Danny Crichton on Innovation, Finance and Foreign Affairshttp://www.dannycrichton.com/2015-04-01T00:00:00-07:00The World Bank's Greatest Future Threat2015-04-01T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2015-04-01:blog/2015/04/01/the-world-banks-greatest-future-threat/<p>It goes without saying that there are a lot of foreign policy challenges on the Obama administration's radar screen. Negotiations with Iran are reaching their final make-or-break point, ISIS continues to roam throughout Iraq and Syria, and relations with Israel are at their nadir. There is another issue though that has now boiled over that risks the long-term engagement of the United States with Asia.</p><p>Due its weak standing in both the IMF and the World Bank, <a href="http://www.vox.com/2015/4/1/8311921/asian-infrastructure-investment-bank">China created the Asia Infrastructure Investment Bank</a> as an alternative international financial institution to engage more heavily in overseas development. The United States responded by criticizing the new bank and urging its allies to avoid joining. At issue is whether the governance standards for projects run by the new bank will be as high as those at the World Bank.</p><p>Now, <a href="http://www.ft.com/intl/cms/s/0/94728d96-d82f-11e4-ba53-00144feab7de.html">almost 50 nations have joined or have applied to join</a>, including France, Germany, the UK, South Korea, and Australia. Only Japan and the United States seem to be left outside of the new organization, a travesty of strategy in Asia that will take serious time to undo.</p><p>This all might be okay for now, since Japan essentially runs the Asia Development Bank and the United States, the World Bank. The new bank's budget today is relatively minuscule compared to the traditional development institutions.</p><p>My concern though is that over time, the AIIB has the potential to be massively more effective in its projects than the World Bank, further eroding the United States' standing in the world. We have all seen China's rise over the past few decades, with massive infrastructure investments built in incredibly short periods of time, fueled by the power of an authoritarian government.</p><p>With lower governance standards and Beijing's motivation to see the bank succeed, there is little doubt in my mind that the AIIB's projects will move along faster than those of the World Bank. As it starts to demonstrate superior results, nations across the world will start to consider where their money is going for development work. High governance standards are great PR, but even better PR is a completed highway or bridge. The AIIB, predominantly controlled by China, will increasingly siphon money away from the World Bank, harming the U.S. position in the international order.</p><p>The only hope is that the new bank gets the World Bank to think a bit more about the challenges in its model of development and forces it to accelerate its studies and projects. Competition can be a good thing, but these are very risky times for the United States.</p><p>One thing is clear: this has been a brilliant strategic move by China. The United States needs to work on its strategy in Asia, and fast.</p>Hillary Clinton, Brian Williams, and the Issue of Military Trust2015-02-09T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-02-09:blog/2015/02/09/hillary-clinton-brian-williams-and-the-issue-of-military-trust/<p>By now, everyone is familiar with the story of Brian Williams, the NBC News anchor who is taking some time off after coming under fire (not literally, apparently) for inaccuracies in a story about being shot down over Iraq. A second round of stories this weekend noted that <a href="http://news.yahoo.com/brian-williams-is-not-alone--hillary-clinton--stephen-glass-and-other-famous-fabrications-200635601.html">Hillary Clinton, among other notables</a>, has also been caught making similar comments over the years.</p><p>One direction for the analysis of this situation has been to take a critical look at the production of U.S. media these days. <a href="http://www.pakman.com/2015/02/06/brian-williams-and-abundance-vs-scarcity-in-media/">David Pakman's post about abundance versus scarcity</a> has been getting a lot of attention. His argument is familiar, "Brands built in the age of scarcity take significant risks when they use celebrities (or any one individual) to act as a proxy for their products." This is in contrast to online media, where "brands are built by the stories brands tell and the content they share." Facebook doesn't have an anchor problem.</p><p>But that media criticism doesn't explain why so many notable people have made up stories involving the military.</p><p>I want to take a different view of the situation by looking at the trust that Americans have in their leading institutions. For many years, <a href="http://www.gallup.com/poll/1597/confidence-institutions.aspx">Gallup has run polls asking about "confidence in institutions"</a>. These surveys are interesting because they can show the American public's changing relationship with various parts of our society.</p><p>In their current chart, Gallup lists 16 different institutions. By far the most trusted institution in the United States is the military, with 74% of respondents indicating that they trust the armed forces a great deal or quite a lot. The bottom two institutions are Congress (with ~6%) and television news (with 18%).</p><p>Hillary Clinton was a member of the US Senate when she made her comments about coming under sniper fire. Brian Williams was the anchor of one of the top television news organizations in the United States. Is it any surprise then that both have attempted to grab some level of confidence from the public by expanding beyond their own institution and attempting to "touch" one far more trusted?</p><p>These sorts of stories are not going to be rare. In a world where trust in American society remains quite low, the incentives to try to burnish our images remain quite high. Some level of vigilance is required from the public, but more importantly, some humility is required of those who ask to serve us in the media and in politics. After all, there is a reason why these institutions have such low trust.</p>No, Algorithms Don't Devalue Humans2015-01-27T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-27:blog/2015/01/27/no-algorithms-dont-devalue-humans/<p>I read Ian Bogost's essay in the Atlantic called "<a href="http://www.theatlantic.com/technology/archive/2015/01/the-cathedral-of-computation/384300/">The Cathedral of Computation</a>" a week ago, but it still annoys me. Bogost argues that our obsession with algorithms everywhere in the labor economy undermines the very human aspects of labor that we should not be ignoring.</p><p>His argument is that behind every algorithm is a human organization doing the actual work required to make a product or service function. "... just as the machine metaphor gives us a distorted view of automated manufacture as prime mover, so the algorithmic metaphor gives us a distorted, theological view of computational action."</p><p>Take Netflix, for example. Bogost writes that, "Netflix trains people to watch films, and those viewers laboriously tag the films with lots of metadata, including ratings of factors like sexually suggestive content or plot closure. [...] Yes, there’s a computer program matching viewing habits to a database of film properties. But the overall work of the Netflix recommendation system is distributed amongst so many different systems, actors, and processes that only a zealot would call the end result an algorithm."</p><p>Bogost's central point is that we are using algorithms as a sort of theology, much as science has been used as a theology the last few decades. It allows us to abbreviate our thinking and avoid the sometimes harsh behind-the-scenes processes that consumers would rather avoid when thinking about who makes their products or what allows their services to be successful.</p><p>Bogost has a point, but I don't think algorithms undermine our discussions of the modern labor force, nor do algorithms devalue human work.</p><p>I use the algorithm economy as a short hand to describe a very specific set of changes to the economy, most notably the rise of network-mediated marketplaces like Uber and Airbnb. Neither system, or indeed, the vast majority of labor marketplaces, obscure who is doing the work. Indeed, the algorithms underlying these marketplaces are not so different from the invisible hand "algorithm" of traditional marketplaces.</p><p>Algorithm may be a fancy word, but it isn't like the Netflix example is that different from, say, the development of a dictionary or encyclopedia done over a century ago. Someone had to write all of those entries and edit them, even though none of those workers were on the front cover (except Samuel Johnson of course). The invisibility of the work behind a product is hardly a recent development.