Monthly Archives: May 2010

Slowing Rate of Change and Tech Innovation

"We flatter ourselves by imagining that we live in an age of endless invention and innovation," says Paul Kedrosky. A classic approach is applying Moore's Law to…everything, and then leaping to claims about unprecedented change in society more generally. I'm reading a number of commentators call bullshit. They are arguing that the number of new important innovations has been steadily declining and that the pace of change is slowing.

Here's Philip Longman in U.S. News & World Report:

There is a distinction to be made between inventions that are merely sophisticated–such as, say, personal digital assistants–and those that fundamentally alter the human condition. The invention of the light bulb created more useful hours in each day for virtually every human being. The electric motor directly raised the productivity in every sphere of life, from speeding up assembly lines to creating so many labor-saving devices in the home that millions of housewives were able to join the paid work force. The internal combustion engine allowed for mass, high-speed transportation of both people and freight while also opening up vast regions of cheap land to suburban development. The materials revolution that brought us petroleum refining, synthetic chemicals, and pharmaceuticals involved learning to rearrange molecules in ways that made raw materials fundamentally more valuable. Without the genetically improved seeds that brought us the "Green Revolution" of the late 1960s and '70s, there would be mass starvation.

Can we make any parallel claim about the single greatest technology of our own time? It remains possible that networked computers and other new information technologies will one day create similar, societywide bursts in productivity, health, and wealth. Yet to date, the marginal gains computers have brought to communications are modest even compared with the improvements made by the telegraph. The first trans-Atlantic telegraph cable in 1866 reduced the time required to send a message from New York to London from about a week to a few minutes. Notes economist Alan Blinder: "No modern IT innovation has, or I dare say will, come close to such a gain!"

Here's Scott Sumner with a personal observation in a post about economic growth rates:

My grandmother died at age 79 on the very week they landed on the moon. I believe that when she was young she lived in a small town or farm in Wisconsin. There was probably no indoor plumbing, car, home appliances, TV, radio, electric lights, telephone, etc. Her life saw more change than any other generation in world history, before or since. I’m already almost 55, and by comparison have seen only trivial changes during my life. That’s not to say I haven’t seen significant changes, but relative to my grandma, my life has been fairly static. Even when I was a small boy we had a car, indoor plumbing, appliances, telephone, TV, modern medicine, and occasional trips in airplanes.

Michael Lind makes similar points in his Time magazine piece called "The Boring Age."

Here's Peter Thiel:

The question about what sorts of innovations we are likely to see in the next 10 or 20 years depends a great deal on what people do. The pessimistic view is that we are living in a society that depends on innovation and science and technology, but that is actually not focusing on these things nearly enough and that as a result, we are headed towards an extended period of stagnation and very slow growth throughout all the nations of the developed world.

The more optimistic view is that we somehow figure out a way to restart the innovative engine that's probably gotten stalled. And my version of this would be that we go back to where the '50's and '60's ended and look back at the great technologies people were pursuing at the time; space, robots, artificial intelligence, the next generation of biotechnology and sort of look at where people thought the future of the world was going to be in 1968 and we try to take off from where things got detoured at that time.

Here's a different 10 min video of Peter Thiel in which he talks about the lack of innovation in the context of financial markets. There is an attitude that "someone else is doing it" but in fact no one is doing it. "There is a lot less going on than people think," he says.

So: Why is this happening?

Tyler Cowen once said, "If we had to build today's energy infrastructure working under the current regulatory and NIMBY burden, it probably could not be done." Can we extract from this a larger claim that a bloated government and burdensome regulatory environment are significantly dampening innovation? An ever-powerful bureaucratic class strangling creativity? Or is it that the government is not doing enough in funding basic research toward big innovation (as it did with Darpa and space program of the past)? Are there cultural norms around conformity that are causing too many to be too deferential to the status quo? Are too many smart young people going to school? (In the past boy-geniuses had more unconventional educations which helped lead to extreme innovation, perhaps.) What are other reasons?

One counter-argument to all of the above is that there is indeed accelerating change and new innovation, it's just that we don't yet see it. As David Dalrymple said to me in a tweet, "The exponential trend only applies directly to enabling technologies, not to technologically-enabled milestones like flight."

(thanks to Michael Vassar for helping brainstorm some of these ideas.)

The Values at Your Funeral

Classic Robin Hanson:

I attended a memorial service today, for someone I hardly knew. His family was wealthy and full of energy and passion and creativity. At the service folks wore nice clothes, and were pleasant and polite. Nice food was served in a scenic setting, beautiful music played, and idealistic speeches given, talking about family, dedication, caring, bonding, and intelligence. It was noted, for example, that he did the crossword puzzle daily, in ink.

