Addressing the Digital Divide

From Springwise:

Unreliable electricity and spotty internet access are a fact of life in many parts of the developing world—and part of the reason the digital divide still persists today. A new, solar-powered innovation from Florida-based GNUveau Networks, however, is bringing computers and the internet to places that have no connectivity, no phone service and no electricity.

Functioning as a sort of "ISP in a box," SolarNetOne is a terminal network system that uses photovoltaic solar electrical systems and a variety of open source technologies to make internet access a reality in the remotest areas. Included in the system are a small-footprint server and five terminals (expandable to as many as 48) that come loaded with web browsing, email, office, multimedia, software development and web development capabilities, with more than 15,000 other applications—including VoIP—to choose from as well. SolarNetOne's terminals operate as thin clients—meaning that the majority of the workload is handled by the server—and the system’s Ethernet hub provides both network connection and electrical power to the terminals and their LCD monitors over a single wire. A power subsystem including an array of photovoltaic solar panels, an advanced charge controller and ample battery storage, meanwhile, provides for all of the electrical needs associated with 24/7 server operation and 8 hours per day of terminal access. Wifi coverage spans a 2-mile radius, with no fuel costs, no polluting emissions and a long lifespan of up to 20 years with proper maintenance. The entire system, in fact, operates on about the same amount of power as a 100-watt light bulb, GNUveau says. The technology has already been installed at Katsina State University in Nigeria, and a video explanation is available here.

I'm surprised this didn't come from MIT. It sounds awesome and the technology and potential seem promising, but I can't see this project qualifying as an example of social entrepreneurship. Unlike GrameenPhone and similar ventures, the target appears to be large organizations like universities, but hopefully this will expand to poor rural areas.

Talent and Innovation

Truly innovative people are rare. Perhaps 5% or 10% of the high-potential managers within a company at any given time have the skills and attributes to become innovators. (Andrew England, the chief marketing officer at MillerCoors, believes the figure is actually closer to 1%.) But finding talent is not the only issue; a bigger problem is what to do with it.

Most companies do a magnificent job of smothering the creative spark. Over the past five years we have probed the innovation strategies of 25 organizations in multiple industries and countries. Our findings are simple and somewhat disturbing, given the acknowledged necessity for innovation: Companies usually develop leaders who replicate rather than innovate. Thus rising stars realize that to be promoted, they need to mirror incumbent leaders. Even when stellar external talent comes in, it is frequently drawn into the same anti-innovation culture that has been squelching internal talent.

That's from "Finding and Grooming Breakthrough Innovators" by Jeffrey Cohn, Jon Katzenbach, and Gus Vlak, in the most recent issue of the Harvard Business Review. The best part is that the article is available free online (HBR).

It's Hard Out Here for a...

Economist, actually. The main job board for economists, Job Openings for Economists (JOE), published by the American Economic Association recently released a list of job openings that were either suspended or canceled. In January economists will gather for their annual conference and aspiring economists will interview for academic and research positions. So the news that more firms are cutting back will make these interviews that much more important. Good luck to everyone. On a brighter note, the listings for December are looking a little better, so maybe there is hope.

The New Economic Team

David Warsh's newest column is about President-elect Obama's economics team. By any measure it is a distinguished group of economists. I was somewhat surprised Goolsbee did not get the CEA chair, but on paper Christina Romer should be fine. As far as I know there have not been any indications about who will take the third CEA spot, which usually goes to an international economist. Also, Warsh is silent about Jason Furman. Is he headed to the NEC with Summers? All in all the transition seems to be proceeding very smoothly.

Greg Mankiw is very pleased with the new economic team and has a very good post about some of their writings.

Books, Books, Books

Today's NYT's offers many book recommendations for gifts or for your own reading pleasure. Here are their recommendations for coffee table books. Here are 100 notable books from 2008. Book critics Michiko Kakutani and Janet Maslin each list their 10 favorite books of 2008 (more info). The NYT is not alone of course, there are plenty of other lists around the web. See Tyler Cowen too, of course.

In related news, it looks like 2008 was a good year for e-books (ars technica):

There are a number of trends that have skyrocketed in popularity this year despite the otherwise muted economy. One of those trends is the growth of e-books, popularized by the Amazon Kindle and aided by the already-established popularity of Apple's iPhone. As the 2008 holiday season descends upon us, news about both devices continue to drive a shift that historians have long feared: people are ditching the printed page for handheld screens and loving it.

