I asked Scott Shane sent to me about Tim Ogden’s quote, and he emphatically rejected the claim attributed to him as implausible and not supported by the evidence he presented. Here is his summary of what he wrote:
In my book Illusions of Entrepreneurship I describe a paper written by Rob Fairlie of the University of California Santa Cruz who found that people who were drug dealers in their youth were 11 percent more likely to be in business for themselves in adulthood. This effect, he argues (and has some evidence for) comes from preferences of certain types of people for certain types of jobs, not “having a drug record.”
UPDATE: This post originally had a longer direct quote from Shane, but I heard indirectly that he was displeased by my quoting without asking permission (shades of Lawrence Auster). I have edited it down to the most relevant bits that I already referenced and gotten a response from at Ogden’s blog.
Entitled to an Opinion 
July 5, 2011 at 6:50 pm
[…] Scott Shane is familiar, it might be because I’ve linked this before. UPDATE: Scott Shane replied that Tim Ogden got his claim […]
July 5, 2011 at 6:59 pm
TGGP is correct that the statement in the interview was an error. In fact, there are two different errors in the statement. Here’s the explanation I posted:
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TGGP,
thanks for reading closely enough to catch my error. In fact there are two errors in my statement, with two different causes:
1) First I used the word “best” as a qualifier. In fact, as you note in your blog post, the source of Shane’s statistic in his book, a paper by Robert Fairlie (available here: http://bit.ly/pA9KH0 ) finds that dealing drugs as a youth is associated with an 11 to 21 percent increase in likelihood to start a business. That’s certainly a good predictor, far better of one than many people would assume, but by no means the “best”.
2) Second, upon seeing your comment I immediately went back and re-read the passage in question in Shane’s book. It turns out that cognitive biases intervened and I misread the passage in question.
Specifically, here’s the quotation from the book, p. 44: “Finally, people who dealt drugs as teenagers are between 11 and 21 percent more likely than other people to start their own businesses in adulthood. And their higher rate of self-employment isn’t the result of wealth accumulated dealing drugs, greater likelihood of having a criminal record, or lower wages.”
I read that second sentence as: And their higher rate of self-employment isn’t the result of wealth accumulated dealing drugs, [BUT] greater likelihood of having a criminal record, or lower wages.
My priors interfered with me absorbing what was really being said.
So thanks for helping me update those priors and catch an error in what I “know” that I never would have caught myself.