Wednesday, July 22, 2015

Here's Some Anti-American Dream Nonsense...

The Statue of Liberty front shot, on Liberty I...
The Statue of Liberty front shot, on Liberty Island. (Photo credit: Wikipedia)
It's hard, really hard to make it big in America.

Well, yes, success takes work, especially if you are trying to start a business, but some in the media and within academia seem to want to convince their audiences that unless you are born wealthy and white, there's almost no hope at all of living the American Dream.

The United States does have widening inequality. There are complex explanations for this, including the fact that our wealthy are wealthier (on average and at median) than the wealthy elsewhere. Income inequality, which isn't the same as wealth inequality, is also increasing for many complex reasons.

But, there are actual signs that more people can and do start businesses. You wouldn't know that, though, based on how some present research data to the public.

The following article from Quartz (The Atlantic) is so flawed, statistically and philosophically, it demonstrates how the media promote the "America isn't fair!" narrative.
Entrepreneurs don’t have a special gene for risk—they come from families with money - Quartz 
University of California, Berkeley economists Ross Levine and Rona Rubenstein analyzed the shared traits of entrepreneurs in a 2013 paper, and found that most were white, male, and highly educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz. 
Okay… but from 1996 to 2013, the percentage of white entrepreneurs fell from 76% down to 61% so the trend is fewer white males, but the article doesn't report the trend of entrepreneurship in the United States. The number of hispanic businesses jumped from 11% to 20% over that same period.

Also, the number of new entrepreneurs without a college degree is growing faster than those with a college degree. As is the number of entrepreneurs from the bottom two quintiles of household income.

So, yes, existing entrepreneurs are still mainly white, male, and well-off financially. But new entrepreneurs are changing demographics. Leave it to The Atlantic to jump to some unrelated research and imply something… but I have no idea what they want to imply.
New research out this week from the National Bureau of Economic Research (paywall) looked at risk-taking in the stock market and found that environmental factors (not genetic) most influenced behavior, pointing to the fact that risk tolerance is conditioned over time (dispelling the myth of an elusive “entrepreneurship gene“). 
What does stock market risk-taking have to do with starting 99% of small service-oriented businesses in the United States? The nail salon? The maid service? The two people fixing small engines on-site? Car detailing? Most entrepreneurs don't have any relation at all to the stock market or its way of thinking about money and risk.
Resilience is undoubtably a necessary trait for success; many notable entrepreneurs experienced success only after leading failed ventures. But the barrier to entry is very high. 
For creative professions, starting a new venture is the ultimate privilege. Many startup founders do not take a salary for some time. The average cost to launch a startup is around $30,000, according to the Kauffman Foundation. Data from the Global Entrepreneurship Monitor show that more than 80% of funding for new businesses comes from personal savings and friends and family.
Wait a minute… those stats and claims don't reflect anything, either. Average is always a statistically loaded word. If one firm required $1 million and a second required $1 to start, the "average" was $500,000 to start a new business. Averages are useless. Report medians, please. And, even then we need more data and more analysis to know the mode and various deviations from the median.

The Atlantic should be ashamed of this story and the professors cited should be even more ashamed of manipulating how data are presented to the public.

Do you want to know more about who the new entrepreneurs are? Read these data:

http://money.cnn.com/infographic/leadership/entrepreneurs-today/

In reality, more people from the lower-income quintiles and from various ethnic backgrounds are the new entrepreneurs. It seems the United States does still offer opportunities. But don't let actual data trends get in the way of implying there are insurmountable barriers to success.

Quartz and The Atlantic, after all, are manipulating readers for some reason. There must be a motive behind such outright sloppy analysis.

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