The Kindle, Amazon's surprisingly well-received e-content reader, has apparently completely sold out for the rest of the holiday season already, despite the fact that US Thanksgiving has yet to hit. The company confirmed to Silicon Alley Insider yesterday that the current Kindle is on backorder for at least another 11 to 13 weeks, and Amazon definitely won't be able to ship any before December 24. Amazon has since placed a notice on its site saying, "Due to heavy customer demand, Kindle is sold out."

Social Entrepreneurship

In today's column David Brooks echoes some themes from this blog. This proposal is particularly interesting (NYT):

Create a network of social entrepreneurship investment banks. These regionally operated semi-public funds would invest in the best local community organizations, so they could bring their ideas to scale.

These funds, first proposed by the group America Forward, would supplement the safety net and employ college grads entering a miserable job market. They’d have a powerful psychological effect on a country that desperately wants to feel mobilized and united.

My initial thought is to wonder why we must limit this to domestic organizations, but given the context of reinvigorating our economy, perhaps this makes sense.

More Humility

As I mentioned in my previous post, PBS recently had a gushing article about economics bloggers. I say it is bunk. First, let me say that many economists do run great blogs and I find that I mostly read economics bloggers. So I do like them. However, much of the best blogging about the financial crisis has been done by non-economists. Heck, sometimes it’s even done by journalists (shudder). In fact, I would posit that blogging is just a better way of covering the news than the traditional newspaper article. So check out the WSJ’s Real Time Economics Blog, the Big Picture, Calculated Risk, or Felix Salmon. These are all great blogs with fantastic coverage of recent financial events, and none are written by economists (CR is anonymous, but so far as we know is not an economist).

One benefit of blogs is that we get rid of the pretense that an article is fair, neutral and unbiased. With a newspaper article there is always an obsession to get both sides of the story, as if one side is right and another wrong. One of my professors is fond of saying that we live in a multivariate world and simple he said/she said stories can't capture the complexity in the world.

Bloggers can speak their mind and say that socialism is the greatest thing in the world or that the Department of Education should cease to exist. We care about the ideas. If someone claims that the financial crisis was caused by the creation of universal banking, we can quickly check that out and report back.

This rapid fact-checking and debate also means that op-ed conversations that used to evolve over the space of several weeks now happen almost instantly. It is also easier to flesh out more complex ideas. Calculated Risk has written lengthy blog posts explaining how CDOs and other fancy products work and it’s something that would never be published in a newspaper. Thus, I say the medium makes it easier for the relevant experts to step forward and explain what’s going on in real time and in a complex and thoughtful manner that is not possible in other mediums. Perhaps the economics profession has benefitted from all of this, but economics bloggers certainly shouldn't get all the credit.

A Day for Humility

Last year I enjoyed telling a number of entirely unfair jokes about economists. This year, I looked at the same source and found only one joke about the profession’s involvement in depressions. Here it is:

“Such a severe depression and banking crisis could not have been achieved by normal civil servants and politicians, it required economists’ involvement.”

This, in short, is a time for humility. Why did we mostly get “it” so sensationally wrong? How did something that looks increasingly like the precursor of a slump creep up on almost all of us this year? It is a pretty good question. It is a pretty embarrassing one, too. It is one everybody I meet now asks.

[...] Yet I can’t get away from this feeling of inadequacy. One might not expect much from economists, but one would surely expect them to warn us of a crisis on this scale. Some humility is in order. That is going to hurt. A humble economist? Surely not.

That's Martin Wolf (FT) via Mark Thoma at Economist's View. By comparison, PBS had a glowing review of economics bloggers a short while ago. I think a large dose of humility is in order.

Enjoy Thanksgiving. If you are looking for a way to give back over the coming year have a look at Kiva. Best Wishes.

American Autos

I believe that American-made automobiles for passengers are made to wear out so that they must be replaced. This is not so with the trucks. A trucker requires many more thousands of miles of good service than a passenger-car owner. He is not to be dazzled with trimming or fins or doodads and he is not required by his status to buy a new model every year or so to maintain social face. Everything about my truck was made to last.

That's John Steinbeck in Travels with Charley. Writing almost 50 years ago he perfectly nailed what now ails the American Auto industry. Toyota's large trucks have always sold poorly and it has only recently understood the U.S. truck market. But its small cars have always done well, especially as they've become increasingly reliable, if not a little boring.

Tivo and Innovation Uptake

Justin Wolfers wonders why only 3 in 10 households have a tivo or DVR equivalent when the net present value of such a system is roughly $250,000 for the average American household (you can quibble with this number, but it is a rough estimate.) We would expect people to use such a system if the marginal benefits exceed the marginal costs, but clearly that is the case here, even if Justin's assumptions are way off. This is an important and fascinating question and should give every economist pause.

