Economics of Technology – Page 18

The “Adventure” and “Fun” of Driving Cars

(p. B6) For one Monday in early December, the New York Stock Exchange played the role of vintage car museum. At one end of Broad Street, outside the exchange, sat a high-roofed and stately 1921 Duesenberg coupe. At the other, a fearsome 1966 Ford GT40 racecar. Between them, encased in a glass vitrine, was an imperturbably cheery 1967 Porsche 911S.

Shaking hands by the coffee stand was McKeel Hagerty. The chief executive of the classic car insurance company that bears his name, Mr. Hagerty was there to ring the opening bell, and celebrate the first day of trading for his newly public company (HGTY). Later, at a brunch in the Big Board’s boardroom, Mr. Hagerty wielded a ceremonial gavel and said, “This is only just the beginning.”

The origins of Hagerty, the company, are far humbler. It was founded by his parents, Frank and Louise, in 1984, in their basement in Traverse City, Mich., as a boutique insurer of wooden boats.

In the early 1990s, the company began insuring collectible cars. With Mr. Hagerty at the helm, it has become one of the largest indemnifiers of vintage vehicles, with over two million classics on its rolls. The actuarial data necessary to determine repair and replacement costs on these cars has also made it a foremost authority on their valuation.

. . .

Hagerty went public via a SPAC, or special-purpose acquisition company, raising roughly $265 million in the process with a goal of expanding. So, what are Hagerty’s ambitions now? And why did it need to become a publicly traded company in order to achieve them?

“The purpose of the company is to save driving and car culture,” Mr. Hagerty said flatly, as we piloted a zippy, Hagerty-insured 1972 BMW 2002 tii toward the tip of Lower Manhattan. “If we’re going to save car culture, we have to make investments outside of the core business, and really help create a whole ecosystem.” Achieving this lofty goal required hundreds of millions of dollars in additional investment, he said: “That would have been tough for us to afford just as a private company.”

. . .

Outside experts agreed with this assessment of Mr. Hagerty’s vocation. “They encourage driving. Their tag lines all the time are, ‘Drive your cars,’” Mr. Gross said. “In some ways, you think, that’s a little strange for an insurance company. You think they’d want you to drive as little as possible to minimize the risk.” He laughed.

Instead, Mr. Hagerty said he sincerely wants to help people find the pleasure in “the experiential sides” of the automobile, those organized around adventure, preservation, culture and legacy. “I think that if we can help steward along the reasons that people drive and love cars, other than to get from Point A to Point B, then we win.”

Mr. Gross concurred with this plan. “I don’t know how many companies there are that take the long way around. And that’s what Hagerty is doing here. They’re not only selling insurance. They’re trying to make sure that the reason you need that insurance is viable and fun, and lots of people are doing it,” he said. “As a business strategy, it’s pretty smart.”

For the full commentary, see:

Brett Berk. “A Classic Car Insurer’s Vision to ‘Save Driving’.” The New York Times (Friday, Dec. 17, 2021): B6.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 16, 2021, and has the title “A Classic Car Giant With a Lofty Mission: Save Driving.”)

E-Mobility Devices Offer Consumers “Lower Virus Risk” and More Convenience Than Public Transit

(p. A9) A boom in electric-powered mobile devices is bringing what is likely to be a lasting change and a new safety challenge to New York’s vast and crowded street grid.

The devices have sprouted up all over. Office workers on electric scooters glide past Manhattan towers. Parents take electric bikes to drop off their children at school. Young people have turned to electric skateboards, technically illegal on city streets, to whiz through the far corners of New York.

Though many of these riders initially gave up their subway and bus trips because of the lower virus risk of traveling outdoors, some say they are sticking with their e-mobility devices even as the city begins to move beyond the pandemic.

“I use the scooter for everything, it’s really convenient,” said Shareese King, 41, a Bronx resident who deleted the Uber app from her phone after she started running her errands on an electric scooter.

Electric bikes, scooters and other devices are in many cases made for urban life because they are affordable, better for the environment, take up little, if any, street space for parking and are just fun to use, said Sarah M. Kaufman, the associate director of the Rudin Center for Transportation Policy and Management at New York University.

For the full story, see:

Winnie Hu and Chelsia Rose Marcius. “As Personal E-Mobility Spreads, Safety Challenges Grow.” The New York Times (Tuesday, October 28, 2021): A9.