</p><p>Society severed the link between worker and product many years ago, going all the way back to the start of the Industrial Revolution (and maybe even further back). Product brands used to be individual names, but today they are disembodied and independent.</p><p>Interestingly, algorithms and these network economies are actually helping to regenerate the connection between workers and products. We no longer need to scale up to the same levels to provide products, and there is now greater demand for personalized, custom-made products. The rise of neo-craftsmen which has been discussed ad nauseam is fundamentally a positive benefit derived from better labor marketplaces, and ultimately, smarter algorithms.</p><p>Algorithms are not devaluing labor, but they are extending old models and building new ones. Some of those models are improvements for workers, others are more neutral. We have the opportunity to shape that progression, and that is the strength of the algorithm economy today.</p>Does Cable News Even Matter Anymore?2015-01-23T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-23:blog/2015/01/23/does-cable-news-even-matter-anymore/<p>Have you seen the ratings for cable news channels these days? They aren't looking good, and are almost pathetic next to the ratings the channels received even just a few years ago.</p><p><a href="http://tvbythenumbers.zap2it.com/2015/01/21/cable-news-ratings-for-monday-january-19-2015/353199/">Take a look at the ratings for just one day</a>, Monday January 19. In daytime ratings, Fox led other networks by a healthy margin with an average viewership of 1,231,000 compared to CNN's 442,000, MSNBC's 320,000 and CNBC's 205,000. Ratings are higher for primetime, with Fox almost doubling its viewership to 2.1 million, and CNN getting 536,000, MSNBC 688,000 and CNBC 451,000. These ratings are fairly typical for the respective channels.</p><p>Take a moment to think about this. These supposedly "highly-influential" channels are barely squeaking out a handful of million viewers for Fox, and don't even top one million viewers for the other cable news channels. O'Reilly Factor still leads all cable shows with more than three million viewers in its first slot, with another million during its late night rerun, but other shows are much more variable in performance.</p><p>To make even a stronger point here, cable news rarely draws in middle-of-the-road viewers who are trying to decide what side of the aisle to vote on. Fox and MSNBC in particular are partisan channels that provide red meat (or maybe vegan burgers in the case of MSNBC?) to their viewers. That means that not only are these channels barely able to eke out a small viewership, but they are doing so mostly to partisan diehards.</p><p>And yet, the public, comedians, and particularly politicians continue to portray these stations as deeply influential. Nowhere was that point more obvious than over <a href="http://www.nytimes.com/2015/01/20/world/europe/fox-news-becomes-unwilling-star-of-french-tv-show.html">Fox's mistake over the "Muslim no-go" spaces in France and England</a> that the station <a href="http://www.nytimes.com/2015/01/19/world/europe/fox-news-apologizes-for-false-claims-of-muslim-only-areas-in-england-and-france.html?_r=0">ended up having to apologize for</a>. Media sites across the country covered it, often on their front pages. It was a massive screwup, but did it deserve quite this level of attention?</p><p>Now, there is a very large caveat to this point, which is that while the channels may not be influential, their associated websites are and help to drive social media. Even here though, I think there is a big gap between our impressions and the reality. Fox News may be one of the largest news sites in the world, but it also ferociously competes on the right with sites like Breitbart and RedState. MSNBC has a popular portal, but competes with HuffPost and others on the left. Their sites are not unimportant, but neither are they dominant in their categories.</p><p>This wasn't always the case. It may be just beyond the memories of my generation, but Fox was tremendously influential in the early years of the Bush administration. But that influence is simply not what it was at its zenith, and we need to adjust our thinking accordingly.</p>Why We Should be Concerned About Fact-Checking Websites2015-01-20T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-20:blog/2015/01/20/why-we-should-be-concerned-about-fact-checking-websites/<p>Fact checking is a popular sport, both in traditional print newspapers and online. Rather than reading news or opinion, we get something far more pleasing – seeing a politician brought down by a statement that was later proven by a group of writers to be false. Democracy is in action, and we can all feel smug knowing that the most powerful in our society have to be as responsive to the truth as we are.</p><p>Or do they? While fact checking is a crucial part of journalism, it should not be narrowed to merely fact checking what people say. That's why this trend of fact-checking websites is starting to alarm me. <a href="http://www.niemanlab.org/2015/01/fact-checking-sites-continue-to-grow-in-number-around-the-world/">Neiman Lab quotes researchers at Duke</a> saying that the number of fact check websites has grown even more in the last few months – up to about 89 total, and 64 consistently active (check my facts!)</p><p>There is satisfaction in tearing apart a politician's speech and finding gaping holes in it, but we have to be cautious at just how responsive investigative journalism is. Fact checking is a relatively cheap check on power –- it by and large doesn't require interviews, in-depth field work, or long-term commitment of resources. In some cases, a simple Google search is all that is required as proof that a particular statement is off-balance.</p><p>Unfortunately, fact checking is also only responsive to the discussions of politicians and business executives, and doesn't go beyond their statements. Like the old Drunkard's Search problem ("why are you searching for your keys at the lamppost?", "because that is where the light is"), fact checking speeches transfers all the power to speakers who can then control what gets debated and what does not. If you don't want anyone to investigate school finances, for instance, simply don't mention it and no one will fact check or investigate it. Journalists are providing no real check on who drives the conversation of the day.</p><p>I get worried because fact-checking is economically cheap yet lucrative, since page views are often quite high for these sorts of stories. Voters like the seeming accountability of fact-checking, but don't seem to realize that a fact in a speech is not where power lies. As newsrooms continue to face financial pressure, we need to protect the sort of core investigative work that ensures that media still acts as the fourth branch of government.</p>Three Short Thoughts on Doing a PhD2015-01-16T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-16:blog/2015/01/16/three-short-thoughts-on-doing-a-phd/<p>January is that time after application season is over, and friends and acquaintances start doing a double-take on their life decisions. "Should I actually be going to business school?" (maybe). "Should I actually go to law school?" (Hell no!) But the question that seems to elicit the most conflicted feelings is always graduate school, and particularly PhD programs.</p><p>It goes without saying that PhD degrees have been under fire, from a whole host of sources. And yet, I am in one, quite happy, and couldn't imagine doing almost any other degree. Considering this is my first year, and most students and my advisor have strongly said this is the worst year by far (due to all the course requirements), I take this as a good sign. Here are some thoughts for those who are thinking through their path.</p><p><strong>If you don't understand the job market for PhDs, you are (truly) an idiot</strong></p><p>That's blunt, but really, there is no excuse in 2014 not to fully understand the job market for PhD holders. If you want to work at a research university, you will work anywhere in the country in which a job is being offered, since there may only be three jobs in your entire field in a given year. You will not necessarily live near a major global city, and indeed, you may live in a terrible suburb in the middle of nowhere. That's how it is.</p><p>If you are looking to get married and need to get two jobs in one location, good luck. If you aren't prepared for the massive work it takes in a job search to secure one of these jobs (which easily takes the bulk of the last year of a PhD, and possibly additional years beyond that), then what exactly are you doing applying?