Jon Stewart: Lower entrepreneurial risk
boss.blogs.nytimes.com
boss.blogs.nytimes.com
For myself and my peers, with new families and houses and student debt, etc., it's the one thing that scares us more than anything else. The prospect of a business going under is nowhere near as terrifying of getting caught off guard without health insurance. It's positively paralyzing, knowing that it is something that could be essentially impossible to recover from, unlike simply writing off a failed venture. Hopefully the Affordable Care Act will mitigate some of that.
Could this be because countries with broader safety nets also have more regulation and make it hard to fire people?
I've always kind of thought a combination of making it easy to hire people and let them go, along with strong safety nets (ie, good unemployment insurance and not having health care tied to employment) would be optimal.
And: it's fairly easy to fire someone, certainly easier than in most of the rest of Europe. The compensating factor is that the social safety net for the person who gets fired is also quite good, and not just in monetary benefits, but in active assistance to help them find a new job (both through job banks and training/internship programs). Incidentally, that is also outsourced, with a number of private (though subsidized and nonprofit) "a-kasse" social-insurance organizations competing for members. I'm a member of one that specializes in researchers, for example. If I become unemployed, for the first two years I would deal with them, not with the state. That tends to lead to people joining the organizations that they feel will provide the best job-finding assistance. Some element of competition is introduced, since a totally useless a-kasse would (hopefully) see an outflux of members.
Not only optimal, but compatible. If it's easy to get rid of people, then it makes sense to lessen the burden born of being let go. And if there is a strong safety net, then it makes sense to make it easy to get rid of people.
One perspective might be that government mandated difficulty in getting rid of people is a form of safety net: it's a safety without being required to be a net (that is, catching people on their way down, since it's designed to not let people fall).
I do agree that the American healthcare situation is a major problem, speaking as an American expat in Denmark who hopes to move back to the US someday, and sees healthcare as one of the major barriers. I'm cautiously hopeful that PPACA will solve the worst of the problems, enabling me to buy individual health insurance. But I think it's hard to prove that either way based on cross-country comparisons.
Health insurance tied to employment is a bad idea generally but that is the state of USian reality and so we make the best of that. Employer-based health insurance was a side effect of government regulation during the second World War that lingered long after the regulation has disappeared.
As a practical matter, the ACA is unlikely to help. The net effect is that it seems to be increasing overall costs per employee to maintain the status quo, and there are costs down the road that have not even been implemented yet. A company like mine can hide the cost but I can see why it would be problematic for businesses that are sensitive to total employee costs. As long as businesses are paying for health insurance, the math of the ACA is pretty grim; all it did was move the costs around and add some new ones. It is disappointing that it sort of ended up being the worst of both worlds.
A French engineer once explained to me how good the health care coverage is in France. But where is her high paying job? Not in France.
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Of course, another way to look at things is to realize that taking no risks is the biggest risk of all. If one wishes to sit and wait for life to do whatever to you, you can always do that.
Don't go to school, don't strive. Don't ever invest in anything that isn't 100% guaranteed.
No, there is already incentive to take risk.
If anything, the government "help" we've gotten so far makes it harder to take risks. Just ask the people with student loans or those in an upside down mortgage if that helps them take risks.
Those programs are designed to help the person that goes down a specific track, not help the person who thinks different.
And those programs don't even actually help once they are converted into corporate welfare.
Because they face low monetary returns. You or I taking a risk and succeeding means the monetary difference between affording a comfortable lifestyle and a lavish lifestyle. A "trust fund baby" succeeding at a risk means the difference between a lavish lifestyle and a slightly more lavish lifestyle.
In fact, many of the most innovative people are those without resources. Many are too afraid to risk the small amount they have, but many more of the poor are willing to do a lot to get out of poverty.
Risk/Return is two-factor analysis. You might get lots of $ return from risking lots of money. You may get modest $ return risking everything you have. Who has the higher risk return? Well, on a proportional basis you need to know both factors.
> US has lots of $$$ big returns. But there is very effective capital markets and legal infrastructure. A venture c-corp is not risking the entrerenuer's personal capital (per-se), in the same way as a self-funded business. The purpose of this setup is to take "more" risk with more money. The less risk there is structurally, then, the more risk is taken. Seeing lots of risk being taken is thus consistent with less actual risk being taken. When there is more proportional <return> than risk, you invest more. But sometimes those returns are not there without threshold-scale capital. You want to see massive risk? Invest in sub-saharan africa. Or in Afghanistan. Etc. Those are counter examples, and people who take lots of risk "with no safety net."
Countries with much broader safety nets for entrepreneurs are not producing the risky innovative companies that America is.
On the flip-side, there are massive returns to minimal capital that happen all of the time. And massive innovation as well. Again, taking lots of risk, because they have little (but all) to lose. In this case, downside protection really does help people to take risk. The classic example is Harry Potter. Athough entire other areas (sports, fashion, music, art) are born "on the streets" everyday. Many of these folks (the most talented) benefit from a safety net (JK Rowling, for example). The willingness to take risk is there, its just not in VC backed data-points (for obvious, but also structral reasons--see above--its too risky). But these examples are in industries that are not capital intensive (human or physical) for a variety of reasons. Thus, the don't look like SV. [Edit: also, while for society the benefits may be massive/large scale, it is also the case that not all the returns to to the creators or the takers of risk. this is espcially true in the latter examples where people have minimal capital but all to lose.]
Anyway, just some food for thought. or thoughts for food. =D
This is more due to the poor design of these programs in the US than anything else (speaking as a someone with a fairly significant amount of student debt in the UK).
Things are seldom re-evaluated logically. These programs go on for decades without obvious problems being fixed.
If you have a business and you figure out that something that was supposed to make you money was NOT actually making you money, you change it ASAP.
With government, change only happens when something becomes a political issue. Nobody even knows the true cost of things so nothing can actually be weighed without great effort. People are incented to do things that validate the program, that give a politician a big number he can point to.
The housing bubble is the worst example of this. There's no way people would spend so much to buy so big a house without all of the subsidies and tax breaks and assistance.
