The Futurist

The Winds of War, The Sands of Time, v2.0

This is a version 2.0 of a legendary article written here back on March 19, 2006, noticed and linked by Hugh Hewitt, which led to The Futurist getting on the blogosphere map for the first time.  Less than four years have elapsed since the original publication, but the landscape of global warfare has changed substantially over this time, warranting an update to the article. 

In the mere 44 months since the original article was written, what seemed impossible has become a reality.  The US now has an upper hand against terrorist groups like Al-Qaeda, despite the seemingly impossible task of fighting suicidal terrorists.  As regular readers of The Futurist are aware, I issued a prediction in May of 2006, during the darkest days of the Iraq War, that not only would the US win, but that the year of victory would be precisely in 2008.  As events unfolded, that prediction turned out to be precisely correct.  As readers continue to ask how I was able to make such a prediction against seemingly impossible odds, I claim that it is not very difficult, once you understand the necessary conditions of war and peace within the human mind. 

Given the massive media coverage of the minutia of the Iraq War, and the fashionable fad of being opposed to it, one could be led to think that this is one of the most major wars ever fought.  Therein lies the proof that we are actually living in the most peaceful time ever in human history. 

Just a few decades ago, wars and genocides killing upwards of a million people were commonplace, with more than one often underway at once.  Remember these?

Second Congo War (1998-2002) : 3.6 million deaths

Iran-Iraq War (1980-88) : 1.5 million deaths

Soviet Invasion of Afghanistan (1979-89) : 1 million deaths

Khmer Rouge (1975-79) : 1.7 million deaths from genocide

Bangladesh Liberation War (1971) : 1.5 million deaths from genocide

Vietnam War (1957-75) : 2.4 million deaths

Korean War (1950-53) : 3 million deaths

This list is by no means complete, as wars killing fewer than one million people are not even listed.  At least 30 other wars killed over 20,000 people each, between 1945 and 1989.

If we go further back to the period from 1900-1945, we can see that multiple wars were being simultaneously fought across the world.  Going further back still, the 19th century had virtually no period without at least two major wars being fought.

We can thus conclude that by historical standards, the current Iraq War was tiny, and can barely be found on the list of historical death tolls.  That it got so much attention merely indicates how little warfare is going on in the world, and how ignorant of historical realities most people are. 

Why have so many countries quitely adapted to peaceful coexistence?  Why is a war between Britain and France, or Russia and Germany, or the US and Japan, nearly impossible today?  Why are we not seeing a year like 1979, where the entire continent of Asia threatened to fly apart due to three major events happening at once (Iranian Revolution, Soviet Invasion of Afghanistan, Chinese invasion of VietNam)? 

We can start with the observation that never have two democratic countries, with per-capita GDPs greater than $10,000/year on a PPP basis, gone to war with each other.  The decline in warfare in Europe and Asia corelates closely with multiple countries meeting these two conditions over the last few decades, and this can continue as more countries graduate to this standard of freedom and wealth.  The chain of logic is as follows :

1) Nations with elected governments and free-market systems tend to be the overwhelming majority of countries that achieve per-capita incomes greater than $10,000/year.  Only a few petro-tyrannies are the exception to this rule. 

2) A nation with high per-capita income tends to conduct extensive trade with other nations of high prosperity, resulting in the ever-deepening integration of these economies with each other.  A war would disrupt the economies of both participants as well as those of neutral trading partners.   Since the citizens of these nations would suffer financially from such a war, it is not considered by elected officials. 

3) As more of the world's people gain a vested interest in the stability and health of the interlocking global economic system, fewer and fewer countries will consider international warfare as anything other than a lose-lose proposition.

4) More nations can experience their citizenry moving up Maslow's Hierarchy of Needs, allowing knowledge-based industries thrive, and thus making international trade continuously easier and more extensive. 

5) Since economic growth is continuously acceleratingmany countries crossed the $10,000/yr barrier in just the last 20 years, and so the reduction in warfare after 1991 years has been drastic, even if there was little apparent reduction over the 1900-1991 period. 

This explains the dramatic decline in war deaths across Europe, East Asia, and Latin America over the last few decades.  Thomas Friedman has a similar theory, called the Dell Theory of Conflict Prevention, wherein no two countries linked by a major supply chain/trade network (such as that of a major corporation like Dell Computer), have ever gone to war with each other, as the cost of losing the presence of major industries through war is prohibitive to both parties.  If this is the case, then the combinations of countries that could go to war with each other continues to drop quickly. 