For my part, I do not have a tivo or similar device, but I do have access to the internet and usually watch reruns there. This bypasses the need for an additional device beyond my computer and I get roughly the same benefit, provided the show is available online, which is increasingly the case. If we add in people that utilize ABC's great online resources or Hulu.com, I wonder how this affects the number of people that have some alternative to regular programming? Is this a problem of measurement or are people really not benefiting from existing technology?

Framing

Greg Mankiw has a very fun post on the name games being played about the proposed stimulus. Alliteration galore.

Social Entrepreneurship in the White House

President-elect Barack Obama should create a White House office to highlight the important role social entrepreneurs and nonprofit groups play in solving the country’s social problems, according to two liberal think tanks that released proposals this week for reorganizing the federal government.

The Center for American Progress Action Fund, in Washington, and the New Democracy Fund, in New York, proposed that the Obama administration create a White House Office of Social Entrepreneurship. The office, it said, would “give social entrepreneurs and other nonprofit leaders a greater voice in the public policy debates of the day by being part of the White House domestic and economic policymaking processes.”

The proposal comes from the report “Change for America,” which Ryan referenced earlier. Thanks to Melanie for the pointer. See here for more. They are right to point out that an office of social entrepreneurship should be set up in the White House and not the Corporation for National and Community Service.

I generally agree with the ideas in the proposal but must admit to being skeptical about their proposal for prizes. While I think prizes are great, I'm not sure why google's 10^100 and similar prizes are insufficient. Nonetheless, I think a White House agency would be great and we can work out the specifics of the day to day operations and goals later.

Microloans for Health

A good friend emailed me a link for Lend4Health:

Lend4Health facilitates community-based, interest-free "micro-loans" as a creative funding option for individuals seeking optimal health.

Currently, Lend4Health is facilitating loans for the biomedical treatment of children and adults with autism spectrum disorders. Other health issues may be included on Lend4Health in the future.

Lend4Health is inspired by the online lending system at kiva.org.

The OC Register has a number of articles about the organization here. Wikipedia does not yet have a page on them, but I look forward to learning more. Here is a touching video they produced for a monthly contest with ideablob. (HT).

Tyler Cowen on Markets and Morality

Time for a Consumption Tax?

[W]hile it’s basically impossible to imagine the circumstances that would allow such a change to take place, a move to eliminate income taxes and replace them with a progressive consumption tax would probably be very healthy for American society, as well as economically efficient.

That’s Ryan Avent (The Bellows) writing about taxing the rich as well as what it means to be rich. Tax economists have been in favor of a consumption tax for many years but it’s been a hard sell to the public. Early indications from President-elect Obama do not inspire hope.

Anatomy of a Meltdown: A Profile of Ben Bernanke

In June, 2005, Bernanke was sworn in at the Eisenhower Executive Office Building. One of his first tasks was to deliver a monthly economics briefing to the President and the Vice-President. After he and Hubbard sat down in the Oval Office, President Bush noticed that Bernanke was wearing light-tan socks under his dark suit. “Where did you get those socks, Ben?” he asked. “They don’t match.” Bernanke didn’t falter. “I bought them at the Gap—three pairs for seven dollars,” he replied. During the briefing, which lasted about forty-five minutes, the President mentioned the socks several times.

The following month, Hubbard’s deputy, Keith Hennessey, suggested that the entire economics team wear tan socks to the briefing. Hubbard agreed to call Vice-President Cheney and ask him to wear tan socks, too. “So, a little later, we all go into the Oval Office, and we all show up in tan socks,” Hubbard recalled. “The President looks at us and sees we are all wearing tan socks, and he says in a cool voice, ‘Oh, very, very funny.’ He turns to the Vice-President and says, ‘Mr. Vice-President, what do you think of these guys in their tan socks?’ Then the Vice-President shows him that he’s wearing them, too. The President broke up.”

From a new profile of Ben Bernanke in The New Yorker. The article has more details on recent events in financial and credit markets and is worth reading.

Which One is Not Like the Others?

Against Intellectual Property, by Stephen N. Kinsella (free online).

Against Intellectual Monopoly, by Michelle Boldrin and David K. Levine (free online).

Free Culture, by Lawrence Lessig (free online).

Remix, by Lawrence Lessig (soon to be free online).

The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives, by Michael Heller (not free online).

Do Prizes Spur Innovation?

BusinessWeek has a quick look at the Ansari X Prize and a brief interview with founder Peter Diamandis (BW). The key questions:

But as contests have proliferated, so, too, have questions about their ability to push forward the boundaries of technology. Are they better at yielding breakthroughs than traditional research and development? Can Lotto-size payouts solve monstrously complex problems? Or are they a fad that stokes vanity-driven entrepreneurs focused on smaller-scale challenges?