Notice how things devolve over time. Assistance for first time buyers, for example. Now they've changed the definition of what a first time buyer to include people who've owned homes before. But they won't every change the name of the program, as they still want to misrepresent as something it no longer is.
Your assessment on the causes of the fin crisis overlook other more significant factors.
Primarily the effects of deregulation and under funding the SEC. Those choices playing out against the development and evolution of CDOs as risk transferring instruments. The utter rapacious greed with which the financial services industry reacted to its incentives.
In a thread about risk, it's worth remembering that total dislocation from risk led to NINJA loans, and mortgages being sold to people who would never have qualified other wise.
I find the narrative that subsidies were the cause to be amusing when I remember that loan salesmen were fully aware that they were both, selling junk, and selling it to people who they knew they could out talk, out think and out educated.
In my country we usually call that exploitation.
It started with government insuring banking deposits. And Glass Segal kept that part of the financial industry separate. But eventually, the lobbyists broke that down and they used it to export risks to the banks using credit default swaps/
And they also got Fannie and Freddie to take on all the lame mortgage risks. That made it easy to shift even more risk to the government. How did that happen? Subtle changes pushed by lobbyists.
And why discuss just the mortgage bubble? There are so many other damning independent events in the past 4 years.
1) The mess with LIBOR. If you want to improve spin and double speak, you can do worse than remember this line "LIBOR has become dislocated from itself."
2) The failure of mortgage managers to maintain chain of ownership, and the robo signing scandal. Which is a nice way of wrapping up flat out fraud with a different set of words.
3) The flash crash - fine lets call it teeting issues with new technology. But what about deals where GS knowingly sells crud instruments to its clients? Or the oversight that creates such lovely euphemisms like the "London Whale". I'm currently betting that the Citi CEOs ouster will add itself to this list.
4) Too big to fail - If we say "market forces will handle it", and at the same time create institutions which are too big to fail, then haven't we essentially given up on free markets as we know it?
What I find amusing, is how the narrative is divorced from the historical timeline.
Fannie and Freddie were great ideas for their time. They were terrible ideas for a time where they were used by people who considered scruples to be ballast to be discarded, and that risk would be "managed by the market".
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On a separate note - I think any discussion that ends up overlapping the finance industry with entrepreneurship is broken. The finance industry / wall street are so removed from the spirit and intent of the law compared to the tech industry and SV startup-land that the we need separate dictionaries.
This could also be a culture thing. When I was in Canada until 5.5 years ago the golden ticket was to work for a big co. I was an ECE major and the top employer of choice was, even for me, BC Hydro (power company). I have no idea anymore why I'd have thought like that, but maybe now I am brainwashed this way. :-)
[edit] - the other big issue in Australia is there's less social tolerance for businesses failing.
But you're dead right about the social tolerance aspect. My younger brother started a car detailing company - OK, it's not innovative or anything, but he was really looked down upon by the wives of some of his friends...
That is from the article. It's a stupid comment. Of course it will encourage entrepreneurship - no other outcome would make sense.
Why is health insurance coupled to employment anyway? All you need to do is reform the health insurance market so that it is individual based, rather than company based - your employer does not pay for auto, home or life insurance, so why health? To me, as an outsider looking in, it seems like collusion between big companies to make it harder for small companies to compete for staff.
As a non-US resident, I just buy my health insurance whether I'm working, not working, or doing whatever. If I got a job with bigcorp limited, they might offer it as part of a package, or maybe get a slightly better rate due to group rates, but it's not a case where I have to be employed in order to get insurance.
I was wondering whether this was the case. Is there actual data to back this up, or is it just anecdotal?
I don't think that has any relevance to the question at hand. If we eliminated wasteful medical spending then we could literally insure every uninsured person at least 10x over. (Medical waste is ~700B per year, whereas it would cost about 50B to insure everyone.)
30 cents of every dollar spent on medical care is wasted. There were roughly $2.7 dollars of spending on medical care in 2011.
The cost of insuring 100% of Americans would be 34 - 69 billion: http://www.amsa.org/AMSA/Libraries/Committee_Docs/CaseForUHC...
On the other hand, when clever people notice this and decide to get in on that infinite, inelastic demand, the rest of society tends to get grumpy.
Hence the ceaseless political trench warfare over how to pay for health care since the Johnson administration.
Unfortunately there are tens of thousands of pages of regulation preventing that from happening.
But something does need to give or at least should. The system is so broken and involves such huge amounts of money that whoever figures out even a small piece of this will become a billionaire many times over. I'm open to ideas if you need a cofounder ;)
Anyways, after insurance the bill is likely going to be around $5k. Still pretty nasty, but one order of magnitude does make a difference.
ps. I cannot for the life of me fathom how hospitals in the USA justify charges of $4-$8k/night for hospital stays. To be clear, this is just for the room. The surgery and anaesthesia costs are billed separately. 90% of the bill is the hospital stay.
But the fact that they have broader safety nets may have nothing to do with that. Maybe the reason they produce less risky innovation has to do with other ways that they differ from America.
But.
I don't think that decreasing risk will result in more entrepreneurship.
I would support a wider social safety net for entrepreneurs -- er, business owners -- on principle alone, because I think what we should be saying is that these people are vitally important to our economy and to our nation's future, just as much as larger enterprise is, and we should support that.
But the thing is, most people don't want to run their own business no matter how safe you make it. I've spent the last few years encouraging people around me to start or run or improve their businesses, but so many of them just want to be a professional in their field; they don't want to deal with all of the other aspects of running a business.
So don't lower entrepreneurial risk because you think it will open more businesses, because you think that the guy with a good paying job and some savings is worried about his health insurance. If he (or she!) wants to open or run a business, he (or she!) will do that regardless. It's one of the few probably universal aspects of entrepreneurship that the people who will do well at it aren't really happy working for other people anyway, they have this itch that they can't scratch unless they strike out on their own, risks or not.
But do lower entrepreneurial risk because you recognize the value of entrepreneurs and you want to make sure that small business owners with families can still get good health care and dental care and afford a modest living.