(Note: the online version of the story was updated Nov. [sic] 8, 2021, and has the title “As E-Scooters and E-Bikes Proliferate, Safety Challenges Grow.”)

Small Modular Reactors Are Safer and Cheaper Than Older Reactors and Generate More Predictable Carbon-Free Energy Than Can Wind and Sun

(p. B13) Nuclear energy is a rare thing—a carbon-free energy source that isn’t hyped and enjoys bipartisan support in Washington. The big question now is whether new technologies that might lower the costs actually work.

Governments are reconsidering nuclear power, given its ability to provide predictable carbon-free energy.

. . .

“Modular” nuclear fission plants are where the real promise lies. Simpler designs, standardized components and passive safety features all help reduce costs. Being smaller can make it easier to find sites and integrate into a grid with intermittent renewables. Proponents estimate that modular reactors could more than halve the cost and build time associated with traditional ones.

One approach uses existing technologies to build small modular reactors, known as SMRs. They generate anything from a few megawatts to 500, compared with around 1,000 or more for a typical conventional reactor. The controlled fission reaction splits uranium, which heats water into steam, driving a turbine to generate electricity. Water also cools the reactor. SMRs use passive safety features, such as placement underground or in a pool of water, to reduce the need for some more expensive measures. It makes them cheaper to build, but opponents worry it could be a recipe for more disasters.

. . .

Others are trying to build modular reactors with new technology, such as novel nuclear fuels or cooling systems involving gas or salt instead of water. These advanced designs are intended to reduce the risk of accidents and build in more flexibility for intermittent power.

. . .

In 2020, the U.S. Department of Energy’s Advanced Reactor Demonstration Program co-founded two advanced nuclear reactor demonstration plants to be completed by 2027. The first is designed by Bill Gates-backed TerraPower in partnership with GE-Hitachi. It will feature a 345 MW sodium-cooled fast reactor with integrated energy storage on the site of a retiring coal plant in Wyoming. The second will be built in Washington state by X-Energy using four of its 80 MW helium gas-cooled reactors fueled by special uranium pebbles.

. . .

There is also innovation in nuclear fusion—combining atoms to generate energy—which comes with fewer safety and waste concerns. This month, Commonwealth Fusion Systems secured $1.8 billion in funding with promises to build reactors in the 2030s. But many think commercially viable fusion remains a very long shot.

For the full commentary, see:

Rochelle Toplensky. “Nuclear Power’s Second Chance.” The Wall Street Journal (Tuesday, Dec. 21, 2021): B13.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 20, 2021, and has the title “Nuclear Power Has a Second Chance to Prove Itself.”)

“Overwhelmed” Volunteers Struggle to Fix Log4j Bug in Open Source Software

In Openness to Creative Destruction, I argue that open source software has severe drawbacks, compared to a system where firms receive higher profits for selling better software. The severe Log4j bug, discussed in the quoted passages below, is an example that strongly supports my argument. Blog entries posted on Dec. 17 and on Dec. 25 also discussed the Log4j bug.

(p. B6) Gary Gregory, a volunteer for the Apache Software Foundation, is spending time off from his day job glued to his computer, striving to help contain the harm from a security flaw in the Log4j tool underpinning much of the digital economy.

. . .

Mr. Gregory, who works from the dining-room table in his Ocala, Fla., home, fueled by black coffee and accompanied by his hound-pit-bull mix, Bella, said he is overwhelmed with hundreds of requests for help from businesses. While Apache is trying to assist companies in updating their systems, he said, the nonprofit’s resources are limited.

“This puts to the forefront the whole issue with open-source [software] and commercial users,” said Mr. Gregory, who is on the Apache Logging Services Project Management Committee of 16 elected members who vote on changes to the software. “The expectations are somewhat out of whack.”

. . .

Many developers rely on the free Log4j framework to help record data such as users’ behavior and applications’ activity in software built with the Java programming language. Cybersecurity experts say the inclusion of the open-source logging tool within so much interconnected software—often embedded without developers’ knowledge—yields a threat that spans economic sectors and national borders.

. . .

Cybersecurity firm Mandiant Inc. said it has observed Chinese government hackers trying to exploit the flaw.

After Apache released its planned patch on Friday, Mr. Gregory said he worked through the weekend on a new update along with other volunteer software developers in Japan, New Zealand, Virginia and Arizona. Unveiled Monday, the new version disabled a problematic software module by default and removed a message-lookup feature that could be used to exploit the flaw.