Update: David Miller expands on this theme in a very thoughtful post.

Technology Policy

Earlier we looked at what's ahead for science, technology, and entrepreneurship policy. Now we have a few more details. Thanks to Ryan, here are two more links about the CTO position and the tech transition team.

Auto Bailouts

Edward Glaeser writes (NYT):

The hard-line argument against aid to Detroit, or any other declining industry, starts with the idea that the American economy works best when capital and labor head to our most productive sectors. The buying habits of consumers tell us which companies are delivering cutting-edge products. America has plenty of great companies that make software and movies and biotechnology and breakfast cereal.

[...] The car companies can’t be fixed with a scalpel — they need major surgery. Only the power of a bankruptcy court will enable G.M. to rewrite its obligations to its many creditors and to restructure itself sufficiently so that it can again become profitable.

The enemies of bankruptcy argue that no one will buy a car form a bankrupt company. This makes little sense to me.

He's open to government assistance following Chapter 11.

Technological Wonders

Divergence

With the global economy at the edge of recession, China appears to be turning away from previous pledges to improve its record on environmental protection. In this, China is hardly alone: A climate-change proposal in Europe that a few months ago seemed like a sure thing has now divided the continent because of its anticipated expense, and worldwide, money for the development of renewable energy sources has been drying up.

But the impact of China's pullback from environmental protection efforts could be the most far-reaching. Home to some of the planet's most polluted cities, China last year hit a dubious milestone: It surpassed the United States to become the world's largest emitter of greenhouse gases. Its factories release so much toxic waste that they have created black clouds thousands of miles away. Its waterways are no better off -- poisoned with industrial runoff ranging from arsenic to acid.

From the WP. On the other hand, India appears to be moving toward more environmental protection. From Der Spiegel, an interview with India's chief climate treaty negotiator, Shayam Saran:

SPIEGEL ONLINE: Mr. Saran, when will India oblige itself to start restricting its own CO2 emissions?

Saran: Even though there is no legal obligation on India in this respect, the Prime Minister of India made a commitment that India’s per capita emissions will at no time exceed the average of the per capita emissions of developed, industrialized countries. We have thus accepted a limit on our emissions and at the same time provided an incentive to our partners in developed countries to be more ambitious. The more significant their reductions of emissions, the lower the limit we would need to accept for our own.

(HT) It's anyone's guess what will happen going forward, given what's happened in our economy and our financial and credit markets. How you feel about all of this will depend upon how you weight the relative importance of reducing emissions versus promoting economic development. Perhaps phrasing this as such a stark tradeoff is unfair, since some programs, like India's proposed nuclear power program, may be good for both the economy and the enviromnent, but there clearly remain tradeoffs.

Entrepreneurial Reads

1. A speech by Tim Kane of the Kauffman foundation for Eship week (growthology)
2. The 2008 State New Economy Index by ITIF and the Kauffman Foundation (ITIF)
3. New Global Entrepreneurship Monitor (GEM) Report: "2006-2007 National Entrepreneurial Assessment for the United States of America.” Link to Babson press release. (HT)
   

The Democratic Blueprint of ST&I

For those of us who are addicted to watching the transition unfold and carefully scrutinizing how S&T policy will change will know, one of the two people in charge of the transition of OSTP is Thomas Kalil. The Center for American Progress, which is playing a prominent role in Obama's transition, is releasing their vision of the future in a book called Change for America, due out this January.

Thankfully for ST&I policy junkies like myself, they have made Thomas Kalil's chapter available early and for free! Check it out!

Rock City, Remixed

One of my wife's friends, and a former coworker, recently moved back to Detroit from DC. He was a native and wanted to get back to his friends and family. Unfortunately, he had developed some peculiar habits while back east. For instance, some days on his walk home he would stop in at a local bar and sit and read for a while. It was just a mellow moment and made a nice transition between work and home. Sometimes he would just have a pint and read a magazine, other times he would read a novel.

When he tried this back in Detroit someone walked by while he was reading and called him a fag (sorry for the language, but it is a true story and I see no reason to sugarcoat what happened). This type of comment is sad and wrong on many levels but what I really want to point out is how hard it makes life on young people in the area. He's adapted again to life in Detroit, but from what I gather it remains a love/hate relationship. Despite many wonderful universities, my impression is that most people don't stick around the state if they have an option; brain drain is not just a problem in developing countries.

Now that Michigan is on the verge of losing GM, the state cannot remain competitive if it cannot keep its best and brightest. Tolerance is one of the keys of attracting and retaining creative class workers and if our friend's story is just one of many examples, as I believe it is, then the state has lots of work ahead.