TOTALLY disagree, as well as with folks who are saying that "risk is an important part!"
For one thing, there are a series of studies that show that people who are more risk tolerant actually create worse start-ups (for example, [1]). There is at least one meta-analysis that indicates that there's more risk tolerance in entrepreneurs (though the individual studies on that point are contradictory) [2], but OF COURSE there's risk in going off on your own, the biggest one being the opportunity cost of the cushy salary you're foregoing for a year.
No, it's not for everyone. But that doesn't mean that people who start businesses are reckless, and it is HARD to get a good price on health insurance in most states -- and if you get badly sick in the US WITHOUT health insurance, you're screwed (if and when the health insurance reform kicks in, this could change).
I personally refused to quit my job until I knew I'd be able to get health insurance, and it was much harder than I expected despite not having any health problems (as in, I was denied by two providers and had to get the "high risk pool" insurance). So I think it would be effective to reduce the risks of entrepreneurship for people in my situation (i.e., over 35 years old). It's risky enough to begin with; no reason to make it a matter of life-and-death as well.
[1] http://paraplyen.nhh.no/sfiles/85/88/1/file/hvide-panos-2012...
Jon Stewart is arguing to increase the safety net so that downside of failure is less harsh. It won't make the downside scenario less likely, just not as brutal for those who experience it.
But I bet his proposal would INCREASE the risk of failure for precisely that reason. People are more likely to hustle harder when their livelihood depends on it [1]. For example, the social safety net is higher across most of Europe and I bet the level of entrepreneurship is higher in the US (I wish I had data about this, please share it if you do).
[1] This reminds me of the AirBNB founders selling Obama O's. Such great hustle: http://www.avc.com/a_vc/2011/03/airbnb.html
There's hustle, and then there's killing stress. I can only surmise you're young and single.
It's exceedingly clear to me that "they would start a startup anyways" takes a very privileged view, as if risks are there to be taken willy-nilly, and the fallout of a failure nothing much in the grand scheme of things. That may be true for the self, but if others depend on you, it's a whole different perspective and some responsibility must be taken.
numberOfSuccessfulStartups = startupAttempts * successRate
However, your observation that making things cushy for entrepreneurs could lower successRate because you don't have to hustle as much. Sort of a if I fire this gun above your head while you work maybe you'll work harder argument. I say that in some jest because I think there is some merit to your observation just how much I don't think either of us know.
The one counter I can provide to your counter is that lowering risk might have the same effect as lowering incentives for results. Basically support from this work on how incentives can lower success if they are too high. What I'm saying is maybe if risk is too high fewer people attempt and even fewer people succeed because there aren't enough original ideas to copy for scale.
http://carmine.se.edu/cvonbergen/Incentives.pdf
(Couldn't find a better link.)
I think both hypothesis have their points and we need more data to support them.
If I didn't think I could afford health insurance on my own, I wouldn't do it. I'd suck it up and take a paycheck, hating my work, but I wouldn't feel that I could afford a risk to my own life/health or my family's.
Is there extra motivation for the extra risk? I say no. If you decide to take the plunge and start a business, you're in it to SUCCEED. Extra stress CAN, under some circumstances, improve your odds -- but it can also make you TOO cautious, because the stakes are too high. And I submit that running your own business is enough to get you into the "ideal productivity" stress zone all on its own, without having to worry about whether you're risking your LIFE as well as your savings.
Agreed.
1. Risk to your savings and time. This is what you are always risking when you start a start-up. A safety net would mean that you'd not starve if the company failed and you couldn't get another job right away, but doesn't mean you'd be living your cushy ideal life even if the business failed.
2. Risk to your LIFE. I submit that, UNDER NO CIRCUMSTANCES should starting a business actually put you at risk of DYING. And yet that's exactly what happens if you decide to forego the expense of health insurance (until if & when "no preexisting conditions" takes effect in 2014) and you find out that you have a life-threatening condition.
I think there's plenty of stress and risk in starting a business without worrying about starving or your health. "Failure" is harsh PERIOD. And if you have a family you're trying to support, the above two points will likely prevent you from starting a company if there's no safety net.
So the many people who would be willing to start companies WITH a safety net means more people who would roll the dice. Many would fail, and that's FINE, because the rest would create jobs.
I don't say I don't agree with having national health insurance, just trying to understand why the UK and Europe don't have the same level of startups.
Maybe it is all marketing anyway and maybe it is all access to capital.
It just baffles me that health coverage is so tied to where you work. What if you could only send your kids to the schools that your employer selected, or eat at the restaurants the your company had a deal with? It's just weird. I don't know if government provided insurance is the solution, but employer provided just doesn't make sense as the only solution.
If employer-sponsored housing was a similar tax dodge, you'd see employers bidding for employees with salary + rent free living.
Krupp established the Generalregulativ as the firm’s basic constitution. The company was a sole proprietorship, inherited by primogeniture, with strict control of workers. Krupp demanded a loyalty oath, required workers to obtain written permission from their foremen when they needed to use the toilet and issued proclamations telling his workers not to concern themselves with national politics. In return, Krupp provided social services that were unusually liberal for the era, including "colonies" with parks, schools and recreation grounds - while the widows' and orphans' and other benefit schemes insured the men and their families in case of illness or death. Essen became a large company town and Krupp became a de facto state within a state, with "Kruppianer" as loyal to the company and the Krupp family as to the nation and the Hohenzollern family. Krupp’s paternalist strategy was adoped by Bismarck as government policy, as a preventive against the Social Democratics.
http://en.wikipedia.org/wiki/Krupp#Overview
Similarly, in coal mines across the US for years, they would do the same thing. They would pay the workers in "script" so they could not earn real money and thus, escape the life of being a coal miner. That was what the famous song by Tennessee Ernie Ford was about (http://en.wikipedia.org/wiki/Sixteen_Tons).
Many other industries, such as trucks/shipping in the UK also paid employees in script, thus forcing them to only buy from the company stores. http://en.wikipedia.org/wiki/Truck_system
I think that the risk pool would be large and the members would be local (thus giving more rights to local communities rather than the federal government).