Such services seem designed to affirm the shared far values of attendees, and to affirm the status of those who achieve such values. But the idea of service like the one I attended appeals less to me, since I put less weight on the values it affirmed. So what kind of service might better affirm the values I hold high, raising the status of people like me who most affirm those values?

Well one thing I value greatly is insight. So I’d like it if service attendees would each share an insight they’d had that day, or perhaps in the last week. Anything about themselves or the world around them they hadn’t quite understood as clearly before.

Another thing I value is honesty. So I’d like it to be clear to everyone that they need not say only nice things about the deceased.  Finally, I value grand ambition, so I’d like folks to talk about how exactly they hope to have a huge impact on the world….

The emphases are mine. Here is the best comment on Robin's post, which only regular readers of his will appreciate. Robin is probably the most original thinker I read.

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Next time you're in an argument, use this line if appropriate: "Your statement is technically true, but I disagree with the connotations. If you state them explicitly, I will explain why I think they are wrong."

Here's a smart way to make a PB&J.

Chris Dixon is characteristically insightful when analyzing Google and Amazon strategy (links within the post are good too).

Fall Becomes Winter in Chile

Santiago-chile-downtown-night-lights

You only know a city if you've seen it change.

Cities change like any living organism. For the change to be welcome and invigorating — and not jarring — it needs to happen at a pace that allows you to witness and process it and yet through it all still feel like most of what's around you is familiar.

This is what is happening to me in Santiago. Most things feel the same. The same panhandlers in the same places. Same metro stops, same doormen, same American 80's music played at the supermarket. There are churrascos, empanadas, sopaipillas, jugos naturales. The mountains still envelop the city on a clear day.

But there is just enough change that I cannot forget this is a city with a pulse in a part of the world with four seasons. When I arrived in November I lived in shorts and sandals and sat at my desk shirtless. A good Saturday would be ice cream in Plaza de Armas in the sun, followed by lying around Parque Santa Lucia watching the stray dogs wander about, and perhaps a McPollo at McDonald's before las once. Campaign ads for Frei and Piñera and Marco covered the streets. My go-to lunch placed served a good menú ejecutivo for 2,200 pesos.

Now the shorts are gone and sweatpants in. It's too cold to sit outside for long periods of time. Many dogs, even the homeless ones, wear sweaters, which is cute. Piñera is president. The lunch place has raised their price to 2,600 pesos so I've found a new joint. McDonald's is now advertising the Big Mac not the McPollo.

The "Earthquake of February 27th" doesn't dominate the news, and the cars no longer have spray painted patriotic messages of "¡Fuerza Chile!" as was the case in the weeks after the quake. Chile's spot in the international news scene came and went in about a week's time. It's back to being that long skinny country in South America that makes wine.

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I still learn new things about this culture almost every day.

I learn about maids / cleaning ladies. Everybody has maids. Even poor college kids. The maid comes once or twice a week for a full day even if your tiny apartment could be cleaned in two hours. She cooks and washes your clothes. My gym has two full-time maids who clean and clean and clean the same floor over and over. A combination of cheap labor and culture? I hear it's this way throughout Latin America.

I learn about how small this country is. 16 million people in total! I feel like every other person I talk to knows the President personally.

I learn that general low trust among the people manifests in different ways. Every house is behind a gate or fence. Nobody moves to the center of the train on the subway. Landlords prefer to rent to foreigners.

I learn that Chile is both modern and advanced (the most competitive economy in the region) but also backwards. It has the lowest percentage of women in the workforce of any Latin America country — 48%. Abortion remains illegal. As says the guidebook cliche for virtually every country in the world: "It's a fascinating contrast of old and new."

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I'm sitting in a hotel room in La Serena on a mini-vacation, in norte chico, about 5.5 hours north of Santiago. Tyler Cowen told me before I left that he was in La Serena 20 years ago and it was a very nice town. It's true. I'm now experiencing a weird kind of flash-forward nostalgia, envisioning the day when I tell someone that I visited La Serena 20 years ago and that it was a very nice town.

I leave Chile at the end of July and I'm already getting wistful.

Man and Movement Overturn the Natural Order of Things

Stalin“He was a self-creation. A man who invents his name, birthday, nationality, education and his entire past, in order to change history and play the role of leader, is likely to end up in a mental institution, unless he embraces, by will, luck and skill, the movement and moment that can overturn the natural order of things. Stalin was such a man. The movement was the Bolshevik Party; his moment, the decay of the Russian monarchy. After Stalin’s death, it was fashionable to regard him as an aberration but this was to rewrite history as crudely as Stalin did himself. Stalin’s success was not an accident. No one alive was more suited to the conspiratorial intrigues, theoretical runes, murderous dogmatism and inhuman sternness of Lenin’s Party. It is hard to find a better synthesis between a man and a movement than the ideal marriage between Stalin and Bolshevism: he was a mirror of its virtues and faults.”

