Readings #2

Want to try out a Leica M9 for a few hours? Go to NYC... damnit.

Hawaii puts the kabash on "birthers" (people who think President Obama is not a natural-born US citizen) because they're burdening the health department with all their requests. Even the right is embarrassed, and this is coming from people who expect you to be bad at math to buy the party line.

Interesting design company in Brooklyn called RockPaperRobot.

Life on earth has one common ancestor. Not to say that life on earth only arose once but rather that life does in fact (by odds of about 100,000 to 1) share a family tree and not a web.

Apparently 3-D TV's are coming out soon. The real lesson here is more that technology is changing at an increasing rate, so much so that at some point consumers are going to face interesting dillemas towards adopting new technology. A common theme in history is the adoption of new technology and how this effects societies, economies, etc., but a common occurance I'm noticing is that change is so quick now that we have a hard time adjusting. Architects barely learn a program before it is obsolete. We purchase technology that is obsolete within months and years (my laptop is 3 years old and it can barely run the newest software I put on it), and we train for jobs that are no longer needed well before we are middle aged. I'm not sure where this all points but it's interesting none the less.

A company called Square has just released an application and (free) hardware (plugs into your headphone jack and is tiny) that will allow you to process credit cards on either an iphone or android based system. The fees are 2.75% + 15 cents or 3.5% + 15 cents if the card isn't present. This should make splitting lunch bills easier. I've always wondered when we will get rid of tangible money and use something similar to this, but probably less cumbersome regardless of the fact that this system is fairly light. Imagine just a fob that you can run across someone elses phone then you type an amount into your phone and they accept. Anyways, I doubt tangible money will die off for a long time, people are clingy and hate change (seriously, read that article - no pun intended). There are multiple lobbies and advocacy groups in Washington that make sure pennies and nickels get minted even though they cost 2 and 9 cents respectively to make. The advocacy groups think that changing the material of pennies will somehow decrease their value. Hey interest group - fiat money system. It's all based on confidence. This isn't even worth writing about, it's just sad that we are so encumbered by bureaucracy and interest groups/lobbyists and inability to make logical non-political decisions that we continue wasting out time with pennies, nickels, dollar bills and tangible money in general (although I don't advocate abandoning it just yet... but steps should be taken to start). Getting rid of the first two and making the other a coin would save us hundreds of millions of dollars a year. Plus, no more stupid pennies.

Disappearing Money

This is the article that brought this up again. I think about sustainable asset value often (I just made that term up)... hm, it's almost like green spending. The article talks about where the money goes when the stock market goes down 50%; it literally disappears. This is because the current value of a stock reflects the companies expectations for future earnings... earnings forecasts are, in short, shit right now. Hence, stock prices fell and tend to reflect the explicit value of the company as opposed to its explicit (concrete) plus implicit (earnings potential) values. This is true of goods you purchase too. A good has its use (implicit) value and its scrap (explicit) value.

EDIT: I've been told this is concept is confusing so here's an example. When you first buy a couch it it has the potential to be sat on maybe a grand total of say 10,000 hours which is the implicit or potential value of the couch. The longer you own it the less potential it has to be sat on, it just wears out. Its implicit value thus decreases with use. Potential uses for an old couch... firewood, if it has steel in it you could scrap it, lawn couch, etc. The point with explicit value is that if you were to scrap it right now or in ten years it would still be worth roughly the same. Combine those two values at any point in time and you end up with the price of your car. A stock can be viewed in the same way, although it's a bit more abstract. A stock's explicit value is harder to gauge and is constantly fluctuating as the actual tangible assets of the company fluctuate. Again, the implicit value is the expected future earnings of the company. Combine these and you get the current stock price.

If the US produces about 13 trillion dollars worth of goods and services every year (GDP/GNP) how much of that value still exists a few years down the road? I have no idea, but I bet the Bureau of Labor Statistics does. Here's the data I'll be using. It's from 2007. There are 120 million "consumer units" (a.k.a. families, with the average consisting of 2.5 people) in the US and their average yearly spending equals $50,000. Of that $50,000:

$6,100 for food

$16,900 goes to housing

$1,900 to clothing

$8,800 goes to transportation

$2,900 for healthcare

$2,700 for entertainment

$5,300 goes to insurance and pensions

$1,000 for education

$600 for personal care

$500 towards alcohol

$300 for tobacco

$800 misc.