I think it could then encourage cities to be more healthy cities (less pollution, more activities for locals, encourage walking/biking rather than driving) in order to drive down health care costs for their citizens. Being a healthier city would then encourage people to move to there thus increasing the risk pool.
Citizens wouldn't be required to purchase through them but the plans could still be managed by private companies like Aetna, Cigna, etc. so that the plans could be used when local citizens travel to other parts of the country.
This could lead to a form of "competition" where some states might provide perks to help encourage people to migrate there from other parts of the country or make it more attractive for prospective employers.
This is the way it's done in Canada. Each province has differing rules as to what's covered, but emergency treatment and preventative care is never impaired by cost or a lack of insurance.
That only works if all cities have plans, otherwise you can find yourself trapped staying in a city that same way that one might find himself trapper working for an employer.
Does it baffle you that the school location for your kids is so tied to where you live?
Does it baffle you that your employer decides how much it wants to pay you as well? How about what size your desk is or how up to date your computer at work is. How about your 401k match? Bonus size? Vacation days? Promotions? Who your boss is? Dress code? Where does it end?
Do you think every employer could actually afford to let you get the health care plan and provider of your choice?
You are free to look for another job at a company who offers health care from the provider that you wish to use.
Let me ask you though. What if your employer would give you the money they put toward your health care to choose the provider of your choice (even if you had to pay the difference for any shortcoming)?
No. Kids need to get to school, often by walking/biking. Schools can't afford to bus random kids in from 100 miles away. At least where I live (Ventura County, CA) parents are able to drive their kids to more distant schools if they prefer. As long as schools are a physical location where you have to show up to benefit from, it makes sense for them to be location based. If schools were 100% online, then it wouldn't make sense.
> Does it baffle you that your employer decides how much it wants to pay you as well ... desk ... computer ... 401k ... bonus ... vacation ... etc...
All of those things are either related to the relationship between you and your employer. The 401k thing is a little funny. I'd rather take the cash and manage it myself. I'm assuming your point is that health care plans are just another form of compensation and if you don't like what's offered, quit and work somewhere else that offers something better. The problem is that 1) coverage chosen by the employer can change every year, 2) you can't get the same coverage at the same price on your own or at a small company, and 3) it's non-optimal because it bundles unrelated things and requires you, as a "consumer" of employment, to make your decisions based on the aggregate value instead of individual values of the components.
> Let me ask you though. What if your employer would give you the money they put toward your health care to choose the provider of your choice (even if you had to pay the difference for any shortcoming)?
That seems good to me as long as you had the option to buy the same coverage at the same rates as the big companies.
This is my point... Affordability is the reason in both cases so I don't understand how this is so easy for you to understand with schools and so baffling with Employer paid health insurance. Do you thing that your HR dept could manage 100 different health care providers? do you think all the providers that you may wish to use are affordable to your company?
>All of those things are either related to the relationship between you and your employer. The 401k thing is a little funny. I'd rather take the cash and manage it myself. I'm assuming your point is that health care plans are just another form of compensation and if you don't like what's offered, quit and work somewhere else that offers something better. The problem is that 1) coverage chosen by the employer can change every year, 2) you can't get the same coverage at the same price on your own or at a small company, and 3) it's non-optimal because it bundles unrelated things and requires you, as a "consumer" of employment, to make your decisions based on the aggregate value instead of individual values of the components.
Money is a finite thing to your company and I just don't understand how you are baffled that you can't choose whatever health care you wish through your company. Whats more - with ObamaCare, you will still not be able to choose whatever health care provider you want so I don't see how you think that this will help you.
Ah, I see where the confusion is coming from. I'm not arguing the the employer should allow you to choose whatever health care provider that you want. I'm saying that I don't understand why they're involved in the process at all.
I don't know if health coverage should be like eating at a restaurant (entirely optional and up to the consumer), like car insurance (required, but you buy it yourself), like the military (you have to pay for it through taxes and have no control over it), like lower education (required and you can go with the government option or pay for a private option out of pocket), like higher education (optional and you can go public or private), etc..., or some sort of combination. At this point, I'd probably lean towards health coverage being required, provided for free for poor people, available through the government(s) for everyone else, and a voucher system for anyone who wants to get it privately (with a regulated level of coverage). All of this would have to be funded through taxes (probably a combination of corporate and personal taxes), but employers wouldn't have to manage it at all.
Based on other comments, I understand why the situation is what it is today (because of tax benefits to both the employer and employee), but I don't understand why it should be this way.
> with ObamaCare, you will still not be able to choose whatever health care provider you want so I don't see how you think that this will help you.
I didn't mention ACA/ObamaCare (maybe you're thinking of someone else?), and don't have much of an opinions on it other than it's so full of compromises that it's unlikely to make anyone happy.
I do think we'd be much better off if health insurance was not seen as an employment benefit but as aomething you are responsible for yourself, like car insurance, rent, utilities, groceries, clothes, and all the other necessities of life. (I'm not saying that the government should provide it or administer it though).
True dat. But you point this out as if it is some moral failing on their part. People generally don't want to do uninteresting stuff. "all of the other aspects of running a business" is seriously uninteresting.
Its why I don't have a dog - am not interested in picking up dog poop :)
If its about the money...I have made 5-6 figures from simple butterflies & straddles - took me less than half hour to devise, and then I just wait for the right mkt opportunity to come along.
If its about independence, not working for anybody etc...my boss used to say that while I only have 1 boss (ie. him ), he has infinite bosses ( ie. all the customers of the company ). So I don't see what the big advantage is in being accountable to the masses of the planet because of some bug in some stupid software.
There's trons of things infinitely more interesting than being an entrepreneur - Family. Mathematics. Physics. CS.
Depends on your interests. My business is my family -- I started my company with my brother. I was a Physics major when I went to college and I find entrepreneurship much, much more fascinating.
Starting companies isn't for everyone, and it would be misleading to say it is. But I don't think anyone can category say that "X is the most interesting thing to pursue."
