Macro Roundup

They define the most selective schools as, “…we define the ten most selective colleges as University of Chicago, Harvard University, Columbia University, Stanford University, Princeton, CalTech, UC Berkeley, MIT, Yale University, and University of Pennsylvania…”

“…estimating that (i) 15% of Fortune 500 firms are created by alumni of top 20 collegesand (ii) these firms represent 30% of Fortune 500 employment…. Our findings are additionally supported by evidence from Black (2020) that over 20% of all venture capital funding is given to graduates of top 20 universities…. Finally, Bhagat et al. (2010) estimate over 15% of all public firm CEOs completed an undergraduate degree at a top-twenty university….”

Lots of good little factoids, “…Relative to the rest of the sample, we find top twenty (ten) graduates are 2%(7%) more likely to start a firm with twenty of more employees, 5% (13%) more likely to receive venture capital funding, 2%(3%) more likely to be acquiredand 1%(3%) more likely hold at least one patent…”

You’ll like this quote, “…Rather, our findings provide the best evidence to date that a supply of potential entrepreneurs employed in the workforce today, especially in the top finance, consulting, and technology firms…”

Their takeaway, “…Conventional wisdom suggest workers with the greatest ability to select into entrepreneurship prior to any labor shocks. Any firms created due to local employment shocks will therefore instead be a stop-gap measure until the founder can rejoin the workforce. Forced entrepreneurs would then disproportionally lead to the creation of low-quality firms.Yet, in contrast to these arguments, we find that businesses formed by entrepreneurs entering weak labor markets perform equally, and often better, than those who enter strong labor markets.Upon further examination of the data,we find (i) entrepreneurial success is driven by the top of the income distribution and (ii) these same workers are disproportionately impacted by labor shocks; as a result, labor shocks can increase entrepreneurial quality. Our results therefore provide the best evidence to date that even best entrepreneurs were not destined to select into entrepreneurship, and that there are many wage workers today with high entrepreneurial potential…”

Core findings, “…that a 1 percentage point increase in the national unemployment rate is associated with a (i) 0.5 percentage points decrease in likelihood of employment with a top consulting, finance, or technology firm, (ii) 0.4 percentage point decline in the likelihood of employment with a firm in the Russell 1000 Index, and (iii) 0.3 percentage points decrease in a high-wage industry. 6 In our baseline analysis, we estimate a 1 percentage point increase in the national unemployment rate increases the likelihood of entering entrepreneurship by 0.2 percentage points compared to individuals of the same gender graduating from the same institution and major in the prior year. Given a baseline entrepreneurship rate of 2.2% at graduation, a one standard deviation increase in unemployment increases entrepreneurship by 15% relative to the mean. Since differences in entrepreneurship rates remain steady three years after graduation, transitory labor shocks result in the creation of firms that would otherwise not exist in the economy. Last, we find the majority of these firms are in the financial, professional, and technical services sectors, and this industry composition can be largely explained by the skillsets of the founding entrepreneurs. Startups in our sample are more successful than average startups in the economy. We find that 15% of our startups receive venture capital, 4.5% are eventually acquired, and 6% receive at least one patent.7 To confirm labor shocks can impact the entry of successful and innovative ventures, we show that an increase in the unemployment rate increases the rate of (i) large employer firms, (ii) venture-backed firms, (iii) patent-holding firms and (iii) acquired firms…”

They authors built a new dataset, “…We compile a novel data set to conduct our analysis. Our data includes profiles of 640,000 recent college graduates, representing 3% of all workers graduating from a U.S college between 1996 and 2014. Though the workers from our sample graduate from over 2,200 undergraduate institutions, we overdraw graduates of highly-selective universities since these colleges disproportionately graduate successful entrepreneurs. For instance, Massachusetts Institute of Technology, Stanford University, Northwestern University, Cornell University, University of California at Berkeley, and University of Michigan each graduate 1% or more of the employee sample. We identify over 36,000 founders of firms and our sample includes highly-successful entrepreneurs including the co-founders of Airbnb, Dropbox, Instagram, Khan Academy, Paypal, Square, Yelp, and Youtube, among others. In total, 141 of the startups in our sample completed successfully an IPO….Specifically, we compare a worker graduating from a U.S. undergraduate institution to a separate worker of the same gender graduating from the same institution with the same major, but in the two prior years...labor market conditions at the time of graduation have long-term effects on wages even among the most prestigious academic institutions...”
They focused on the top schools, “….focus on the workers in our sample with the greatest ex-ante likelihood of becoming top-earners: those graduating from the twenty (or ten) most selective undergraduate institutions in the U.S.8We provide three findings. First, analyzing over 115,000 elite workers, we find labor shocks on graduates from selective institutions disproportionately increase the likelihood of underemployment. Second, in response to a labor market shock, we find these workers are more likely to enter entrepreneurship relative to other graduates. Third, we confirm entrepreneurs from the most selective institutions are significantly more likely to start high-quality firms relative to the rest of the sample…”