</p><p>The job market for PhDs in academia has been horrific since the 1980s. If you are even thinking of applying to a PhD program, you have the reasoning capacity to look up the data and understand what the next two decades of your life will be like. Go into these things eyes wide open, and don't become cynical because "no one told me" or you rely on admissions materials (i.e. marketing) to make your life decisions.</p><p><strong>There is a massive difference between fields. Choose wisely.</strong></p><p>I am quite sympathetic to my colleagues over in the sciences, who have such a different graduate school experience from the social sciences. Long hours in the lab, terrible management and mentorship, fights over publication credit, strange machinations to prevent the top students from graduating, and more are just some of the average experiences in the wet sciences. It is really quite hellish, and almost universal.</p><p>My program, which is the PhD in Public Policy at the Kennedy School, is quite different. Like most social science graduate degrees, it is quite hands-off, and allows students immense flexibility to design the research agenda that most interests them. Since we are an interdisciplinary field of study, we even have flexibility of how we approach the disciplines. I spend more time in sociology than most of the other graduate students (we are mostly economics-focused, with some political science), but I believe that understanding people is important for good policymaking.</p><p>The university is a diverse place, and degrees are not equivalent even if the abbreviation is the same. Ask probing questions about exactly what you want from a program, and whether the design of a program will let you do it. If a program doesn't fit, don't do it. There are many options out there, and fit more than anything else will make you successful. </p><p><strong>Graduate school is a luxury -- savor it while you can</strong></p><p>I don't know if it is just me, but I have a pretty low tolerance for complaining from grad students. I've complained about the library before, but then again, I am also (technically) the student representative to the Kennedy School library. I do try to actually do something about my complaints other than whine.</p><p>Regardless of the context you want to put it, graduate school is truly a luxury. It is a job in which you can read papers and books, write research, think about thoughts independently, and make a contribution to the world intellectually in a way that the vast majority of jobs in the economy simply don't allow. That's something to truly savor when you go through the process.</p><p>But the problem is that some people get really used to the luxury, and define their lives entirely by doing everything they can to stay on campus. Even after their third or fourth postdoc, visiting professorship, etc., they are still trying to make the magic happen because they just don't want to work in the "real world." As one person put it to me, "I can't even think of making money." That's a luxury, and if it happens that the luxury has to stop, don't wail, but enjoy the moment while it lasts.</p>Does a President's Background Even Matter?2015-01-15T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-15:blog/2015/01/15/does-a-presidents-background-even-matter/<p><a href="http://www.nytimes.com/2015/01/15/opinion/gail-collins-dropouts-and-politics-and-cats.html">Gail Collins poses a question today to her readers</a>: should a president have a college degree? That immediate question is somewhat interesting (I would say yes, if only because entry-level secretaries in offices are required to have a bachelor's degree these days), but there are others with more intellectual excitement.</p><p>Two deeper questions are: to what extent do credentials and qualifications help a president in decision-making and how closely should analysts of politics pay attention to the backgrounds of their subjects?</p><p>I was reading my undergraduate advisor's critique of Graham Allison's <em>Essence of Decision</em> in International Security [1] yesterday, and he repeatedly references the value of historical biography in analyzing foreign policy decisions. In contrast with Allison, who argues that the process of policymaking is the fundamental framework for understanding decisions, this paper argued that we should instead not lose sight of the people within the room and their similar backgrounds.</p><p>Perhaps no quote sums up the piece better than this one from the paper's final paragraph: "Resisting the narrowness of Essence, scholars should think deeply and critically about the underlying values framework of major policy, and perhaps even about the class background or social origins of major policymakers." Such a point is heretical to international relations scholars, who believe that countries are black boxes. It's one of the many reasons I have a sociological bent to my research.</p><p>Academics too often are willing to cede that historical contingency for theories that offer more "science" at the expense of real explanatory power. The background of the president doesn't just matter -- it matters a lot! The fact that Obama was trained as a lawyer shows through in much of his decision-making, and is in contrast to Romney's mode of operation while governor of Massachusetts. It's not obvious which style is better, and we should be careful of making judgments too swiftly. But there is certainly a sense that the style of decision-making, and thus the decision-maker himself, must have an influence on the final outcome.</p><p>And yet, there remains this huge gulf between political journalists and political analysts, the former predisposed to issues of identity and connections to voters, while the latter focus more macroscopically where changes to the economy look beyond the power of any single individual. The focus on process over politics also allows us to presumably remove the politics from our research, but at the expense of explanatory power.</p><p>We don't need more litmus tests in presidential politics, like whether a candidate has gotten a college degree. But we do need to fully understand who someone is so we can grasp what kind of decision-maker they would be. In the case of Scott Walker (who didn't graduate from college), we need to get a much better sense of his thinking beyond simply public union politics. Only then can we understand how he will interact with Washington's myriad political processes and shape government.</p><p>[1] Bernstein, Barton J. “Understanding Decisionmaking, U.S. Foreign Policy, and the Cuban Missile Crisis: a Review Essay.” International Security 25, no. 1 (July 2000): 134–64. doi:10.1162/016228800560417.</p>The New Dynasty Politics of the United States2015-01-14T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2015-01-14:blog/2015/01/14/the-new-dynasty-politics-of-the-united-states/<p>With the announcement that <a href="http://www.usatoday.com/story/news/politics/elections/2015/01/12/paul-ryan-president-2016-congress/21653559/">Paul Ryan will not be entering the 2016 presidential race</a>, we are starting to see the formation of the short list of presidential candidates. And what a list it is! Right now, the Democrats have Hillary Clinton and possibly Elizabeth Warren, <a href="http://www.washingtonpost.com/blogs/plum-line/wp/2015/01/13/elizabeth-warren-shuts-door-on-presidential-run-draft-warren-groups-kick-it-back-open/">if left-wing cheerleaders can somehow convince her to leave her Senate cocoon</a>.</p><p>And on the right, the candidates are beginning to narrow to Jeb Bush, Marco Rubio, Rand Paul, and now <a href="https://www.bostonglobe.com/news/politics/2015/01/14/private-mitt-romney-starting-outline-rationale-for-third-presidential-campaign/QoYvBak5C4tvaxpezuNbLM/story.html">Mitt Romney</a>, with maybe some others throwing in their hats.</p><p>What is striking is just how familiar these names are. Bush and Clinton certainly need no introductions of their political family connections. Romney, who has now run for president twice -- once as his party's candidate -- is also the son of a former governor. And of course, Rand Paul is the son of erstwhile libertarian presidential candidate Ron Paul.</p><p>That leaves Rubio as the sole candidate running outside of a political dynasty.</p><p>Political dynasties aren't uncommon in America. We have already had John and John Quincy Adams, Theodore and Franklin Roosevelt, as well as George H. W. and George W. Bush. But it is far less common to see the vast majority of candidates in the primaries come from such backgrounds.</p><p>What is happening in American politics today is a pattern that has already befallen professions as diverse as professional soldiers and medical doctors. One element is competition. As these areas of work increasingly see new entrants, advantages that accrue to those with parents in these disciplines tend to become decisive later on. Children with parents who are doctors can be better prepared for life in a hospital simply by listening to the vocabulary and procedures that their parents are talking about.