In the aggregate you may be right. Just from my own personally experience, I can think of at least a dozen folks (extremely well-regarded in their field) who have all expressed to me a desire to strike out on their own, but it's the company-provided healthcare that keeps them from doing that.
And (for the most part) these are folks in Massachusetts.
If healthcare wasn't an issue, would it be something else?
Looking specifically at the folks in my circle, I doubt for for two reasons: 1) they've seen me make a living at it for 9 years and they are all as smart, if not smarter than me and generally better connected than me, 2) a couple of folks in particular are supporting family members with medical needs.
I.e., they already have the ability to force an insurance company (more precisely, other people who purchase insurance) to subsidize their care with or without an employer.
It's not quite that simple. One, the plans offered through the MA Connector may not be as inexpensive as plans negotiated by an employer, so you may wind up paying more for the same coverage. There's alao the issue of finding a plan with doctors in the same network, you may find yourself paying a little more if you have a favorite doctor treating you for a pre-existing condition.
Also, you are only allowed to enroll in MA Connector plans during one (maybe two) "open enrollment" periods during the year, so you may be faced with a gap between losing insurance coverage after quiting a job before being able to enroll in a new plan. Of course there is always COBRA, but again the amount you pay out-of-pocket for the premiums go way up.
But you are correct that insurance co's in MA generally can't reject you for pre-existing conditions.
Anechoic is right - anyone claiming they can't start a business in MA due to employer sponsored healthcare is just making excuses.
See also "I'm a fatass because I don't have time to exercise", "I have no girlfriend because all the girls I don't ask out would say no anway", "I'm underpaid because all other companies would pay me the same, not that I actually interviewed."
When I was on COBRA, my out-of-pocket costs went up significantly more than 1% (compared to what I was paying for the same policy when I was employed).
Anechoic is right - anyone claiming they can't start a business in MA due to employer sponsored healthcare is just making excuses.
I didn't say that.
Now, it's possible your employer was giving you $Z worth of benefits but making you deduct $Y from your wages for it, and $Z > $Y. All this means is that your comp (and hence the opportunity cost of starting a business) was higher than you realized.
But the concept of creating safety nets to encourage more entrepreneurship strikes me as paradoxical. To an extent, the inherent risks that come with starting a new business is a good thing -- it forces would-be-entrepreneurs to assess critically what they would gain or lose before taking the plunge. The inextricable dependency on company health insurance, however, should not have to play a role in that risk assessment.
Maybe I'm just being picky over semantics, but instead of creating a "wide safety net for failure," which to me sounds like something that encourages poor business judgment, I would be in favor of reducing the extrinsic risks of starting a new business (e.g. insurance) so entrepreneurs could focus on the risks relevant to the business itself. But like I said, I might be nitpicking over choice of words, so forgive me.
Knowing there's a risk of failure isn't so bad -- it makes me try really hard at, well, not failing.
Now that I think about it, the guy from Breaking Bad could be the perfect poster-boy (poster-man?) for what happens when middle-aged dudes don't have safety nets for starting legal businesses!
I know many, many people in Europe that have dreams of starting a company or startup, but without ready access to venture capital, making that dream a reality suddenly becomes much, much harder. So you compromise, and you focus on other dreams that are more attainable.
Yes, human psychology might be an important factor in deciding whether someone wants to be an entrepreneur or not, but people's attitudes are generally not as black and white as you make them out to be.
Btw, what data are you using to draw your conclusion?
Even if that disincentive is irrelevant to most entrepreneurs, you still have potential entrepreneurs with health issues. If X% of potential entrepreneurs have managed but costly health problems, the disincentive to starting a business must be much higher.
2. People paid for their medical expenses directly providing direct feedback into the system.
3. Less gov't red tape constricting the supply of medical care.
In Denmark we have system very close to what John Stewart proposes but still we have far fewer entrepreneurs than in the US. This suggests that culture is much more important for entrepreneurship than a social safety net.
So? That's like saying "most people won't become olympic athletes, so supporting olympic athletes won't lead to more participation in the olympics.
We only need to care about the population of people who might start their own businesses. Not every potential entrepreneur is an entrepreneur.
I'm in Canada. The fact that I don't have to worry about any major health costs was a big factor when I decided to start on my own.
I might fail, but there's less risk of a catastrophic failure scenario. I'm not the only one who weighs risk this way.
There's a concept of 'margin' in economics that is applicable here: some people will never open their open their own business, others will, no matter what. In the middle are people who might, or might not. Doing things to make it easier for them will tempt more of them.
I don't know how many people fit that description, but it is certainly more than zero.
I can't generalize from two data points but I can say that for me and my friend, lack of a safety net has absolutely been the show stopper.
If you can't pay rent, then at most you owe your back rent. If you're in a car accident without insurance there is almost unlimited liability. You may owe more than you could ever possibly hope to repay. You may be forced to select treatment that is cheaper, rather than treatment that is better and this could have serious impact on your health.
I completely disagree. No two people are in the same situation; some people are in situations that make it extremely risky to start a business, and instead will coast through life without acting on a dream. I don't necessarily think this means they're not dedicated enough or not made for it.
People don't do things for a lot of reasons, and those reasons often aren't because they don't want to -- rather it's often because there's some boulder blocking their vision.
Every single successful person I ever met starts with the same story: "I was doing X, and I just quit. I promised that I would never have a job again." Simply put, it is the mindset that is inherent in those that go out and create that make them create.
The reality is that people who have a lot to lose are those that aren't going to take a risk. Giving more raises, more insurance, and more social security is going to make people more comfortable with their life as-is.
If somehow I knew food, shelter, medical and retirement were covered I'd be far more likely to try a few things now that I wouldn't have hesitated to try 15-20 years ago.
I guess the take away is something like this might be better or worse depending on your current situation.
Wait, really? You don't think people factor in downside risk when making life choices?
"Risk compensation (also Peltzman effect, risk homeostasis) is an observed effect in ethology whereby people tend to adjust their behavior in response to perceived level of risk, behaving less cautiously where they feel more protected and more cautiously where they feel a higher level of risk. The theory emerged out of road safety research after it was observed that many interventions failed to achieve the expected level of benefits but has since found application in many other fields."
