Economics of Technology – Page 102

“The Individual Dominates the Story of American Innovation and Is Insufficiently Honored”

When an innovator is overlooked or an innovation misrepresented it is not simply a question of equity; it distorts our perception of the essence of innovation and the essential qualities of an innovator. It clouds our perception of what it takes to survive in global competition.

The individual dominates the story of American innovation and is insufficiently honored in our histories — to say nothing of the abysmal history courses in schools and colleges. Only recently did Columbia University honor Armstrong with a plaque in his laboratory, and Rutgers University is still short of funds to catalog properly the immeasurable riches of Thomas Edison’s papers — all five million pages of them.

The research departments of major corporations have not been unproductive — one thinks of the Bell Labs for the transistor and today Monsanto in biotechnology — but can anyone have had more impact on our world than the 23-year-old trucker who got frustrated at the day he spent on the noisy pier in Hoboken, N.J., waiting to have his cotton bales unloaded from his truck, loaded onto the cargo ship, and then unloaded and loaded again at the other end?

For nearly 20 years, Malcom McLean did nothing about his inspiration that it would have saved everyone a lot of time and trouble if he had just been able to drive his truck on to the ship. Why didn’t anybody facilitate that before he organized the sailing of the Ideal X from Port Newark, N.J., on April 26, 1956? Might as well ask why it took us so long to put wheels on luggage.

For the full commentary, see:

HAROLD EVANS. "The American Way." The Wall Street Journal (Sat., February 17, 2007): A9.

Evans is the author of a huge, very interesting book:

Evans, Harold. They Made America: Two Centuries of Innovators from the Steam Engine to the Search Engine. New York: Little, Brown and Co., 2004.

Nordhaus Critiques Stern’s Case for Environmental Disaster

My only major disagreement with the commentary below, is that I have much more confidence that, given free market institutions, our descendants will have the incentives, energy, and ingenuity, to solve the problems that they will face.

The Stern Review’s most influential critic has probably been William Nordhaus, a 65-year-old Yale professor who is as mainstream as economists come. Jeffrey D. Sachs, the anti-poverty advocate, calls Mr. Nordhaus “about the most reasonable man I know.”

He was the first speaker after lunch, and, of course, he had some very nice things to say about Sir Nicholas. The report “was presented here very eloquently by a distinguished scholar,” Mr. Nordhaus said. But then came the juicy stuff: the Stern Review “commits cruel and unusual punishment on the English language,” Mr. Nordhaus said, and the British government’s opinion on climate change is no more infallible than was its prewar view about weapons of mass destruction in Iraq.

This was fairly tame compared with the comments of another Yale economist, Robert O. Mendelsohn. “I was awestruck,” he said, comparing Sir Nicholas to “The Wizard of Oz.” But “my job is to be Toto,” he added, in the same good-humored tone Mr. Nordhaus used. “Is it in fact The Wizard of Oz, or is it nothing at all?”

The two professors raised some questions about the science in the Stern Review. Mr. Nordhaus wondered if carbon emissions and temperatures would rise as quickly as the report suggests, and Mr. Mendelsohn predicted that people would learn to adapt to climate change, reducing its ultimate cost.

But their main objection revolved around something called the discount rate. The Stern Review assumed that a dollar of economic damage prevented a century from now (adjusted for inflation) is roughly as valuable as a dollar spent reducing emissions today. In effect, the report argues for spending the money to cut emissions because future generations have as much claim on resources as current generations. “I’ve still not heard a decent ethical argument” for believing otherwise, Sir Nicholas said at the debate.

I’m guessing that your instinct is to agree with him. Mine certainly was. The problem is that none of us actually behave this way. If we really thought that our great-grandchild deserved our money as much as we do, we would never go out to dinner again. Instead, we would invest the $50 we would have spent on dinner, confident that it would grow over time and become perhaps $1,000 for our great-grandchild to put toward health care, education or a supercomputer. Any of that is preferable to our measly dinner.

But a dollar today truly is more valuable than a dollar a century from now. For one thing, your great-grandchild will almost certainly be richer than you are and won’t need your money as much as you do. So spending a dollar on carbon reduction today to avoid a dollar’s worth of economic damage in 2107 doesn’t make sense. We would be better off putting the money toward something likely to have a higher return than alternative energy, like education.