</p><p>Similarly to competitiveness, the increasing search costs for work means that there are greater incentives to work where one knows. It used to be relatively easy for young workers looking to explore different fields to switch industries. But there is a process of hyper-professionalization in many fields, where a careful sequence of unpaid internships, internships, fellowships, and entry-level jobs is the only way in. While this is often argued as a sort of "cultural affinity" for why families stay in similar industries, I believe that these switching costs at least partially explain this.</p><p>There are labor economic reasons why political dynasties are blooming for our nation's highest office, but there are also more particular reasons for its rise as well. To run for president practically requires brand familiarity. The process of choosing the presidency has been warped by social media and 24-hour news away from engaging a candidate's character to simply throwing soundbite grenades. The rigors of that campaign life narrow the field of candidates able to perform it considerably.</p><p>There is also the feeling among some analysts that families who have lived mostly in the public eye are less "risky," since any skeletons buried in the closet have presumably been unearthed. For the sons and daughters of current politicians, who theoretically have had significant supervision to ensure that their actions comport with the media attention they will receive if discovered, they already have the extraordinarily clean record the American public demands of its politicians.</p><p>While those reasons are a partial explanation of this growth, the larger question is more normative: are dynasty politics bad for democracy? There isn't any immediately obvious direction here, particularly given that dynasty politics is quite common in democracies throughout Asia like Korea (where the current president is the daughter of the former dictator of that country), India, and Japan as well as in European countries like France, where Marine Le Pen is now leading in some polls.</p><p>Despite that experience, my sense is that the experience is mostly negative for the US though, for two reasons. First, these dynasties encourage a sort of factionalism in politics that the United States already needs less of. Political feuds end up becoming blood feuds, since the stakes are not just for one's own political careers, but also for one's kin as well. We see these developments in many of the stories about the Clinton family, which isn't just protecting Hillary but also Chelsea.</p><p>But perhaps the real concern is that families have devices to create permanent campaign structures in place and ensure that they can lock up key talent. The Clinton Global Institute performs this function, which has hired many of the top lieutenants of the Clinton years like Ira Magaziner. Since campaigns are so ephemeral, the allure of more permanence of work is highly attractive for both campaign workers and policy experts.</p><p>In short then, political dynasties harm democracy, without a concomitant benefit that I can identify. Maybe the candidates are more fluent and experienced, but it seems hard to believe we can't find new candidates equally qualified.</p><p>We don't want a political system that is already obsessed with slogans to further devolve to simple comparisons of last names. Let's keep politics fresh.</p>Depression, Suicide, and the Future of Mental Health2014-09-18T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-09-18:blog/2014/09/18/depression-suicide-and-the-future-of-mental-health/<p>I lost a good friend in San Francisco today to depression. He had been battling his illness valiantly for years since I knew him in high school. He was brilliant, hilariously funny, and someone who I always looked forward to having dinner with. He had so much potential to offer the world with his intellect, and we are all worse off without his presence. </p><p>As many of you know, I think mental health remains one of the most under-examined areas for research, creativity, and innovation that we have today. Depression is one of the leading causes of death in this country, and yet, we still treat it much the way we have for decades: with drugs whose effects we barely understand. Irving Kirsch, one of the leading experts in the field at Stanford, said last year, "One hundred years from now, people will look back at the age of giving SSRIs and they will have a reputation that's akin to bloodletting."</p><p>There has to be a better way.</p><p>There have been a handful of startups like Teletherapy and 7 Cups of Tea that have started to address this area. But so much more can be done. I hate it when entrepreneurs ask me how they can make a difference in a reasonable period of time for a lot of people, and then begin to focus on things like aging. This area is so under-explored, we don't even know if there are ways of dramatically improving the lives of millions of people with just some lines of code.</p><p>My friend was an engineer, and I can't think of a better way to remember his legacy than to take his problem-solving ethos and apply it to one of the most important health problems today. Rest in peace.</p>Should Workers Own the Algorithms?2014-08-21T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-08-21:blog/2014/08/21/should-workers-own-the-algorithms/<p>GigaOm's David Meyer <a href="http://gigaom.com/2014/08/18/in-the-on-demand-economy-flexibility-isnt-control-and-algorithms-wont-protect-workers-rights/">wrote a very nice analysis</a> on Monday in response to my article on whether <a href="http://techcrunch.com/2014/08/17/algorithm-overlords/">algorithms are replacing unions as the future of workers' rights</a>. </p><p>Meyer makes the fair point that owners have rarely done what is in the best interests of their workers in the past, and so the concept of "flexibility" that I trumpet isn't <em>really</em> about control over one's working life. At the end of the day, the owners of technology platforms like Uber still wield disproportionate power over workers and their livelihoods.</p><p>This got me thinking on a hypothetical question: why can't workers, through their representatives, write the algorithms behind work allocation?</p><p>This isn't a crazy proposition. Workforce algorithms are simply methods to solve an optimization problem given a set of objectives. When owners control these algorithms, efficiency tends to be the most important goal, but we can imagine other objectives like most stability or most flexibility to be acceptable.</p><p>For example, Uber's data shows that it needs a certain number of drivers in a certain part of the city at certain times. If workers controlled the algorithm, it would meet those requirements, while also prioritizing certain policy goals. So, we could prioritize having as many different drivers on the road as possible, having the most senior drivers on the road get the most hours, prioritize the highest-ranked drivers, etc. </p><p>Since Uber is fundamentally a network, the idea is that it shouldn't care where the drivers come from as long as they show up when and where they are supposed to.</p><p>As another example, Starbucks <a href="http://www.nytimes.com/interactive/2014/08/13/us/100000003053788.mobile.html">got into hot water last week over its scheduling practices</a> following a bruising article in the New York Times. The company was criticized for the instability of its work shifts, which damaged families and made it hard to schedule child care consistently.</p><p>If workers controlled the algorithm, then there could be ways to ameliorate these issues. The workers could vote for policies that allowed them more flexible schedules, ensured that they don't have to close and open the same store (called clopening), and focused on schedule stability so that child care arrangements were easier to make.</p><p>Again, Starbucks runs as a franchise model, where baristas are theoretically interchangeable between shifts and stores. It shouldn't care <em>who</em> actually does the work, beyond that the number of workers recommended by its data actually show up.</p><p>In terms of engineering, these problems aren't hard to solve. Companies with large workforces already use algorithms to assign workers to tasks, and so having those algorithms written by someone else wouldn't be impossible. The larger issue is with integration, and ensuring that algorithms match business expectations, but even here, the company has the ability to set the context for the algorithm, and so this can be solved as well.</p><p>The real challenge will be finding consensus on the actual policy choices that the algorithm requires. Should an algorithm prioritize scheduling stability for mothers with newly-born kids? How about for workers with the most seniority? These policy choices are hard to reconcile, and workers who today complain about company policies may find it nearly impossible to build the system that meets all of their objectives. Indeed, there may even be some empathy built here at just how challenging it can be to efficiently allocate thousands of people.