I'm in great health, and young, so I'm not worried about saving for retirement (yet). But starting a company is still really damned hard. It's years of hard work, too much time at the office, too much time away from friends and family. Too much fear that tomorrow no customers will show up, or they'll go to your competitors or you'll find our your DB backups don't work and you have to go out of business. It's fear that you're not managing employees correctly, or not hiring the right people, or not prioritizing the right things.
The government can't make any of those things go away. And the only issue it could help is money, which has terrible downsides to go along with it.
Improving healthcare coverage for aspiring entrepreneurs would level the playing field and expand the pool of potential entrepreneurs. And that would in turn create more wealth for all of us to enjoy.
Anecdotal, but, did (m)any people here on HN graduate and then start a business while still in debt with student loans?
I don't recommend doing all that. You can put away $20k pretty easily working in the Valley. That would be much less stressful.
What we need to do in this country is make it a softer cushion for failure. Because what they say is the job creators need more tax cuts and they need a bigger payoff on the risk that they take. … But what about the risk of, you’re afraid to leave your job and be an entrepreneur because that’s where your health insurance is? … Why aren’t we able to sell this idea that you don’t have to amplify the payoff of risk to gain success in this country, you need to soften the damage of risk?
If you have any kind of condition that requires continuous oversight, you're screwed unless you have a ton of money saved up to afford a very expensive insurance plan.
If you're initially healthy, but suddenly get seriously ill, you might be set back by 7-10 grand before your cheapo $100/mo insurance plan kicks in. Even then you might still have to fight against the insurance company to have the necessary care approved and covered. You might hit the limits of your coverage.
If you have a family, you better hope that your spouse's job provides you with a comprehensive family-wide coverage, otherwise you'll have to deal with the exorbitant costs of insurance.
It's clearly sub-optimal, but the conservative side will often argue in favor of this system. I've (anecdotally) been told that if we provide everybody with universal health care then the masses will all start shooting up heroin all day and we, the hard working citizens, will have to foot the bill.
When you're leaving your job to start a business, the assumption is that you have some money saved. You're guaranteed not to be turning profit for a certain period of time. Depending on how lucky and how good you/your idea are, that could be anywhere from a month to a year or two.
Not having government health insurance just means you'll have to get your own. I am speaking here from experience: I quit my job, posted about it on HN, bought myself health insurance, and started my own software company.
How much did the health insurance cost me? 200 dollars a month. (Edit: yes, this is in the USA. IL to be exact.)
Yes, 200 dollars is not nothing. Yes, it would be nice to not have to pay that. But then again, I'm paying 1200 for my apartment, 80 for my cellphone, 80 for electricity, and I'm sure I can come up with some other monthly obligations that I have. Health insurance is maybe ~10% of my "maintenance costs" that I can't avoid.
Why aren't we arguing that the government should provide apartments for everyone so they don't have to worry about finding a place to live when they take the risk of leaving their jobs? Or require special restaurants that are publicly funded so that you don't have to worry about that, either?
I know a lot of people will take issue with this, but, keep in mind, I am not saying I'm against government health insurance. I'm saying that this isn't a very good reason for it. Going off on your own is and always will be a risky situation, unless you're already independently wealthy. By definition, it involves giving up a cushy job and steady pay for the chance of striking it rich on your own or (as in my case) doing what you love. That's the nature of the beast, and that's why we have both entrepreneurs and employees.
Currently, my birth control prescription is through Planned Parenthood, and it's cost me about $25/month for many years.
When I applied for my own health insurance, they asked me to list any prescription drugs I took. Even though I get checkups and my birth control prescription from Planned Parenthood, I dutifully listed it in the form (knowing, too, that lying about this might cause me to get disqualified if I claimed something later.)
I received a letter from the insurance company that I had been declined for insurance. Reason? Prescription medication. This was the only prescription I was on at the time. Yes, apparently the fact that I have a prescription for birth control makes it worth it for a health insurance company to not insure me. This is completely legal for any insurance carrier to do in the United States if you are a single person applying for insurance. And guess what? Once you've been declined for single-person health insurance for any reason, you're pretty much screwed.
I don't know what the solution is, and I don't think our government got it 100% right when they passed different laws recently. But I also know that something is not right when I can get declined for health insurance for being on birth control (that the insurance company would not have even had to pay for anyway.)
The system is broken, and you are the exception. Let us hope that you never have a spouse who would like to be on birth control, or that you never have to take a prescription drug for any reason for any length of time.
The catch? I signed up over the phone. I made sure to stress how I won't be going through the insurance for these, how it won't be a cost for them. A human on the other end of the line - no matter how dedicated he is to finding a reason to say no - is better than a soulless piece of paper.
I have a friend who had a serious back injury (near paralysis) in his 20s which requires constant physical therapy and visits to specialists. He can't buy health insurance on the open market at any price (literally), and so he must move carefully from group health plan to group health plan, rather than pursue his interest in startups.
The comparison with apartments is not fair - imagine that the only way to get a place to live was through your employer.
For me, it's the opposite. I am considering leaving my business to get a job.
Why? Healthcare and retirement.
So I agree with the article. If we had universal healthcare, I don't think I would ever consider leaving my business.
Perhaps this is why the model for entrepreneurship in the US is so heavily geared towards huge, VC funded worldbeaters with far less "mircopreneurship" - a trait of the Australian economy that is said to be a mainstay of economic resilience.
Yeah sure you can leave your job or college and just start throwing darts at post-its to come up with an app idea if you have a rich dad who is willing to bankroll your adventure in the Bay Area. You need at least $36k a year just to rent a decent flat in that place, some families, not just people but actual families, live on less than that in this country.
I had friends on highschool who had tremendous hacker potential, but they also had problems, REAL problems like bad health and a poor family. Most of them are quite happy right now working for the evil corporations that pay them those $75k a year salaries that the rich kids laugh at. They depend on company healthcare and can't even dream to let that and their paychecks go just to give startups a try.
And that is just one side of the problem, the other is the facade of equal opportunities in startups, the idea that everyone applying to YC or other incubators is in the same level.
