Economics

Why I don’t care about economics issues this election

john 1 Comment

I recently posted “my thoughts on the upcoming presidential election”:http://theludwigs.com/2012/10/why-i-will-vote-for-obama-in-the-presidential-election/, and a couple people mentioned how concerned they were about economic issues. Hey, me too! They aren’t the most important issues for me this election, but I worry about deficits, taxes, government expenditures, economic growth.

The only viable path out of our economic problems is growth:

* We are running large budget deficits. These deficits lead to even more interest payments in the future, compounding the deficit problem. Someday this will all come home to roost, we would be well advised to get our own house in order now.
* We run large deficits in part because of excessive government expenditures. Our governments (federal, state, local) spend an unimaginable amount of money, much of it on entitlements and interest payments that have proven to be pretty much politically untouchable. We can try to cut discretionary expenses, but there just isn’t enough we can cut to make a dent. And we are already underfunding education among other things.
* The other reason for our large deficits is that we just don’t bring in enough tax revenue. We could raise tax revenues via dramatic tax increases but the levels necessary to wipe out the deficits would be staggering and this is also politically impossible.
* We could print money freely to address our shortfalls, we are pretty much already doing that, and massive inflation is not appealing. This is not a sustainable approach.
* So we are left with increasing tax receipts not via tax increases but via economic growth — more sales, more exports, more employers, more jobs. Economic growth is the best way (and only politically viable way) to address the budget shortfalls and to generate the job growth we need.

Improving our growth rate is not a one-time issue. A single dose of government intervention dollars doesn’t lead to sustained growth over 30-40 years. Creating a bunch of public sector government-financed jobs doesn’t result in real economic growth. We need policies that will result in enduring growth in the private sector. Instead, our politicians largely focus on short term moves — job growth next year, short term tax policies, relatively short term accelerants — bailouts, rate cuts, cash infusions, goosing the housing market, etc. This all seems mostly like noise, a lot of the benefits are temporary or get sucked up by cronies and insiders. How much did the bank bailouts help the man on the street? I’ve yet to meet an individual who has said to me “thank goodness for those bank bailouts, they really made a difference in my life.” Maybe if I lived in New York.

I don’t understand all the levers for growth. I am not an economist or public policy expert, I am just a guy who has lived for a while, has been employed in various roles in the tech industry, and has tried to be observant and thoughtful. I have spent my career in the tech industry, which has grown dramatically, and provided a lot of great jobs. My sense is we need to focus on education, and the commons.

Education is kind of the obvious point. We need better K-6 education so that everyone has a solid basis in reading and basic arithmetic. Great public high schools and colleges so that everyone can build out the skills they need to start their careers. Mid-life re-education of adults as industries change. STEM education of course, but also design and arts education. Our country made a dramatic investment in education early on with public schools, this bore great fruit. We’ve made further dramatic investments over the centuries — land-grant colleges, ongoing federal support of research. We need new dramatic programs, something that creates the world-class education system for the next century. I don’t know what the “Apollo” program for education should be, but we need one. If we expect to have sustainable job growth greater than the developed country average, and particularly growth in high-paying “good” jobs, then we probably need to have the best-equipped populace in the world.

The other area of policy focus should be the “commons”:http://en.wikipedia.org/wiki/Commons. Our investment in common, public domain systems and knowledge has resulted in massive economic growth. The design of the “transistor was thrown in public domain by att”:http://money.howstuffworks.com/att4.htm which allowed thousands of firms to innovate around the transistor and integrated circuits, causing the explosion of the electronics industry. Unix was put into the public domain, resulting in the explosion of much of the software and services industry. The internet was put into the public domain by early federal government funding, and the (public domain) world wide web was layered on top of the internet, resulting in the explosion of internet companies. PC design was basically thrown in public domain by the cloners with support of Microsoft and Intel, resulting in the massive expansion of the PC industry. Imagine if any one of these events had not happened — we would have seen a dramatic reduction in the number of tech companies and innovation. So, where is the next commons, what is the next huge piece of public domain technology or infrastructure, what is the government doing to encourage the creation of this?