To predict the future risk of major wars, we can begin by assessing the state of some of the largest and/or riskiest countries in the world.  Success at achieving democracy and a per-capita GDP greater that $10,000/yr are highlighted in green.  We can also throw in the UN Human Development Index, which is a composite of these two factors, and track the rate of progress of the HDI over the last 30 years.  In general, countries with scores greater than 0.850, consistent with near-universal access to consumer-class amenities, have met the aforementioned requirements of prosperity and democracy.  There are many more countries with a score greater than 0.850 today than there were in 1975.

Let's see how some select countries stack up.

  

China : The per-capita income is rapidly closing in on the $10,000/yr threshold, but democracy is a distant dream.  I have stated that China will see a sharp economic slowdown in the next 10 years unless they permit more personal freedoms, and thus nurture entrepreneurship.  Technological forces will continue to pressure the Chinese Communist Party, and if this transition is moderately painless, the ripple effects will be seen in most of the other communist or autocratic states that China supports, and will move the world strongly towards greater peace and freedom.  The single biggest question for the world is whether China's transition happens without major shocks or bloodshed.  I am optimistic, as I believe the CCP is more interested in economic gain than clinging to an ideology and one-party rule, which is a sharp contrast from the Mao era where 40 million people died over ideology-driven economic schemes.  Cautiously optimistic. 

India : A secular democracy has existed for a long time, but economic growth lagged far behind.  Now, India is catching up, and will soon be a bulwark for democracy and stability for the whole world.  Some of the most troubled countries in the world, from Burma to Afghanistan, border India and could transition to stability and freedom under India's sphere of influence.  India is only now realizing how much the world will depend on it.  Optimistic.

Russia : A lack of progress in the HDI is a total failure, enabling many countries to overtake Russia over the last 15 years.  Putin's return to dictatorial rule is a further regression in Russia's progress.  Hopefully, energy and technology industries can help Russia increase its population growth rate, and up its HDI.  Cautiously optimistic.

Indonesia : With more Muslims than the entire Middle East put together, Indonesia took a large step towards democracy in 1999 (improving its HDI score), and is doing moderately well economically.  Economic growth needs to accelerate in order to cross $10,000/yr per capita by 2020.  Cautiously optimistic.

Pakistan : My detailed Pakistan analysis is here.  The divergence between the paths of India and Pakistan has been recognized by the US, and Pakistan, with over 50 nuclear warheads, is also where Osama bin Laden and thousands of other terrorists are currently hiding.  Any 'day of infamy' that the US encounters will inevitably be traced to individuals operating in Pakistan, which has regressed from democracy to dictatorship, and is teetering on the edge of religious fundamentalism.  The economy is growing quickly, however, and this is the only hope of averting a disaster.  Pakistan will continue to struggle between emulating the economic progress of India against descending into the dysfunction of Afghanistan.  Pessimistic.

Iraq : Although Iraq is not a large country, its importance to the world is disproportionately significant.  Bordering so many other non-democratic nations, our hard-fought victory in Iraq now places great pressure on all remaining Arab states.  The destiny of the US is also interwined with Iraq, as the outcome of the current War in Iraq will determine the ability of America to take any other action, against any other nation, in the future.  Optimistic.

Iran : Many would be surprised to learn that Iran is actually not all that poor, and the Iranian people have enough to lose that they are not keen on a large war against a US military that could dispose of Iran's military just as quickly as they did Saddam's.  However, the autocratic regime that keeps the Iranian people suppressed has brutally quashed democratic movements, most recently in the summer of 2009.  The secret to turning Iran into a democracy is its neighbor, Iraq.  If Iraq can succeed, the pressure on Iran exerted by Internet access and globalization next door will be immense.  This will continue to nibble at the edges of Iranian society, and the regime will collapse before 2015 even without a US invasion.  If Iran's leadership insists on a confrontation over their nuclear program, the regime will collapse even sooner.  Cautiously optimistic. 

So Iraq really is a keystone state, and the struggle to prevail over the forces that would derail democracy has major repurcussions for many nations.  The US, and the world, could nothave afforded for the US mission in Iraq to fail.  But after the success in Iraq, all remaining roads to disastrous tragedy lead to Pakistan.  The country in which the leadership of Al-Qaeda resides is the same country where the most prominent nuclear scientist was caught selling nuclear secrets on the black market.  This is simply the most frightening combination of circumstances that exists in the world today, far more troubling than anything directly attributable to Iran or North Korea. 