$1,800 for cash contributions (does that mean your drug dealer?)

If you follow the link to the data concerning spending behavior you'll find that it breaks down further into categories. Food breaks down into dairy, meat, etc. Housing breaks down into rent, utilities, finance charges, insurance, etc. This is what the list looks like if you remove the non-perishable goods from it:

$3,900 dwelling, unfortunately this includes interest and surcharges

$1,800 household furnishings

$3,200 vehicle

This list is given in descending order as to how fast the good depreciates. This means that only about $9,000 out of the $50,000 (18%) that people spend every year goes towards goods that hold some portion of their value after one year. Of note is the fact that in recent years the savings rate in the US (since 2005) has been negative. Ponder that one for a moment. I remember learning that when I was still in school (3 years ago) and no one thought too much of it... seems obvious now.

So what counts as something that holds its value? This is a bit hard to define. It's something of a grey area because the things that count, non-perishable goods, tend to depreciate over time. For example, a car. When a car is new its combined implicit and explicit values are quite high. As it gets older the implicit (potential for further use) gets smaller while the explicit (scrap, steel) value stays somewhat stable. Perishable goods such as groceries are worthless after just a few weeks. There are of course some goods that don't depreciate much at all. These might include bullion, guns, jewelry, art, etc. Basically things that don't require inputs and never wear out. I'm taking a quick look around my room right now... most of the value of my possessions will approach zero in the coming years. Here are a few of them:

books - these lose substantial value initially but then hold fairly steady.

high end film camera - bought it cheap, could actually increase in value one day.

jars full of change - depreciating slowly.

liquor - holds value perfectly (I never thought of this) as long as I don't drink it.

computer - almost worthless in just a few years.

furniture - may retain some value, especially the nicer stuff.

clothing - small tax deduction in a few years otherwise almost worthless.

_______

Part Two

"Almost any man knows how to earn money, but not one in a million knows how to spend it. If he had known so much as this, he would never have earned it." - Henry Thoreau, Journal entry, undated, age 20-30

Thoreau says something here that is hard to verablize in any other way. To me it means that often the stuff you buy isn't worth the tradeoff you made to get that good.

So what can we do to maximize the long term value of our spending? The easy answer is of course to buy things that hold their value well or not spend as much. The broad and hard to attain answer is that our society is transfixed with the present and we desperately need to start thinking long term. I've had talks with a few friends about this recently. Although, not as it relates to this subject. We spoke about it more as it pertains to corporate and political leaders. It's something I plan to write about in the near future. As it relates to this subject, it would behoove us as a society to build and consume (buy) things that are less disposable (concrete homes!). Not everything of course, but some of the major expenses must be rethought. Look at that data set. Over half of the expenditures in the US are on shelter and transportation ($17,000 and $9,000 making $26,000 of the $50,000 total). More than half of our money goes towards moving you around and housing you. That's kind of crazy. Why? Because during one of the better periods of my life my rent was $375 (Lakeview, Chicago) plus utilities brought it to about $430 and I rode a bike exclusively which maybe cost me $50 a year. That's $5,200 a year. So according to this data set $10,000 would be enough for me to live an "average" lifestyle. Where is all that other money and effort going?

Making Jobs Obsolete

This is going to be one of those posts that I trudge through unable to explain many of my thoughts. I don't think I have a single friend that agrees with me on this subject. The subject is of course getting rid of unneeded professions from the labor force. That is, putting people out of work! Go to hell Logan. This seems to upset almost everyone I've ever brought it up with. I think technically it would be somewhat akin to structural unemployment.

This is the article that got me thinking about this. It talks about how a large group/organization of graphic designers is upset because companies are more and more holding design competitions for logos; that is, crowdsourcing. The result is one winner who makes very little, and everyone else gets nothing. The professional graphic designers are upset because this cuts into their work and what they can charge for work. Dear graphic designers, these competitions are not evil. They merely make the market more efficient by bringing together people with needs (companies who need logos) and designers willing to give it to them. All participants are willing and if the professionals design is really so much better then they will continue to have a niche somewhere in the marketplace.

