We could educate our population better, we could spend 8% less of GDP on health care by expanding health care as a right for all citizens and we could reduce business costs by shrinking the financial sector by half .

We will always need teachers, firefighters, carpenters, electricians, plumbers, doctors, nurses and therapists and many others that will never become entrepreneurs. We should allow them to unionize and not be left alone to be exploited during high unemployment by entrepreneurs in Right to Work States.

We could also rid our tax code completely of all it's many loopholes, exemptions, deductions and credits which may have been created with good intentions but have created a road to hell where up to 30 cents on the dollar is spent on tax compliance and avoidance. (I'm using Laffer's estimates on purpose to overstate my case.)

Show me a tax deduction and I'll show you a poorly designed policy.

Mitt Romney has blessed us by educating America about what effective tax rates mean. We could use effective tax rates as the basis of a new personal and corporate income tax code that would make tax day a non-event for almost all Americans and free hundreds of billions of hours and dollars spent on tax compliance and avoidance to be re-routed to more productive activities.
...
written by Bloix, September 21, 2012 8:35
"a tube capable of taking people from downtown Los Angeles to downtown San Francisco in 30 minutes...
a vertical lift-off supersonic passenger jet ... a space colony on Mars..."

Sounds like he's been getting ideas from an old song by Donald Fagen (of Steely fame):

"What a beautiful world this will be
What a glorious time to be free

Get your ticket to that wheel in space
While there's time ...

On that train all graphite and glitter
Undersea by rail
Ninety minutes from New York to Paris
(More leisure time for artists everywhere) ...

We'll be eternally free yes and eternally young"

I.G.Y, by Donald Fagen (on The Nightfly)

...
written by kharris, September 21, 2012 8:57
Brooks keeps his position by putting a package around ego strokes for rich people that the rest of us may be willing to swallow. His "ridiculing grand people" is so odd that it's hard to credit. "Grand" people? Would that be the "elites" that he has idolized in earlier columns? It strikes me that the "grand" we see "ridiculed" are rich people we see blamed for behavior that hurt the rest of us in service of making them even richer.

Brooks is comforting the comfortable. He has signed up to as a mercenary to defend people who are (in Krugman's phrase) saying "Ma, he looked at me funny" when they are held to any civilized standard. I don't know when Brooks decided on boot-licking as a career, but he seems to have embraced it whole-heartedly.
http://www.beezernotes.com
written by beezer, September 21, 2012 9:35
Weren't there a few government subidies thrown his way, as well?
Long Story Short
written by AndrewS, September 21, 2012 10:39
While I agree with all the various points you cover to counter his assertion, why not just start by pointing out that he is full of crap in his straw-man thesis? "We’ve got an online and media culture that specializes in ridiculing grand people."?? We do? Steve Jobs was just made a saint for Christ's sake. Bill Gates and Larry Ellison are ridiculed? Rich and grand are not the same thing, nobody ridicules the real innovators in this society, just the parasites who engineer profits with balance sheet and tax trickery, risking mainly other peoples money while producing nothing of real value, ala Mittens.
...
written by JSeydl, September 21, 2012 11:18
Last Mover hit the nail on the head. Entrepreneurship is a winner-take-all market. Too many contestants enter into such markets because humans are inherently overconfident (See, Frank and Cook). In addition, it doesn't help that mainstream media has propagated the belief that it's easy to launch a start-up and earn billions. For example, see the Peter-Thiel bit on 60 min. a few months ago, in which Thiel basically encourages high school students to forgo college and start a company.

The issue of capital being overabundant for start-ups is interesting. In this case, it might actually be that many entrepreneurs know their ideas stink but don't care; they're going to make money either way when there is too much capital. Obviously, the aftermath hurts many others not involved, which is problematic.
Maybe we need a Business Failure Week Magazine
written by John Wright, September 21, 2012 1:34
In keeping with Dean's mention of the high rate of new business failures, perhaps we need a magazine that features businesses that followed all the business magazines' advice and then failed.

One can get the impression from the business magazines and books that it is equally likely to make money as lose it in business.

But while everyone starting a business has the "talent" to lose money, far fewer have the talent to make money.

I contract at high tech company that has had numerous layoffs, including my own, since the tech bubble popped about 10 years ago. I've watched engineers try their luck as real estate agents, financial counselors and various small businesses.

I'm unaware of any outstanding entrepreneurial successes
in these attempts.

And I find it ironical that one of the magazines ("Business Week")that features business advice and articles on successful companies found itself in such poor financial shape that it was sold to Bloomberg for a reported $2million to $5million + assumption of liabilities in 2009.

The Artisan Economy
written by Frankly Curious, September 21, 2012 1:43
This reminds me of the Newsnight interview with Paul Krugman. He noted that not everyone was going to start their own business. Conservative MP Andrea Leadsom responded, "Why not?" I was amazed. Do these people really think we could have a modern economy of artisans?