The Apache volunteers are designing another update to Log4j for users who rely on an older version of the Java programming language, meaning more work for Mr. Gregory while he is on vacation from his day job.

“That translates to me getting five hours of sleep last night,” he said of his time off. “Some of the other guys got two or three.”

For the full story, see:

David Uberti. “Fight Against Bug Relies on Volunteers.” The Wall Street Journal (Thursday, December 16, 2021): B6.

(Note: ellipses added.)

(Note: the online version of the story was updated Dec. 15, 2021, and has the title “Global Fight Against Log4j Vulnerability Relies on Apache Volunteers.”)

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Hackers from China Seek to Exploit the Open Source Log4j Software Bug

In Openness to Creative Destruction, I argue that open source software has severe drawbacks, compared to a system where firms receive higher profits for selling better software. The severe Log4j bug, discussed in the quoted passages below, is an example that strongly supports my argument. A blog entry posted on Dec. 17 also discussed the Log4j bug.

(p. B1) Hackers linked to China and other governments are among a growing assortment of cyberattackers seeking to exploit a widespread and severe vulnerability in computer server software, according to cybersecurity firms and Microsoft Corp.

The involvement of hackers whom analysts have linked to nation-states underscored the increasing gravity of the flaw in Log4j software, a free bit of code that logs activity in computer networks and applications.

Cybersecurity researchers say it is one of the most dire cybersecurity threats to emerge in years and could enable devastating attacks, including ransomware, in both the immediate and distant future. Government-sponsored hackers are often among the best-resourced and most capable, analysts say.

“The effects of this vulnerability will reverberate for months to come—maybe even years—as we try to close these doors and try to hunt down all the actors who made their way in,” said John Hultquist, vice president of intelligence analysis at the U.S.-based cybersecurity firm Mandiant Inc.

. . .

(p. B6) Researchers find the Log4j flaw particularly worrying because the free Java-based software is used in a broad range of products. It can be found in everything from security software to networking tools to videogame servers. The exact number of users of Log4j is impossible to know, but the software has been downloaded millions of times, according to the organization that builds it, the Apache Software Foundation.

The attack works reliably and is trivial to exploit, security researchers say. Although downloadable patches have already been made available, experts and U.S. officials said they expected the flaw to remain a problem for the long haul because some organizations will be slow to update their systems or might neglect to do so entirely.

“It’s a surprise it’s not more widespread,” said Adam Meyers, senior vice president of intelligence with CrowdStrike, a U.S.-based cybersecurity firm, which said they had detected Iranian actors leveraging the Log4j flaw. “The question that everyone is asking is, ‘What aren’t we seeing?’”

For the full story, see:

Robert McMillan and Dustin Volz. “Hackers Leap on Flaw in Log4j Software.” The Wall Street Journal (Thursday, December 16, 2021): B1 & B6.

(Note: ellipsis added.)

(Note: the online version of the story was updated Dec. 15, 2021, and has the title “Hackers Backed by China Seen Exploiting Security Flaw in Internet Software.”)

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Bans on Natural Gas for Cooking and Heating Could Most Hurt Low-Income Citizens

(p. A13) This week, New York City moved to ban gas hookups in new buildings, joining cities in blue states like California, Massachusetts and Washington that want to shift homes away from burning natural gas because it releases carbon dioxide, which causes global warming.

Instead, developers in New York City will have to install electric heat pumps and electric kitchen ranges in newly constructed buildings.

. . .

But the gas industry is fighting back and has lobbied in statehouses across the country to slow the shift away from gas. It argues that gas appliances are widely popular and still cost less than electric versions for many consumers. Opponents have also warned that a rush to electrify homes could strain power grids, particularly in the winter when heating needs soar, at a time when states like California and Texas are already struggling to meet demand.

Karen Harbert, president and chief executive of the American Gas Association, an industry group, said efforts to disconnect homes and businesses from the extensive network of gas pipelines would make it difficult to supply those buildings with low-carbon alternatives that might be available in the future, such as hydrogen or biogas.

“Eliminating natural gas and our delivery infrastructure forecloses on current and future innovation opportunities,” she said.

The question of whether to use natural gas in homes has become part of the culture wars, pitting climate activists against industry and other interest groups. Some chefs and restaurant owners have argued that they won’t be able to cook certain dishes as well without gas.

. . .