Technically, then, Sir Nicholas’s opponents win the debate. But in practical terms, their argument has a weak link. They are assuming that the economic gains from, say, education will make future generations rich enough to make up for any damage caused by climate change. Sea walls will be able to protect cities; technology can allow crops to grow in new ways; better medicines can stop the spread of disease.

For the full commentary, see:

DAVID LEONHARDT. "Economix; A Battle Over the Costs of Global Warming." The New York Times (Weds., February 21, 2007): C1 & C5.

Entrepreneur Bets on Nuclear Power Revival

Entrepreneur Kyle Kimmerle at one of his 600 uranium claims. Source of photo: online version of the NYT article quoted and cited below.

Kyle Kimmerle is an entrepreneur, risking his own money. If he guesses right, he will make himself rich, by helping provide the fuel needed for generating electricity for us.

(p. C1) . . . Prices for processed uranium ore, also called U308, or yellowcake, are rising rapidly. Yellowcake is trading at $90 a pound, nearing the record high, adjusted for inflation, of about $120 in the mid-1970s. The price (p. C4) has more than doubled in the last six months alone. As recently as late 2002, it was below $10.

A string of natural disasters, notably flooding of large mines in Canada and Australia, has set off the most recent spike. Hedge funds and other institutional investors, who began buying up uranium in late 2004 to exploit the volatility in this relatively small market, have accelerated the price rally.

But the more fundamental causes of the uninterrupted ascendance of prices since 2003 can be traced to inventory constraints among power companies and a drying up of the excess supply of uranium from old Soviet-era nuclear weapons that was converted to use in power plants. Add in to those factors the expected surge in demand from China, India, Russia and a few other countries for new nuclear power plants to fuel their growing economies.

“I’d call it lucky timing,” said David Miller, a Wyoming legislator and president of the Strathmore Mineral Corporation, a uranium development firm. “Three relatively independent factors — dwindling supplies of inventory, low overall production from the handful of uranium miners that survived the 25-year drought and rising concerns about global warming — all have coincided to drive the current uranium price higher by more than 1,000 percent since 2001.”

. . .

. . . “We won’t build a new plant knowing there’s nowhere to put the used fuel,” Mr. Malone of Exelon said. “We won’t build one without community support, and we won’t build until market conditions are in place where it makes sense.”

But that is not holding back Kyle Kimmerle, owner of the Kimmerle Funeral Home in Moab. Mr. Kimmerle, 30, spent summers during his childhood camping and working at several of his father’s mines in the area. In his spare time he has amassed more than 600 uranium claims throughout the once-productive Colorado Plateau.

“My guess is that next year my name won’t be on the sign of this funeral home anymore and I’ll be out at the mines,” he said.

He recently struck a deal with a company to lease 111 of his claims for development. The company, new to uranium mining, has pledged $500,000 a year for five years to improve the properties. Mr. Kimmerle will receive annual payments plus royalties for any uranium mined from the area.

For the full story, see:

SUSAN MORAN and ANNE RAUP. "A Rush for Uranium; Mines in the West Reopen as Ore Prices Reach Highs of the 1970s." The New York Times (Weds., March 28, 2007): C1 & C4.

(Note: ellipses added.)

Yellowcake, which is processed uranium, is in the third jar from the left of the top photo. The photo below it is of old equipment at a dormant uranium mine. Source of the photos and the graphic: online version of the NYT article quoted and cited above.

“Reports of Oil’s Demise Are Greatly Exaggerated”

Valves being checked by Brian Roe, at the Kern River oil field. Source of the photo: online version of the NYT article cited below.

(p. A1) BAKERSFIELD, Calif. — The Kern River oil field, discovered in 1899, was revived when Chevron engineers here started injecting high-pressured steam to pump out more oil. The field, whose production had slumped to 10,000 barrels a day in the 1960s, now has a daily output of 85,000 barrels.

In Indonesia, Chevron has applied the same technology to the giant Duri oil field, discovered in 1941, boosting production there to more than 200,000 barrels a day, up from 65,000 barrels in the mid-1980s.