There is often this (misguided) feeling in society that putting someone out of work because their job is no longer relevant is a terrible thing. I'm not talking about cyclical unemployment. That is, unemployment that fluctuates according to the business cycle. That should be avoidable, at least theoretically, and it has been to some degree for the last 25-30 years... let's not get into why that is. What I'm talking about is jobs that no longer need to exist. The example I always give is that of a blacksmith. Back in the day that was a highly regarded job, now they barely exist. Why? Because it is more efficient to let a machine do that work. In the short term sure that person is out of work and they need to change careers, but in the long run that person can become more useful to society by doing something else. I'm not discounting the pain that this brings on the individual. I'm merely saying that the pain imposed on the individual is less than the "pain" felt by society for allowing that person to keep their obsolete job. Milton Friedman, who right now is taking a beating (which I think is somewhat unfair in that his ideas are actually quite liberal), used the famous example of loom operators in India (near the beginning, interesting read too).

I have mixed feelings on unions. I like that they raise wages for me. Although overall I think the practice of it is a form of collusion which is illegal. That and it artificially limits the number of people who can get jobs. A union's best quality is that they act as a collection of trade professionals who train apprentices. They essentially act as a trade school. This alone may justify their existence. One of the problems I see with unions is that they sometimes employ construction techniques that purposely take more time and are not necessarily better. As an example, in Chicago you have to use conduit (conduit can have some advantages but it also adds enormously to the cost) around all electrical wire instead of romex, and copper tubing (which goes bad over time and is expensive) must be used for water over pex, a plastic form of piping that never goes bad. Both of the unused examples are employed in the South where unions are more or less nonexistent.

Protecting jobs by passing on the cost to consumers doesn't really help anyone. It hurts demand for the product and doesn't allow as many people to consume the good. If putting in pex saves installation time, is cheaper, and requires less maintenance then wouldn't using it over copper pipe allow plumbers to service more homes thus lowering the cost of plumbing... allowing more people to have it? The point is that people should be put to use in an area where their work is of better use to the collective good. Essentially, in this example technology has made it possible for one person to do the work of many, but for various reasons we hold back this technology to keep people employed. The result is expensive plumbing. Plumbing shouldn't be a luxury. It improves people's health and makes needless labor unnecessary. The problem is what to do with those unemployed plumbers. Ideally they would get retrained at another career. Possibly even something similar, but reality isn't always that nice.

Now my mixed feelings. As I talked about a while ago things change faster now (it's near the end of the post), so its not crazy to think that people's jobs could become obsolete just a few years after starting them. The Department of Labor doesn't really know (boring) how often people switch careers. They do however know that they tend to change jobs about ten times between the ages of 18-38. The point is that I'm not sure where all this is going. It could be the case that someone spends more money on their education than they could possibly make by working in that field while it exists. In the plumbers example it could also be the case that twice as many plumbers exist but they take half as many hours; essentially a reduction in work and pay. That's all good and fine, but then you have to compete with "hungry" people who are willing to work 60 hour weeks.

I found this passage by Andre Gorz in the Wikipedia article on structural unemployment, "The connection between more and better has been broken; our needs for many products and services are already more than adequately met, and many of our as-yet- unsatisfied needs will be met not by producing more, but by producing differently, producing other things, or even producing less. This is especially true as regards our needs for air, water, space, silence, beauty, time and human contact..."

Now, how to employ that in the free market... (hint: you have to change the lifestyle, opinion, and general habits and thoughts of the "average" person)

Picturequote

"Cultivate poetry like sage, like a garden herb. Do not trouble yourself to get new things, wether clothes or friends. That is dissipation. Turn the old; return to them. Things do not change; we change. If I were confined to a corner of a garret all my days, like a spider, the world would be just as large to me while I had my thoughts." - Henry Thoreau, journal entry age 33

This is the front of my families warehouse. When I was a little kid it seemed huge and dark and was full of wonderous machines whos purpose was a mystery to me. Now it seems small. It's a place where I go to work, to find useful purposes for the unuseful.