I have some thoughts for the next great piece of commons, I am sure there are other equally good or better ideas:

* spectrum access. Today the government grants fixed licenses to corporations who pay large prices for the spectrum, and who then do their best to mine the value of that spectrum for their own corporate wellbeing. As a result, a few large corporations have a choke hold on how most of the spectrum is used. In a few cases (WiFi), spectrum use is a little more wide open, and these have been areas of great ferment and innovation. We should look at mechanisms and technologies that would get fixed spectrum allocation out of the hands of large corporate entities, and instead allow more dynamic and innovative use. There are plenty of smart people who have already thought hard about software radios, dynamic spectrum access, ultra wideband spectrum use, and many other topics involved, we should throw our government weight behind some of this thinking.
* healthcare and life sciences. I am not very smart about things biological, but I wonder what the transistor analog is in life sciences. I wonder what the IP/internet equivalent is in healthcare. Information sharing in healthcare seems absolutely primitive — in 2012, I am still faxing in requests for test results to one of the largest hospitals on the west coast, and getting results back by fax or physical mail.
* 3D printing. This is a nascent technology for geeks only now. But very soon it seems like nearly anyone will be able to make, cost-effectively, almost any small part out of a huge variety of materials. This has dramatic implications for so many industries. However, people are already trying to lock up patents around this technology, we are not clearly on a path to an open environment where people can easily share designs, improve designs, iterate quickly on designs, all in an open web-like environment.
* Energy. What if battery technology was 10x and 10x more open for everyone’s use? If someone invents the next great battery, is it really good for our economy if this invention is locked up in one product?

Cutting across all these areas is the operation of the patent system. It has become ungainly and largely misapplied. Originally designed for the advancement of science and arts by putting designs into the public domain after some time, the focus now seems to be on locking up inventions and preventing the movement of knowledge into the public domain. Count me among those campaigning for a dramatic rethink.

I think these issues cut right to the heart of trade deficits too. If we can have the most educated populace, with the richest commons infrastructure on which to build new industries, then I am pretty sure we can create things that the rest of the world wants.

So: Education, Commons Investment, Patent Reform, all leading to long-term sustained economic growth, which will allow us to grow out of current deficit and budget issues. Important issues, but as far as this election goes, I don’t feel like either candidate is doing anything distinctive. I’ve read some nice things about Obama’s “Race to the top” program, but that is a drop on the bucket of the things we need to do in the education area. I don’t see any leadership on patent or commons issues from either of them. I hear a bunch of frothing about marginal tax rates which I think is largely irrelevant (and I hear nothing about the massive money printing operation at the Fed, apparently the candidates feel that is too complicated for us to understand). So pretty much a yawner of an election on economics issues in my view.

MSFT and the decline of the PC hardware ecosystem

john 1 Comment

In the late 80s, IBM attempted to reassert control over the PC hardware platform with the introduction of the PS/2 and its proprietary “MicroChannel”:http://en.wikipedia.org/wiki/Micro_Channel_architecture architecture. The cloners fought back, customers voted with their feet, the PS/2 initiative failed, and the era of open PC hardware continued and flourished. This was hugely beneficial for MSFT as a thousand PC OEMs bloomed, PC-based innovation surged and costs dropped, and MSFT software rode the wave of market expansion.

And it was great for end users. Not only because it drove system costs down, but it also created a rich market of add-on products — everyone could mix and match hardware to create their optimal system, whether they cared about cost or performance or maintainability or upgradability or whatever. Corporations could spec out and build standard low cost machines, enthusiasts could build super-tweaked machines, verticals could build out specialty machines, all on the same open hardware platform.