And in Texas, Exxon Mobil expects to double the amount of oil it extracts from its Means field, which dates back to the 1930s. Exxon, like Chevron, will use three-dimensional imaging of the underground field and the injection of a gas — in this case, carbon dioxide — to flush out the oil.

Within the last decade, technology advances have made it possible to unlock more oil from old fields, and, at the same time, higher oil prices have made it economical for companies to go after reserves that are harder to reach. With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil can be found than ever before.

In a wide-ranging study published in 2000, the U.S. Geological Survey estimated that ultimately recoverable resources of conventional oil totaled about 3.3 trillion barrels, of which a third has already been produced. More recently, Cambridge Energy Research Associates, an energy consultant, estimated that the total base of recoverable oil was 4.8 trillion barrels. That higher estimate — which Cambridge Energy says is likely to grow — reflects how new technology can tap into more resources.

“It’s the fifth time to my count that (p. A11) we’ve gone through a period when it seemed the end of oil was near and people were talking about the exhaustion of resources,” said Daniel Yergin, the chairman of Cambridge Energy and author of a Pulitzer Prize-winning history of oil, who cited similar concerns in the 1880s, after both world wars and in the 1970s. “Back then we were going to fly off the oil mountain. Instead we had a boom and oil went to $10 instead of $100.”

. . .

“I am very, very seriously worried about the future we are facing,” said Kjell Aleklett, the president of the Association for the Study of Peak Oil and Gas. “It is clear that oil is in limited supplies.”

Many oil executives say that these so-called peak-oil theorists fail to take into account the way that sophisticated technology, combined with higher prices that make searches for new oil more affordable, are opening up opportunities to develop supplies. As the industry improves its ability to draw new life from old wells and expands its forays into ever-deeper corners of the globe, it is providing a strong rebuttal in the long-running debate over when the world might run out of oil.

Typically, oil companies can only produce one barrel for every three they find. Two usually are left behind, either because they are too hard to pump out or because it would be too expensive to do so. Going after these neglected resources, energy experts say, represents a tremendous opportunity.

“Ironically, most of the oil we will discover is from oil we’ve already found,” said Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, an industry-funded group. “What has been missing is the technology and the threshold price that will lead to a revolution in lifting that oil.”

For the full story, see:

JAD MOUAWAD. "Oil Innovations Pump New Life Into Old Wells." The New York Times (Mon., March 5, 2007): A1 & A11.

(Note: ellipsis added.)

Also view the excellent little video "New Life for Old Oil Fields" that the NYT put together to accompany the article.

Kern River pipelines in front, and pump in back. Source of graphic and photo: online version of the NYT article cited above.

Internet Increases Labor’s Options

A "local" Phoenix talk show host, Joe Crummey, broadcasts from his home in California. Source of photo: online version of the NYT article cited below.

The Internet is sometimes viewed as labor’s enemy because it reduces the cost of outsourcing. But it goes both ways: labor can offer its services to a wider world because of the Internet.

LOS ANGELES, March 27 — When people hear the radio host Joe Crummey on Phoenix’s popular KFYI murmur sarcastically, “We don’t have enough human rights activists in this town,” they know he means Phoenix.

Ditto for when he offers to assess the “east side west side traffic right now.”

As it turns out, Mr. Crummey, whose favorite talk show topics include immigration, patriotism and Arizona politics, is indeed reporting for duty in the valley. Just not in the Phoenix Valley.

Rather, it is here, in the San Fernando Valley, where he works via the Internet from his home on the top of a hill in the Studio City section of Los Angeles. Listeners in Phoenix are none the wiser.

Armed with four computers, a digital recorder, a constant stream of Fox News and a professional microphone, Mr. Crummey holds court for three hours each weekday during Phoenix’s drive-home time slot — from about 400 miles away in a neighboring state.

For the full story, see:

JENNIFER STEINHAUER. "Live, From Station KFYI in …Well, That’s Complicated." The New York Times (Weds., March 28, 2007): A11.

Google Hires “Interesting” “Geniuses” & Provides Them a Workplace Where Interesting Geniuses Want to Be

A break lounge at Google’s Manhattan offices. Source of photo: online version of the NYT article cited below.

You could be forgiven for not knowing that a satellite Google campus is growing in downtown Manhattan. There is no Google sign on the building, and it’s hard to catch a glimpse of a Googler, as employees call themselves, on the street because the company gives them every reason to stay within its candy-colored walls.