They make an effort to control for personal characteristic by comparing workers by undergraduate institution, sex and major versus their comps in a non-weak job market.

Counterintuitive Research on the elasticity of entrepreneurs suggests talent is the limiting constraint. Research finds firms founded by individuals who were "forced" into entrepreneurship by a poor job market (ie they were unable to get a prestigious or high earning job at time of graduation) are more likely to survive, innovate, and receive venture-backing.

"...Belloc and Chesterton asked: Where did political freedom come from? Free institutions of the West didn’t arise in a vacuum. Events dating to the fall of the Roman Empire produced conditions that protected laborers against the capriciousness of aristocrats. Over centuries, slaves became serfs, serfs became peasants, and peasants became free yeomen. Economic independence, meaning control of productive resources, gave rise to political liberty....Free institutions can be sustained only by a society of propertied households. Why would a worker who owns nothing but his labor consent to a system that protects property rights and due process, important as those institutions are?...Political ideology isn’t reducible to self-interest, but protecting freedom requires giving ordinary families a stake in self-governance. As any economist will tell you, that which nobody owns, nobody cares for. You can’t “own” a political system, but you can certainly create buy-in for one. In a democracy, all citizens are supposed to be the shareholders of the realm. The distributist insight is that this is more than a slogan. It is a prerequisite for government by discussion among free and dignified equals..."

Alexander William Salter, "‘Common Good’ Conservatism’s Catholic Roots,"Wall Street Journal, May 20, 2021, https://www.wsj.com/articles/common-good-conservatisms-catholic-roots-11621527530

Common Good’ Conservatism’s Catholic Roots

It’s no secret that U.S. conservatives and big business are falling out. Skepticism on the right toward corporations is at an all-time high. Many within the GOP regard woke capital as the greatest threat to American liberties. In fact, conservatives are rethinking the social role of markets in general. If free enterprise has lost the power to inspire the U.S. right, what’s the alternative?

Sen. Marco Rubio, in a 2019 address at the Catholic University of America, drew on Catholic social teaching to condemn the excesses of free-market capitalism and managerial-state socialism. “What we need to do,” Mr. Rubio asserted, “is to restore common-good capitalism—a system of free enterprise in which workers fulfill their obligations to work and enjoy the benefits of their work, and where businesses enjoy their right to make a profit and reinvest enough of those profits to create dignified work for Americans.”

Especially among Catholic intellectuals, there’s a growing enthusiasm for common-good politics and economics. According to the Catechism of the Catholic Church, “By common good is to be understood ‘the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfillment more fully and more easily.” Common-good thinkers are comfortable with government interventions into the economy to achieve these ends.

Defenders of free markets, including me, took for granted the supremacy of laissez-faire. That many allies have embraced market skepticism shows we must double our efforts to engage and persuade. A natural place to start is the attempt within the Catholic intellectual tradition to embody common-good principles in political and economic institutions: the philosophy known as distributism.

Distributism flourished during the early 20th century, when Catholic intellectuals such as Hilaire Belloc and G.K. Chesterton wrote about the moral challenges of industrial capitalism. Property ownership is central to distributism. In fact, distributists claim the chief problem with property is that there isn’t enough of it: Property tends toward concentration, resulting in a proletarianized society with no stake in the social order. To uphold the common good, private property must be dispersed.

