Entrepreneurship cannot be taught

A lot of classes in business schools teach rather fluffy material, especially MBA classes. It is all about entertaining the students who pay dearly for their education and expect a diploma. The signaling value from the diploma happened with entry into the school and not through the selection process during classes. And quite a few classes are all about making the students believe they are learning important skills that will make them CEOs. Nowhere is that more true than with "entrepreneurship" classes, whose teachers are often adored by students who think they will turn into the next Bill Gates.

Michael Stuetzer, Martin Obschonka, Per Davidsson, and Eva Schmitt-Rodermund Do not empirical research into what it takes to be an entrepreneur, and I presume their sample includes only successful ones. It turns out education has no bearing at all. It is all about having a varied work experience. Thus, working a long time on the same job will not make you a successful entrepreneur once you quit. And taking entrepreneurship classes or getting an MBA will not help you either.

David Landes

Here is the NY Times obituary of the great Harvard economic historian.

Ec 10 is still number one

But just barely.

There is demand for fresh fruit in Scotland!

When I am thinking about Scotland and the average diet of its residents, I am not thinking about fresh fruit. Indeed, obesity rates there are about the highest anywhere in the world, thanks to a combination of greasy food, high alcohol consumption and general lack of exercise. Fresh fruit does not seem to be high in demand, yet there is a paper that studies the price elasticity of different types of fruit in Scotland.

That paper is by Cesar Revoredo-Giha and Wojciech Florkowski and unfortunately it does not mention any numbers about the level of demand, in particular compared to other regions. The paper, like many papers in agricultural economics has a very narrow focus and it is not clear at all why it would be of interest to anybody outside of Scotland (or even in Scotland, visibly). Is there any lesson to be learned for the rest of us? Anything that could generalize? Some policy implication to get people to eat more healthily? The paper was prepared for a conference in Poland. Why would the paper be of interest there?

Who predicted the sluggish economy?

Robert P. Murphy looks back.

Demographic Consequences of US Economic Stagnation

US Labor Force Participation Rate

In development theory, there is thing called the "demographic transition" which argues that birth rates should diminish as a country becomes wealthier and more urbanized. Instead of "spreading their bets" by having many children in the hopes that at least one will succeed and be able to take care of them in their old age, wealthier folks believe that having fewer children endowed with high "human capital" via education and so on will better guarantee their success. It is also more difficult to have large families in households where both parents work and in cities where living costs and living space are at a premium. Moreover, the introduction of social safety nets such as pensions lessened the need for privately planning for retirement.

OK, so that's the theory, and it's held up quite well over the years. However, many developed countries are now entering a twilight zone characterized by vanishing economic prospects and diminished expectations for the future where most believe that the standard of living of future generations will be lower than current generations for obvious reasons. In the face of such difficulties, could a "reverse demographic transition" occur in which parents have more children again to assure them that at least one will make it and help provide for them in their old age?

Well, no. The United States provides some insights. Actually, the total fertility rate--the number of children a woman bears--fell to 1.89 in 2012. This is well below the replacement rate of 2.1 children per woman. In other words, if this trend continues, the United States will indeed suffer from depopulation, "Detroitification," unless migration can compensate. Looking into Census figures, it is indeed the case that current projections the US population will reach 420 million in 2060 are predicated on large-scale increases in migration. (Read the fine print.) In the absence of migration reform, though, I am not certain that the politics will necessarily be in place for that to happen.

All this brings us to the likely culprit for birth decline. Simply put, there are few jobs out there in America right now, and most of those which are available are of the low-skilled variety. Yes, the US has become a nation of burger flippers--employment statistics amply demonstrate that. With low-paying, short-lasting jobs becoming the norm, couples do not have enough security in raising families. Wages have been falling for over a decade, and there is little reason to believe they will rise significantly anytime soon. I disagree with Paul Krugman about the causes of this poor job situation--which is actually much worse when you account for women joining the labor force in large numbers in recent decades. Still, we can agree that America is, well, doomed.

How exactly a nation of burger flippers whose young people struggle just to find jobs of ever-decreasing remuneration is going to support droves of greedy seniors is beyond me. So is the point of higher education if all you will do is flip burgers for that matter.

