Economics – Page 167 – artdiamondblog.com

Google’s Redundant, Fault-Tolerant System Worked with Cheap, Low-Quality, Failure-Prone Equipment

(p. 183) Google was a tough client for Exodus; no company had ever jammed so many servers into so small an area. The typical practice was to put between five and ten servers on a rack; Google managed to get eighty servers on each of its racks. The racks were so closely arranged that it was difficult for a human being to squeeze into the aisle between them. To get an extra rack in, Google had to get Exodus to temporarily remove the side wall of the cage. “The data centers had never worried about how much power and AC went into each cage, because it was never close to being maxed out,” says Reese. “Well, we completely maxed out. It was on an order of magnitude of a small suburban neighborhood,” Reese says. Exodus had to scramble to install heavier circuitry. Its air-conditioning was also overwhelmed, and the colo bought a portable AC truck. They drove the eighteen-wheeler up to the colo, punched three holes in the wall, and pumped cold air into Google’s cage through PVC pipes.
. . .
The key to Google’s efficiency was buying low-quality equipment dirt cheap and applying brainpower to work around the inevitably high failure rate. It was an outgrowth of Google’s earliest days, when Page and Brin had built a server housed by Lego blocks. “Larry and Sergey proposed that we design and build our own servers as cheaply as we can– massive numbers of servers connected to a high-speed network,” says Reese. The conventional wisdom was that an equipment failure should be regarded as, well, a failure. Generally the server failure rate was between 4 and 10 percent. To keep the failures at the lower end of the range, technology companies paid for high-end equipment from Sun Microsystems or EMC. “Our idea was completely opposite,” says Reese. “We’re going to build hundreds and thousands of cheap servers knowing from the get-go that a certain percentage, maybe 10 percent, are going to fail,” says Reese. Google’s first CIO, Douglas Merrill, once noted that the disk drives Google purchased were “poorer quality than you would put into your kid’s computer at home.”
(p. 184) But Google designed around the flaws. “We built capabilities into the software, the hardware, and the network–network– the way we hook them up, the load balancing, and so on– to build in redundancy, to make the system fault-tolerant,” says Reese. The Google File System, written by Jeff Dean and Sanjay Ghemawat, was invaluable in this process: it was designed to manage failure by “sharding” data, distributing it to multiple servers. If Google search called for certain information at one server and didn’t get a reply after a couple of milliseconds, there were two other Google servers that could fulfill the request.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added.)

Samuelson Disputed Nephew Summers’ Praise for Milton Friedman

(p. A4) [Uncle Paul Samuelson and nephew Larry Summers] clashed over the fate of struggling mortgage giants Fannie Mae and Freddie Mac, which were bolstered by a government backstop in July 2008 and later taken over completely by the U.S. Treasury.
Mr. Samuelson found “strange and harmful” his nephew’s skepticism about the government backstop for the firms. Mr. Summers, a longtime critic of the two firms, wrote back that shareholders and management of Fannie and Freddie didn’t deserve taxpayer support.
Friction had emerged earlier in 2006, when Mr. Summers praised the late Mr. Friedman in a New York Times column. Friedman was “the most influential economist” of the second half of the 20th century, Mr. Summers said.
“For your eyes only,” Mr. Samuelson wrote to his nephew of Mr. Friedman, “I had to grade him low as a macro economist” and “stubbornly old fashioned.”

For the full story, see:
JON HILSENRATH. “A Close Bond and a Shared Love for ‘Dismal Science’; Correspondence Between Famously Brash Summers and His Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness.” The Wall Street Journal (Sat., September 14, 2013): A4.
(Note: bracketed words added.)
(Note: the online version of the story was updated on September 15, 2013 and has the title “Letters Show Little-Known Side of Summers; Correspondence With Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness.”)