The social network movie made a lot of generic hacker culture statements but it forgot to mention that the zuck had a private programming tutor paid by his parents. Seriously, how many of you here had parents who could afford that? I tried to hire a Java tutor when I was in highschool and it was incredibly expensive, more than hiring several tutors for most of my school subjects.
I have met entrepreneurs with amazing companies that didn't get into YC, yet the guys from diaspora, the same guys who burned through a quarter of a million and did next to nothing, they got in, and with what? a meme app, because that's important, another memegenerator clone.
I'm using a throwaway account because I know this is going to be downvoted to hell, many of these rich kids make an overwhelming clique in HN and other sites, and they don't like when it when someone speaks up and shatters their BS.
The irony here is that this country is fast becoming like the third world hellholes that immigrant entrepreneurs where escaping from. The stories you hear from those places are becoming eerily familiar: a guy from South America told me how over there all entrepreneurs are rich kids, legacies from generations of crony capitalism and favoritism. Practically none are coders or hustlers, they get their parents to bankroll a clone a cookie-cutter startup and take advantage of the wage slave condition of engineers over there, after all what are those poor souls going to do? they can't afford to make a startup and don't have any connections to investors, so what is left for them? get a visa and come here? nice try...
And that is what America is becoming, a place not of opportunity but of class lockdown, social mobility is at an all-time low and everywhere you hear pundits whose idea of equality in America is actually that of Sweden's, which ironically is a socialist country.
But go ahead, keep believing we are all in the same league, by all means try to defeat my point by saying how you help other less fortunate entrepreneurs with your link-bait blog full of empty advice, keep saying that all of us who are not in the same position than you are a bunch of envious and resentful pricks, or that you are where you are right now because you worked for it when actually you are where you are right now because you were half the way ahead to being with.
I'm overweight, I'm a smoker, and I have high blood pressure. Starting a company could literally kill me (on top of aforementioned dumb decisions). The rich used to pay 90% taxes and we still had Vanderbilt, Carnegie, and Morgan.
Also, while there was a 90% marginal tax rate at one point, the structure of taxes was quite different such that the effective tax rate of the rich was closer to 20%.
The 90% bracket was extremely high when it existed and snared very few people.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
The 90% tax rate was indeed in effect but very few people fell victim to it: http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth...
I've always felt that America's psyche is evolving us to a "Everybody's a CEO." mentality. With the introduction of 401K we upped the risk taking, driving white collar workers into consulting away from full time employment with benefits of incorporating, tax benefits of corporations, preferential tax treatment of capital gains vs salaries. These are all incentives to create your own corporation over being a salaried employee, but they all involve taking more risk. We are rewarding risk more and more while devaluing safety. Not passing judgement per se, but making an observation that America might be interested in this if they understood it. And that America might need this anyway because we are pushing more people into accepting the risk without their choice. (see 401K as an example).
Another side benefit to this is it might drive up competition for workers because more people might be interested in working for smaller companies because benefits are more equalized. Driving competition for workers means higher salaries too on a whole as they compete for the talent. That's the real societal benefit.
Now, if I could just figure out a way to pay myself entirely in dividends over a salary I think they might give me an honorary 1%'er membership. :-)
But on the other hand. All I know is that it won't be that much fun when everyone is doing it. It never is.
The number of YC Applicants has increased as the risk of doing YC has gone down.
When someone going into YC had an expected outcome of basically $25000, less people were willing to leave jobs to go start companies. Think about pre 2009 YCombinator.
Now consider post 2009 Ycombinator.
As the process became less risky: more guaranteed capital (the Ron Conway, Yuri Milner portfolio strategy), and more Acquahires. The value of the average company went up, the downsides went down, and the risk to starting a company went down. Thus, more people were willing to apply to YC, and Paul and the YC partners were able to accept more companies.
You could probably argue that this was a function of the popularity of YC. I believe that founders are rational, and the popularity of YC again decreased their risk. How many founders do not quit their jobs until they get into YC? (many)
This is a separate argument from whether or not we need government healthcare, but I think it's pretty clear that risk evaluation is absolutely part of being an entrepreneur.
(As an aside, dealing with healthcare is just one of many things that we as founders have to do that provides very little net benefit to our business. The less of this BS we have to do, the better we will deploy capital and the more focused we will be on important problems)
Look at South Park... they aren't exactly journalists, but they aren't afraid to ... well you know. The point is they definitely aren't trying to sleep with their sponsors.
The Daily Show is comedy, yes, but my grandma will trust Jon Stewart before anyone on Fox or CNN. Because Jon doesn't make shit sandwiches. http://en.wiktionary.org/wiki/shit_sandwich
Mr Stewart erupted: 'You're insane... Here's the difference between you and I.
'I'm a comedian first. My comedy is informed by an ideological background, there's no question about that.
Stewart has a large audience, and he's feeding people his brand of BS. With such a large viewership, he has a great responsiblity but he is acting as if he doesn't. He cops out by saying "I'm just a comedian"
The suggestion of a "social safety net" for entrepreneurs can only come from such a man who doesn't take on responsibility and who isn't an entrepreneur.
A real entrepreneur starts a company, takes responsibility for it, and assumes the risks. Putting up a safety net for this will just tax middle-class families that much more, and make it even harder for someone to start up a company and be dedicated to it.
I am a real entrepreneur with a real company taking on real risk... and I absolutely believe healthcare is a huge problem for entrepreneurs. Providing health coverage for early employees is very expensive for a startup. The alternative of not offering coverage greatly restricts your hiring pool in a way that is unacceptable. And, IMHO, it's often unfair to the people you do hire.
I hope you're wrong because that's terrifying.
The Daily Show is a comedy show. Jon Stewart frames and simplifies the issues according to his personal views and what the audience wants to hear.
What's wrong with NPR and PBS News Hour?
Government programs across the board, from corporate tax credits to welfare programs are universally gamed. Creating a government net to catch failing entrepreneurs will only increase the cost of doing business, while slowing down the pace of entrepreneurship.