From lava lamps to abacuses to cork coffee tables, the offices may as well be a Montessori school conceived to cater to the needs of future science-project winners.

. . .

“These are power geniuses,” said Jane Risen, a statuesque brunette who works in training for the sales staff and is considered among the best dressed on campus — she was wearing a brown blazer from the Gap. “If they don’t have the same social skill or style sense, they’re extremely interesting people or else they don’t get hired.”

. . .

The strategy of keeping employees happy and committed to spending endless hours on campus seems to be working. Richard Burdon, 37, an engineer who joined Google two years ago, has been staying past midnight to prepare for the introduction of a project. (Google’s Manhattan engineers have been responsible for developing Google Maps and are working on some 100 other projects.)

“Google is about as interesting as starting your own startup because you can really follow your own ideas,” said Mr. Burdon, who previously worked for Goldman Sachs, Sony and I.B.M. The only time he could remember leaving the office during the workday was to buy a friend a birthday present.

For the full story, see:

DEBORAH SCHOENEMAN. "Can Google Come Out to Play?" The New York Times (December 31, 2006).

(Note: ellipses added.)

Work and non-work at Google’s Manhattan offices. Source of photos: online version of the NYT article cited above.

As Online Book Sales Increase, So Do Total Book Sales

Source of graphs: online version of the WSJ article cited below.

The graph on the left would not surprise Chris Anderson of The Long Tail. Selling books online supplies greater variety, so that when online sales grow, overall book sales grow too.

(p. B1) For six years, Borders Group Inc. has pursued a distinctly unfashionable strategy: betting big on bricks and mortar while paying little attention to the online world. But with online sales capturing an ever-increasing share of the book business, the No. 2 book retailer is reversing course.

Today, Borders announced its intention to reopen its own branded e-commerce Web site in early 2008, ending an alliance with Amazon.com Inc. that had been the core of its online strategy.

For the full story, see:

JEFFREY A. TRACHTENBERG. "Borders Business Plan Gets a Rewrite; It Will Reopen Web Site, Give Up Most Stores Abroad, Close Many Waldenbooks." The Wall Street Journal (Thurs., March 22, 2007): B1 & B2.

Photo on left is a Borders store; image on right is of Borders CEO George Jones. Source of photo and image: online version of the WSJ article cited above.

Private Money Can Top Government Money in Space, as in IT

Lots of people are building new IT companies. You can start a company and sell it to Yahoo! or Google in a couple of years. But so can anyone else. Aerospace is different. To paraphrase John F. Kennedy in 1962: We choose to go to the moon not because it’s easy, but because it’s hard.

That’s why, as a long-time investor in IT and Internet start-ups, I’m now spending more and more time on private aviation and commercial space start-ups. I’m trailing an illustrius crew of IT pioneers: Elon Musk (Space-X, rockets, formerly with PayPal), Vern Raburn (Eclipse Aviation, very light jets, formerly at Microsoft, Symantec and Lotus), Jeff Bezos (Blue Origin, rockets, and still at Amazon, too!), Jeff Greason (XCOR, rockets and formerly with Intel) and Ed Iacobucci (DayJet, air taxi operator, and founder of Citrix).

. . .

On the space side, there’s a . . . strong parallel with the world of IT. The establishment in "space" is the government and especially the military, just as it once was (along with academia) for the Internet. I remember the days when commerce on the Internet was considered sleazy—but look at the innovations and productivity it unleashed.

In the same way, the current priests of space are dismayed by the privately funded space start-ups—unsafe, sleazy, frivolous. Imagine: Ads on the side of a rocket ship! Well, why not, if it helps pay for the fuel… and the R&D that designed the thing?

For the full commentary, see:

ESTHER DYSON "New Horizons for the Intrepid VC." The Wall Street Journal (Tues., March 20, 2007): A19.

(Note: ellipses added, except for the ellipsis following the word "fuel" which was in the original.)

GE Stands Up for Innovation and Free Choice

Randall Moorehead’s Phillips Electronics wants the government to force us to switch from the incandescent bulb on the left, to bulbs like the Phillips bulb on the right. Source of photo: online version of the NYT article cited below.