In the last 15 years, though, the market has shifted dramatically towards the laptop form factor. This shift has been a relative disaster for MSFT. The industry has moved away from an open hardware chassis with mix-and-match components, to closed tightly-engineered all-in-one machines. This shift has played to Apple’s strengths in design and integration and has negated many of the benefits of the PC ecosystem. The PC industry is still struggling to figure out how to regain design and profit momentum — Intel’s “Ultrabook”:http://en.wikipedia.org/wiki/Ultrabook effort being the latest scheme. But the Ultrabook is just a direct response to the MacBook, it does nothing to recapture the open hardware experience of the 90s.

The open hardware community still exists in various forms, but is no longer focused on the PC platform and is not much of an asset for MSFT. Enthusiasts still build PCs, mostly for gaming — “Maximum PC”:http://www.maximumpc.com/best-of-the-best for instance has a good guide to components, “Newegg”:http://www.newegg.com is the place to buy. But this isn’t mainstream any more. The “maker” community is vibrant but is focused on other platforms largely — “Arduino”:http://www.arduino.cc/, the “Kickstarter”:http://www.kickstarter.com community, etc. The vibe and energy around open hardware is great, but it is no longer tied to the PC experience and is no longer an asset for MSFT.

MSFT has always been great at chasing taillights and is hard at work supporting the Ultrabook, competing with the Apple stores at retail, pushing Windows Phone, etc. But chasing Apple’s taillights results in products that are more and more like Apple’s — fully integrated hardware/software/services, a captive retail experience. MSFT has to do all this, the mainstream of the market is here, but there is nothing distinctive about the resultant products and experience. The Ultrabook/Windows/Microsoft Store products may equal the Apple experience, and may offer users a few more choices of hardware brands (does anyone care?), but the experience won’t stand out. Necessary work but not sufficient to recapture thought leadership in the market — at the end of the day, MSFT will be able to claim parity but no more than that.

If I was in a leadership role at MSFT, I’d invest in strategies to recreate the open hardware platform dynamic around the Windows platform. It is not obvious how to do so with the laptop and tablet as the mainstream platform, but I would spend $100s of millions trying. MSFT clearly has the cash to spend on new frontiers and new adventures, a couple hundred million on an effort to change the basis of competition in the PC market seems like a wise bet, even if it fails.

How about putting a “maker’s corner” in every retail store with modified cases and modified machines, maybe even workshops? Get the energy of the PC gaming community into the store, let people see this energy. How can the laptop design be modified to support add on hardware — super high speed optical expansion busses, wireless high speed expansion busses, novel expansion chassis ideas? Sifteo cubes are kind of cool, can this idea be used to provide hardware extensions to laptops? Are there other ways to “snap on” hardware to extend the laptop or tablet, using bluetooth or induction or other mechanisms? Can MSFT seed the maker community with funds or tools? Can MSFT embrace Arduino somehow, or Kickstarter? Could the PC be the hub for thousands of Arduino-based sensors and actuators and gadgets? These ideas are all admittedly poorly thought out, and I am not sure any one idea is right, or if any will work.

But I would spend a lot of money chasing after any idea that would move away from closed all-in-one hardware designs, and I would experiment with many ways to reinject open hardware dynamics back into the PC/tablet market. Ultrabook is not this — it is a fine and adequate taillight chaser, but it won’t shift competitive balance back in MSFT’s favor.

This is not the only reason for MSFT’s stagnation in the last decade, there are many other aspects to consider, but the dwindling of the open hardware ecosystem has been a loss of MSFT. For another take on Apple’s success against MSFT in the last decade, check out “Rich’s analysis”:http://www.themarketingplaybook.com/2012/02/stocks-bonds-commodities-and-apple/ — the observations about vertical vs horizontal integration ring true.

Feeling a little contrary today — Taxes, IP, Apple

john 2 Comments

“Mitt pays $3M+ in taxes a year”:http://www.latimes.com/news/nationworld/nation/la-na-romney-tax-20120125,0,7825338.story — that is a s%^tload of money, whatever the rate. And people want another $3M a year out of him? When I see numbers this size, I wonder more about where it is all going — shouldn’t we spend more time on what the heck the government is doing with all this money? OK yes I am a big fan of fairness and I hate the shenanigans that have gone on at our largest financial institutions, but we ought to spend a lot more time looking at what we are getting for all our tax dollars. I get more outraged about handouts to big banks than I do about this tax rate issue.