Gates Did Not See that Gmail’s 2-Gig Storage Would Beat Hotmail

(p. 179) About six months after Gmail came out, Bill Gates visited me at Newsweek‘s New York headquarters to talk about spam. (His message was that within a year it would no longer be a problem. Not exactly a Nostradamus moment.) We met in my editor’s office. The question came up whether free email accounts should be supported by advertising. Gates felt that users were more negative than positive on the issue, but if people wanted it, Microsoft would offer it.
“Have you played with Gmail?” I asked him.
“Oh sure, I play with everything,” he replied. “I play with A-Mail, B-Mail, C-Mail, I play with all of them.”
My editor and I explained that the IT department at Newsweek gave us barely enough storage to hold a few days’ mail, and we both forwarded everything to Gmail so we wouldn’t have to spend our time deciding what to delete. Only a few months after starting this, both of us had consumed more than half of Gmail’s 2-gigabyte free storage space. (Google had already doubled the storage from one gig to two.)
Gates looked stunned, as if this offended him. “How could you need more than a gig?” he asked. “What’ve you got in there? Movies? PowerPoint presentations?”
No, just lots of mail.
He began firing questions. “How many messages are there?” he demanded. “Seriously, I’m trying to understand whether it’s the number of messages or the size of messages.” After doing the math in his head, he came to the conclusion that Google was doing something wrong.
The episode is telling. Gates’s implicit criticism of Gmail was that it was wasteful in its means of storing each email. Despite his currency with cutting-edge technologies, his mentality was anchored in the old paradigm of storage being a commodity that must be conserved. He had written his first programs under a brutal imperative for brevity. And Microsoft’s web-based email service reflected that parsimony.
The young people at Google had no such mental barriers. From the moment their company started, they were thinking in terms of huge numbers. Remember, they named their company after a 100-digit number! Moore’s Law was as much a fact as air for them, so they understood that the expense of the seemingly astounding 2 gigabytes they gave away in 2004 would be negligible only months later. It would take some months for Gates’s minions to catch up and for Microsoft’s Hotmail to dramatically increase storage. (Yahoo Mail also followed suit.)
“That was part of my justification for doing Gmail,” says Paul Buchheit of its ability to make use of Google’s capacious servers for its storage. “When people said that it should be canceled, I told them it’s really the foundation for a lot of other products. It just seemed obvious that the way things were going, all information was going to be online.”

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: italics in original.)

Brazilian Entrepreneur Inspired by “The Men Who Built America”

The co-founder of the Havan chain, Luciano Hang, arrives at the chain’s flagship store, which is in Brusque, Brazil. Source of photo: online version of the NYT article quoted and cited below.

(p. 6) “My philosophy is pro-capitalism, so of course the best symbols for this come from the United States,” said Mr. Hang, who flies around Brazil on a Learjet to visit the nearly 60 stores in his chain, called Havan. “I tell people that we’re about freedom: the freedom to stay open when we choose, the freedom to work for us and the freedom to shop,” he added. “I know this can be controversial, but I think those who disagree with my approach are few and far between.”
. . .
The son of textile factory workers, descended from German and Italian immigrants, Mr. Hang said he admired European culture but preferred the United States. He said he was inspired by a show on the History Channel, “The Men Who Built America,” about industrial titans like John D. Rockefeller and Cornelius Vanderbilt.
“I couldn’t sleep after I saw that program,” he said.
His business model is partly based on Walmart, whose small-town origins he admires, as well as its method of turning economies of scale into low prices.

For the full story, see:
SIMON ROMERO. “Reshaping Brazil’s Retail Scene, Inspired by Vegas and Vanderbilt.” The New York Times, First Section (Sun., September 15, 2013): 6.
(Note: ellipsis added.)
(Note: the online version of the story has the date September 14, 2013.)

Innovative Entrepreneurs More Likely to Have Engaged in Illicit Activities as Teens

(p. C4) What does it take to be a successful entrepreneur? The signs are obvious in future moguls’ teenage years: brains, confidence–and illicit activities.
Those are the surprising findings of a new working paper by economists at the University of California at Berkeley and the London School of Economics. The researchers argue that merely being self-employed isn’t a particularly good indicator of entrepreneurship, in the sense of taking big risks and mobilizing capital to create new goods and services.
. . .
. . . the professors sorted the self-employed into those who were incorporated and those who were not, with the researchers regarding the former as the genuine entrepreneurs.
. . .
Despite . . . dubious youthful pursuits, the incorporated tended to come from stable, well-educated families with high incomes in 1979. These entrepreneurs were much more likely to be white, male and well-educated than were salaried workers or the unincorporated self-employed.

For the full story, see:
DANIEL AKST. “The Bad-Boy Entrepreneur.” The Wall Street Journal (Sat., August 17, 2013): C4.
(Note: ellipses added.)
(Note: the online version of the review has the date August 16, 2013.)

The working paper discussed is:
Levine, Ross, and Yona Rubinstein. “Smart and Illicit: Who Becomes an Entrepreneur and Does It Pay?” NBER Working Paper # 19276, August 2013.