In a statement, Bill Malcolm, a senior legislative representative at the AARP, said the group had “supported legislative and regulatory initiatives allowing customers to continue to use the fuel of their choice to heat their homes and cook their food.” He added: “Outright bans on certain fuel options would run contrary to that choice.”

. . .

For now, natural gas remains the dominant fuel in much of the country, heating nearly half of American homes. Electric heat pumps, by contrast, satisfy just 5 percent of heating demand nationwide.

. . .

Experts have warned that as more homeowners go electric, gas utilities will still have to pay to maintain their existing network of pipelines, which could mean higher costs for the smaller base of remaining customers, many of whom may be low-income.

For the full story, see:

Brad Plumer and Hiroko Tabuchi. “Gas vs. Electric Stoves Join Partisan Battlefield.” The New York Times (Friday, December 17, 2021): A13.

(Note: ellipses added.)

(Note: the online version of the story has the date Dec. 10, 2021, and has the title “How Politics Are Determining What Stove You Use.” The online version says that the New York print edition had the title “Gas vs. Electric Stoves on a Partisan Battlefield.” My National print edition had the title “Gas vs. Electric Stoves Join Partisan Battlefield.” Where there is a slight difference in wording between the versions, the passages quoted above follow the online version.)

Elon Musk Likes Government the Referee, Not Government the Subsidizer

Here are some especially important passages from the Wall Street Journal transcript of the Elon Musk interview:

Joanna Stern

Well, I want to come back to autonomous vehicles, but wanted to just stay a little bit more on the role of government. You said at this conference, actually, a year ago, that you think the government should really just be hands off when it comes to innovation. Though with this bill, there is a lot of support for EVs and it could be the biggest change that we’ve seen throughout the country in terms of the infrastructure of EVs. And it helps Tesla. What do you think the role of government should be?

Elon Musk

I think the role of government should be that of, like, a referee. But not a player on the field. So generally, government should just try to get out of the way and not impede progress. I think there’s a general problem, not just in the U.S., but in most countries, where the rules and regulations keep increasing every year.

Rules and regulations are immortal. They don’t die. Occasionally you see a law with a sunset provision, but really, otherwise, the vast majority of rules and regulations live forever. And so if more rules and regulations are applied every year and it just keeps growing and growing, eventually it just takes longer and longer and it’s harder to do things.

And there’s not really an effective garbage collection system for removing rules and regulations. And so gradually this hardens the arteries of civilization, where you’re able to do less and less over time. So I think governments should be really trying hard to get rid of rules and regulations that perhaps had some merit at some point but don’t have merit currently. But there’s very little effort in this direction. This is a big problem. Continue reading “Elon Musk Likes Government the Referee, Not Government the Subsidizer”

Open Source Log4j Software Bug “Poses a Severe Risk”

(p. B1) The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency issued an urgent alert about the vulnerability and urged companies to take action. CISA Director Jen Easterly said on Saturday, “To be clear, this vulnerability poses a severe risk.” . . . Germany’s cybersecurity organization over the weekend issued a “red alert” about the bug. Australia called the issue “critical.”

Security experts warned that it could take weeks or more to assess the extent of the damage and that hackers exploiting the vulnerability could access sensitive data on networks and install back doors they could use to maintain access to servers even after the flawed software has been patched.

“It is one of the most significant vulnerabilities that I’ve seen in a long time,” said Aaron Portnoy, principal scientist with the security firm Randori.

. . .

(p. B2) The software flaw was reported late last month to the Log4j development team, a group of volunteer coders who distribute their software free-of-charge as part of the Apache Software Foundation, according to Ralph Goers, a volunteer with the project. The foundation, a nonprofit group that helps oversee the development of many open-source programs, alerted its user community about the vulnerability on Dec. 9 [2021].

“It’s a very critical issue,” Mr. Goers said. “People need to upgrade to get the fix,” he said. Log4j is used on servers to keep records of users’ activities so they can be reviewed later on by security or software development teams.

Because Log4j is distributed free, it is unclear how many servers are affected by the bug, but the logging software has been downloaded millions of times, Mr. Goers said.

For the full story, see:

Robert McMillan. “Software Flaw Spurs Race to Patch Bug.” The Wall Street Journal (Monday, December 13, 2021): B1-B2.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story was updated Dec. 12, 2021, and has the title “Software Flaw Sparks Global Race to Patch Bug.”)