“SOPA and PIPA are beyond dangerous”:http://www.slashgear.com/ted-talk-video-on-sopa-and-pipa-makes-it-all-crystal-clear-18209813/ — the whole tech industry has been railing like crazy against these, it sure would be good if the industry would focus instead on how to help content creators protect their IP and get paid for their work. I’d like to see authors and singers and movie directors get paid a lot of money, I think they should be allowed to charge whatever they want for their products, I don’t think any of us have the right to copy their works willy nilly. These industries employ a lot of creative people in good jobs in the USA and I think we should encourage this. It is easy to sit back and pee all over the movie industry and the Senate and House, but we should spend time on more productive activities that help solve the problems.

Apple blows it out. Ok I lied, I am not feeling contrary about Apple at all. Blowing it out of the water, customers love them, competitors in disarray, upside internationally and in PCs, iPad 3 and iPhone 5 and Apple TV opportunities ahead of them. Apple has only their own egos to fear.

I’m in the 1% and I support the 99%

john 6 Comments

I’ve been fortunate. I had great access to education due to support from my parents, and I was lucky to be at Microsoft during a very heady period for the company. I am clearly a 1%er. And I understand that my good fortune is part luck, part due to the support of others, part due to the free market capitalistic structure that our society has created. A little bit of my fortune is due to my hard work but many people have worked hard and received less — I’ve been lucky.

I’ve been watching the #OccupyWallStreet activity with interest. In my heart, I have great empathy for the movement. Growing up in flyover country, I never felt very warm about the government and financial elite on the East Coast, I viewed them with suspicion. And then having spent most of my adult life on the West Coast, surrounded by entrepreneurial activities at work and liberal attitudes, I have not grown to feel any warmer about large corporations or government involvement.

So when I see people expressing their feelings of lack of justice, lack of representation, antipathy towards the entrenched financial and governmental powers, I tend to empathize with the people on the street. And I applaud heartily their active peaceful engagement in the political process — they have the right to take to the streets in peaceful fashion, they have the right to be heard, they are not doing anything to harm anyone. So without even really understanding the goals of the movement, I applaud and encourage the people involved. It is hugely positive to see people have this level of passion about the issues in our society, and to be fully engaging in participative democracy. Go go go!

A couple of smart and committed young people sent me this “Why Occupy Wall Street? 4 reasons” video as a way of explaining why they are participating in the demonstrations. It is a worthwhile watch. The video lays out 4 principles:

* Re-regulate the financial institutions by reinstating Glass-Steagall. I am not informed enough to know the exact form of banking regulation we should have, but the financial services industry has demonstrated that it is not effective in controlling its own risk profile, or limiting the impact of their risks on the rest of society. A discussion about regulation and risk limitation seems like a good thing.
* Audit the Fed. Certainly greater transparency around the Fed, and its relationship with major financial institutions, seems to be a good idea. The relationships between the Treasury, the Fed, and major financial institutions, based on people circulating between all three, need more openness and examination and perhaps regulation.
* Reverse #08-205 by amendment. I feel very strongly about this one. Corporations do not have the right to vote, they should not have the right to manipulate the political process, they should be barred from funding candidates and causes. I see nothing good from allowing corporations to spend money on politics, it is corrupting. Fully fully support!
* Overhaul 1%/Corp tax code. I am not sure exactly what this means, I can tell you I have paid a lot of taxes, a lot. I am not against paying a fair rate and I am not against a progressive tax. I’d be all for a simpler system because my tax return is a huge freaking disaster. I think there is a larger issue here though, I don’t think the problem is all on the revenue side, I think you have to look at the expense side too and rein in government spending. So — all in favor of fair taxes, but we need to look at the spending side too.

I know that not everyone in the #OccupyWallStreet demonstrations embraces these exact 4 principles, so I am not saying I approve 100% of the demonstrator’s goals — but these particular points seem like great discussions to have, and I fully support the efforts to confront us all with these issues.