The state needs new ideas and it needs to build on what it does well. For instance, David Miller points out that: "Detroit has a great history in music. Detroit is positively situated near the border. There are tons of talented engineers/designer in and around Detroit. The University of Michigan is a global research powerhouse." All well and good, but these resources are currently being squandered. So it's a good thing that David is switching roles from studying campus entrepreneurship to actually sponsoring his own business plan competition:

With all the calls for ‘pre-packaged’ bankruptcy for Detroit and/or $25-$50 billion in government funding for the US auto industry to ‘recreate itself,’ it is clear the US auto industry needs a need business plan.

From dealership strategy and product offerings to brand consolidation and alternative fuels research/vehicle production, the US auto industry needs a completely new business plan. The window for ideas needs to be wide open.

Because of that, this blog is announcing the 1st Annual Save Detroit Business Plan Competition. Plans (video or document/pdf/ppt) can be sent to campusentrepreneurship / @/ gmail.com. Deadline is December 15, 2008. See full info, rules and eligibility requirements (which are subject to change) below. Thanks for entering!

Check out Campus Entrepreneurship for more details.

Malcolm Gladwell

A new profile to go along with his new book, Outliers, which is due out tomorrow. Here is a Q&A about the book. Here is an early look at what the book was originally supposed to be about. Here is a 4 part review of the book and here are other reviews.

Immigration and Entrepreneurship

Over at the City Room (NYT),

Jonathan Bowles, director of the Center for an Urban Future, will answer selected readers’ questions about the obstacles that immigrants face as they try to create and build businesses here and explore what, if anything, local economic development officials can do to support the growth of immigrant-run businesses.

You can submit questions at the Times website. I look forward to a good discussion (HT).

Bailouts and Stimulus

Paul Krugman, writing about domestic auto companies, says (NYT):

If the economy as a whole were in reasonably good shape and the credit markets were functioning, Chapter 11 would be the way to go. Under current circumstances, however, a default by GM would probably mean loss of ability to pay suppliers, which would mean liquidation — and that, in turn, would mean wiping out probably well over a million jobs at the worst possible moment.

The auto makers claim losses would be closer to 5 million, although all of these numbers are highly suspect. Any company that can legitimately say it was doing okay before the credit crunch but is now undergoing problems will be a potential candidate for aid. And how much aid are we talking?

Krugman recommends a stimulus package of about $600 billion. Most of that will come in January as opposed to next week, when most pundits expect a much smaller package of around "only" $60-100 billion. With lots of money to be spent, and lots of potential beneficiaries, expect a hectic lobbying schedule for the next few months. At least some of this will go as aid to companies directly.

On the bright side, Tim Kane points to an article in Nature that says R&D spending will likely hold up just fine (growthology).

Remembering the Entrepreneurial Founder of Hospice Care

Florence S. Wald, whose vision of bringing the terminally ill peace of mind and, to whatever extent possible, freedom from pain led to the opening of the first palliative care hospice in the United States, died on Saturday at her home in Branford, Conn. She was 91.

[...] Mrs. Wald, who was dean of the Yale University School of Nursing from 1959 to 1966, was the prime mover, in 1974, in starting the Connecticut Hospice, the nation’s first home-care program for the terminally ill. Six years later, a 44-patient hospice — where the dying could be comforted by their loved ones around the clock and where the staff would do what it could to alleviate suffering — opened in Branford.

“This hospice became a model for hospice care in the United States and abroad,” the publication Yale Nursing Matters said this week, adding that Mrs. Wald’s role “in reshaping nursing education to focus on patients and their families has changed the perception of care for the dying in this country.”

A touching reminder of what one motivated and dedicated person can achieve (NYT). Thanks to Phil for the pointer.

The Global Recession

The Bridge of Sighs now has advertising for the Daewoo Cielo. We may argue about what different economic indicators mean but at the end of the day when you see stuff like this, you know the economy is in the tank. On a brighter note, I assume the signage will be removed when the restoration is complete.

Along these lines, art markets are feeling the effects of the slowdown as well.

NB: The photo above is used with a Creative Commons license. The photo is by Flickr user Simona83.

Exponential Growth

This bit from the Wired article on Ray Kurzweil really grabbed my attention because Phil has our class thinking about the origin of GrameenPhone.

Kurzweil had a special confidence that grew from a habit of mind he'd been cultivating for years: He thought exponentially. To illustrate what this means, consider the following quiz: 2, 4, ?, ?.

What are the missing numbers? Many people will say 6 and 8. This suggests a linear function. But some will say the missing numbers are 8 and 16. This suggests an exponential function. (Of course, both answers are correct. This is a test of thinking style, not math skills.)