Stalin: The Court of the Red Tsar by Simon Montefiore, which is a long, excellent biography I am working my way through.

Last August, while eating dumplings at the Beijing beer gardens, I was talking to a couple people about Russia and China. I was the least informed at the table about both Stalin and Mao and that limited my ability to talk about either country’s history. I ordered biographies of each. Next time I’ll be a little less ignorant.

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Here are my lessons and impressions from China based on my most recent trip. Here is what modern Russians and Chinese have in common, based on my travels to Russia a couple years ago.

Seven Thoughts on the Airline Industry

Airline-experience

Here are seven assorted thoughts on one of my main side interests: the airline industry.

1. Free market needed. Imagine if Americans could only drive cars in America that were designed/made in America. Horrible! The Japanese are the best carmakers. Now imagine if Americans could only fly domestically on airlines run by Americans. Horrible! Yet that's what we have today. The single best way to improve the domestic U.S. flying experience would be to open up the market to competition and allow foreign carriers to service domestic routes. Here's my previous post on making the Open Skies Agreement truly global.

2. Three hour tarmac rule. The new three hour tarmac rule means the government can fine airlines that keep passengers on the tarmac for more than three hours. Generally, when it comes to these kinds of consumer protection laws, I would rather the market determine real need — let consumers vote with their dollars in favor of companies that offer certain protections. Apply this philosophy to airlines: if a certain airline felt consumers would value this "feature" (a guarantee that they would be able to access the gate area after three hours), they would offer it, and consumers would pay a premium for it. But this case is more complicated.

Let's review a typical flight delay situation. Before a plane departs, as passengers wait in the gate area, everybody's priorities are aligned: passengers and airlines want to get to the destination as quickly as possible. Remember, airlines lose money when flights are delayed or canceled. Before boarding, if the consumer wants to go to the bathroom, buy food, meander, or even choose not to board the flight, he can do so.

Once he boards the plane and the plane doors close, he becomes captive to the airline. He has no freedom until he's out at the gate area at his destination. As the plane readies for departure and taxis on the runway, passenger and airline priorities are still aligned: fly to destination as quickly as possible. Now suppose there's a delay on the runway. The plane has pushed back from the gate, but can't take off. The airlines at this point still want to get the plane off the ground as quickly as possible. Some passengers, however, no longer care about making it to their destination. After three stinkin' hours on a cramped plane, they want to stretch their legs, buy food, go to a full-size bathroom, etc. So their priorities have changed but they cannot act on them. This lack of freedom and the discomfort that can result (most recently a full night on a regional jet in Minnesota with no food and a broken bathroom) makes me reluctantly support the three hour tarmac rule.

3. Government subsidizing unprofitable routes. Someone who's keen on stimulating entrepreneurship in Chile told me, "We should lobby airlines to get them to start a San Francisco-Santiago non-stop flight." Make it easier for Silicon Valley folks to go to Chile. I replied, "If the route were profitable, it would already exist." He replied, "What kind of entrepreneur are you? Do you know how many things would never have been built if the attitude was, 'If it were good it would already exist'?"

The difference in the airline industry is that airlines can mine hoards of data around passenger traffic. For example, American Airlines can easily see how many of its passengers who leave SFO are bound for SCL (Santiago). I'm not sure but I presume it's also possible to see aggregated passenger traffic from other airlines. If the airlines saw a tremendous number of passengers departing San Francisco and connecting via Atlanta, Dallas, Los Angeles, or Miami (the four non-stop gateways) to Santiago, they would introduce the route.

By the way, I think this is an easy way for a government to increase possible entrepreneurship: subsidize airlines to service an unprofitable route to the Bay Area.

4. Environmentalists and runways. Efforts to protect the environment ought to be subjected to a cost-benefit test. It's not always easy to do this, of course. (How to calculate the benefit of a pristine national park or clean air?) Generally, I am pro-environment and pro-conservation. I love the outdoors. But I think the environmental movement has gone too far in their effort to protect endangered plants and animals around airports and limit carbon emissions from more planes. A third runway in Heathrow would allow an extra 140 million trips a year by 2050.