One thing I am wondering now is this — what exactly do the 99% want those of us who are supportive to do? How can I be effective in advancing the discussions around these points? Demonizing the 1% is not an effective strategy, some of us embrace reform, and we need a way to engage on the issues in a productive manner. Don’t paint us all with the same brush. Help us to help you.

Today’s NCAA FB roundup — reactions to Buckeyes andUSC; required NCAA FB reading

john

I watched bits of LSU/WVU (LSU is my #1), Toledo/Syracuse, ND/Pitt, UW/Cal. But key games I watched yesterday were OSU and USC.

* OSU is in for a tough year. Yes they tackled better yesterday, but it was Colorado. If we give up 17 to Colorado, we will give up 24+ to MSU/Nebraska/Wisconsin, and the OSU offense does not have the firepower to score enough against those teams. I’m glad Braxton and other young players are getting the reps, this is a team for next year.
* USC shot themselves in the foot over and over again, and Erickson was clearly the best coach out there. The ASU offensive game plan and adjustments were very effective and USC could never crack it.

On broader college football issues, if you haven’t already seen the below, read immediately. As money continues to pour into the sport, the issues discussed are going to become more prominent, not less.

* If you haven’t already read the “the Quad’s story on college football fan distribution”:http://thequad.blogs.nytimes.com/2011/09/19/the-geography-of-college-football-fans-and-realignment-chaos/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+nyt%2Frss%2FSports+%28NYT+%3E+Sports%29&seid=auto&smid=tw-nytimessports, do so. Excellent explanation of the market facts underpinning realignment chaos.
* “Study about poverty and student-athletes (PDF)”:http://assets.usw.org/ncpa/The-Price-of-Poverty-in-Big-Time-College-Sport.pdf. Excellent, record revenues and expenditures in college football, but many players struggle.
* Of course. the “Atlantic article”:http://www.theatlantic.com/magazine/archive/2011/10/the-shame-of-college-sports/8643/ on the inherently corrupt economics of college football.

And on a lighter note, “Matt Sarz’s TV listings”:http://mattsarzsports.com/football2011.aspx. Finding USC on the Root network last night was tricky.

Business Models and Evil

john 2 Comments

Some interesting commentary on “Google’s business model by Gruber”:http://daringfireball.net/linked/2011/08/23/swartz-google-evil — a total Apple fan, doesn’t view ads as inherently evil, but says you need to be very respectful of your users. And referring to “an original article by Aaron Swartz”:http://www.aaronsw.com/weblog/googevil who says you can’t make things worse for users just to make money.

I don’t know what evil is when applied to technology business models. I do know that I feel very comfortable with my Apple transactions — they ask me for a lot of money, in return they give me a product that is mine to own completely. They give me the option of signing up for services for more money, services where they keep data about me, but it is up to me. It feels like a transparent and respectful model. Similarly, I feel good about my Microsoft transactions — they ask me for money, in return I get a software or hardware product that is mine to do what I want with (excluding Bing which I rarely use, and excluding some of their new online service offerings).

I feel somewhat less good about my Google relationship. I do like and use their products. But the fact that they are “free” is bothering, I know that Google is making money off me somehow, but there is very little transparency around it. Who is looking at my data, what are they paying for it, are there certain things I do that are very high value, are there people using info about me that I would rather not, ?

I don’t know any of this and it makes me kind of queasy. Enough to abandon products that are actually useful? Well not yet — and for search,it is not like there are alternatives that are more respectful of me. But I can’t imagine ever having the kind of respect for and attachment to Google products that I have to products from companies with more straightforward business models.