Human minds have a lot of practice with linear patterns. If we set out on a walk, the time it takes will vary linearly with the distance we're going. If we bill by the hour, our income increases linearly with the number of hours we work. Exponential change is also common, but it's harder to see. Financial advisers like to tantalize us by explaining how a tiny investment can grow into a startling sum through the exponential magic of compound interest. But it's psychologically difficult to heed their advice. For years, an interest-bearing account increases by depressingly tiny amounts. Then, in the last moment, it seems to jump. Exponential growth is unintuitive, because it can be imperceptible for a long time and then move shockingly fast. It takes training and experience, and perhaps a certain analytical coolness, to trust in exponential curves whose effects cannot be easily perceived.

Iqbal Quadir, the founder of GrameenPhone, recognized early on that cell phones would serve as the tool to level the information playing field. But the phones were expensive in the early 1990s and the key to making this work was Iqbal's recognition of Moore's Law, which is what the quote above is really talking about. Having the insight that a product that is not currently feasible soon will be is a very valuable insight. Few of us naturally think along these lines and it is powerful to see smart people apply these ideas. Analytical coolness, indeed.

Dear Dow

Please take some medication to deal with your manic depression.

The Venturesome Economy

Amar Bhide channels Austan Goolsbee when he writes:

[...] there is little evidence of an "undersupply" or a need for public policies to stimulate the production of more high-level know-how or to subsidize the training of more homegrown scientists and engineers. Rather, given the realities of modern innovation, there is a good argument for reversing policy biases against the development - and even more importantly - the effective use of mid- and ground-level innovations. Public policies should stop trying to rob mid- and ground-level Peters to pay high-level Pauls.

The End of Wall Street?

Michael Lewis has a great article in Portfolio that is getting lots of attention. It is long but worth the effort. Lewis worked for Salomon Brothers for just three years and then wrote a book about his time there titled Liar's Poker. It is a fun read. In the beginning of the article he discusses his qualifications and those of his peer group:

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

[...] In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

The bottom line is that nothing has changed, but that it will have to.

The Creative Class

I am a huge fan of Richard Florida’s work, and especially like his blog, and he attracted a number of students to George Mason even though he was only here for a short time. But his concept of the creative class and especially his more narrowly defined creative core include many jobs that seem downright boring. Perhaps it's just because I have a stereotype of a hipster graphic designer with multiple piercings and tattoos working at odd hours while completely reshaping an industry. Here's how Florida describes the super creative core:

The super-creative core of this new class includes scientists and engineers, university professors, poets and novelists, artists, entertainers, actors, designers, and architects, as well as the “thought leadership” of modern society: nonfiction writers, editors, cultural figures, think-tank researchers, analysts, and other opinion-makers. Members of this super-creative core produce new forms or designs that are readily transferable and broadly useful -- such as designing a product that can be widely made, sold, and used; coming up with a theorem or strategy that can be applied in many cases; or composing music that can be performed again and again.

While the creative core's contribution to GDP in unmistakable, to an outsider like myself many of the jobs appear repetitive. Since his first example is scientists, I think this bit from the Loom is relevant:

One of the most important experiments in evolution is going on right now in a laboratory in Michigan State University. A dozen flasks full of E. coli are sloshing around on a gently rocking table. The bacteria in those flasks has been evolving since 1988–for over 44,000 generations. And because they’ve been so carefully observed all that time, they’ve revealed some important lessons about how evolution works.

It's important work and perhaps very interesting to the researcher, but he's been running the same experiment since 1988! I can barely stay focused on the same topic for two blog posts, so congratulations to Dr. Lenski for his tenacity, and I'm glad to see he's finally seeing some meaningful results.

Hot, Flat, and Crowded

The Future of GM and Ford?

Henry Blodget suggests we let them die (Clusterstock). We can include Chrysler in there as well. Henry writes:

The companies' problems result from:

• Their inability to build cars (cars, not trucks) Americans love
• Their inability to restructure their way out of their pension and union obligations
• Their inability to compete on their own merits.

Bankruptcy might help with the second bullet point. As for the first point, if they do somehow live on, shouldn't they focus on what they do best? Toyota and Honda have never had much success selling large trucks in the US and this seems like a legitimate competitive advantage for American companies. Focusing only on large trucks when oil prices are high might not be ideal, but they don't seem to have had much success with cars recently. Note that in this context I define "recently" as the past 30 years. Perhaps there is also room to make muscle cars as well, since they've had some decent success over the years with that.