Few economists, Catholic economists included, think highly of distributism. They regard it as a utopian scheme permeated with economic fallacies. Indeed, the classic works of Belloc and Chesterton are full of dubious economic claims. Nevertheless, it’s a mistake to dismiss distributism. What matters is the social vision and its relevance to common-good capitalism. John Neville Keynes, father of John Maynard Keynes, distinguished the “science of economics” from the “art of political economy.” The former is analytic and precise; the latter imaginative and humane. Distributism isn’t scientific, but it is artful, and it offers much to learn about both liberty and the common good.

Economic freedom is generally thought of as downstream from political freedom. The first task is setting up good “rules of the game” for politics. This protects the rights of citizens, including the freedom to produce and consume. Belloc and Chesterton asked: Where did political freedom come from? Free institutions of the West didn’t arise in a vacuum. Events dating to the fall of the Roman Empire produced conditions that protected laborers against the capriciousness of aristocrats. Over centuries, slaves became serfs, serfs became peasants, and peasants became free yeomen. Economic independence, meaning control of productive resources, gave rise to political liberty.

For those who dream of restoring and keeping liberty, the distributists show the insufficiency of legal reforms and policy analyses. Free institutions can be sustained only by a society of propertied households. Why would a worker who owns nothing but his labor consent to a system that protects property rights and due process, important as those institutions are?

Political ideology isn’t reducible to self-interest, but protecting freedom requires giving ordinary families a stake in self-governance. As any economist will tell you, that which nobody owns, nobody cares for. You can’t “own” a political system, but you can certainly create buy-in for one. In a democracy, all citizens are supposed to be the shareholders of the realm. The distributist insight is that this is more than a slogan. It is a prerequisite for government by discussion among free and dignified equals.

Distributism offers a way of thinking about businesses, markets and the common good that cuts across traditional political divides. On inequality, distributism aligns more closely with progressivism. On the administrative state, distributism aligns more closely with conservatism. But both are for the same reason: a commitment to government by citizens, not technocrats. The “democratic faith is this,” Chesterton wrote: “that the most terribly important things must be left to ordinary men themselves,” including “the laws of the state.”

Common-good capitalism tries to revive Jeffersonian-Jacksonian economic populism without the morally troublesome aspects of these traditions. Distributism fits well with this political turn on the American right. The common good is worth taking seriously, and the distributist perspective deserves a hearing.

Mr. Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University and a fellow at Texas Tech’s Free Market Institute.

Brian Spegele and Caitlin Ostroff, "Bitcoin Miners Are Giving New Life to Old Fossil-Fuel Power Plants,"Wall Street Journal, May 21, 2021, https://www.wsj.com/articles/bitcoin-miners-are-giving-new-life-to-old-fossil-fuel-power-plants-11621594803

Bitcoin Miners Are Giving New Life to Old Fossil-Fuel Power Plants

Across America, older fossil-fuel power plants are shutting down in favor of renewable energy. But some are getting a new lease on life—to mine bitcoin. In upstate New York, an idled coal plant has been restarted, fueled by natural gas, to mine cryptocurrency. A once-struggling Montana coal plant is now scaling up to do the same.

The lofty price of bitcoin and other cryptocurrencies has investors pouring money into power generation—and risking a backlash. Elon Musk tweeted last week that Tesla Inc. would no longer accept bitcoin as payment for vehicles over concerns about fossil-fuel use in bitcoin mining. That rocked the market; bitcoin prices are now down around 25% since last week.

The drive for power has its roots in bitcoin’s intractable mathematics: To operate securely, the cryptocurrency’s network relies on computers solving puzzles; in return the solvers get fresh bitcoin. The higher the bitcoin price, the more of these miners compete to solve the puzzles—a process that chews up electricity. The more competition, the harder the puzzles get and the more electricity is used.

A University of Cambridge index pegs the annual power consumption of bitcoin mining at around 130 terawatt-hours, more than three times higher than at the beginning of 2019. That would be more than the power consumption of Argentina.

The coal-fired Hardin Generating Station in Montana had been struggling for years. Late last year, a Nasdaq-listed miner called Marathon Digital Holdings Inc. MARA -4.29% partnered with Hardin’s owner to transform the power plant into a hub for mining bitcoin.