5. Why not use the regional airline model in the whole industry? For regional flights, a brand airline like Delta will outsource the operation of the aircraft to a regional carrier like SkyWest. The plane says Delta, the ticket is booked on Delta.com, and the pricing / scheduling is run by Delta. But another company operates the aircraft and hires/fires the ground and flight personnel. It seems bizarre that a single company handles front-end marketing, reservations, customer service, aircraft operation, ground operations, baggage, maintenance, etc. Delta outsources food service to Gate Gourmet, for example. Why doesn't it outsource other aspects of its overall operation?

6. Eight hour workday too long for pilots? I recently spoke with the head of a major pilots union who told me management is trying to force pilots to fly more than eight hours a day and that this constitutes a serious safety risk. The union is lobbying congress. Should lawmakers force airlines to cap pilot workdays at eight hours? How many hours do pilots actually spend flying? My understanding is that 98% of the time the plane runs on auto-pilot. We should let one of the two pilots nap during the flight. Then allow them to fly up to 10-12 hours a day — just like the rest of us — or simply let management and pilots negotiate a fair work day with corresponding compensation.

7. Consolidation such as Delta-Northwest and United-Continental is good for the airlines, bad for consumers (less competition = higher prices), but perhaps long-run good for price insensitive consumers inasmuch as these companies will be able to offer better service, joint facilities / lounges, etc.

Mark Mobius on the State of Emerging Markets

Mark Mobius, arguably the most respected emerging markets investor and one of the great investors period, answered five questions for Institutional Investor magazine:

1 What did the financial crisis teach us about emerging markets?

Everybody was affected, including emerging markets equities. But what we learned is that emerging markets are much more resilient — they recovered much faster than developed countries. Another thing is that emerging markets have garnered more exchange reserves than Western countries. In the past, emerging markets were always short. Now China has $2.3 trillion and Russia has more than $395 billion in reserves. They certainly do not have to ask for aid.

2 What’s the near-term economic outlook?

This year we expect emerging markets to grow, on average, four times more than developed countries, or 4 to 5 percent versus 1 percent. India and China will be growing at 7 to 9 percent.

3 So are big investors shifting more money from the U.S. and Europe to emerging markets?

Institutional investors are by and large very underweight emerging markets. The average American pension fund has 2 to 8 percent in emerging markets, but all emerging markets stocks globally represent 20 percent of the world’s GDP. During the crisis everybody retreated to what they thought was safe: U.S. dollars. Then you had this rapid buildup, and a lot of these institutions were kicking themselves for not staying in. Now they are thinking, Am I getting in at the top? They have to start building a program that gets them into emerging markets at a much higher weighting. To be underweight emerging markets right now is crazy.

4 How much should investors allocate to emerging markets?

Well over 15 percent. When you travel to these markets you can feel it — the vibrancy and growth. Yes, there are challenges, but then you look at developed markets like Greece. That’s what I call a submerging market.

5 What are the hottest emerging markets now?

Brazil is at the top, then Russia, China and India. But besides the BRICs: Turkey, Poland and Thailand.

An easy way for an individual investor to invest in emerging markets is to buy into an Emerging Markets Stock Index Fund, which is what I have done.

Targeted Clothes and Footwear Purchases

Tim Ferriss once passed along the advice, “Buy the most comfortable bed and pair of shoes you can afford. If you’re not in one, you’ll be in the other.”

Prioritize comfort if you’re going to be wearing something every day. Only recently have I appreciated the wisdom of this advice. Growing up I wore more or less the same thing: jeans or sweatpants, t-shirt, and if cold (California cold) a hooded sweatshirt. I hated shopping and had no interest in fashion per se so my wardrobe was a hodgepodge of clothes I received as Christmas gifts, whatever my Mom picked up at Mervyns for me, and whatever I purchased at the outlet stores in Vacaville, CA.

It’s still 90% a hodgepodge of hand-me-downs, and I still hate shopping and still wear that combination most days, but in the last few years I’ve made a handful of targeted, strategic purchases of clothes and footwear that have dramatically increased my comfort, style, and by extension, projected self-confidence.

Shoes — I found via the Boulder Running Store Asics Foundation running shoes. I buy the maximum support version of the shoe so I can easily hike in them too. (I wore them all through Patagonia.) I buy a new pair, exact same kind, every year. I used to never spend more than $100 on shoes. These cost me about $120 and they’re totally worth it. Gretchen Rubin says a true secret to happiness is to wear running shoes all day.

Sandals — I upgraded from my usual Nike or Adidas sports sandals and purchased Reef sandals. More durable, more comfortable, thicker base.

Socks — Any brand is fine, but Thorlos are supremely comfortable, easy to get on and off, and absorb sweat.