But smaller-scale terrorism is nothing new.  It just was not taken as seriously back when nations were fighting each other in much larger conflicts. The 1983 Beirut bombing that killed 241 Americans did not dominate the news for more than two weeks, as it was during the far more serious Cold War.  Today, the absence of wars between nations brings terrorism into the spotlight that it could not have previously secured. 

Wars against terrorism have been a paradigm shift, because where a war like World War II involved symmetrical warfare between declared armies, the War on Terror involves asymmetrical warfare in both directions.  Neither party has yet gained a full understanding of the power it has over the other. 

A few terrorists with a small budget can kill thousands of innocents without confronting a military force. Guerilla warfare can tie down the mighty US military for years until the public grows weary of the stalemate, even while the US cannot permit itself to use more than a tiny fraction of its power in retaliation.  Developed nations spend vastly more money on political and media activites centered around the mere discussion of terrorism than the terrorists themselves need to finance a major attack on these nations. 

At the same time, pervasively spreading Internet access, satellite television, and consumer brands continue to disseminate globalization and lure the attention of young people in terrorist states.  We saw exactly this in Iran in the summer of 2009, where state-backed murders of civilian protesters were videotaped by cameraphone, and immediately posted online for the world to see.  This unrelentingly and irreversibly erodes the fabric of pre-modern fanaticism at almost no cost to the US and other free nations.  The efforts by fascist regimes to obstruct the mists of the information ethersphere from entering their societies is so futile as to be comical, and the Iranian regime may not survive the next uprising, when even more Iranians will have camera phones handy.  Bidirectional asymmetry is the new nature of war, and the side that learns how to harness the asymmetrical advantage it has over the other is the side that will win.

It is the wage of prosperous, happy societies to be envied, hated, and forced to withstand threats that they cannot reciprocate back onto the enemy.  The US has overcome foes as formidable as the Axis Powers and the Soviet Union, yet we managed to adapt and gain the upper hand against a pre-modern, unprofessional band of deviants that does not even have the resources of a small nation and has not invented a single technology.  The War on Terror was thus ultimately not with the terrorists, but with ourselves - our complacency, short attention spans, and propensity for fashionable ignorance over the lessons of history. 

But 44 months turned out to be a very long time, during which we went from a highly uncertain position in the War on Terror to one of distinct advantage.  Whether we continue to maintain the upper hand that we currently have, or become too complacent and let the terrorists kill a million of us in a day remains to be seen. 

Energy vs. Financials, FINAL RESULTS

Many of you may be familiar with this sectoral strategy that I have presented, which was due to the unusually wide extreme to which these two sectors had diverged from each other as of April 22, 2008. To review :

On April 22, 2008, I decided to go short on Energy (XLE) and long on Financials (XLF).

Then, on May 20, 2009, I decided to cover the Energy short, and use the proceeds to double down on Financials.  Up till that point, the trade had earned a loss of -5.36%, vs. a loss of -32.20% for the S&P500.

Now, it is time to sell the Financials position, and assess the final performance over the entire 18-month period, against the S&P 500.

The purple line indicates the May 20, 2009 transition from being short XLE to covering that short and using the full proceeds to double down on XLF.  Note that the short of XLE was profitable, so that the amount that was redeployed to XLF was more than the existing value of the XLF position. 

Therefore, the final results are (with all dividends reinvested) :

 
This strategy yielded a gain of 21.92% vs. a loss of -17.19% for the S&P500.  This is a huge gap of almost 40 points, and means that $10,000 deployed to this strategy would have yielded $12,192, vs. just $8,281 if placed in the S&P500 over this period.  Also note how the gap widened from what it was on May 20, 2009. 

This continues our track record here at The Futurist of collectively beating the market by a wide margin, with portfolios that beat the market greatly exceeding the deficit of those that do not.  Of course, these trades are for entertainment purposes only, and should not be taken as professional advice. 