The Music Industry

Recently the Pirate Bay has been in court in Sweden. Which is kind of a big deal because Pirate Bay is the largest bit torrent tracker and Sweden has some pretty lax laws regarding copyright protection. If you search Wired there are dozens of articles on the whole thing. For any of my readers, all 3 of you, who don't know what that is, a bit torrent is a downloadable file such as a music album or movie. What makes them unique is that the actual material (often copyrighted) is stored on user's computers, so the actual copyrighted material never touches a bit torrent trackers servers. The trackers such as Pirate Bay just point you towards the users who have the file. When you download a bit torrent you download it from several people at once. Hence, it creates a nice legal shelter.

Anyways...

EDIT (I misrepresented this quote): "Yes." - Per Sundin of the IFPI and Universal Music when asked if "people would have purchased every music track they got [for] free file sharing."

I wonder if he actually believes that? What a ridiculous thing to say.

I've pondered the whole pirating thing for a long time and haven't come to many substantial conclusions. I mean, it is stealing in the sense that it costs money to produce an album and the artists should get paid, but at the same time they're shoving an antiquated business model down our throats.

Here's what I've noticed with myself:

1 - My music taste is much broader because I am exposed to so much more online. I've noticed this with others too.

2 - Because of my increased musical palate I attend more shows. A lot more. This brings in far more money for a band than me purchasing their CD's.

3 - I don't buy CD's at all. Who plays CD's with any regularity?

4 - Downloaded music is popular because of the variety of choice, ease (you don't have to leave your house and it comes in MP3 format), lack of DRM, and if you don't like the music at least you didn't waste any money on it.

Going off of #4, I'm sure many people download music illegally mainly because it's free, but I feel like the vast majority of people do it for the other aforementioned reasons. What this signals to me is that people are pirating media in large part because illegal downloads offer something that their legal counterparts do not. It seems painfully obvious that this industries business model is dead. The iTunes store may be closer, but I say they fail too. What don't these people get? You must offer a superior product, a cheaper price, or preferably both. iTunes isn't any cheaper than buying a CD for the most part and a CD certainly isn't a better product. You have to convert it into an MP3, and how many people don't know how to rip a CD?

Regardless of how you feel about the legality of it all one fact remains. These companies exist to make money and right now they're contracting. What they're doing isn't working and they need to adapt or disappear. The album is how you get people to buy merch and go to shows. Therefore, make it as available as possible. If I were in charge I would experiment with pay what you wish album sales, free album downloads, extremely cheap album downloads ($1-3), and I'd send my bands out on far more tours. The last shows I've bought tickets to were: The Books (sold out in a week, show added, sold out), Iron and Wine (sold out the same day before I could get tickets), Kings of Leon (sold out, tickets were going for 5 times face value), Beck and MGMT (sold out, tickets were going for 3 times face value), etc, etc. If shows are selling out that means they're missing out on revenue; deadweight loss anyone? And the fact remains that I don't own a single tangible copy of any of these bands albums. That's right music execs, illegal downloading brought you my business and I bet I'm not unique.

Mmmm Free Information

"If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." - Thomas Jefferson

When I first read that it struck me how readily the internet can disseminate ideas, papers, research studies, music, television, movies, books, etc. to one person or 6.7 billion for essentially the same price of free. The amazing thing of course being that Jefferson called it over 200 years ago, but not in some clairvoyant sense but rather because it is an intrinsic property of ideas that they have transaction costs approaching zero and are infinitely scalable. The entirety of Jefferson's letter can be viewed here.

Anyways...

Wikileaks released about a billion dollars worth of research enacted by Congress since 1990.

I've read about projects to make government and private university funded research accessible to the public, but it still remains difficult to search through the current scientific literature. Here's the best article I could find on the subject. To find academic papers for free you can either visit your local library and log on to JSTOR or you can just search on Google Scholar. It seems very counter productive to spend so much time and (public) money on a research study then keep the results hidden behind large fees and access codes. If you were a researcher wouldn't you want people to see your results? The less people have to work to get at this information the more widely it will be read and implemented. The same concept is used to make a web page more effective. By reducing the number of pages a visitor has to click through to get somewhere web traffic increases. Come on acadamea - drag your big brains out from under that rock.

Electronic Medical Records

I'm not exactly up and up on what's going on in health care in the US, but apparently about 75% of physicians and hospitals here still keep all their records on paper... that seems kind of ridiculous. Assuming that being able to look up a patients history, medications taken, and possible drug allergies might be useful. Well, it is.