Rising Google Stock Prices Led Googlers to Be Wary of Innovation

(p. 156) . . . Googlers were affected by stock ownership. (They were, after all, human.) Bo Cowgill, a Google statistician, did a series of studies of his colleagues’ behavior, based on their participation in a “prediction market,” a setup that allowed them to make bets on the success of internal projects. He discovered that “daily stock price movements affect the mood, effort level and decision-making of employees.” As you’d expect, increases in stock performance made people happier and more optimistic– but they also led them to regard innovative ideas more warily, indicating that as Googlers became richer, they became more conservative. That was exactly the downside of the IPO that the founders had dreaded.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added; italics in original.)

“SEC Rules Demanded Complexity”

(p. 152) Google had considerable experience with pleasing users, but in the case of the auction, it could not create a simple interface. SEC rules demanded complexity. So the Google auction was a lot more complicated than buying Pokémon cards on eBay. People had to qualify financially as bidders. Bids had to be placed by a brokerage. If you made an error in reg-(p. 153)istering, you could not correct it but had to reregister. All those problems led to a few postponements of the start of the bidding period.
But the deeper problem was the uncertainty of Google’s prospects. As the press accounts accumulated–with reporters informed by Wall Streeters eager to sabotage the process– the perception grew that Google was a company with an unfamiliar business model run by weird people. A typical Wall Street insider analysis was reflected by Forbes.com columnist Scott Reeves, who concluded that Google’s target price, at the time pegged to the range between $ 108 and $ 135 a share, was excessive. “Only those who were dropped on their head at birth [will] plunk down that kind of cash for an IPO,” Reeves wrote.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

Taxpayers Work, Save and Invest More When Taxes Are Low

Source of book image: online version of the WSJ review quoted and cited below.

(p. 15) The 1980s boom was launched on the simple insight that, by lowering tax rates and regulatory hurdles and juicing the incentives to produce, innovate and take risks, the animal spirits of the American free-enterprise system would revive. Two seminal books hatched the supply-side revolution. The first was Jude Wanniski’s “The Way the World Works” (1978); the second, George Gilder’s “Wealth and Poverty” (1981).

Almost as influential, coming a few years later, was Lawrence Lindsey’s “The Growth Experiment” (1990). Slightly academic in nature, it was the first book to quantify the economic and revenue windfall of the 1981 Reagan across-the-board tax cuts. Mr. Lindsey’s conclusion was that Reagan’s 1981 tax act quickened the pace of production, which reduced the predicted revenue loss. His research found that although the Reagan tax cuts didn’t “pay for themselves,” the ones at the highest end of the income spectrum “did produce a revenue gain” because of “changes in taxpayer behavior.” He concluded that “the core supply-side tenet–that tax rates powerfully affect the willingness of taxpayers to work, save and invest, and thereby also affect the health of the economy–won as stunning a vindication as has been seen in at least a half-century of economics.”
He has now updated his book, taking us through the booms and busts of the past 20 years. It is a valuable project in part because Mr. Lindsey was a front-seat economic adviser to George W. Bush, serving as director of the National Economic Council and as one of the architects of the often-maligned 2001 and 2003 Bush tax cuts.
Mr. Lindsey’s central claim is that those tax changes saved the economy from the undertow of the financial meltdown at the end of the Clinton presidency.

For the full review, see:
Stephen Moore. “BOOKSHELF; Book Review: ‘The Growth Experiment Revisited’ by Lawrence Lindsey; The 25 years after Reagan’s tax cuts saw unprecedented wealth creation and progress. America’s net worth exploded by $40 trillion.” The Wall Street Journal (Tues., September 10, 2013): A15.
(Note: ellipsis added.)
(Note: the online version of the review has the date September 9, 2013, and has the title “BOOKSHELF; Book Review: ‘The Growth Experiment Revisited’ by Lawrence Lindsey; The 25 years after Reagan’s tax cuts saw unprecedented wealth creation and progress. America’s net worth exploded by $40 trillion.”)

The book under review is:
Lindsey, Lawrence B. The Growth Experiment Revisited: Why Lower, Simpler Taxes Really Are America’s Best Hope for Recovery. New York: Basic Books, 2013.