Let us end with migration: something the Census does not sufficiently account for IMHO is the rising affluence of any number of traditional migrant-sending countries and other LDCs. Given better prospects of finding work there compared to the US (where there are few), I would expect net migration to move closer to zero. As bad as things are now, they can get worse.

Oh by the way, do you want fries with that?

Spain, 'Russian Galacticos' & Soccer (Un-)Economics

I nearly forgot to make this post as the transfer deadline for trading players has ended, but as they say, better late than never. So, there are two parts to this story dealing with the economics of soccer in relation to the "real economy": Spain's Real Madrid and the dismantling of the "Russian galacticos." Never heard of them? Well, read on...

First, I am astounded by the spending of Spain's largest football team Real Madrid considering that there are now "financial fair play" regulations that are supposed to limit what teams spend relative to what they earn. They are supposed to be penalized for spending more than what they earn, but Madrid is supposedly the world's largest football club in terms of revenues. So, Real Madrid may actually afford their latest star signing, Gareth Bale, formerly of Tottenham Hotspur, for an astronomical (and unprecedented) EUR 100 million. Legendary French player Zinedine Zidane has even said that no player is worth that much money.

More importantly, the optics of Bale's transfer do not favor Real Madrid. After all, the unemployment rate in Spain is 26.3%. Also consider that the youth unemployment rate in Spain is at a similarly inconceivable 56.1%. At age 24, Bale would still belong in the "youth" age group (15-24). What exactly does his signing say to an increasingly inequitable society beset by very limited employment opportunities for Spain's young people due to structural factors? Let me put it to you this way: the transfer fee excludes wages, but EUR 100 million alone would be the equivalent annual household income for 4,376 Spanish households. As I said, the optics are quite bad in recession-hit Spain. That he's even a "migrant worker" of sorts makes things worse since there are so many jobless at home.

*** 
Next, did you hear the one about the Russian galacticos? Real Madrid popularized the term when they had stars such as Zinedine Zidane, Luis Figo, Ronaldo (de Lima), Roberto Carlos (the only Brazilian player of note using his surname?), David Beckham, Raul, and Iker Casillas in the early Noughties. Unbeknownst to many, Russian club Anhzi Makhachkala recently spent a similar fortune attempting to assemble a team for the age that is now disposing of in a fire sale. I am not making a specious analogy: Roberto Carlos himself played for Anzhi for a while. during his twilight years. Mind you, there were marquee players in their prime as well in the  $400M spending spree including 3-time Champions League winner Samuel Eto'o and Christopher Samba.

Never heard of Anzhi Makhachkala? It is owned by Russian billionaire Suleyman Kerimov who made his fortune through his participation in the phosphate cartel (phosphate is a key component of fertilizer). With the recent demise of this cartel, let's just say Kerimov's future revenue streams to fund his dream team have disappeared. With this team underperforming by its own admission in the Russian league, there was no reason to keep it intact besides:

But this was no joke. In the hours that followed a series of announcements, each more puzzling than the other, confirmed "The Anzhi Project", at least as we previously knew it, was coming to an end. Suleyman Kerimov, Anzhi's billionaire backer since January 2011, was no longer happy to finance a gravy train. The club's budget, officially quoted at an extravagant £116m per season (second only to Zenit St Petersburg in Russia), was to be reduced to between £32m and £45m.

There have also been comic signings of buying and selling players for the same amount in quick succession as the phosphate cartel and a large part of Kerimov's fortune went away:

On July 4, Anzhi sign Russian starlet Aleksandr Kokorin from Dynamo Moscow for $25 million. Thirty-three days later, he's sold back to Dynamo for the exact same amount. On July 15, Anzhi buys veteran midfielder Igor Denisov from Zenit St Petersburg for $20m. A month later, he goes to Dynamo Moscow for ... exactly $20m.

This after hiring and firing coaches Roman Abramovich-style and the rest of that circus. They say that the best way to make a small fortune in football is to start with a big one, and that joke apparently holds in Russia. Simply put, the economics were dubious from the start. Not only is Kerimov trying to unload football players but even the potash business as prices drop. As for Real Madrid, even if Gareth Bale's signing does not impose significant financial hardships on the club, the very act of signing him does not bode well in a most austerity-hit nation.

But then again, whoever said that football finances had anything to do with economic reality?