</p><p>That efficiency issue leads to one final point though. All of these allocation problems and their effects on workers are a direct result of a business culture of cutting every last percentage point of expenses. Even 2-3% more slack in the system would lead to significantly better outcomes for workers than today's systems. Cutthroat competition is the ailment here, and the algorithms are only as good as the context in which they are run.</p>In cutting foreign exchanges, Obama Administration demonstrates short-term thinking2014-07-14T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-07-14:blog/2014/07/14/in-cutting-foreign-exchanges-obama-administration-demonstrates-short-term-thinking/<p>One of the great advantages of being a superpower like America is that everyone has to care about you. I see this all the time in a relatively small country like Korea, where news from a Congressional sub-committee's decision about the peninsula may never get a line of print in a newspaper in the US, but is front-page news here locally.</p><p>As the former Prime Minister of Canada, Pierre Trudeau, once said, "Living next to [the US] is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt."</p><p>With the rise of China globally, and countries like Turkey, Indonesia, India, Brazil and others more regionally, America's absolute dominance is waning. Students, business leaders, politicians, and academics now have a choice on where to spend their energies. If you are an African college student, do you learn English and head toward the West, or do you learn Chinese and head toward the East? That decision is still likely weighted toward English — for now — but the answer is not nearly as obvious as it once was.</p><p>America has to adapt to a world where people have a choice on where to study and do business. It needs to engage the world by sending more of our citizens abroad to ensure that we have dense personal networks worldwide, while also encouraging as many people as possible to come to the United States and bank their futures in our country.</p><p>That obviously means improving our immigration system, but we also need to work on policies designed to get Americans traveling outside the country.</p><p>Which leads me to the news this last week that the Obama Administration is changing how we think about student exchanges through the State Department. <a href="http://chronicle.com/article/State-Department-Moves-to/147687/">The Chronicle of Higher Education wrote that</a> (paywall) the Obama Administration hopes to refocus the State Department's current education and cultural programs to better meet our policy objectives.</p><p>The key quote comes from Evan Ryan, who is the head of such programs as the Assistant Secretary of State for Education and Cultural Affairs. "The real impetus for these programs is to make sure that exchanges are really tied to foreign policy and foreign-policy goals, making sure that they can be responsive to where we are in terms of what we’re trying to accomplish," she said to the Chronicle.</p><p>As a brief aside, you might wonder who Ryan is. As head of educational programs, you would expect her background to focus on teaching or research, which are the mainstays of her office. <a href="http://eca.state.gov/about-bureau/about-assistant-secretary">Reading over her biography</a>, you can see that her work history includes scheduling for first lady Hillary Clinton, scheduling for senator Hillary Clinton's campaign, communications for John Kerry for President, and (domestic) intergovernmental relations for President Obama.</p><p>But I digress. The problem with Ryan's analysis is that our foreign-policy goals are always shifting, even though the fundamental purpose of such exchange programs is everlasting. The goal of the today's State Department is to transform these long-term, meaningful programs into ones designed for short-term "success."</p><p>What does this look like in practice? The Chronicle continues about a new program for African civic leaders:</p><blockquote><p>In many ways, the program is the opposite of Fulbright, or at least of the well-known Fulbright scholar program, in which American and foreign participants spend up to a year abroad teaching or conducting research.</p><p>For the leadership program, the overseas stay is short (six weeks for most participants), is focused on developing a single region of the world, and <strong>is not technically an exchange because it only brings Africans to the United States and no Americans go abroad as part of it</strong>.</p></blockquote><p>This is a policy designed for a world in which the United States is the monopoly superpower. That world doesn't exist anymore.</p><p>I am a former Fulbright scholar in South Korea, where I worked with a dozen grad students at KAIST and two dozen or so people in the startup industry in Seoul and in Daejeon. Today, I am a writer based in Seoul, covering startups. Fulbright was the impetus for me to engage with the rest of the world, and today, I have presented at several conferences and talks in Asia, spreading the message of entrepreneurship and Silicon Valley. This is fundamentally good for the United States and its public diplomacy efforts.</p><p>We have to create a space for programs that don't have immediate short-term objectives, but have tremendous value in the long-term. We see this same situation with research funding in the sciences, where there is now greater emphasis to fund research that will create jobs rather than just produce knowledge. That's in spite of the incredible historical evidence that producing knowledge is incredibly beneficial for the economy.</p><p>We need to adapt to multipolar world that is coming, rather than design our policies for a world that no longer exists. Double-digit cuts to Fulbright and other useful programs just shows how little we understand the world that's coming.</p>The Challenge of Korea's Narrow Political Culture2014-06-26T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-06-26:blog/2014/06/26/the-challenge-of-koreas-narrow-political-culture/<p>This week, South Korean President Park Geun-hye's second candidate for prime minister, Moon Chang-keuk, <a href="http://www.washingtonpost.com/world/asia_pacific/s-koreas-prime-minister-nominee-withdraws/2014/06/23/2e8116bc-fb42-11e3-9f27-09f20b8bfd1a_story.html">pulled his name from consideration</a>, following outrage over comments he made about imperial Japan's occupation of Korea. This follows <a href="http://www.reuters.com/article/2014/05/28/us-southkorea-politics-idUSKBN0E80T520140528">the collapse of the candidacy of Ahn Dai-hee</a>, a former judge who made an income of $1.6 million after his return to the private sector late last month.</p><p>For the president, the loss of two candidates for prime minister has hit hard. Polls show that <a href="http://english.yonhapnews.co.kr/national/2014/06/20/72/0301000000AEN20140620004400315F.html">approval ratings for the president have declined sharply</a> over the past few weeks, and are at their lowest point since Park assumed office. The loss of political capital so early in the administration portends significant difficulties in the coming years for Korea's government.</p><p>But beyond the polls, the withdrawals of both candidates illustrates a growing problem in Korea: the exacting expectations of political candidates for office. This is a real challenge, both for Korea as well as for many established democracies like the United States. Due to the rallying effect of the Internet as well as an aggressively adversarial political culture, candidates are now put under an unbelievable amount of scrutiny.</p><p>That scrutiny would seem useful; after all, politicians holding ministry portfolios or senior government positions are entrusted with powers that few others in society wield. But as the bar has moved higher for candidates, the number of candidates that might have a shot of making it through the political system has narrowed.</p><p>The United States has not been immune to these kinds of political purity tests. We can see this effect most keenly on the Supreme Court, where jurists who hope to one day be nominated by a president avoid stating a controversial opinion on, well, anything. Take Elena Kagan for instance. Despite being the dean of Harvard Law School, she had written a <a href="http://online.wsj.com/public/resources/documents/kagan0509.pdf">grand total of 19 publications in her entire career</a> according to her confirmation papers, with many of these outside of legal argument.