SEC Told Google to Delete “Making the World a Better Place” from Document

(p. 150) . . . , the Securities and Exchange Commission was unimpressed by the charms of Page’s “Owner’s Manual.” “Please revise or delete the statements about providing ‘a great service to the world,’ ‘to do things that matter,’ ‘greater positive impact on the world, don’t be evil’ and ‘making the world a better place,'” they wrote. (Google would not revise the letter.) The commission also had a problem with Page’s description of the lawsuit that Overture (by then owned by Yahoo) had filed against Google as “without merit.” Eventually, to resolve this issue before the IPO date, (p. 151) Google would settle the lawsuit by paying Yahoo 2.7 million shares, at an estimated value of between $ 260 and $ 290 million.
That set a contentious tone that ran through the entire process. The SEC cited Google’s irregularities on a frequent basis, whether it was a failure to properly register employee stock options, inadequate reporting of financial results to stakeholders, or the use of only first names of employees in official documents. It acted toward Google like a junior high school vice principal who’d identified an unruly kid as a bad seed, requiring constant detentions.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added.)

“I Didn’t Open My Own Company to Have Someone Else Tell Me How to Run It”

“”They’re picking on my employees,” Edward Taylor, the president of Down East Seafood, said, referring to the commission.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A16) The day after Jonathan Sanchez was released from prison in 2010 after serving three years for a burglary, he walked into Down East Seafood in Hunts Point in the South Bronx and asked for a job, and a second chance. He got both.

But now Mr. Sanchez must document the past he has tried to leave behind, in an 11-page application for a photo identification card issued by a city agency that is responsible for ferreting out organized crime. He is one of hundreds of food workers who have come under scrutiny in recent years by the agency, the New York City Business Integrity Commission, not because of any known ties to mob bosses but simply because they work for a company in Hunts Point.
. . .
“This was my brand new start,” said Mr. Sanchez, 26, who makes $40,000 a year packing lobster orders.
Mr. Sanchez said he worried that his past crime will follow him from job to job and brand him as an ex-con. “I feel violated because I don’t think those things have to be asked,” he said. “I feel that it could stigmatize me.”
. . .
Edward Taylor, the president of Down East Seafood, said more than half of his 60 employees had told him they did not want to complete the application. A couple of them have even said they would instead quit.
Mr. Taylor, who had to answer similar questions himself to register the company, said he would not have moved to Hunts Point from Manhattan in 2005 if he had known about the commission. The company, which he started in 1990 with $500 borrowed from a friend, supplies more than 700 establishments, including Dean & DeLuca, the Harvard and Yale Clubs and the dining rooms at the United Nations.
“They’re picking on my employees,” he said. “I didn’t open my own company to have someone else tell me how to run it.”

For the full story, see:
WINNIE HU. “Food Workers Criticize a Commission’s Scrutiny.” The New York Times (Sat., September 21, 2013): A16.
(Note: ellipses added.)
(Note: the online version of the story has the date September 20, 2013, and has the title “Food Workers in Hunts Point Criticize a Commission’s Scrutiny.”)

Some Entrepreneurs Are Motivated by Desire for Personal Wealth

Source of book image: online version of the WSJ review quoted and cited below.

I have read many biographies of innovative entrepreneurs. Like the author of the review of the book discussed in the passages quoted below, I believe that they have a variety of motives. But I am more optimistic than the book author that many of the entrepreneurs, those I call “project entrepreneurs,” are motivated mainly by a desire to ‘make a ding in the universe.’ Among these I would count Walt Disney and Steve Jobs.

(p. A11) Successful entrepreneurs, in my experience, are tenacious, hardheaded and creative. They persist with their ideas long after others might have given up, and they are good at persuading clients, partners and investors to take a chance. Like successful people in any field, they are driven by a powerful inner need, sometimes positive, like the hunger to do something entirely original, but often less appealing: a large chip on the shoulder, a desire for revenge, a distaste for authority and in many cases flat-out greed.
. . .
In “Worthless, Impossible, and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value,” Daniel Isenberg, a professor of entrepreneurship at Babson College and before that at Harvard Business School, offers many useful stories of entrepreneurship, culled from his teaching experience. But it isn’t until two-thirds of the way through that he torturously concedes that every entrepreneur needs a streak of Gordon Gekko.
“I have gradually come to the difficult conclusion that the burning desire for extraordinary value capture is almost a sine qua non for the supreme effort required to convert the value from imagined into tangible value,” he writes. “Personal gain is the simplest and most powerful motivation. If a person does not feel deeply that ‘This must pay off for me,’ there will rarely be extraordinary value creation.”

For the full review, see:
PHILIP DELVES BROUGHTON. “BOOKSHELF; Who Moved My Fortune? Some entrepreneurs want to do good. Many more are driven by a chip on the shoulder, a desire for revenge, a distaste for authority.” The Wall Street Journal (Sat., July 31, 2013): A11.
(Note: ellipsis added.)
(Note: the online version of the review has the date July 30, 2013.)