T-Shirts — I bought a few American Apparel tri-blend basic t-shirts. So so so comfortable, especially if you’ve only worn “free” t-shirts. They look good. I highly recommend having a couple of these in your closet.

Outerwear — What to wear on the outside that’s not too formal (sports coat) nor too informal (hoodie)? For years I wore my San Francisco Giants fleece to all sorts of business meetings. Now I have two better options: The cashmere sweater from Land’s End (a bit pricey but super soft and comfortable and versatile for both formal and informal) and the lightweight Nike Dry Endurance Jacket which is great for walking outside in chilly/crisp weather or trekking outside in light rain environments.

Pants — I have not found anything better than basic, cheap, loose-fitting jeans and basic sweatpants. Same goes with hoodies.

Travel Clothes — I own a couple button down travel shirts like this one which absorbs sweat, dries quickly, breathes in hot weather, and contains two breast pockets which is helpful for storing things. I own two pairs of super light weight and fast drying boxers.

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Here’s The Onion’s magazine cover Heterosexual Men’s Fashion, spoofing the NYT fashion issue. People who buy fake clothes / merchandise are more likely to cheat in other ways. The end of the hipster? (I hope so.)

The Age of Early Self-Conception

On Facebook the other day I viewed a profile of a "friend" who's in college and she typed this as her bio:

me? hmm. well, i'm a fighter. i'm a little crazy, but i'm passionate and i love hard when i do let myself love. when i'm upset, i need ice cream and to have my back rubbed. i'm restless by nature, and am happiest when i'm moving. i'm athletic but not a jock, musical but not a musician, and neither side of my brain seems to be dominant. sometimes i find comfort in words, and sometimes in numbers, but always in the smell of spring and my best friends. i'm bad with change, but get tired of staying the same. i'm contradicting and i think too much, but i'm told that it's cute. i believe in things that happen for a reason, and i hope that Vassar is one of them. i am extreme, i am loved. i am hopeful.

When reading her rather self-conscious, careful bio (though the lowercase letters and opening phrase "me?" attempt to signal the opposite), I was struck: When else have so many millions of people under age 22 been asked to write their "biography" for public consumption? When else have hundreds of millions of people been asked to (essentially) publicly list their interests, favorite quotations, religious views, and political views?

Imagine the tens of millions of 15 year-olds who go to set up their profile and see a big white text book that says "Bio." As the cursor blinks, they ask themselves, "What is my biography? What are my interests? What are my religious views? What is my relationship status? Am I sexually interested in men or women?"

Social network people say that the profile we look at the most is our own. We are very interested in how we present ourselves to the world. But perhaps more important, we are interested in trying to figure out ourselves. As younger and younger people set up profiles, they end up confronting some of the central angst-inducing identity questions early in life.

Insofar as this all prompts reflection on issues, I say 'tis a good thing. But there's also a risk of people too quickly pouring cement on their identity. A 15-year-old selects from a drop down menu "Liberal" and views his page a few times a day. What does that do to his willingness to evolve his mindset?

There should be a checkbox at the top of your profile labeled "Keep Your Identity Small" and it would keep the "bio" box open but disable the other drop-downs. There should be a drop-down option for "Uncertain" in each category.

(A hat tip is owed to somebody for talking to me about this, but I cannot remember who.)

The Two Schools of Strategy

…the history of strategy as a struggle between two definitions, strategy as positioning and strategy as organizational learning. The positioning school, led by Harvard’s Porter, sees strategy making as the choice of where you want to compete, in what industry and from what spot within that industry, and how—on price, with distinctive products, or by finding a niche. The organizational-learning school, by contrast, maintains that no company that’s already up and running can choose its strategy as if it had a blank slate. Almost gleeful in its derision of the positionists—at least its leading spokesman, McGill’s Henry Mintzberg is—the learning school also argues that virtually no strategy ever works as originally planned. The point, they say, is for the company to set off in one direction, learn from the response it gets from markets and competitors, and then adjust accordingly.

That’s from The Lords of Strategy by Walter Kiechel. Full review forthcoming. Here is Mintzberg’s book The Rise and Fall of Strategic Planning.

Cerro Pochoco in Outer Santiago

Santiago is like San Francisco in that there are many close getaway locations for weekend adventures. There are also microclimates abound — in a couple hours you can be in snow or in beaches.

This past weekend J. and I hiked Cerro Pecho. We found this blog post and followed it all the way. Beautiful views, and noticeably cleaner air. Only hassle were the dogs. Unlike Atacama, there wasn't rape happening all around us, but they were loud with their barking…

Pochoco-7