Is the goal here to promote new businesses, or is that just an excuse to push for socialized health care? If the goal is provide health care, then the best option is to lower the barrier of entry for new businesses in the health field, whether insurance providers, healthcare practitioners or pharmaceutical companies. This is another topic, but there are many safe and legitimate ways to do this by cutting out corruption and waste.
With a shortage of medical services in the US, the price has been driven up. Other countries just impose their shortages and have no market to actually drive prices up or down.
You know what happend the last time there was no risk? Banks lended out sub-prime mortgages to just about anyone with a job that walked in the door. You know why they were able to do this? Because those sub-prime loans where bundled up and then sold off to investment banks which then packaged them as mortgage-backed securities. We all know how that one turned out... Risk is a necessary part of life, we need to accept it.
I think the main discussion revolves around healthcare, or the lack of healthcare for start-ups. It is one thing to take risk yourself, but it is another to jeopardize your family's health services. I think that's the main arguments.
Consider wealthy ivy-leaguers: Bill Gates and Mark Z's backstop was to go back to Harvard and probably get some support from their upper middle class families. Their plan B was way better than most people's plan A. I'd argue that they had comparatively little risk when starting out.
I don't see it as a government bail-out, but as a way to enable a whole swath of the population to take risks that they cannot otherwise. Something as simple as healthcare would make a huge difference for many people.
But - what problem are we solving? Do we think there are too few entrepreneurs, and this will help create more? How many is enough, and how much should we spend to create them?
The problem Stewart seems to be solving is that he'd prefer to remove ammunition from his opponents' argument, which isn't an actual problem.
Another big one is health insurance. I've been swimming in open waters without insurance for about a year now. The only plans that I can get are abysmal with 5k plus deductibles (please direct me to a better deal if I'm being naive and something exists).
Even though I've taken the leap to build a business ahead of my peers, I'm getting the crap end of the stick.
Does seem a bit unbalanced.
But living in a contry were: - You don't have student debt - Your health services are warranted - Your kids can go to college and even great colleges for free...
Makes being an Entrepreneur SO much easy... that you wouldn't believe.
All entrepreneurs know that they can get better employee retention with health care policy. If companies could afford it, then would there not be a higher incentive to provide it?
That being said, I believe national health insurance is a good idea. Assuming government spending is significantly restricted in other areas.
High taxes really only seems to be a problem for a certain class of businesses which are at the high end of the SME spectrum, and are already making good profit, and want to make more, but can't yet afford a creative accountant to exploit the kind of loopholes that our country's biggest businesses take advantage of.
Then there is the whole S corp, I'm going to tax 3million in revenue at the 80k rate thing.... it isn't nearly as bad as that top number - take a look at effective rates and it isn't nearly as high as one would think
The BLS lists benefits as roughly 30% of total compensation[1]. Much of that goes to healthcare.
So for a developer earning $100k in total compensation (say $70k salary, $30k benefits), healthcare costs for that one employee might be $25k+. Providing a good policy for employees (and their families) is expensive. Worth it to care for the team, but still expensive.
To the people skipping coverage in the US: it's stupid and not worth the risk. You may be healthy, but you cannot control everything that impacts your health. Infectous disease happens. Car crashes happen. Skipping coverage is playing Russian roulette.
That said, I'm young and am fortunate to still be covered under the policy of my parents. Perhaps the college years and shortly after are best for trying a startup--while family coverage is still in effect. Then, or after you're married to someone and are under his or her policy.
There is also the thought that lowering the personal risk to you and your family allows you to take more chances with your business ideas and become more innovative.
The US is by far the most wasteful healthcare spender in the world, with vast amounts of money producing very mediocre outcomes. But as we saw, the political will is barely there, perhaps in another decade or two.
I'm a proponent of free/social healthcare but do those results stack up if you look at where the spending goes? What I mean is do 40% spend 80% of that money and get the best healthcare in the world and the 20% spent on the other 60% of the people buy poor enough healthcare to bring the stats down?
I also get the impression that doctor's salaries are high and that might need to be factored in to the cost comparison (e.g. do the healthcare spend comparison in units of doctor's salary.
US doctor's salaries may be necessary incentive to get them to take on US scale student debts for the duration of the medical degree, I'm not saying that they are necessarily greedy but that unless doctors can be cheaper it may not be possible to spend the same and get equal medical outcomes as other countries.
It might take more than political will, outcomes may decline for the best off and doctor's pay may have to fall for the same spend to get world class results for the same money. I would still be a proponent of such a system if all people could be treated humanely, not bankrupted for injury/illness even for some reduction in quality of care for the currently well covered.
*All numbers are examples. Lawsuit costs are also often cited as a reason for the high overall costs so that may be fixable to some extent although other forms of regulation and safety net's for victims may be required.
But I don't see more entrepreneurs turning into economic growth. That takes a specific, rare entrepreneur that focuses on building growth, rather than replacing a paycheck.
On the flip side, I don't see less taxes becoming economic growth either. Taxes have to be pretty damn high to change your operations. The amounts usually talked about are not going to cause a company to say "hey let's build a new product".
The question should be "what's preventing companies from growing" instead of this class warfare framework. In the US, I see big companies being limited from growth by their own C-level executives' eye on their stock take - which makes no sense until you realize the amount of money they can gain from short term manipulation. But I see more of a problem due to bad skill sets - too many people have the wrong set of skills. A retail store clerk is not going to help anyone grow these days.
http://www.thecomedynetwork.ca/shows/thedailyshow?videoPacka...
If people have little/no risk to follow a venture, we will see a lot more people quitting their 9-5s and starting garbage businesses.
HMM - This sounds a lot like people getting home mortgages who have no business getting them... I know that John was a big fan of the affordable housing act as well.
Why does John Stewart stop there? why not lower entrepreneurial risk even more and guarantee that if someones startup business fails that they get money to live on from the govt for the next 18 months? Oh wait we already have that (unemployment)
How about I become a full time entrepreneur then? I could probably make more money per year starting failed business after failed business. I have money to live on and free health care so why not? This sounds great for the economy. This Stewart guy is sure a genius!!!