Link cleanup

john

A bag of stuff I’ve read recently that was compelling:

* “Coffee as economic health indicator”:http://paul.kedrosky.com/archives/2010/05/coffee_as_city.html. Yay Seattle! Contrast with…
* “World Class Orchestras”:http://reason.com/archives/2010/05/24/how-to-save-cleveland
* “McKean’s Inversion”:http://whatever.scalzi.com/2011/08/11/mckeans-inversion/. Whatever you publicly espouse to be — you probably aren’t.
* “Wicked Problems”:http://www.antipope.org/charlie/blog-static/2011/07/wicked-1.html.
* “A one page explanation of the Higgs boson”:http://www.adafruit.com/blog/2011/07/26/the-higgs-boson-a-one-page-explanation/
* On the lighter side, “Bacon Ipsum”:http://design-milk.com/bacon-ipsum/.

Amazon vs Macmillan vs You

john

OK so Amazon’s “move against Macmillan”:http://whatever.scalzi.com/2010/02/01/all-the-many-ways-amazon-so-very-failed-the-weekend/ was seriously ham-handed and Amazon is “still caught up in their own undershorts”:http://whatever.scalzi.com/2010/02/01/seriously-now-theyre-just-being-dicks/. Some Amazonians deserve some serious reprimands, this is just not the way these things are handled. Now Amazon has created even more problems for itself.

That said — we are talking about 4-5 days of inconvenience Amazon has caused readers and authors. Stupid but fixable.

As “Charles points out”:http://www.platformonomics.com/PricelessIndeed.aspx, Macmillan is trying to put the screws to all of us big time and for the long run. They are grabbing for more dollars out of out pockets at a time when book costs are heading down. Now, if Macmillan was passing all this on to authors, I might be OK with it, but I suspect it is being absorbed by a bunch of corporate suits.

Who is our real friend here? Shame on Amazon for being so clumsy, but greater shame on Macmillan.

Grabbag of interesting articles on math, econ, science, design, web

john

No theme here other than “stuff I happened across recently”

The big picture — VC Math, Life Threats, Rhythms

john

Random posts that have caught my eye recently:

* The VC Math Problem — excellent discussion of the “macroeconomics” of the VC asset class.
* What to fear. The truth about what is going to kill you. The sensationalist news stories every night on random acts of violence and tragedy are scary, but they aren’t the threat.
* The Rhythms of My Life. One guy’s methodology for examining his life and how he lives it. Not the right methodology for everyone, but everyone probably needs some methodology.

Bernanke Pushes the Button | The Big Picture

john

Bernanke Pushes the Button | The Big Picture.

  • “The prospect of hundreds of billions of newly minted dollars coursing through the global financial system caused currency traders to thrash the greenback by almost 3%.”
  • ” The Fed is “now bringing out all the ammo in its arsenal”, according to Rosenberg.”
  • “And, for those who think the time is ripe for upping their equity allocations, Mr. Rosenberg would like to remind them of what happened to buyers of the Nikkei 225 after Quantitative Easing was tried in Japan. Longs were treated to a 20% rally that lasted six weeks before stocks set new lows just four months later. Ultimately, predicts Rosenberg, QE helps bond buyers more than stock buyers.”
  • “But since I doubt dollar holders will sit idly by as the paper they hold shrinks in value, I see a quick and happy resolution as being a low probability event. Then again, other central banks (the BOE & SNB) are engaging in the same currency-busting policies, so it’s not altogether clear whether the world’s fiat currency system can survive a war of attrition.”
  • “We’ve arrived at this unfortunate juncture in our nation’s financial history because of reckless behavior in both New York and Washington D.C.”
  • “Let us all hope the U.S. experiment with pushing the button on Quantitative Easing is more successful for us than it was for the Japanese. But given all the behavior that brought us to this point, we will need to be both lucky and good from this point forward.”

Hard to feel good about nearterm prospects for anything. Betting on volatility seems to be the smartest thing. Holding any asset seems risky.

A SWOT Analysis On America

john

A SWOT Analysis On America. Don’t agree with many of the detailed points but the core idea of looking at our situation with a SWOT analysis is a good idea.  Too often as I read the papers these days, I don’t really understand the goals and strategies of some of our government actions.  A reasoned discussion with a clear decision framework would be nice.