“It was an idle asset,” Fred Thiel, Marathon Digital’s chief executive, said in an interview. “We were able to get access to a large amount of power at a very attractive price.”

The project is in the process of scaling up, with more than 100 megawatts of power capacity planned. Marathon Digital, whose investors include BlackRock Inc. and the hedge fund Renaissance Technologies LLC, said that by tapping the Montana coal plant, its break-even costs to produce a bitcoin will fall to $4,600, 38% less than previously.

The company is aiming to produce at least 55 bitcoins daily by the first quarter of next year, up from an average of two a day in 2020.

Besides mining bitcoin, Marathon Digital said that as of March it had nearly $300 million worth of bitcoin on its balance sheet, in an effort to signal its confidence in bitcoin’s future and attract institutional investors to the stock who might want exposure to the cryptocurrency but were unable to or unwilling to invest in it directly.

BlackRock and Renaissance declined to comment.

One of the most ambitious—and controversial—projects comes from private-equity firm Atlas Holdings. Based in Greenwich, Conn., the firm specializes in turnarounds of troubled companies. It bought the Greenidge coal-fired power station in 2014 after the plant in Dresden, N.Y. had been shut a few years earlier because it was economically unattractive to operate.

Atlas first converted the plant to natural gas from coal. Then, last year, it launched a data center for mining bitcoin using power the plant generated. The company said it currently has 19 megawatts of mining capacity and plans to raise it to 85 megawatts by the end of 2022.

Yvonne Taylor, vice president of the environmental nonprofit Seneca Lake Guardian, said air pollution and water runoff will damage a small community whose fresh air and clean water enables tourism, agriculture and fishing in the Finger Lakes.

Last month, local campaigners led a march to the gates of the power plant, and some groups have written letters to New York’s Department of Environmental Conservation and Gov. Andrew Cuomo urging them to revoke the plant’s permits.

The state has declined to do so. Last month, however, the Department of Environmental Conservation said it was closely monitoring Greenidge’s planned expansion. It said it also would consult the U.S. Environmental Protection Agency about the facility’s greenhouse-gas implications.

Greenidge said in March it was going public through a merger with Nasdaq-listed Support.com, which provides outsourced customer-support services. Under the deal, Support.com shareholders would get 8% of the combined company’s shares.

In exchange, Greenidge said it would use the cash on Support.com’s balance sheet to fund its expansion. There’s another potential benefit as well: Support.com has more than $145 million in federal net operating loss carryforwards, which could significantly lower the combined company’s taxes if the bitcoin operations prove to be profitable going forward.

Greenidge didn’t respond to a question on the potential tax advantages. It said last week it would begin purchasing voluntary carbon offsets and invest a portion of its mining profits in renewable-energy projects. Besides mining bitcoin, Greenidge said the power plant continues to send electricity to the grid.

“Greenidge has transformed an old coal-fired power plant into a clean, reliable source of power for thousands and an integrated data processing center mining bitcoin,” the company said in written response to questions. “We are grateful to enjoy great support from the local community.”

Support.com declined to comment.

The project has drawn the attention of state lawmakers in Albany, where a bill under review would place a three-year moratorium on crytocurrency mining amid emissions concerns.

“New York is literally the world’s headquarters for finance,” said state Sen. Kevin Parker, a Democrat who sponsored the bill. “But we also want that to be done in a way that comports with our values.”

The proposal is a problem for Michel Amar, the CEO of Digihost Technology Inc. In 2015, Mr. Amar and his son began building out mining capacity in northwest New York state, hoping to take advantage of cheap, clean power that comes from hydro generation around Niagara Falls.

Their company produces more than 30 bitcoins each month, and gets more than 90% of its electricity from hydro power.

This year, amid the bitcoin price surge, the company announced it would also buy a 60-megawatt natural-gas plant north of Buffalo, N.Y. It plans to initially direct 35 megawatts toward bitcoin mining while also sending power to the grid when it’s needed.

Mr. Amar said the company would partly fuel the plant with natural gas derived from animal manure and other sources.

At the same time, he said the company is considering leaving New York if the moratorium is imposed, potentially setting up shop in other states or Canada.

“What is the difference between a data center processing for Amazon and a data center for bitcoin?” he said. “Our goal and commitment is to be green as much as we can.”