As for the third bullet point? Well, James Surowiecki had an article in The New Yorker from May that now seems relevant:

In the current atmosphere of economic tumult, the announcement that Toyota sold a hundred and sixty thousand more cars than General Motors in the first three months of this year might seem like a minor news item. But it may very well signal the end of one of the most remarkable runs in business history. For seventy-seven years, in good times and bad, G.M. has sold more cars annually than any other company in the world. But Toyota has long been the auto industry’s most profitable and innovative firm. And this year it appears likely to become, finally, the industry’s sales leader, too.

Calling Toyota an innovative company may, at first glance, seem a bit odd. Its vehicles are more liked than loved, and it is often attacked for being better at imitation than at invention. Fortune, which typically praises the company effusively, has labelled it “stodgy and bureaucratic.” But if Toyota doesn’t look like an innovative company it’s only because our definition of innovation—cool new products and technological breakthroughs, by Steve Jobs-like visionaries—is far too narrow. Toyota’s innovations, by contrast, have focused on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

Read the rest. At the end of the day I see little reason for a bailout. Our current economy is referred to as post-Fordist for a reason, after all. In the 1950s our economy was mostly made up of large corporations, large unions, and big government. GM and Ford are the last vestiges of that earlier era and while for sentimental reasons I like having them around, I see little economic reason to "bail them out."

A bankruptcy and reorganization would appear to be the best outcome, though not for the union members who are expecting a pension. I am not sure how the American taxpayer escapes that burden. So is the real question whether we offer loans now and hope we avoid bailing out the retirees, or do we just wait and see what happens?

Update: Richard Florida is not pleased with the idea of a bailout either.

Science Policy in the New Administration

In Greg Mankiw's Memo to the POTUS-elect, he writes:

Listen to your economists. During the campaign you assembled an impressive team of economic advisers from the nation’s top universities, including Austan Goolsbee from University of Chicago and David Cutler and Jeff Liebman from Harvard.

There is lots of good advice, so check it out if you haven't already. The reason I bring it up though is as an excuse to talk about an interesting paper by Austan Goolsbee in the American Economic Review from a few years back (pdf). From the abstract:

Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high. The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity.

I'll return to this shortly when I discuss Amar Bhide's new book. As our new President thinks about science policy, it will be important to listen to his advisers, as Greg Mankiw suggests.

Ray Kurzweil

Tonight in our Social Entrepreneurship class one of our speakers gave a ringing endorsement to Ray Kurweil's book The Singularity is Near. While the book has received ringing endorsements from gobs of famous people, it is well over 600 pages and weighs slightly less than a refrigerator. Nevertheless, there is no excuse for not understanding the topic. You might instead try this short piece that appeared in Wired earlier this year. It is a fascinating look at a brilliantly focused mind. A taste:

Kurzweil does not believe in half measures. He takes 180 to 210 vitamin and mineral supplements a day, so many that he doesn't have time to organize them all himself. So he's hired a pill wrangler, who takes them out of their bottles and sorts them into daily doses, which he carries everywhere in plastic bags. Kurzweil also spends one day a week at a medical clinic, receiving intravenous longevity treatments. The reason for his focus on optimal health should be obvious: If the singularity is going to render humans immortal by the middle of this century, it would be a shame to die in the interim. To perish of a heart attack just before the singularity occurred would not only be sad for all the ordinary reasons, it would also be tragically bad luck, like being the last soldier shot down on the Western Front moments before the armistice was proclaimed.

Looking Ahead

What's ahead for Science, Technology, and Entrepreneurship policies? (see this too.)

In related news, along with the massive falloff in the youth vote for Republicans, it looks like President-Elect Obama clearly got the Creative Class vote (Richard Florida).

Finally, if you have any advice for Obama you can share it at Freakonomics.

Taxes and Entrepreneurship

I pulled from this post by Mark Cuban earlier, but this part now seems relevant (BlogMaverick):

Entrepreneurs who create something out of nothing don’t care what tax rates are. Bill Gates didn’t monitor the marginal tax rate when he dropped out of Harvard and started MicroSoft (btw, it was a ton higher than it is today). Michael Dell didn’t wonder what the capital gains tax was when he started PC’s Limited, and then grew it into Dell Computer. I doubt that any great business or invention started with a discussion or even a consideration of what the current or projected income or capital gains tax was or would be.

You can believe that taxes have important incentive effects at the margin and still believe that an entrepreneur will not focus solely on taxes when deciding whether or not to start a new business. With the amount of uncertainty involved in a new venture, it's far from obvious that a startup will ever actually make a profit, let alone have taxable income. Now, if taxes reduce the return on investment too much, then people will simply work for someone else rather than starting something from scratch. It's a tricky balance.

