Self-recommending. I was talking last night with Steve Teles about personality and executives. Think in terms of OCEAN. Which personalities are likely to like to take risks? I think of high O (openness) and high E (extraversion) as positive toward risk taking, with high N (neuroticism) and high A (agreeableness) negative toward risk taking. Teles and I agree that the market tends to select for CEO’s men with high O, high E, and low N and somewhat low A, thus creating a bias toward risk-taking among CEOs. I think that Andreessen exemplifies that. He is much more struck by the mistakes venture capitalists make in missing out on the big hits than the mistakes they make in backing losers.

I think that his attitudes toward risk are probably really a good fit for venture capital. I think they are a terrible fit for being a banker backed by deposit insurance. That is why I think that regulators should be concerned about the personalities of bank CEOs. Teles thinks I ought to write up my theories on that. I think I would have to do a lot of empirical research first.

Andreessen says that journalists are nostalgic for an era of oligopoly, and now they face an era of intense competition. I think that is correct. Even if he is correct that the market is big, that does not mean that there are easy profits in it. Think of a sort of California Gold Rush, with enough miners competing to drive profits near zero. You want to figure out how to be Levi’s.

Ian Hathaway and Robert E. Litan write,

the firm entry rate—or firms less than one year old as a share of all firms—fell by nearly half in the thirty-plus years between 1978 and 2011. The precipitous drop since 2006 is both noteworthy and disturbing. For context, the rate of firm failures held relatively steady—aside from the uptick during the Great Recession. In other words, the level of business deaths kept growing along with the overall level of businesses in the economy, but the level of business births did not—it held relatively steady before dropping significantly in the recent downturn. In fact, business deaths now exceed business births for the first time in the thirty-plus-year history of our data.

…—whatever the reason, older and larger businesses are doing better relative to younger and smaller ones. Firms and individuals appear to be more risk averse too—businesses are hanging on to cash, fewer people are launching firms, and workers are less likely to switch jobs or move.

Some possibilities:

1. Galbraith was right. Large, established firms have the advantage, due to advertising and technocratic management. Consider what Wal-mart has done to the small-town pharmacy or grocer. There is dynamism in the market, but it is not coming from the mom-and-pops.

2. Population aging. Older workers are less mobile, and older consumers are less willing to change.

3. Consider the sectors in the economy that have expanded: health care, where there is consolidation (fewer small practices, lots of mergers); finance, where our system has become much more concentrated; education, where new entry faces regulatory barriers. As the share in the economy of more-dynamic sectors (manufacturing, retail) shrinks, and the share of less-dynamic sectors rises, the average dynamism falls.

4. Perhaps incumbent firms have become better at using regulation to deter entry. I think of automobiles, where I am guessing it takes more lawyers than engineers to bring a new car into the market.

While on a Sunday stroll, I encountered Jerry Muller, author of The Mind and the Market, among other works. He asked me what I thought about “short-termism.” Mostly, I think that it is a difficult concept to pin down.

I guess my working definition would be that short-termism is a bias among executives to forego long-term opportunities in order to achieve short-term profit objectives.

But how would you measure it? What observations would confirm it?

For example, I might argue that, at today’s low long-term interest rates, a nuclear power plant looks like a high net-present-value investment for a utility company. Does their failure to invest in nuclear power plants reflect short-termism? Obviously, it is more complicated than that. There are regulatory barriers, site licensing barriers, and there is economic risk–suppose that ten years from now solar power becomes so inexpensive that the price of electricity no longer provides a decent return on the up-front investment? Not to mention the risk that the plant will have something wrong, or that the nuclear waste will be a problem, or some other risk.

The point is, it is very hard to separate pure time preference from risk when it comes to real-world investments.

Some other thoughts:

1. For the economy as a whole, most pundits think that the big long-term investment opportunities are in energy, computers/communications/robotics, nanotechnology, and biotechnology. My impression is that biotech is perhaps being held back by regulatory issues. But otherwise, I get the sense that investment is pretty active. Google certainly is making some long-term investments.

2. Sometimes, the financial crisis is blamed on short-termism. But there is very little evidence that the banks knew that they were making short-term profits that were going to turn sour in the long term. Instead, it seems that they believed that things were fine, both short term and long term.

3. If you were going to advise a firm to sacrifice some short-term profits in order to undertake long-term investments, which firm would that be? What investment should it make? Can you be confident that it is short-termism rather than concern about risk that is inhibiting the investment?