Related :

A History of Stock Market Bottoms   

The Next Two US Recessions

Here at The Futurist, we maintain a track record of predicting bubbles, busts, and recessions long before they happen.  For example, the housing bubble was identified in April 2006, back when a person could be socially excommunicated for claiming that houses may not rise in value forever.  After that, I have identified when the current recession started, months before most economists, and have even predicted when the present recession will end, and at what level job losses would end at.  This track record will now lead me to set my sights on the next two troubles on the horizon, which will be the causes of the next two potential recessions. 

1) 2011 : The tax cuts enacted by President Bush are set to expire at the end of 2010, returning tax brackets to what they were in 2000.  Most middle class brackets will rise by 3%, and the top bracket will rise 4.6% from 35% to 39.6%.  This is effectively a tax increase that will be upon us in 14 months.  At the same time, the Fed Funds rate is at a record low near 0%, and has been for several months.  This low interest rate has ended the current recession, but virtually guarantees future inflation.  As the Federal Reserve is forced to raise interest rates, liquidity contracts again, the housing prices continue on the correction that was not allowed to complete itself in 2009.  A mere rise in the rate back up to 3% could push housing prices down another leg, battering household wealth yet again, and driving yet more people into negative net worth.  The housing correction is not fully complete until we have sustained a Fed Funds rate over 3% for at least a year.  The timing of this could combine with the tax increase, which would create a joint burden too heavy for the economy to bear, causing a new recession in 2011. 

This situation could be avoided easily, by reducing the budget deficit through the quaint notion of spending cuts instead of tax increases that stifle incentives and encumber small businesses.  However, barring a seismic shift in the 2010 congressional elections that dispose of many Democrats and replace them with fiscally conservative Republicans (themselves an endangered group within the Republican Party), I do not see the government taking prudent preventive action. 

2) ~2017 : For all the uninformed talk about a 'weak dollar', the damage of this will affect nations that export to the US more than the US itself.  However, when the PPP per capita GDP of China begins to exceed the world average (by about 2017), then Chinese currency will have to rise to achieve convergence with nominal GDP, effectively adding several trillion dollars to nominal World GDP.  This will lead to massive tectonic shifts in the global economy, none of which are destructive, but will result in confusion, for which the immediate reaction will be a US and EU recession (even amidst a rise in World GDP) until all of the following effects are sorted out :

a) The US will see a bout of inflation as prices of Chinese imports rise.  At the same time, US exports will surge.

b) Oil prices will spike above $120 as Chinese purchasing power of oil rises, effectively creating greater demand.  This will cause short-term pain, followed by longer-term good as described here.  Part of the good from an oil spike will be the collapse of many tyrannical petro-regimes, due to burning the candle at both ends, as detailed in the link.

c) Many of the developing countries that neighbor China (which are populated by an additional 2 billion people) will experience the gravitational pull of China's now huge economy, and see a forced currency appreciation long before they are ready.  This will cause an unexpected set of changes in India, Pakistan, Bangladesh, VietNam, the Philipines, and Indonesia (these 6 countries containing 2 billion people) as a massive adjustment process will have to occur in a very short time, toppling many industries and creating new ones within these countries. 

d) After everything is sorted out, the US and EU will be significantly smaller percentages of World GDP, but the US would see higher GDP growth rates due to a near-elimination of the trade-deficit.  Asia, as a region, would have a much larger economy than the EU or North America. 

So these are the two possible recessions that the US faces, the first in 2011 and the second in the latter half of the next decade.  Prudent fiscal management could sidestep the first, while the second is an inevitable byproduct of the adjustments borne of poverty reduction. 

In any event, investment opportunities, and, more importantly, bullet-dodging opportunities abound.  In the immediate term, however, if you are considering buying a home in an expensive US area such as New York or California, do not buy one.   

Related :

The Housing Bubble - 20-Year Gains May Never be Repeated

A Future Timeline for Economics

Why I Want Oil to Hit $120/Barrel

Mobile Broadband Surge : A Prediction Follow Up

Some of you may recall that over three and a half years ago, on February 4, 2006, I predicted that by 2013, at least 900 million people in emerging nations, 80% of whom had no Internet connection in 2006, would have access to a wireless broadband connection through their cellphones.  That seemed like a bold prediction at the time.

But in the Economist, there is a special report on mobile phones in the developing world, and this chart depicts the progress towards my prediction quite nicely.  Mobile broadband subscribers will go from nearly zero in early 2006 when the prediction was first made, to 1.4 billion by 2013 (of which 900 million can safely be assumed to be in emerging nations). 