</p><p>However, Kagan's generation of jurists was prepared for this environment. Kagan received her JD in 1986, just one year before the infamous confirmation hearings that derailed the appointment of Robert Bork to the Supreme Court. It is not hard to see how she and others of her generation adapted to this heightened scrutiny by reducing their publications and narrowing their fields of inquiry.</p><p>This problem is particularly acute in Korea, because its societal norms around candidates have changed so quickly that there hasn't even been a generational shift in the politicians to adapt to these new standards. The kinds of activities and behavior that were acceptable in the political class just a decade ago are now completely forbidden. That means that almost any candidate who could potentially be a candidate likely has some baggage associated with them, whether it is cozy business-government relations, past comments, making money after government service, illegal school registration, tax avoidance, and the list goes on.</p><p>My concern runs deeper though, as the rise of social networks and the Internet's indelible memory could make this situation even worse in the future. What happens to the next generation of politicians who have college party pictures used against them, or their words in a high school newspaper?</p><p>Are we converging on a system that puts only the most boring, unsuccessful, uninteresting, and ultimately useless people in power? What does it say when the United States can't put one of its top humanitarians, Paul Farmer, in charge of its primary international development agency because he can't get through the vetting process. <a href="http://kristof.blogs.nytimes.com/2009/08/10/update-on-paul-farmer-and-usaid/">As Nicolas Kristof wrote at the time</a>: "if a saint like Farmer can’t get through, who can?"</p><p>I joked on Twitter that Korea's third prime minister candidate is likely to be a charm. But by charm, I meant exactly the opposite. I half expect a person in a coma, as that is likely to be the only candidate that has a chance of making it through the gauntlet.</p><p>In order for democratic societies to function, we as citizens, whether in the United States, Korea, or anywhere else, need to create more space for people to engage in politics, even if they don't necessarily have a sterling record. While in office, integrity is keen, and failure to maintain a high standard should be met with swift punishment. But let's tone down the animosity to every chink in the armor of a candidate's past, and instead engage them more substantively on the issues they hope to address. We need to build a better politics.</p>What no one asks about college admissions data2014-04-09T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-04-09:blog/2014/04/09/what-no-one-asks-about-college-admissions-data/<p>The news has been all over the press – Stanford's admissions rate has now reached 5%, and its implications for college applicants is clear: everyone is screwed.</p><p>This is false. As everyone knows about admissions, the aggregate admissions rate has almost no value to any student, since every student is bucketed into different groups with radically different acceptance rates. Athletes aren't facing a 5% acceptance rate, nor are legacies or development cases. Intel Science Talent Search winners aren't facing such long odds to success. </p><p>This thinking that everyone has an equal chance reminds me a lot of startups, where talk of a "lottery" persists. This is also false. Startups have uneven probabilities of success, much as applicants to college have uneven probabilities of success. People need to stop looking at an aggregate admissions statistic, or the chance of going from conception to a billion dollar company if they want to find success. The reality is, 95% of efforts are going to end in failure. The key is to find the reason why you should be disproportionately chosen, in applications and in a startup.</p><p>That said, despite the flurry of articles on admissions rates these past few days, there doesn't seem to be any depth of thinking about these statistics. Here are two questions I would love answered:</p><ol><li><p><strong>What is the makeup of the applicant pool?</strong> Admissions officials have been trying to increase the diversity of applicant pools for years through outreach events, etc. Are these programs working, and thus the applicant pools are becoming more diverse, or is it the opposite, that we are just getting applicants from the same groups we have always gotten them from in the past. You can't glean this from a single aggregate statistic, but it would seem to be really important, particularly since there are so many legal battles over affirmative action these days.</p></li><li><p><strong>How many applicants are elite, marginal, and rejects?</strong> The New York Times writes this sentence in <a href="http://www.nytimes.com/2014/04/09/us/led-by-stanfords-5-top-colleges-acceptance-rates-hit-new-lows.html">their story about the declining admissions rates</a>: "Admissions directors at these institutions say that most of the students they turn down are such strong candidates that many are indistinguishable from those who get in." I am getting really tired of this trope. There aren't suddenly 45,000 elite students that have been generated in Stanford admissions, something that the admissions director admits <a href="https://alumni.stanford.edu/get/page/magazine/article/?article_id=66225">when he says that 20% would not make it academically on campus</a>. Thus, I am curious how we can break the pool down to those candidates that should obviously receive admission, those who are marginally likely to be admitted, and those who never had a chance. Just because the admissions rate is decreasing does not mean that the applicant pool is increasing in quality (the "mixture" or "composition" problem in statistics).</p></li></ol><p>There is a lot more to this story than reporters seem to give it credit. Given the history of admissions (<a href="http://www.amazon.com/The-Chosen-Admission-Exclusion-Princeton/dp/0618574581">here is a multi-hundred page book called The Chosen if you are interested</a>) and the important place that these gatekeepers hold in our society, one would hope for a little better critical analysis of what is going on.</p>Website Owners, Stop Controlling my Copy and Paste2014-03-20T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2014-03-20:blog/2014/03/20/website-owners-stop-controlling-my-copy-and-paste/<p>Tried posting a quote from <a href="http://www.smithsonianmag.com/smart-news/over-900-workers-have-already-died-building-qatars-world-cup-facilities-180950088/?no-ist&amp;1">this article on Smithsonian Magazine about worker deaths in Qatar</a>. I copied a sentence as I usually do when I post to Facebook, and was surprised to discover this additional text:</p><blockquote><p>Read more: http://www.smithsonianmag.com/smart-news/over-900-workers-have-already-died-building-qatars-world-cup-facilities-180950088/#KfGyIi6xpuTPLdSD.99 Give the gift of Smithsonian magazine for only $12! http://bit.ly/1cGUiGv Follow us: @SmithsonianMag on Twitter</p></blockquote><p>Good grief! Not only do they force me to link to the article (which I might add, I had already added), but they included a link to their subscription page, and a Twitter reference to boot.</p><p>This is unacceptable. Why should someone who happens to see a headline on my news feed be accosted for cash? Wouldn't the best people to try to get to subscribe to a magazine be those who read the article and thought it was interesting.</p><p>You can see an interesting conversation about how to add this sort of feature to web pages <a href="http://stackoverflow.com/questions/2026335/how-to-add-extra-info-to-copied-web-text">here on StackOverflow</a>. I was curious how a site could control your clipboard, since that would seem to be a major security violation. The trick, apparently, is to change the selection in the screen itself. Thus, when you select text, the Javascript adds additional content elements to the selection behind the scenes, so that when you copy and paste, the added text is copied as well.</p><p>Nifty. My question is, can we develop a means of stopping this manipulation?</p>Two Posts on TechCrunch2014-02-01T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2014-02-01:blog/2014/02/01/two-posts-on-techcrunch/<p>For those who did not happen to catch them, I wrote two posts on TechCrunch this week:</p><ol><li><a href="http://techcrunch.com/2014/01/28/blowback-silicon-valley-is-now-public-enemy-1/">Silicon Valley Is Now Public Enemy No. 1, And We Only Have Ourselves To Blame</a></li><li><a href="http://techcrunch.com/2014/01/31/the-complete-quantitative-guide-to-judging-your-startup/">http://techcrunch.com/2014/01/28/blowback-silicon-valley-is-now-public-enemy-1/</a></li></ol><p>I will be writing more in the upcoming – drop a line if you have any ideas you would love to see covered. </p>How far can Bitcoin take us?2014-01-23T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2014-01-23:blog/2014/01/23/how-far-can-bitcoin-take-us/<p>In a popular story published in Dealbook, venture capitalist Marc Andreessen <a href="http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/">discussed his views</a> on the popular virtual currency Bitcoin. The article is a good, decently level-headed discussion on the current Valley thinking about Bitcoin and its potential. </p><p>One thing that bothered me though was this line early on in the article: "What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014."