Like a not insignificant chunk of America’s moviegoing public, I saw and enjoyed Moneyball this past weekend, and I was suprised to discover that it had been co-written by Aaron Sorkin. The Social Network was quite entertaining, but its view of the motivations that drove Mark Zuckerberg struck me as absurd and, more than that, a reflection of a worldview that is antagonistic towards entrepreneurship. My theory of Zuckerberg and Facebook’s founding generation, which draws on no insider knowledge beyond having read David Kirkpatrick’s excellent (if partial) book and being one or two degrees of separation from a few of the principals, is that, as Zuckerberg himself has said, he and his partners were puzzle-solvers by nature, who took great pleasure and found great purpose in building an enterprise that, as it expanded, was forced to solve new and interesting technical and social and economic challenges. The experience of “flow” is what drives many entrepreneurs, including, I should stress, many that you have never heard of and who are regarded by no one as successful.
One is reminded of Richard Robb’s brilliant essay on “the economics of becoming.” The central virtue of a dynamic market economy is that it presents us with obstacles to overcome, and it allows space for the creation of new kinds of institution that solve new and unfamiliar problems, that invent and meet new needs and desires. This is not a process without blemishes and, as a colleague reminded me earlier today, there are many people who are profoundly resentful of the fact that Zuckerberg’s vision of the world is, by virtue of Facebook’s extraordinary success, does seem to have materially shaped their lives. My own view is that Facebook reflects deeper cultural changes more than it has driven them, yet it is understandable that others see it differently.
Back to Moneyball. Here we have a film that, in my view, celebrates creative destruction, most explicitly in a conversation that happens near the close of the film between the protagonist and the owner of rich baseball club. The owner tells the protagonist that the protagonist’s detractors are, in essence, dinosaurs, who’ve led lives of privilege founded on superstition and that they must be swept away. There is nothing remotely sentimental about this conversation, or even respectful of the dislocation involved. The two men share a desire to demonstrate the power and the truth of their worldview. They want to vindicate a theory of the world by building a better ball club. This is an idea at the heart of innovative entrepreneurship.
At Economics of Information, Erik Brynjolfsson offers a related observation and a link to a paper that, coincidentally, one of my best friends had sent me a few days earlier:
To an economist, that’s a story not only about the power of information, but also the importance of innovation in creating competitive advantage. Oakland’s General Manager, Billy Beane, didn’t compete the same way as all the other teams, he did something new and different, and that gave the A’s an edge.However, that’ s not the end of the story. Competition leads others to match that innovation, and over time, the excess returns are competed away. Oakland’s competitive secret didn’t not remain a secret for long. In 2003, when Michael Lewis’s book Moneyballwas published, the Boston Red Sox hired Bill James to advise them, and apply analytic techniques to optimize their much larger payroll. They promptly won the World Series the next year, and again in 2007. Today there are whole conferences, like the MIT Sloan Sports Analytics Conference devoted to these techniques.
So does Moneyball still provide an edge?
The answer, according to economists Jahn Hakes and Raymond Sauer, is no:
….certain baseball skills were valued inefficiently [in 1999-2002] and this inefficiency was profitably exploited by managers with the ability to generate and interpret statistical knowledge. Consistent with Lewis’s story and economic reasoning, as knowledge of the inefficiency became increasingly dispersed across baseball teams the market corrected the original mispricing.
That’s how arbitrage works. It turns out that in baseball, superstition and the old ways of doing things didn’t prove much of a barrier to this particular kind of innovation. Last night, a friend observed that in essence, the Moneyball framework makes American baseball more like European football: it’s all about perfecting the supply chain.