It is often said that no other invention has done more for so many people so quickly than the mobile phone, given the large number of people who did not have even a landline phone prior to getting a mobile phone.  However, the inital deployment of rudimentary mobile phones was just the beginning.  As 3G broadband at speeds greater than 1 mbps spread to a billion people with no prior Internet access, the entire nature of their existence is transformed.  As per this second chart from the Economist report, the GDP boost from broadband Internet penetration is far higher than the already-impressive boost we have seen from simple mobile access, and we can thus expect another, stronger wave of human advancement as mobile broadband diffuses.  Simultaneously, the entire nature of the Internet is also transformed.  Think of the massive developmental catalyst such a rapid technological diffusion would be.  Child literacy would rise as the educational materials of the full Internet will be available in locations where no libraries exist, making near-universal child literacy a reality within a decade.  Agricultural and fishery supply chains will shorten tremendously.  Disaster relief will become far easier, as will the apprehension of criminals.  The upliftment that once appeared to be a process of decades will now happen in mere years.   

We can thus proceed to the next prediction, which is that by 2020, 4 billion people will have 4G wireless broadband access on their handheld mobile phone, at speeds exceeding 100 Mbps.  In other words, a landline speed that even wealthy Americans could not have in 2005 will be available wirelessly to billions of the very poorest people just 15 years later, in 2020.  Imagine that. 

Timing the Singularity

The Singularity.  The event when the rate of technological change becomes human-surpassing, just as the advent of human civilization a few millenia ago surpassed the comprehension of non-human creatures.  So when will this event happen?

There is a great deal of speculation on the 'what' of the Singularity, whether it will create a utopia for humans, cause the extinction of humans, or some outcome in between.  Versions of optimism (Star Trek) and pessimism (The Matrix, Terminator) all become fashionable at some point.  No one can predict this reliably, because the very definition of the singularity itself precludes such prediction.  Given the accelerating nature of technological change, it is just as hard to predict the world of 2050 from 2009, as it would have been to predict 2009 from, say, 1200 AD.  So our topic today is not going to be about the 'what', but rather the 'when' of the Singularity. 

Let us take a few independent methods to arrive at estimations on the timing of the Singularity.

1) Ray Kurzweil has constructed this logarithmic chart that combines 15 unrelated lists of key historic events since the Big Bang 15 billion years ago.  The exact selection of events is less important than the undeniable fact that the intervals between such independently selected events are shrinking exponentially.  This, of course, means that the next several major events will occur within single human lifetimes. 

Kurzweil wrote with great confidence, in 2005, that the Singularity would arrive in 2045.  One thing I find about Kurzweil is that he usually predicts the nature of an event very accurately, but overestimates the rate of progress by 50%.  Part of this is because he insists that computer power per dollar doubles every year, when it actually doubles every 18 months, which results in every other date he predicts to be distorted as a downstream byproduct of this figure.  Another part of this is that Kurzweil, born in 1948, is taking extreme measures to extend his lifespan, and quite possibly may have an expectation of living until 100 but not necessarily beyond that.  A Singularity in 2045 would be before his century mark, but herein lies a lesson for us all.  Those who have a positive expectation of what the Singularity will bring tend to have a subconscious bias towards estimating it to happen within their expected lifetimes.  We have to be watchful enough to not let this bias influence us.  So when Kurzweil says that the Singularity will be 40 years from 2005, we can apply the discount to estimate that it will be 60 years from 2005, or in 2065. 

2) John Smart is a brilliant futurist with a distinctly different view on accelerating change from Ray Kurzweil, but he has produced very little visible new content in the last 5 years.  In 2003, he predicted the Singularity for 2060, +/- 20 years.  Others like Hans Moravec and Vernor Vinge also have declared predictions at points in the mid/late 21st century. 

3) Ever since the start of the fictional Star Trek franchise in 1966, they have made a number of predictions about the decades since, with impressive accuracy.  In Star Trek canon, humanity experiences a major acceleration of progress starting from 2063, upon first contact with an extraterrestrial civilization.  While my views on first contact are somewhat different from the Star Trek prediction, it is interesting to note that their version of a 'Singularity' happened to occur in 2063 (as per the 1996 film Star Trek : First Contact). 