</p><p>References to these sorts of "revolutions" or "waves of technology" are always interesting to me as an on-and-off again historian of science and technology. Revolutions are never point events, but rather process events – they have significant antecedents and gestation periods, and their effects are often time-delayed.</p><p>Take the personal computer. It is actually really hard to point to exactly when the PC revolution took place. Was it the launch of a specific model, the development of a particular piece of software, or maybe a particular marketing campaign that made it take off? The answer, of course, is no. The PC developed over two decades (possibly more), and over the years, the hardware and software co-evolved, supporting each other in growth.</p><p>Now take the internet. The internet has been in existence since the 1960s, and email has been available since the early 1970s. Andreessen uses the year 1993 as his benchmark, but the National Science Foundation didn't even allow commerce on the internet until 1995. The internet is still evolving today, and it is almost two decades later.</p><p>Now, what about Bitcoin? Clearly, the currency has a huge opportunity given the number of digital transactions going across the web. The question I have is more mundane though – how much of an improvement does Bitcoin make over existing transactions, and are there new transactions or other software that can be built with Bitcoin that makes it a "fundamental" platform technology.</p><p>For existing transactions, most of which can be served with existing technologies, the main benefit is cheapness, and potentially less painful checkout processes. Since Bitcoin works essentially like cash, questions related to your billing address, credit card numbers, expiration dates, etc, can all be eliminated. Cheaper fees disproportionately affect international currency transfers, which will be far easier in a Bitcoin world.</p><p>The key question then is around the creation of new transactions. Andreessen writes:</p><blockquote><p>"A third fascinating use case for Bitcoin is micropayments, or ultrasmall payments. Micropayments have never been feasible, despite 20 years of attempts, because it is not cost effective to run small payments (think $1 and below, down to pennies or fractions of a penny) through the existing credit/debit and banking systems. The fee structure of those systems makes that nonviable.</p><p>All of a sudden, with Bitcoin, that’s trivially easy. Bitcoins have the nifty property of infinite divisibility: currently down to eight decimal places after the dot, but more in the future. So you can specify an arbitrarily small amount of money, like a thousandth of a penny, and send it to anyone in the world for free or near-free."</p></blockquote><p>This is an interesting scenario, and there are certainly some other classes of transactions that are possible, but I feel the field here is so much more limited than the potential that came from the internet and the personal computer. The reality is, commercial transactions today are actually pretty decent for those in the developed world.</p><p>We are certainly going to hear a lot about Bitcoin in the coming months. But before we start comparing it to the PC and internet, let's realize that the world we are envisioning here is likely still a <em>long</em> time away.</p>Korean Human Jaw Plastic Surgery Sculpture a Thing of Unusual Wonder2014-01-22T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2014-01-22:blog/2014/01/22/korean-human-jaw-plastic-surgery-sculpture-a-thing-of-unusual-wonder/<p>There isn't too much to say about this unique sculpture sitting out here in South Korea. Other than the human jaws, I guess. </p><figure><img src="/images/20140122_HumanJaws.jpg"><figcaption>JAWS – Coming to a Theater Near You! Photo taken from 시사주간.</figcaption></figure><p>One plastic surgery clinic in Gangnam, in order to demonstrate its extensive patient list, received more than its share of marketing publicity after commissioning this scupture made from human jaws. Gangnam is a popular area for plastic surgery, and advertisements are nearly overwhelming when walking through its busy streets. Clinics are always looking to get one jawbone, er, leg up on the competition.</p><p>Police here in Seoul are investingating the clinic to determine if the clinic failed to properly dispose of any of the remains, a violation of the medical health laws.</p><p>Ironically, the fact that they have removed so many jaws doesn't really demonstrate their capability of building beautiful faces. After all, the fact that vampires drink blood doesn't make you an expert serologist, nor does getting a Communications degree from Stanford mean you can give post-game football interviews in any sort of fluent way.</p>What you can't show in a South Korean movie poster2014-01-20T00:00:00-08:00Danny Crichtontag:www.dannycrichton.com,2014-01-20:blog/2014/01/20/what-you-cant-show-in-a-south-korean-movie-poster/<p>In a famous routine from 1972, comedian George Carlin presented the <a href="http://www.youtube.com/watch?v=lqvLTJfYnik">"seven words"</a> you can't say on television (ironically, you also can't say them on this blog!). Carlin was lambasting the FCC's censorship regime, which at the time felt more reminiscient of the 1950s than the far more permissive culture of the 1960s. </p><p>Here in Seoul, such controversies are fairly frequent given the tighter sexual mores on the public airwaves. Still, a controversy this week over the movie poster for Pompeii has had many here questioning where censorship builds a safer public discourse, and where it flagrantly denigrates the fundamental right to freedom of speech.</p><p>In Korea, all movies are expected to go to the <a href="http://www.kmrb.or.kr/kmrb_2010/english/">Korea Media Rating Board</a>, which determines the ratings for domestic and foreign films and posters, as well as other types of media. Unlike in the United States, where film ratings are handled by the Motion Picture Asssociation of America (which is privately owned by the six major motion picture studios), Korea's rating board is publicly owned and operated by the national government.</p><p>So, what do the film judges have to object to? Take a look at the poster for Pompeii that was originally submitted in Korea:</p><figure><img src="/images/MoviePoster2.jpg"><figcaption>The originally submitted poster for Pompeii</figcaption></figure><p>You might be wondering, what exactly is the problem with the poster? According to the translator of the film, the issue is that the couple is too intimate in the picture, foreshadowing that most horrible of actions, S - E - X (got to watch those censors!). Here is the new poster, which presumably I will start to see in subway stations all over Seoul:</p><figure><img src="/images/MoviePoster1.jpg"><figcaption>The modified poster for Pompeii</figcaption></figure><p>I am almost certain my high school prom allowed a shorter distance between opposite genders than what is depicted in here (4 whole textbooks!). For a country that has one of the lowest birth rates in the world, and a government that believes that babymaking is one of the highest priorities, maybe a little more smooching in the movies is just what the doctor ordered.</p>Why elitism still matters in crowdfunding2013-09-27T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2013-09-27:blog/2013/09/27/why-elitism-still-matters-in-crowdfunding/<p>Oh no, the barbarians are entering the sacred domain! The Securities and Exchange Commission has truly opened the floodgates with <a href="http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539707782#.UkXGLWRASzA">the repeal of the prohibition on general solicitation</a>, so I expect to be completely destroyed in T-Minus 60 days. I guess I am supposed to feel some sort of fear from startup crowdfunding platforms, considering their ultimate goal is to disrupt venture capital, and by extension, me.</p><p>And yet, I have no fear.</p><p>I do not doubt that crowdfunding investment platforms will have an impact on venture capital. I strongly support allowing anyone to invest in a broad range of private securities. Democratizing finance means making finance open to more investors, even those who are supposedly less sophisticated because they don't already have money (the definition of an <a href="http://www.sec.gov/answers/accred.htm">accredited investor</a>). Start-ups will ultimately be the beneficiaries here by allowing non-traditional investors into their rounds who might offer special skills, networks, or ideas to propel a fledgling company forward.