I was pleased to see this bit in Mark Zuckerberg’s Harvard commencement speech:
Let’s face it. There is something wrong with our system when I can leave here and make billions of dollars in 10 years while millions of students can’t afford to pay off their loans, let alone start a business.
Look, I know a lot of entrepreneurs, and I don’t know a single person who gave up on starting a business because they might not make enough money. But I know lots of people who haven’t pursued dreams because they didn’t have a cushion to fall back on if they failed.
We all know we don’t succeed just by having a good idea or working hard. We succeed by being lucky too. If I had to support my family growing up instead of having time to code, if I didn’t know I’d be fine if Facebook didn’t work out, I wouldn’t be standing here today. If we’re honest, we all know how much luck we’ve had.
Let me pause here to insert my favorite inequality chart, from Raj Chetty’s data, which underscores that last point:
Zuckerberg’s argument that businesses aren’t started because founders have nothing to fall back on underscores a critical aspect of the link between the welfare state and entrepreneurship. A more generous welfare state leads to more new businesses, but as I explained in my review of the research on food stamps and entrepreneurship:
Interestingly, most of these new entrepreneurs didn’t actually enroll in the food stamp program. It seems that expanding the availability of food stamps increased business formation by making it less risky for entrepreneurs to strike out on their own. Simply knowing that they could fall back on food stamps if their venture failed was enough to make them more likely to take risks.
The impact of the safety net on entrepreneurs isn’t just about who receives assistance. It’s about the possibility of that assistance if things don’t work out.
Relatedly, New York Magazine had a great piece on the Trump budget, which cited my writing on entrepreneurship and the welfare state. One thing I particularly liked about it was its discussion of “supply-side” economic policy. “Supply-side economics” is typically used to mean the belief that tax cuts will have a large and sustained effect on economic growth, potentially so much so that the tax cuts pay for themselves. The last bit is clearly wrong, and tax cuts are, at the very least, overrated as a driver of growth.
But that doesn’t mean that policies to improve the “supply-side” of the economy — our ability to produce more with less — aren’t important. Just think about R&D or education.
So I was pleased that the New York piece linked to my work in a section with the heading “Anti-poverty spending increases productivity and entrepreneurship, and grows the supply side of the economy.” The New York Times’ Neil Irwin had a whole column on this point in April:
Certain social welfare policies, according to an emerging body of research, may actually encourage more people to work and enable them to do so more productively.
That is the conclusion of work that aims to understand in granular detail how different government interventions affect people’s behavior. It amounts to a liberal version of “supply-side economics,” an approach to economics often associated with the conservatives of the Reagan era…
The United States and other advanced nations are struggling to emerge from a pattern of persistently low growth, an era when many prime-age people aren’t in the labor force at all and productivity gains have been weak for years. Supplementing low-end wages through the tax code and ensuring that children have the food and education to become productive adults just may help, and that means “supply-side economics” isn’t just for low-tax conservatives any more.
This is just the economics of what Zuckerberg was arguing. The best way to increase the supply of entrepreneurs isn’t to cut their taxes. A better approach is to provide enough financial security that people feel empowered to start something in the first place.