I think these people have a romantic notion of business with little actual experience--especially when it comes to the process of starting a business from scratch.
...
written by S.D. Jeffries, September 21, 2012 9:59
I wish some of these Important Scribes would address the underlying problem at hand: there is not enough demand in the land for the businesses we have now. Suggesting that people go out and exercise their entrepreneurial muscles before solving the most pressing problem first is just pie-in-the-sky theorizing along the lines of, "Wouldn't it be pretty to think so?"
It's just math
written by Ken Schulz, September 21, 2012 11:42
I was thinking about this when I read Adam Davidson's article about Edward Conard in the New York Times Magazine. http://www.nytimes.com/2012/05...wanted=all

There's a mathematics for decisions under uncertainty, like investing in a startup which may or may not succeed; you can try Wikipedia for Receiver Operating Characteristic. Presumably, investors pick the most-likely-to-succeed opportunities first; of course, even some of those will fail. Each additional increment of investment goes to less and less promising candidates. Brooks and Conard are just wrong; large increases in invested capital would not yield large returns. You just move along an ROC curve - every increase in successes is accompanied by an increase in failures. Beyond the point at which the tangent line has slope = 1, failures increase faster than successes. And we're already at a point where IIRC, fewer than half of new businesses even survive past three or four years, much less make anyone fabulously wealthy.
...
written by denim, September 22, 2012 3:38
According to US census data there are 27,110,000 firms in the US. Assuming one entrepreneur per firm, that is 27,110,000 entrepreneurs. Many of these firms are duplicated across America. For example, restaurants. These firms succeed because they satisfy the customers. Far from being some kind of locust consumer, these are the final judge of whether the business succeeds or fails. The customer may not always be right, but he is always the customer that needs to be satisfied with the "entrepreneur's" hard work.
...
written by liberal, September 22, 2012 7:25
Ken Schulz wrote,
...you can try Wikipedia for Receiver Operating Characteristic.


Yeah, that's an excellent and useful concept. Presumably would be very useful for illustrating a bunch of controversies, like using student testing for teacher evaluation, requiring photo IDs for voters, ...
S.D. Jefferies is right on.
written by Ethan, September 22, 2012 9:13
There is not enough demand for the businesses now in existence. How are new businesses going to create demand? Oh sure, a few here and there with a unique product or service, but not many.
I remember the old adage for becoming a rich business owner -- "Find a need and fill it." Right now there is not enough "need" i.e. demand.
I do suppose that the demand created by the person trying to start his own business -- advertising, office furnishings, computers, paper, etc. -- is something, but if it all goes into BK, it is a poor allocation of resources.
Department of Waste, Fraud, and Abuse
written by Andrew Burday, September 22, 2012 10:20
a department of waste, fraud and abuse that pays people to write up documents that get passed back and forth to each other and then thrown into the garbage.


Geez, isn't this called "academia"?

(Just kidding, couldn't pass up the opportunity, at the end of the day on balance netting everything out I do value education.)
...
written by PeonInChief, September 22, 2012 11:28
We should all laugh when someone talks about the Internet as a private enterprise. But then Brooks creates "history" as he needs it.
The best way to encourage entrepeneurs
written by reason, September 24, 2012 3:09
Is to ensure that net disposable median incomes are growing. Then every consumer has an available budget slot for something new.
No economy works as well as you think ....
written by EzAl, September 24, 2012 10:50
"A well-working economy allows entrepreneurs to get capital when they have good ideas, but it prevents them from raising capital when they are off the mark. "

On the face of it, this statement is either meaningless or complete crap. Define "off the mark." Define "good ideas."

Anyone who has ever been involved in the search for money to start a new business idea understands that there is no certain knowledge about what will succeed and what will fail.

Where are these hypothetical investors in a "well-working economy" who only fund "good ideas?"

There's always been a lot of guess work, trial and error, and risk in our economy's investment decisions and I challenge Baker to show us the "well-working" economy that doesn't have a significant share of failed investments.


TTreat entrepreneurship as just one important piece of a capitalist economy.
written by Sumitra, September 24, 2012 6:01
EzAL is right. There is more uncertainty in the innovative process than not. Capital markets are fraught with monopoly power plays, as somebody pointed out. So being a successful innovator is always a gamble.

Joseph Schumpeter developed a theory of entrepreneurship (1911) which described the special talents entrepreneurs have, and there is no reason to take away from them. But Schumpeter also "predicted" that that role will wither away because capitalism will be so successful in its operations that corporations will take over the job. You will not need these heroic individuals to innovate. Well, however you view them, they are still around. But his theory is not the simplistic diatribe of Ayn Rand against any need to socialize them or the slavish worship of people like Brooks. Brooks writes too many embarrassing columns.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives