Growthology

The Entrepreneurial Marines?

Victor Davis Hanson recounts the strategic entrepreneurship of the Marine Corps.  Invaluable lesson for the Centralizers (when will they ever learn?)

The Marines are now starting to redeploy to Afghanistan from Iraq and are building a huge base in Delaram. They plan to win over southern Afghanistan's remote, wild Nimruz province that heretofore has been mostly a no-go Taliban stronghold. While NATO forces concentrate on Afghanistan's major cities, the Marines think they can win over local populations their way, take on and defeat the Taliban, and bring all of Nimruz back from the brink - with their trademark warning "no better friend, no worse enemy."

So once again, the Marines are convinced that their own ingenuity and audacity can succeed where others have failed. And once again, not everyone agrees.

The U.S. ambassador to Afghanistan, retired three-star Army General Karl W. Eikenberry, reportedly made a comment about there being 41 nations serving in Afghanistan - and a 42nd composed of the Marine Corps. One unnamed Obama administration official was quoted by the Washington Post as saying, "We have better operational coherence with virtually all of our NATO allies than we have with the U.S. Marine Corps."

Some officials call the new Marine enclave in Nimruz Province "Marinestan" - as if, out of a Kipling or Conrad novel, the Marines have gone rogue to set up their own independent province of operations.

Yet once again, it would be wise not to tamper with the independence of the Marine Corps., given that its methods of training, deployment, fighting, counterinsurgency and conventional warfare usually pay off in the end.

Are video cameras hostile to Liberty?

Raise your hand if you think security cameras in public places erode individual liberty.  The right to privacy, for example.

Now set aside the distinction between anonymity and privacy, which some Libertarians do, and consider the cases where cameras have helped catch bad people. And here we define bad people as extremely hostile to individual liberty (murderers, rapists, terrorists).

• Most recently, security cameras identified Faisal Shahzad, the would-be terrorist of Times Square in April 2010.
• The murder of Sandra Cantu in early 2009, now in the headlines because the alleged killer confessed, was partially solved using surveillance camera images of Sandra skipping to play at the killer's home.
• Joseph Smith would still be free but for a security camera which filmed him with a girl he murdered in February 2004: "Smith's friends and co-workers testified that he was the tattooed man pictured in a surveillance video from a car wash security camera who grabbed Carlie's wrist and led her away."

Survelliance has both an enforcement effect and a deterrent effect.  As for the erosion of privacy from this new technology, it exists only by conflating the defintion of privacy with that of anonymity.  And American society does not recognize a right to anonymity. Privacy in the public sphere strikes me as oxymoronic.

We can anticipate a rapid increase in public surveillance in the years ahead, and I think that's an almost unadulterated good.  Every time a reckless driver zooms past you on the highway, don't you wish he could be ticketed automatically?  Instead, we rely on random chance that a police vehicle will be hidden, identify the reckless driver, and pursue him/her successfully.  Wouldn't a better world identify every reckless driver and pacify the roads?  Remember, more Americans die every year from traffic accidents than died during the entire Vietnam war.

Changes to VC Carried Interest Tax: Dogs & Cats, Living Together?

Earlier this week the National Venture Capital Association announced that it had 1,700 signatures from people -- mostly VCs and entrepreneurs -- around the U.S on its letter campaigning against changes to carried interest tax. Lest your eyes glaze over, the gist is this: Congress would like to change the rate at which VCs are taxed on monies they make from their investments. The NVCA says that would cease job creation, drive people out of the venture industry, cause investors to take less risk, and then, as I understand it, rain down fire and brimstone, meanwhile  causing dogs and cats to live together (okay, the last few are from Ghostbusters).

All bad, right? I'm unconvinced. The favorable treatment of VCs' carried interest comes because of the way the tax system treats investment gains. If you invest capital, the profits on that investment get taxed at a lower rate than does ordinary income -- and that is a good thing, a tax distortion that promotes investment, risk-taking, entrepreneurialism, etc. (Note: Carried interest is not the same as management fees, the percentage of assets under management that funds rake for managing the firm. That is already taxed as ordinary income.)

But it's not VCs' money being invested. They are, for the most part, investing money assigned to them as agents by the limited partners in their funds. The professional venture capitalists here are acting on behalf of the real investors, who are the endowments, pension funds, etc., that gave them the money, all of whom deserve and get favorable tax treatment for their allocation decision.

Venture capitalists, lovely people that they are, want to have it both ways. They want to risk other people's money, and be taxed as if it's their money. I can see why that's appealing -- lower taxes -- but it is indefensible, illogical, and runs contrary to what their peers do in other sectors of financial services. Mutual fund managers, hedge fund managers, and the like all invest in equities, albeit public ones, and their gains are taxed as ordinary income, not as capital gains. Yes, if they invest their own money in a personal vehicle they can get favorable tax treatment, but so could VCs if they invested their own money that way -- and they (mostly) don't.

No, what is going on here is that venture capitalists have found a lovely loophole, one that they have wrapped up in entrepreneurship, apple pie, job creation, risk-taking, technological wonders, and everything except clear logic. And if venture capitalists really want to argue that a change in the tax treatment of carried interest would drive the best & the brightest out of that business, then I say, Let's do it. I'm willing to call them on that obvious bluff. I bet the best VCs would stay, and maybe a few dodgers would get real jobs -- like as entrepreneurs.

Is the Army Innovative?

David Brooks thinks so

Five years ago, the United States Army was one sort of organization, with a certain mentality. Today, it is a different organization, with a different mentality. It has been transformed in the virtual flash of an eye, and the story of that transformation is fascinating for anybody interested in the flow of ideas.

Brooks is writing about the emergence of counterinsurgency (COIN) strategy, godfathered by General David Petraeus.  I agree this is an important development, even that it should be celebrated, but I have some questions.

First, was it innovative or a rediscovery?  Counterinsurgency, in fact, according to the experts who advocated for it within the U.S. military, is not new. So the bigger question is why did the Army resist adopting COIN tactics that it had learned back in Vietnam?

Second, does the military culture really reward entrepreneurial leaders?  Ross Perot graduated from the Naval Academy, but didn't make a career of the Navy.  Fred Smith, founder of Fedex, served two tours in Vietnam, but left the Army for a business career. Bill Coleman, founder of BEA systems, graduated from the Air Force Academy and left the ranks. John Nagl, who co-authored the COIN field manual with Genral Petraeus, is now a civilian president of a think tank, and more influential than he could have been if he'd stayed in uniform.  Why is that?

One answer might be revealed in Mark Moyar's A Question of Command.  Moyar suggests the key to victory in warfare is great leaders, no the strategies they adopt.  Leader-centric warfare.  So does the Army have innovative leaders?  I believe they do, but there is a love-hate relationship between the military and its entrepreneurs. The godfather of the Air Force, Billy Mitchell, had his career terminated for being overly zealous in championing air power, even though he was right and they were wrong.  We should all worry about a hollowing out of entrepreneurial talent now.  A survey in Moyar's books asks soldiers in the Marines and Army if their "Service encourages risk-taking by company and battalion commanders."  Forty-one percent say "discourages" and thirty-one percent were neutral.

Blogger questions from the KEO Q2

Five bloggers submitted their own questions to this quarter's Kauffman Economic Outlook, which I think turned out very well and will want to continue.  Here are the results, and I'll withhold comment for now.  Others are welcome to copy and repost individual charts. 

 
  
 
  

Kauffman Economic Outlook Q2

Read the Kauffman Economic Outlook Q2 2010: A Quarterly Survey of Leading Economics Bloggers (PDF)  

Here are the first few charts:

 
  

Preview of Blogger Survey

Below is one of the charts from the forthcoming quarterly economics bloggers survey.  This is based on a question from Arnold Kling at Econlog.  Thanks to Arnold.  Great question! 

 

We also received questions from Mark Perry, Tyler Cowen, Mark Thoma, and Ken Houghton.  You can look for the preview charts on their blogs, and the full report here in (hopefully) 24 hours.  

UPDATE: The chart size here is too big and I'm working on it.

UPDATE 2: Ok, we now have the images in 460 pixels.  That should make them easier for other bloggers and users to copy and republished around the web.  Thanks again to all the bloggers who participated.