There is More to College than Career and More to Life than Money

photo from Bloomberg

It was with interest I read the economist update on the somewhat controversial Theil Foundation program that is awarding 20+ Under 20 applicants for a grants of 100,000 dollars to start a business rather than go to or finish college. While there are famous examples of drop out successes, like Bill Gates, and while what Mr Thiel says about the fact that they can always go back to school may be technically true- my gut instinct is to think this is not a good idea.

Thiel is a classic libertarian, so it is not surprising to me that his view is all business, private markets, and money success. But I think about what else you gain in college- access to new ideas, more exposure to people not like yourself, the chance to explore what you really enjoy and find a path that suits you. Most people claim to have changed a lot throughout their 20's - it is when you really solidify your own outlook on the world. And I can't help but think these "100,000 dollar drop outs" are missing more than just an education (also important by the way) by diving full into the high stress roller coaster ride of entrepreneurship.

As for going back to school if your Theil grant doesn't result in Gates-like success... adult ed is a wonderful thing, and grad school is too- but it is never the same as approaching the discussions, exploration and growth of college life in the company of your peers. Folks of a similar age, experiencing the same parts of life and the same developmental cycle as yourself. Plus as less than 50% of start ups survive- those grant winners may be paying more than the price of 2 years of their lives if things don't pan out.

Mr Thiel admits to thinking that ..."higher-education system tempts many people who would be better off going straight into business and creating significant wealth." and that says a lot to me. Do we need more of a push to strive for significant wealth in america? What about public service? What about personal growth, deeper thinking, enjoying family and friends. A higher standard of living can be measured in many ways, not just by tallying up your bank account totals at the end of each quarter.

I also note that of his first 24 grants, only 2 went to women. Really? There are only 2 women out there smart enough for Thiel's cash? hmmm. But as with most classic libertarians his view is quite male-centered. This during a time when huge numbers of women are starting and leading their own companies.

The stories of the grant winners are quite interesting and for many this may be an ideal path.  But I think the philosophy behind it may be inherently flawed. For those passionate enough- like Gates- the path of going straight to your own company is not dependent on instant cash from VC's and Big cash grants. In fact, finding the money to make your dream and path a reality is a big part of the learning curve needed for long term business success. The Theil plan is at best a cushy short cut in what should be a life-lesson tough path.

In the movie The Social Network, a few things were clear, facebook founder Mark Z. is brilliant, and had a good idea. What is also clear is that he lacked emotional and social maturity that would have saved him from some huge law suits and generally being viewed (by the globe now) as a jerk. Would college have taught him more about social interaction? perhaps, perhaps not. But dropping out and rushing out to Silicon valley certainly didn't seem to impart that lesson.

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Potemkin Capitalism*

(Photo: BBC, "North Tyneside high street 'revived' by fake shop front",

described as "The specially-designed facades feature different types of shops")

North Tyneside high street 'revived' by fake shop front (2010.03.03):

Fake businesses are to be used to lessen the impact of the recession on high streets in North Tyneside.

With 140 empty shops in the borough, council bosses think they have come up with a unique way of ensuring shopping areas remain as vibrant as possible.
...
Judith Wallace, North Tyneside Council's deputy mayor said: "The economic climate has forced many businesses to bring down the shutters.

"We need to ensure that the remaining businesses continue to survive and that means ensuring our high streets look attractive to both shoppers and potential business investors.

"This is a simple and cost-effective approach that keeps the retail unit available for potential new uses and in the meantime also contributes to the street scene."

Empty shops in Wallsend and North Shields are now being earmarked for similar treatment, which costs about £1,500 a time.

Four more U.S. Banks shut down (2010.03.06):

Regulators say they shut down banks in Florida, Maryland, Illinois and Utah, raising to 26 the number of U.S. bank failures this year.

The Federal Deposit Insurance Corp. said Friday Sun American Bank, based in Boca Raton, Fla., Bank of Illinois of Normal, Ill., Waterfield Bank in Germantown, Md., and Centennial Bank in Ogden, Utah, had a total of $1.1 billion in assets and $1 billion in deposits.

The $304.8 million cost of the closings will come out of a fund the FDIC maintains.

Other bank failure stories from UPI.com:

• FDIC closes banks in Nevada, Washington (2010.02.27)
• Four banks in separate states shut down (2010.02.20)
• Five U.S. banks closures announced (2010.01.30)
• Five U.S. banks seized by regulators (2010.01.23)
• Wash. bank, Calif. credit union shuttered (2010.01.09)
• Six ailing U.S. banks shuttered (2009.12.05)

At least 130 banks failed in the U.S. in 2009. In the first 2 1/4 months of 2010 we've seen at least 26, which projects out to about 139. Not a tremendous change, but still worrying. Especially because it's so far over the "normal" average of about 50 (that's the average of FDIC "Total Failures" and "Total Assistance Transactions" over the period 1934 to 2010). An examination of the annual data suggests that there's a relatively small threshold of "normal" bank failure. Call it 10 or 20/year (there's relatively little difference). At 20/year, we've got a "Green Zone" where 69% of the years (53 years below 20 bank failures) since 1934 represent only 7% of bank failures (265 bank failures) at this normal background rate. That's an average of 5 bank failures per year. The other 31% of the years (24 years at or above 20 bank failures) are a "Red Zone" which account for 93% of the failures (3555 bank failures). That's an average of about 145 bank failures per year. We are clearly in the Red Zone.