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Firm Founders May Be More Innovative Than Professional Managers

(p. B11) In tech, there is often a visionary premium and it is at least somewhat justified. Tracking public companies’ performance over 25 years, Bain & Co. found the companies that best maintained profitable growth over the long term were disproportionately those at which the founder was still running the business, was still involved or where the founders’ operational focus was still in place. Based on an analysis of S&P 500 companies done in 2014, Bain found that founder-led companies generated over three times the indexed total shareholder return of other companies in the preceding 15 years. One wonders how much the study is affected by survivorship bias, though—those who flopped early aren’t in the sample.

Founders certainly are bolder. A 2016 study out of the Krannert School of Management at Purdue University found that founder CEOs are more likely to take their companies in a new technological direction, providing evidence that innovations of founder CEO-managed firms create more financial value than the innovations of professional CEO-managed firms.

Apple, which languished as a computer company in the years after its co-founder Steve Jobs was ousted, offers a twist on this phenomenon. Mr. Jobs returned as a savior. Among other things, he changed the company’s name from Apple Computer Inc. to Apple Inc., signaling an expansion of focus to a legacy that now includes the likes of the iPod, iPhone, Apple TV and more.

. . .

Mr. Dorsey’s major shortcoming at Twitter actually was a lack of such bold innovation. Activist investors who began calling for his departure years before it came have long pushed for faster product development and bigger revenue and user targets. They also took issue with the fact that Mr. Dorsey split his time as the chief of two publicly traded companies. When questioned at a shareholder meeting about his split time, Mr. Dorsey responded that it wasn’t a function of time, but of prioritization. During his second stint as chief executive over the course of more than six years, Twitter’s stock rose just one-fifth as much as the S&P 500.

Perhaps he prioritized his payments company, which is around 20 times as valuable today than it was in late 2015 when it went public. There are many current examples of tech companies still excelling with a founder or co-founder at the top. Nvidia and Shopify, which have returned more than 80,000% and nearly 6,000% to shareholders, respectively, since their public debuts, come to mind.

For the full commentary, see:

Laura Forman. “HEARD ON THE STREET; Many Tech Founders Can’t Stay Too Long.” The Wall Street Journal (Tuesday, December 7, 2021): B11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Dec. 6, 2021, and has the title “HEARD ON THE STREET; Should Investors Ride Tech Founders to the Moon?”)

I cannot find evidence that the Krannert School of Management paper mentioned above has been published. An abstract appeared as:

Lee, Joon Mahn, Jongsoo Jays Kim, and Bae Joonhyung. “Are Founder CEOs Better Innovators? Evidence from S&P 500 Firms.” Academy of Management Annual Meeting Proceedings 2016.

Demand for Oil and Gas “Will Remain Robust for Years to Come”

(p. B1) The leaders of the world’s largest oil companies said Monday [Dec. 6, 2021] that demand for the products they make will remain robust for years to come even as the world attempts to transition to lower-carbon energy sources.

The chief executives of Exxon Mobil Corp., Chevron Corp. and Saudi Arabian Oil Co., speaking at the World Petroleum Congress in Houston, said that while the world needs to address the risks posed by climate change, global economies cannot function without fossil fuels.

“Oil and gas continue to play a central role in meeting the world’s energy needs, and we play an essential role in delivering them in a lower carbon way,” Chevron CEO Mike Wirth said Monday. “Our products make the world run.”

. . .

(p. B2) Jeff Miller, chief executive of Halliburton Co., said Monday that the world’s underinvestment in oil and gas since 2014—years in which international spending was 50% below historical norms—is leading global markets to an era of scarcity.

. . .

Just a few weeks ago, some market observers had predicted crude prices could soon hit $100 a barrel for the first time in seven years, on the back of a strengthening demand recovery and sluggish growth in oil supplies.

For the full story, see:

Collin Eaton and Christopher M. Matthews. “Demand for Fossil Fuels Seen Lasting for Years.” The Wall Street Journal (Tuesday, December 7, 2021): B1-B2.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story was updated Dec. 6, 2021, and has the title “Demand for Oil, Gas to Remain Robust for Years, Energy Leaders Say.”)

Solve Future Crises by Allowing the Nimble to Innovate

Donald Boudreaux, on his Café Hayek blog, quotes a passage from my Openness book, saying that the best way to prepare for unknown future crises is to sustain a society where nimble innovators are allowed to nimbly innovate. Donald posted the quote on Mon., Dec. 6, 2021.

My book is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.