"The researchers found that hospitals that rated highly on automated note taking had a 15 percent decrease in the odds that a patient would die while hospitalized. Hospitals with highly rated decision-support systems also had 20 percent lower complication rates. Researchers found that electronic systems reduced costs by about $100 to $500 per admission."

This is a bit perplexing to me. The free market accounts for all variables whether you take them into account or not. Which is also what makes forecasting it so hard. In the case of health care it would seem like the benefit of lower costs, less complications, and less deaths would outweigh the costs of hiring IT professionals and keeping digital records. So why doesn't the health industry adopt this technology like the rest of the (socialized medicine) world? Didn't we invent this stuff?

The only answer I can really come up with is that old non-tech savvy hospital and insurance company business people do not fully appreciate the advantages of computers.

Maybe privacy concerns? I'm about the biggest privacy advocate there is, but not when dealing with my doctor. If they ask what drugs I do I tell them. If I get rolled in unconscious from a car accident I want the ER staff to know my history. Look at it this way, if you ask a stranger in any country what they do for a living and they say that they're a M.D. you more or less instantly trust them. It's the only profession that gets that universal privilege.

So what's the deal? Why is our health care system so unresponsive?

EDIT: Wow, this was bad even by my standards. There were about a dozen misspelled words and a rant about econ 101. I apologize to anyone who read the initial version of this post.

Raymond Kurzweil and Aging

"Kurzweil expects that, once the human/machine race has converted all of the matter in the universe into a giant, sentient supercomputer it will have created a supremely powerful and intelligent being which will be Godlike in itself." - Wikipedia article on Raymond Kurzweil

At first glance that sentence is ridiculous and hilarious. Then it dawned on me that he kind of had a point. Anyways, his wiki is worth reading. It is a bit long however.

I first became aware of him when watching a show on research done to slow down and even reversing the aging process. It interested me because I had just read an article on MIT's Technology Review about (this is my non-pHD interpretation) the first insights as to exactly what causes aging. Bare with me; the only organism for which aging is understood is yeast. In yeast, aging occurs because as DNA duplicates itself mistakes are sometimes made. These mistakes are passed on from one generation of cells to the next and over time begin to account for an increasing share of the DNA sequence. Then there is a protein that gets involved and starts expressing dormant traits (I'm a bit shaky on that part) to fill in the gaps left by mistakes. Researchers have discovered a similar pattern in mice, but are quick to caution that aging is a very complex and haphazard thing... so this may not be the whole story. The point is that aging is not necessarily "natural", but rather just a screw up in our genes.

Long story short, Kurzweil proposes that aging will soon become a thing of the past. In a series of steps (or "bridge to a bridge to a bridge" as he calls it) humans will learn to slow down, stop, and eventually reverse aging. All supposedly within the next few decades. It would be easy to dismiss if he weren't so damned credible. He invented the flatbed scanner, text to speech synthesizer, text recognition software, and he sold his first software company at the age of 20. While he was a sophomore at MIT none the less. So at the very least he's a talented inventor, business man, and prediction maker.

There's a lot to write about on this guy. I guess I'm mostly fascinated by his research topics, ideas on increasing rates of change (in terms of technology), and his predictions. They're much further looking than mine and much more sci-fi. The odd thing is that as outlandish as they seem, if current computer advances continue I don't see how they will not become true.

Energy; or Electricity and How We Consume It

So I read this article a while back about how we need to vastly improve our network of energy distribution. Naturally, I object. I think it's a wonderful idea, but there is another solution that isn't even being talked about. Better yet, you can combine them both...

Here's my plan. Currently about 7% of the energy produced at a power plant is lost in the grid. Not too bad actually, but 7% is enough to satisfy 21 million people in the US. That's 7 times the population of Chicago proper...

The problem is this. With traditional sources of energy such as gas and coal plants you need to build the generation stations big enough to handle peak demand. Peak demand is something like the hottest day in summer when everyone is running their AC. Low points are 2 AM in the morning when no one is using electricity. Ideally you would have medium sized generators that ran all the time, but because of peak demand the power companies have to bring plants online occasionally to fill demand. They're called peak plants. In fact I've seen some of them. ComEd actually has jet engines it can turn on to spin turbines and meet peak demand. They're cool... but that can't be cheap. Electrical demand has to be matched exactly. There is no fudge margin. Excess gets wasted and if enough isn't produced then things start to fail.