(Infographic: U.S. Bank Failures by Year, by Evan Robinson, Group News Blog.
Data sourced from FDIC, HSOB Failures & Assistance Transactions.)

The green line (representing $ of deposits in failed institutions in constant $) is alarmingly high compared to previous periods of bank failures. There appears to be (either an error in the data or) a qualitative difference between current bank failures and previous failures. I will investigate the data to see if I can find an error -- and I almost hope I do.

It's worth noting that more than half the Red Zone years fall between about 1980 and 1994. I wonder if there's a correlation between the regulatory climate (or control of the Presidency and/or Congress) and bank failures? Hmm.

* if you don't understand the reference, look here and here.

(h/t Will Shetterly, it's all one thing -- he credits Bruce Sterling with the term "Potemkin Capitalism", but I can't find his usage, except for in his 2010 State of the World. An earlier usage comes from the Cato Institute, in Replacing Potemkin Capitalism: Russia's Need for a Free-Market Financial System, published 7 June 1999)

There's more...

Food-borne illness: Failure of Capitalism

(Photo: Low-temperature electron micrograph of a cluster of E. coli bacteria,
magnified 10,000 times. Each individual bacterium is oblong shaped.
Source: ARS Image Gallery Image Number K11077-1
by Eric Erbe and Christopher Pooley, via Wikimedia Commons)

From the LA Times "Cost of food-borne illnesses is deemed much higher than earlier estimates":

A new consumer research report released Wednesday has found that the health-related costs of food-borne illnesses total $152 billion a year, including the costs of medical bills, lost wages and lost productivity. That total is more than four times that of earlier estimates calculated by the U.S. Department of Agriculture.

The findings come as regulatory efforts to patrol the country's food sector are growing amid reports of a string of costly -- and sometimes fatal -- outbreaks of food-borne illness involving peanuts, jalapeno peppers, spinach, beef and other foods.

The report, sponsored by the Produce Safety Project at Georgetown University, provides a comprehensive examination of health costs associated with flaws in the nation's food safety system and "demonstrates the burden of food-borne illness," said Sandra Eskin, director of the Pew Charitable Trusts' Food Safety Campaign, a supporter of the study.

In 1997, the USDA reportedly pegged the public cost of sickness and death from eating tainted food at $35 billion a year. But that research looked at the fallout from only a handful of food-borne pathogens and didn't include as many long-term effects from such illnesses, including how they can affect a person's quality of life.

The Produce Safety Project identified 27 pathogens, said Robert Scharff, an economist who authored the newly released report. Researchers say some of the pathogens, such as norovirus or salmonella, are responsible for making a million or more Americans sick each year; others, such as botulism, sicken far fewer people.

Yet in most cases, researchers still can't pinpoint why or how people get ill from what they eat. The study attributes just over 80% of the illnesses and two-thirds of the costs to unknown food-related causes, a determination made by statistical analysis of symptoms associated with food-borne sickness such as diarrhea, Scharff said.

"Salmonella Scare Exposes the Dangers of Industrial Food":

The contamination of perhaps thousands of food products with salmonella should be a wake-up call to apologists for the industrialized food system. It's not possible to bring the system down and get everyone to eat an all-local, all-fresh diet, as some "locavores" say they want. But to continue to pretend that our food system is just fine as it is amounts to an endorsement not only of widespread illness, but also of chronic health problems and environmental degradation.

But let's concentrate for now on outbreaks of illness. The foods were contaminated by a single ingredient, hydrolyzed vegetable protein (HVP), made in this case by a single manufacturer, Basic Food Flavors of Las Vegas. That a single company can be responsible for contaminating thousands of processed food products that are distributed across the country and even internationally is as strong an indictment of industrial food as I can think of.

HVP is a ubiquitous flavor enhancer that exists only in processed foods. "So far, recalls have been announced for 56 separate products, according to a database posted today by the FDA, including potato chips, dips, salad dressing, sauce mixes, soup bases, and 16 flavors of prepackaged meals," according to the Web site of the Center for Infectious Disease Research & Policy (CIDRAP).

"But," CIDRAP continues, "that number is expected to grow enormously over the next few weeks as details of the recall filter through the complex channels of industrial food production. The 6-page list of recalled lots of HVP posted on Basic Food Flavors' website contains hundreds of items."

Free marketeers would have you believe that the market will correct this problem. That market forces will drive companies out of business if they persist in selling products that make you ill or kill you.

The quick demise of all tobacco companies proves that, doesn't it?

And yet, the CDC reports that 5000 Americans die and another 325,000 are hospitalized out of 76 million annual cases of food-borne illness.

That's 1.66 9/11s annually, for a total estimated cost of $152 billion/year (as listed above). Since the Bush Adminstration devalued an American life to $5.9 million, only $34.5 billion/year of that is the deaths, leaving $117.5 billion/year for the other loss of productivity and medical costs.

This is what the economists call "a market failure".

Here's a hint as to why:

Food subsidies are out of whack with government policy. That speaks to gaming the system. The government says you should eat 11 servings of grains daily, but they send 74% of their subsidy money to meat & dairy producers. I wonder how that happens?

If food producers can influence government spending policy, I wonder if they can influence food safety legislation?

If you want to know more, just Google "e. coli conservatives", at the top of which you'll find Rick Perlstein's 1997 post where I believe he coined the term:

First, they came for the spinach...Next they came for the peanut butter...Then they came for the tomatoes. Then the Taco Bell lettuce. Then the mushrooms, then ham steaks, then summer sausage...They, they came for the pet food.

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