Judging from the 15 tax lawyers the TaxProf blog surveyed, there's lots of demand to test that balance. David J. Ventry Jr., for example, writes:

My tax policy wish list under President Obama begins and ends with the hope that the 44th president of the United States will abide by the words of the 32nd president, Franklin Roosevelt: “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.”

Taxes raise revenue, just as they surely distort economic and social decisions. But most taxes (except, perhaps, confiscatory levies) provide benefits that far outweigh any conceivable burdens.

[...] In the end, my hope is that President Obama encourages us to view taxes as an opportunity rather than a burden--as a path toward collective rather than selective prosperity.

Collective prosperity doesn't exactly sound like the entrepreneurial spirit we need, but presumably with The Great Recession currently raging, President Obama will hold off on tax increases. I do imagine we'll be having conversations about deadweight losses soon enough, however.

Campus Entrepreneurship

While still at the research stage, I see much promise:

Since headlines began trumpeting the antiaging effects of red wine a couple of years ago, the traditional toast to good health has become more meaningful. But students at Rice University, in Texas, think that beer drinkers shouldn't be left out. They're trying to engineer a yeast that produces the antiaging chemical found in red wine--resveratrol--and use it to brew "BioBeer" with a health boost.

From Technology Review. I am proud to live in the most entrepreneurial and innovative country in the world. Also note that none of the students on this project are actually old enough to legally drink alcohol. Their concern for public welfare is inspiring.

Is Google's Book Search a Natural Monopoly?

A good article in the Washington Post provides some insight about the recent court case that will require Google to pay licensing fees for the books it copies (WP):

By settling the case, Google has made it much more difficult for others to compete with its Book Search service. Of course, Google was already in a dominant position because few companies have the resources to scan all those millions of books. But even fewer have the additional funds needed to pay fees to all those copyright owners. The licenses are essentially a barrier to entry, and it's possible that only Google will be able to surmount that barrier.

If barriers to entry and minimum scale essentially make Google like a natural monopolist, will they eventually be regulated like one?

Uncertainty and Competitiveness

Michael Porter writes:

The emergence of China and India as global players has sparked deep fears for U.S. jobs and wages, despite unemployment rates that have been low by historical standards. While the U.S. economy has been a stronger net job creator than most advanced countries, the high level of job churn (restructuring destroys about 30 million jobs per year) makes many Americans fear for their future, their pensions, and their health care. While the standard of living has risen over the last several decades for all income groups, especially when properly adjusted for family size, and while the U.S. remains the land where lower-income citizens have the best chance of moving up the economic ladder, inequality has risen. This has caused many Americans to question globalization.

I pretty much picked a paragraph at random. Each section of the article is filled with valuable insights. Take this section on regional development:

The federal government has also failed to recognize and support the decentralization and regional specialization that drive our economy. Washington still acts as if the federal level is where the action is. Beltway bureaucrats spend many billions of dollars on top-down, highly fragmented federal economic development programs. Yet these programs are not designed to support regional clusters, nor do they send money where it will have the greatest impact in each region. For example, distressed urban communities, where poverty in America is concentrated, are starved of the infrastructure spending needed for job development. Again, no strategic thinking.

The solution, for Michael Porter is a national strategy to address national competitiveness:

A strategy would address each of the areas I have discussed. If we are honest with ourselves, we would admit the U.S. is not making real progress on any of them today. Efforts under way by both parties are largely canceling each other out. A strategy would direct our spending to priority investments that also put money into the economy, such as educational assistance and logistical infrastructure, rather than tax rebates. With a strategy, we would stop counterproductive and expensive practices such as farm subsidies and spending earmarks.

The article, "Why America Needs an Economic Strategy is in Business Week," and is a must read (BW). See Ken Jarboe for more.

Jeff Bezos on the Kindle and Innovation

Asked about the development process for the Kindle, Bezos responded (USN):

Companies can extend in at least two different ways. One, they can take an inventory of their skills and then they can say, "OK, with this set of skills, what else can we do?" That's kind of a skills-outward approach. Another way is to start with the customer needs and work backwards. Given our customers, you can say, "What needs do they have that we could fulfill, even if it requires us to develop new skills?" Kindle is an example that's firmly in that second camp. We have a large base of customers who love reading. How else can we make reading even easier for those customers, even if it requires us to develop new skills?

Many large firms cease to be innovative once they achieve achieve significant market share but the Kindle is a great new product from a company that had previously only provided an online marketplace. It's nice to see intrapraneurship at Amazon, unless of course you are Barnes and Noble or Borders. The article contains more on digital media in general and is worth a quick read.