4) Now for my own methodology.  We shall first take a look at novel from 1863 by Jules Verne, titled "Paris in the 20th Century".  Set about a century in the future from Verne's perspective, the novel predicts innovations such as air conditioning, automobiles, helicopters, fax machines, and skyscrapers in detail.  Such accuracy makes Jules Verne the greatest futurist of the 19th century, but notice how his predictions involve innovations that occured within 120 years of writing.  Verne did not predict exponential growth in computation, genomics, artificial intelligence, cellular phones, and other innovations that emerged more than 120 years after 1863.  Thus, Jules Verne was up against a 'prediction wall' of 120 years, which was much longer than a human lifespan in the 19th century. 

But now, the wall is closer.  In the 3.5 years since the inception of The Futurist, I have consistently noticed a 'prediction wall' on all long-term forecasts, that makes it very difficult to make specific predictions beyond 2040 or so.  In contrast, it was not very hard to predict the state of technology in 1930 from the year 1900, just 30 years prior.  Despite all the inventions between 1900 and 1930, the diffusion rate was very slow, and it took well over 30 years for many innovations to affect the majority of the population.  The diffusion rate of innovation is much faster today, and the pervasive Impact of Computing is impossible to ignore.  This 'event horizon' that we now see does not mean the Singularity will be as soon as 2040, as the final couple of decades before the Singularity may still be too fast to make predictions about until we get much closer.  But the compression of such a wall/horizon from 120 years in Jules Verne's time to 30 years today gives us some idea of the second derivative in the rate of change, and many other top futurists have observed the same approaching phenomenon.  By 2030, the prediction wall may thus be only 15 years away.  By the time of the Singularity, the wall would be almost immediately ahead from a human perspective. 

So we can return to the Impact of Computing as a driver of the 21st century economy.  In the article, I have written about how about $700 Billion per year as of 2008, which is 1.5% of World GDP, comprises of products that improve at an average of 59% a year per dollar spent.  Moore's Law is a subset of this, but this cost deflation applies to storage, software, biotechnology, and a few other industries as well. 

If products tied to the Impact of Computing are 1.5% of the global economy today, what happens when they are 3%? 5%?  Perhaps we would reach a Singularity when such products are 50% of the global economy, because from that point forward, the other 50% would very quickly diminish into a tiny percentage of the economy, particularly if that 50% was occupied by human-surpassing artificial intelligence.   

We can thus calculate a range of dates by when products tied to the Impact of Computing become more than half of the world economy.  In the table, the columns signify whether one assumes that 1%, 1.5%, or 2% of the world economy is currently tied, and the rows signify the rate at which this percentage share of the economy is increasing, whether 6%, 7%, or 8%.  This range is derived from the fact that the semiconductor industry has a 12-14%% nominal growth trend, while nominal world GDP grows at 6-7% (some of which is inflation).  Another way of reading the table is that if you consider the Impact of Computing to affect 1% of World GDP, but that share grows by 8% a year, then that 1% will cross the 50% threshold in 2059.  Note how a substantial downward revision in the assumptions moves the date outward only by years, rather than centuries or even decades. 

We see these parameters deliver a series of years, with the median values arriving at around the same dates as aforementioned estimates.  Taking all of these points in combination, we can predict the timing of the Singularity.  I hereby predict that the Technological Singularity will occur in :

2060-65 ± 10 years

So the earliest that it can occur is 2050 (hence the URL of this site), and the latest is 2075, with the highest probability of occurance in 2060-65.  There is virtually no statistical probability that it can occur outside of the 2050-75 range (sorry, Ray). 

So now we know the 'when' of the Singularity.  We just don't know the 'what', nor can we with any certainty. 

Related :

The Impact of Computing

Are You Acceleration Aware?

Pre-Singularity Abundance Milestones

SETI and the Singularity

Video Conferencing : A Cascade of Disruptions

Almost 3 years ago, in October of 2006, I first wrote about Cisco's Telepresence technology which had just launched at that time, and how video conferencing that was virtually indistinguishable from reality was eventually going to sharply increase the productivity and living standards of corporate employees (image : Cisco). 

At that time, Cisco and Hewlett Packard both launched full-room systems that cost over $300,000 per room.  Since then, there has not been any price drop from either company, which is unheard of for a system with components subject to Moore's Law rates of price declines.  This indicates that market demand has been high enough for both Cisco and HP to sustain pricing power and improve margins.  Smaller companies like LifeSIze, Polycom, and Teleris have lower-end solutions for as little as $10,000, that have also been selling briskly, but have not yet dragged down the Cisco/HP price tier.