</p><p>But the "secret" to this industry is that it is fundamentally a hits business.</p><p>This is very different from investments like equities, where <a href="http://www.forbes.com/sites/rickferri/2013/04/04/index-fund-returns-get-better-with-age/">returns on index funds are often quite compelling</a>. Sure, one can dump all of their money into Facebook, or Amazon and reap a great reward. Yet, it is just as easily to lose massively with such a strategy, which is why research continually shows that most people are better off picking a stable index fund to hold over the long-term.</p><p>Venture capital investing is the complete antithesis of this approach. <a href="http://jackealtman.com/pay-attention-to-power-law-distributionshttp://www.avc.com/a_vc/2009/04/the-venture-capital-math-problem.html">Returns in venture are marked by a power law</a>, in which one or two investments out of 30 will often carry an entire fund. Placing your capital in fewer, but higher quality companies can actually create significant increases in returns. This is the reason why funds that greatly expand have a hard time maintaining their returns – the fund ends up investing in a worse average selection of companies than before.</p><p>This is the danger when I hear people comparing venture to <a href="http://en.wikipedia.org/wiki/Moneyball">the strategy of moneyball</a>. There really is no arbitrage in the start-up environment, because there is no lower price for start-ups.</p><p>To see the economics clearly, let’s take an example like the developer tools space. Many VCs are hesitant to invest in developer tools, for the simple reason that the market for these companies is bounded, and the price of acquisition for these companies stays in the double digit millions. Many of the founders in this space, rightly, bootstrap their companies. But let's say you wanted to create an arbitrage strategy here. The only way to do so would be to buy a large percentage of the company for limited dollars (think like 33% for 500k) in order to make the investment sensible from a returns perspective. Few entrepreneurs would take that deal, nor would VCs like it because their fund sizes would have to be tiny to make the economics come out well for them as well.</p><p>The reality is, in a power-law distributed investment asset class, winning <em>does</em> mean giving money to the best founders. It is fundamentally an elites business, and it will be almost impossible for anyone but a handful of top venture capital firms and angels to get into such deals over the next few years.</p><p>You can see this change even in AngelList's own approach to their platform. From the beginning, the company has focused on allowing anyone to invest in any company – a truly democratized platform for startup investing. This week though, they <a href="http://blog.angel.co/post/62093033947/introducing-syndicates">introduced syndicates and managers</a> – essentially, bringing the middlemen back into the equation after they originally tried to disrupt them.</p><p>AngelList is correct – the part to crowdsource is the limited partner side of the equation, rather than the deal sourcing side. My mother in Detroit is not likely to run into the next Mark Zuckerberg, but she could definitely fund the VC who could. For the first time, you don’t have to run a multi-billion dollar endowment to be able to invest in high quality start-ups.</p><p>Different asset classes have different characteristics. Some are open to any investor with the money and the belief to make a trade. But venture capital is not like this, and it is important that we understand the difference. No one wants to talk about elitism in crowdfunding, but at the end of the day, the goal is to build wealth for everyone. A little elitism goes a long way to democratizing finance.</p>Blind Spots: The Most Underinvested Areas of Venture2013-09-24T00:00:00-07:00Danny Crichtontag:www.dannycrichton.com,2013-09-24:blog/2013/09/24/blind-spots-the-most-underinvested-areas-of-venture/<p>One of the most rewarding, yet peculiar, learnings about working as an investor in venture capital is that you constantly see clusters of start-ups spring up around the same problem. Indeed, one of my proofs that Silicon Valley is an efficient market is that these problems are seemingly identified by everyone at the same time, and so the difficulty in investing is simply choosing the best of the breed and moving on.</p><p>In the past year, I have seen clusters form around loyalty cards in local businesses, analytics APIs for mobile, and new designs for resumes, just to name a few that come to mind. None of the founders I have met in these clusters are “me-too” – they seem to have legitimately all come to the same problem from personal experience or through asking the right questions to a target customer. That’s innovation working correctly.</p><p>The peculiar part of this observation is how many obvious problems don't seem to get a cluster of start-ups at all. Sometimes these problems, some examples of which I’ll discuss shortly, are not small at all. In fact, I would go so far as to say that these blind spots in the market are where all the future value will be made in innovation. Many of the category-defining companies of the past few decades were all built around problems most people didn’t even know they had.</p><p>Why do some problems get a bevy of start-ups, and others seem to languish untouched? I think there are several key reasons, including that some problems are actually quite difficult, and founders lack specific experience in that area.</p><p>The one that bothers me most though is blindness. There are problems that have been here for years, that lack high quality solutions, and that have huge markets. Yet, no one seems to touch them at all.</p><p>Let me give two examples:</p><h3>1. Mental Health</h3><p>The US economy spends roughly 1% of GDP on mental health every year, between therapies and pharmaceuticals. Millions of Americans today face debilitating mental illness, including substance abuse, depression, bipolar disorder, phobias, and the list goes on. Current treatments are lackluster at best, and actively harmful in the worst cases. And, the treatments we have are barely technological at all. For a great read on the subject, check out <a href="http://www.amazon.com/Anatomy-Epidemic-Bullets-Psychiatric-Astonishing/dp/0307452425">Anatomy of an Epidemic</a> by Robert Whitaker.</p><p>I was really pleased to see that <a href="http://www.7cupsoftea.com/">7 Cups of Tea</a> graduated from the most recent YC batch this summer. They are attempting to make it easier to get counseling online by connecting a patient with a therapist live through the internet. This is an important problem in this space, and I wish them the best of luck.</p><p>Yet, there are so many more problems to be solved in this space. How can we use computer vision and other graphics to help patients overcome their fear of spiders or heights? Is there some sort of simulation technology that can assist a returning soldier with the effects of PTSD? I realize the government has large research budgets in some of these areas, but that doesn’t mean Silicon Valley should ignore them.</p><h3>2. Religion</h3><p>There are many ways to describe religion, but one definition might be a community of believers, centered around some sort of belief system or ideology. Religion is one of the most powerful institutions in our society, and Islam and the Catholic Church each call more than a billion people as members (larger than the size of Facebook to make a point here).</p><p>Outside of Scientology, the Flying Spaghetti Monster, and ChristianSingles.com, there hasn’t been a lot of innovation around this area. That’s unfortunate, because in this social world, there seems to be a perfect opportunity to create a system of beliefs or at least some technology-based improvements to the way that religion can be ministered. Why isn’t there a “marketplace” for priests (yes, I just said that) where you can find a priest that matches your interests and religious preference? Could be entirely charity based, or could be free. Why are guided confessionals (a form of talk therapy which connects to mental health) not available over the web? The app Whisper only takes you so far here.</p><p>When I tell some of my friends about this, I actually don’t get blank stares – I think when these problem spaces are pointed out, people almost immediately see them. That is the blindness I am talking about. If you have other blind areas, I would love to hear them. Perhaps we need an AngelList for blind problems focused on discovery. God, I have been listening to too many pitches.</p>