In comes renewables. They aren't very reliable in terms of output. If the wind slows down around a wind turbine farm so does energy production... by a factor of the difference of the cubes, so quickly (an 8 knot wind produces half the power of an 11 knot wind). If a cloud passes over a solar array it produces less energy. Thus, the aforementioned article calls for a newer smarter grid to deal with these things. I agree, it's a good idea to start work on this. But is that the whole solution?

What if most homes (or at least newly constructed homes) had a bank of batteries tied to their own renewable energy generators plus a plug in hybrid car? The car is in this case is essentially just more battery storage potential. Basically, if most homes had a decent battery storage capacity they could store the excess energy from power plants during the night when none is being used. Plus, with the renewables they would offset the peak demand. Think about it. When is peak demand? Midday when it's hottest and the sun is the brightest. So peak is reduced by the usage of renewables, and trough point demand is raised because everyone is charging their cars and banks of batteries. The demand for electricity is now much more flat.

Power plants could becomes smaller, run more consistently, and be more efficient. Then again, no one wants to pay for anything up front. We seem to be more content with paying higher costs indefinately than paying more initially.

I Love Predictions

Freakonomics is having a long sighted contest for economic or really the best unforeseen event of 2009. You can enter here.

That being said, I write down predictions/business ideas (that are inevitable) from time to time. It's a pseudo hobby of mine and I'd like to think I'm good at it. One of my big ones for the past couple years now has been that some day all media will be licensed to users and downloaded cheaply via the internet. By media I mean books, music, movies, etc. Anything that has a transaction cost that approaches zero will be salable via this method. Why is this inevitable? Currently stores like Best Buy and Borders exist... which means they have to pay employees to stock a physical product, rent a store, pay for electricity, get books/cds from a distributor, who gets them from a manufacturer, etc. By downloading these things via the internet you get rid of over 90% of that. Apple's iTunes is screwed up because they charge $1 a song. Yea, it should be like 5 or 10 cents and the price should fluctuate with demand... will someone please hire me to think up ideas? I have note books full of them.

Here's another; okay, everyone needs food right? And less and less people can or have the time to cook... yet the current food that fits this bill is crazy unhealthy and we all know it. Speaking of which, McDonalds is posting some of its biggest gains they've ever experienced. No money? It's cheap and calorie laden. So why not combine the cheapness and ubiquity of McDonalds with the health that should be inherent to inexpensive food. Cheap tasty food doesn't need to be unhealthy. Now the twist, serve in measured portions and allow your customers to sign up in your store or online for a preferred card type system (much like your grocery store) that would allow them to see what they've eaten in terms of calories, protein, carbs, etc. (if anyone steals this idea, which BTW I'm fine with, please credit me or hire me as a consultant or something). This also allows the business to gather a ton of data on its customers. Parents could also give their kids meal cards that could specify dietary restrictions, allow the kids to eat a good meal in the absence of their parents, and allow the parents to check up on their childrens' diets. The prices of food should also fluctuate with market prices, and the menus should be diverse and constantly changing. So an electronic menu would be necessary. Also, these restaurants should be low frill affairs. They should also start in cities and there will need to be a lot of them initially to achieve the kind of economies of scale that will make the food affordable. O, and it needs to be deliverable. The mission statement of this business should follow along the lines of... improve the health of your customers while providing transparency of dietary information at an extremely low price (meal + snack for between meals for about $2-4, yes it's possible).

Side note: the reason this will work is because kitchens are expensive to build, grocery stores are inefficient (it's a middle man), healthy restaurants are unnecessarily expensive, peoples time is increasingly limited and valuable, cooking for yourself is inefficient, fast food is generally unhealthy, and fewer and fewer people can cook or ever do so at home.

And yes, all my ideas eliminate jobs. I'm evil. Then again wouldn't it suck if we still had blacksmiths and ice delivery men? There's plenty of work to be done in this world. Don't cling to menial tasks that can be done better by technology.