This article in the San Jose Mercury News indicates what sort of savings these two corporations have earned by use of their own systems :

In a trend that could transform the way companies do business, Cisco Systems has slashed its annual travel budget by two-thirds — from $750 million to $240 million — by using similar conferencing technology to replace air travel and hotel bills for its vast workforce.

Likewise, Hewlett-Packard says it sliced 30 percent of its travel expenses from 2007 to 2008 — and expects even better results for 2009 — in large part because of its video conference technology.

If Cisco can chop its travel expenses by two-thirds, and save $500 million per year (which increases their annual profit by a not-insignificant 6-10%), then every other large corporation can save a similar magnitude of money.  For corporations with very narrow operating margins, the savings could have a dramatic impact on operating earnings, and therefore stock price.  The Fortune 500 alone (excluding airline and hotel companies) could collectively save $100 billion per year, in a wave set to begin immediately if either Cisco or HP drops the price of their solution, which may happen in a matter of months.  We will soon see that for every $20 that corporations used to spend on air travel and hotels, they will instead be spending only $1 on videoconferencing expenses.  This is gigantic gain in enterprise productivity. 

Needless to say, high-margin airline revenue from flights between major business centers (such as San Francisco-Taipei or New York-London) will be slashed, and airlines will have to consolidate to fewer flights, making suitability for business travel even less flexible and losing even more passengers.  Hotels will have to consolidate, and taxis and restaurants in business hubs will suffer as well.  But these are merely the most obvious of disruptions.  What is even more interesting are the less obvious ripple effects that only manifest a few years later, which are :

1) Employee Time and Hassle : Anyone who has had to travel to another continent for a Mon-Fri workweek trip knows that the process of taking a taxi to the airport, waiting 2 hours at the airport, the flight itself, and the ride to the final destination consumes most of the weekends on either side of the trip.  Most senior executives log over 200,000 miles of flight per year.  This is a huge drag on personal time and quality of life.  Travel on weekdays consume productive time that the employer could benefit from, which for senior executives, could be worth thousands of dollars per hour.  Furthermore, in an era of superviruses, we have already seen SARS, bird flu, and swine flu as global pandemic threats within the last few years.  A reduction of business travel will slow down the rate at which such viruses can spread across the globe and make quarantines less inconvenient for business (although tourist travel and remaining business travel are still carriers of this). 

2) Real Estate Prices in Expensive Areas : Home prices in Manhattan and Silicon Valley are presently 4X or more higher than a home of the same square footage 80 miles away.  By 2015, the single-screen solution that Cisco sells for $80,000 today may cost as little as $2000, and those from LifeSize and others may be even cheaper, so hosting meetings with colleagues from a home office might be as easy as running a conference call.  A good portion of employees who have small children may find it possible to do their jobs in a manner than requires them to go to their corporate office only once or twice a week.  If even 20% of employees choose to flee the high-cost housing near their offices, the real estate prices in Manhattan and Silicon Valley will deflate significantly.  While this is bad news for owners of real-estate in such areas, it is excellent news for new entrants, who will see an increase in their purchasing power.  Best of all, working families may be able to afford to have children that they presently cannot finance. 

3) Passenger Aviation Technological Leap : Airlines and aircraft manufacturers have little recourse but to respond to these disruptions with innovations of their own, of which the only compelling possibility is to have each journey take far less time.  It is apparent that there has been little improvement in the speed of passenger aircraft in the last 40 years.  J. Storrs Hall at the Foresight Institute has an article up with a chart that shows the improvements and total flattening of the speed of passenger airline travel.  The cost of staying below Mach 1 vs. being above it are very different, as much as 3X, which accounts for the sudden halt in speed gains just below the speed of sound after the early 1960s.  However, the technologies of supersonic aircraft (which exist, of course, in military planes) are dropping in price, and it is possible that suborbital passenger flight could be available for the cost of a first-class ticket by 2025.  The Ansari X-prize contest and Space Ship Two have already demonstrated early incarnations of what could scale up to larger planes.  This will not reverse the video-conferencing trend, of course, but it will make the airlines more competitive for those interactions that have to be in person. 

So we are about to see a cascade of disruptions pulsate through the global economy.  While in 2009, you may have no choice but to take a 14-hour flight (each way) to Asia, in 2025, the similar situation may present you with a choice between handling the meeting with the videoconferencing system in your home office vs. taking a 2-hour suborbital flight to Asia. 

