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This issue of The Diff is brought to you by our sponsors, Brex. Longreads- In Bloomberg, Eric Fan, Zachary Mider, Denise Lu, and Marie Patino have a great, data-driven piece on how the H-1B lottery gets gamed. It's a great look at how a defensible policy can be implemented in a way that completely subverts its stated purpose. The idea of this visa is that if there's a particular specialized role that a US employer can't fill domestically, they get permission to temporarily hire someone from overseas. This would make a lot of sense for highly specialized technical roles. There's a cap on this visa, once 65,000 per year and more recently 85,000 per year. That, too, makes sense—there are only so many narrow specialties with only a handful of practitioners worldwide. But in practice, the best way to use this system is to have a large number of overseas employees, have all of them apply—or even have the apply multiple times under different sponsors—and then to hire out whoever makes it through as a contractor for a big company. As the article points out, this means that the visa program is structured to be a really great way to hire people who have non-specialized skills—there are a lot more companies that want to hire someone with three years of Java experience than ten years of Erlang—so that's who the program selects for. And that selection happens at the expense of the niche-skilled workers the program was meant to help. The system as it exists is basically an auction where limited visas are awarded based on time investment, luck, and willingness to game the system. A better approach might be to just run a Vickrey auction on all of those spots, i.e. every employer writes down how much they'd pay to bring in a particular worker, all these bids are ranked, and everyone pays whatever amount the 85,000th-highest bidder offered. (If you wanted to sell this politically, you'd direct the proceeds to either border enforcement, if you're on the right, or STEM education within the US, if you're on the left. Government spending doesn't really work that way, but political narratives do.)
- Patrick McKenzie on Crowdstrike as a sales and procurement story, rather than a purely technical one. Some companies have legally-mandated compliance checklists, and certain items can be checked off by either a) investing a lot to build a solution in-house, or b) buying from a recommended vendor. That dynamic leads to a lot of important companies in the same industry running the same software. And in many cases, that's fine—it's easier for employees to switch jobs, easier for expertise to travel from one company to another, etc. But it also means that bugs are more catastrophic.
- Cedric Chin on running a fine dining restaurant during a recession. This piece has a great budget heuristic in the form of the "95/5 rule": for 95% of the money you spend, be incredibly judicious, mercilessly beat up on your suppliers, always be willing to trade down, etc. And for the last 5%, splurge on ludicrous, whimsical things that customers and employees will notice and talk about. There are also good details about the operational difficulties of running a restaurant: the dessert cart looks neat, and it's a fun experience, but it's also an easy way to increase the attach rate on dessert purchases and keep tables turning over faster.
- Via @comparativist on Twitter, here's a wonderful piece from James Fallows, writing in 1982 about how switching from a typewriter to a computer changed his life. There are some good observations about the minor conveniences we take for granted today (imagine correcting your typos by retyping the entire document), but the best part is Fallows' discussions of speed: he's blown away that he can save files to floppies at 1,000 words per second, or print a page of text in less than a minute. Whenever some process gets faster, there's a brief period of enjoying it followed immediately by the desire to get even more speed.
- Rahul Singireddy has a fun, quick story about the 2017 crypto boom. One of the US's weirdest redistributive policies is writing free put options on extremely volatile investments, but only on the condition that 1) that investment is only available to accredited investors, and 2) the investor in question is not accredited.
- In the latest Capital Gains, we talk about burn rates, why software companies used to be profitable when they went public and why that's no longer a requirement.
- In this week's episode of The Riff, I'm joined by Patrick McKenzie. We talk about markets for lemons, trust, FTX, cold emails, and more. Listen with Twitter/Spotify/Apple/YouTube.
BooksWild Ride: A short history of the opening and closing of the Chinese economy: you can tell economic history at many different levels. The most boring, but still useful as a gut-check, is to put together a bunch of aggregate numbers—GDP, unemployment, sector-level growth, etc. You can do narratives at the level of firms, or of specific policymakers. You can even tell a coherent story about a country's economic development by tracking what kinds of devices a single family has in their kitchen over a generation or two. Wild Ride has a bit of all of the above: sometimes, it's talking about high-level policy decisions, like Shenzhen introducing the sale of food for money, rather than for vouchers. Other times, it's very narrow, looking at the semiotics of refrigerators (in the early days, they were rare enough that they counted as a status symbol, so families would usually keep them in the living room instead of the kitchen). The running theme of this book is that China didn't go capitalist overnight, and, in a very real sense, didn't go capitalist at all: they introduced just enough market reforms to get hard currency for the next stage. (The book confirms an anecdote I've tried to track down for half a decade: when Deng visited the US in 1979, the entire Chinese banking system had $38,000 in USD.) Their privatization was partly a strict, top-down process, and partly an informal one where the managers of state-run companies seem to have quietly started using company resources for private gain, making the actual privatization of these companies more of a formality. The book also provides some color on the growth of Shenzhen. Yes, the city is highly entrepreneurial, and makes all sorts of market-based products. But it was also a good vantage point for spying on the Western world by way of Hong Kong, so it had a large number of communications startups with ex-military founders. The China model works after a fashion, and certainly took the country from being one of the world's poorest to middle-income status. But it's showing its age: forcing people to save a large fraction of their income, and investing that income in infrastructure, is a great deal when a country has a large, cheap labor supply and is held back from participating in the global economy mostly by a shortage of housing in port cities and internal transportation capacity. But now, China's well ahead on those metrics, and it's hard to determine what to invest in next. The quantifiable outputs that fit most easily into a five-year plan are the sorts of products that China has periodically created global gluts in—China's steel production, for example, is higher than global steel production was twenty years ago. But the state is very reluctant for there to be independent power centers outside of the communist party. If someone gets rich working in a regulated industry that the government understands, that's all well and good: they know they're one change in the rules away from losing all of their income. But someone who gets rich by identifying and satisfying consumer wants is an implicit rebuke to the party itself. It's tough to operate a functioning economy when what that economy needs is what the state worries about, especially when that state wants to have veto power over just about everything. Open Thread- Drop in any links or comments of interest to Diff readers.
- I first started reading books that profiled businesses and entrepreneurs in the 2000s, which turned out to be an a period of unusually high-quality writing in this genre: the magazine business was viable, so there were plenty of writers whose full-time job was tracking the stories of various businesses, and after the dot-com collapse there were plenty of stories with a satisfying narrative arc. Both of those forces are a bit weaker lately. But: any good business books in the last year or two that I should make sure I didn't miss?
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