WASHINGTON, March 13 — A coalition of industrialists, environmentalists and energy specialists is banding together to try to eliminate the incandescent light bulb in about 10 years.

In an agreement to be announced Wednesday, the coalition members, including Philips Lighting, the largest manufacturer; the Natural Resources Defense Council; and two efficiency organizations, are pledging to press for efficiency standards at the local, state and federal levels. . . .

. . .

The Australian government said on Feb. 20 that it would seek to ban incandescent bulbs and replace them with compact fluorescents. Shortly thereafter, the environment minister of Ontario, Laurel Broten, said her province was considering a similar step, and a California assemblyman, Lloyd Levine, introduced a bill to do the same.

“Incandescent light bulbs were first developed almost 125 years ago,” Mr. Levine said, “and since that time they have undergone no major modifications.”

Kathleen Rogers, president of the Earth Day Network, one of the groups in the alliance seeking to end the use of incandescent bulbs, predicted, “I think you’re going to see these disparate efforts adding up to this great tidal wave.” The problem, she said, was that “the incandescent spends most of its life making heat, not light.”

But General Electric, which traces its origins to Edison, said that could change.

“It’s shortsighted to freeze technology in favor of today’s high-efficiency compact fluorescent lamps,” the company said in a statement. ”We’d rather keep innovating and offering traditional, commercial and industrial consumers more energy-efficient choices — not fewer choices.”

For the full story, see:

MATTHEW L. WALD. "A U.S. Alliance to Update the Light Bulb." The New York Times (Weds., March 14, 2007): C3.

(Note: ellipses addd.)

Concrete Used in Pyramids

T.W. Schultz used to emphasize that the level of technology in an economy depended more on the incentives and institutions for adoption and diffusion, and less on the invention of the technology, which he thought was a shorter hurdle than usually thought. The Antikythera Mechanism is one historical technology that dramatically supports Schultz’s view. If it survives scrutiny, the following article would provide an additional example supporting Schultz.

(p. A18) Reporting the results of his study, Michel W. Barsoum, a professor of materials engineering at Drexel University in Philadelphia, concluded that the use of limestone concrete could explain in part how the Egyptians were able to complete such massive monuments, beginning around 2550 B.C. They used concrete blocks, he said, on the outer and inner casings and probably on the upper levels, where it would have been difficult to hoist carved stone.

”The sophistication and endurance of this ancient concrete technology is simply astounding,” Dr. Barsoum wrote in a report in the December issue of The Journal of the American Ceramic Society.

Dr. Barsoum and his co-workers, Adrish Ganguly of Drexel and Gilles Hug of the National Center for Scientific Research in France, analyzed the mineralogy of samples from several parts of the Khufu pyramid, and said they found mineral ratios that did not exist in any known limestone sources. From the geochemical mix of lime, sand and clay, they concluded, ”the simplest explanation” is that it was cast concrete.

For the full story, see:

JOHN NOBLE WILFORD. "Study Says That Egypt’s Pyramids May Include Early Use of Concrete." The New York Times (Fri., December 1, 2006): A18.

More on Creative Destruction in Science Fiction

On April 11, 2007 I posted an entry noting a new science fiction book with the title Creative Destruction. Not having read the book, I wondered aloud whether the book contained any reference to Schumpeter.

Yesterday (4/13/07), I was delighted to receive an email from the author of the book, answering my question. With his permission, I reproduce his email below:

Dr. Diamond,

I noticed your blog entry about Creative Destruction, my computer-themed SF collection. You asked: Does Schumpeter get a mention?

Absolutely. Here are the opening lines of the foreword:

     If the Internet bubble had a patron saint, he was an obscure economist named Joseph Schumpeter.

     Schumpeter owes his posthumous celebrity to two words: creative destruction. In 1942, he wrote of the "… Process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.

     "Creative destruction," he said, "is the essential fact about capitalism." Every dotcom, of course, claimed its new technology would sweep out the old in a frenzy of creative destruction. Occasionally — think Yahoo! and Amazon — they were even correct.

The stories in the collection are most definitely science fiction — I have degrees in physics and computer science — but I also have an MBA from the University of Chicago.

Best regards,

– Ed Lerner

(Note: I have changed the format of the email, a little. The ellipsis was in the original.)