old-and-young-tech-workersNoam Scheiber has a nice piece over in the New Republic looking at the appalling problem of age discrimination in Silicon Valley. Essentially, everyone’s so focused on the disruptive potential of extreme youth that anyone who is actually old enough to grow body hair is ignored. Thus 35 year olds are getting botox in order to still keep a job.

As he laid out the thesis there was one bit that I kept scanning ahead for.  And I found it, here:

The only question was what to invest in. “I could see the reality was I had two choices,” Scheinman told me. “One, I could do what everyone else was doing, which is a losing strategy unless you have the most capital.” The alternative was to try to identify a niche that was somehow perceived as less desirable and was therefore less competitive. Finally, during a meeting with two bratty Zuckerberg wannabes, it hit him: Older entrepreneurs were “the mother of all undervalued opportunities.”2 Indeed, of all the ways that V.C.s could be misled, the allure of youth ranked highest. “The cutoff in investors’ heads is 32,” Graham told The New York Times in 2013. “After 32, they start to be a little skeptical.”

So what did our hero do? Yup, he decided to specialise in trying to invest in the older entrepreneur, that part of the market he identified as underserviced. And that’s exactly what an economist would think should happen, as Gary Becker pointed out some decades ago.

Economists try to divide discrimination into “taste” and “rational” types. Leave aside the law for a moment and think about situations in which it would be entirely reasonable to discriminate between two people. For example, you might think that a programmer who can both count and think logically is likely to work out better than an innumerate illiterate. This would be entirely rational discrimination by anyone’s book. In contrast, not hiring black people just because you don’t like black people is racist, offensive and also what is termed taste discrimination.

Becker’s point on all this was that taste discrimination is a problem that, to a great extent, solves itself. On the usual economists’ grounds that people are greedy. If some group are consistently discriminated against because most people are racist (sexist, religious bigots, whatever) then the members of that group will be cheaper to hire for an equivalent skill set than members of groups not so discriminated against. Capitalists, being the greedy bastards they are, will spot this and deliberately go out to hire this cheap labour for the extra profits that can be gained. The success of this plan will lead to others doing the same and thus the wages of the discriminated against will rise again as now there are indeed still people who discriminate against them but there are also people discriminating in favour of them.

One argument that was used against Becker here is the existence of Jim Crow, to which his response was yes, quite. For if you’ve got to employ the majesty of the law to make sure that no one hires that cheap discriminated against labour to do good well paying jobs then clearly you’re admitting that without the majesty of the law then it would happen.

Which brings us back to age discrimination in the Valley. Are VCs discriminating against those old enough to recall when what people noted about Madonna’s physique was her breasts not her biceps? An America before they killed Kenny? I think in our hearts we’d all probably assume that yes they are. But we then need to go on to ask whether this is taste discrimination or rational discrimination.

And there’s the hard part. For if it’s rational, if it really is the spotty youth of our culture that’s going to make the big bucks of the future, then concentrating on the older would be entrepreneurs isn’t going to be a winning strategy. But if it’s taste discrimination, which is what I suspect a goodly part of it is, then that switch in strategy would produce a very good pay off for those few who actually do it.

And to end with a point that Becker would endorse but originally made by Adam Smith. Capitalists really are greedy bastards (tho’ I’ll admit Adam didn’t quite put it this way) and they’re constantly on the look out for ways of making excess profits, higher than average profits. So much so that when someone finds a new strategy to do exactly this they’ll all pile into the same field to try to capture some of that lovely extra lucre. An endeavor which means, over time, those extra profits get competed away: which is the same thing as saying that the undervaluation of people through taste discrimination also gets competed away. All it needs is one investor to show that a preference for the older start up founder provides above average returns and they’ll all be at it.

[illustration by Brad Jonas for Pando]