This, my friends, is progress. 

The Next Big Thing in Entertainment, A Half-Time Update

On April 1, 2006, I wrote a detailed article on the revolutionary changes that were to occur in the concept of home entertainment by 2012 (see Part I and Part II of the article).  Now, in 2009, half of the time within the six-year span between the original article and the prediction has elapsed.  Of course, given the exponential nature of progress, much more happens within the second half of any prediction horizon relative to the first half. 

The prediction issued in 2006 was:

Video Gaming (which will no longer be called this) will become a form of entertainment so widely and deeply partaken in that it will reduce the time spent on watching network television to half of what it is (in 2006), by 2012.

The basis of the prediction was detailed in various points from the original article, which in combination would lead to the outcome of the prediction.  The progress as of 2009 around these points is as follows :

1) Video game graphics continue to improve : Note the progress of graphics at 10-year intervals starting from 1976.  Projecting the same trend, 2012 will feature many games with graphics that rival that of CGI films, which itself can be charted by comparing Pixar's 'Toy Story' from 1995 to 'Up' from 2009.  See this demonstration from the 2009 game 'Heavy Rain', which arguably exceeds the graphical quality of many CGI films from the 1990s.   

The number of polygons per square inch on the screen is a technology that is closely tied to The Impact of Computing, and can only rise steadily.  The 'uncanny valley' is a hurdle that designers and animators will take a couple of years to overcome, but overcoming this barrier is inevitable as well. 

2) Flat-screen HDTVs reach commodity prices : This has already happened, and prices will continue to drop so that by 2012, 50-inch sets with high resolution will be under $1000.  A thin television is important, as it clears the room to allow more space for the movement of the player.  A large size and high resolution are equally important, in order to create an immersive visual experience. 

We are rapidly trending towards LED and Organic LED (OLED) technologies that will enable TVs to be less than one centimeter thick, with ultra-high resolution. 

3) Speech and motion recognition as control technologies : When the original article was written on April 1, 2006, the Nintendo Wii was not yet available in the market.  But as of June 2009, 50 million units of the Wii have sold, and many of these customers did not own any game console prior to the Wii. 

The traditional handheld controllers are very limited in this regard, despite being used by hundreds of millions of users for three decades.  If the interaction that a user can have with a game is more natural, the game becomes more immersive to the human senses.  See this demonstration from Microsoft for their 'Project Natal' interface technology, due for release in 2010. 

Furthermore, haptic technologies have made great strides, as seen in the demonstration videos over here.  Needless to say, the possibilities are vast. 

4) More people are migrating away from television, and towards games :  Television viewership is plummeting, particularly among the under-50 audience, as projected in the original 2006 article.  Fewer and fewer television programs of any quality are being produced, as creative talent continues to leak out of television network studios.  At the same time, World of Warcraft has 11 million subscribers, and as previously mentioned, the Wii has 50 million units in circulation. 

There are only so many hours of leisure available in a day, and Internet surfing, movies, and video games are all more compelling than the ever-declining quality of television offerings.  Children have already moved away from television, and the trend will creep up the age scale.

5) Some people can earn money through games : There are an increasing number of ways where avid players can earn real money from activities within a Game.  From trading of items to selling of characters, this market is estimated at over $1 billion in 2008, and is growing. Highly skilled players already earn thousands of dollars per year this way, and with more participants joining through more advanced VR experiences described above, this will attract a group of people who are able to earn a full-time living through these VR worlds.  This will become a viable form of entrepreneurship, just like eBay and Google Ads support entrepreneurial ecosystems today. 

Taking all 5 of these points in combination, the original 2006 prediction appears to be on track.  By 2012, hours spent on television will be half of what they were in 2006, with sports and major live events being the only forms of programming that retain their audience. 

Overall, the prediction seems to be well on track.  Disruptive technologies are in the pipeline, and there is plenty of time for each of these technologies to combine into unprecedented new applications.  Let us see what the second half of the time interval, between now and 2012, delivers. 

Eight Ways to Supercharge the US Economy

The United States of America has traditionally been the most economically innovative nation on Earth, and the best place for free-enterprise and self-accomplishment.  It still is, but we cannot quite say that with as much certainty as before.  Where did we lose our way?  Why did America stop being able to dream the greatest dreams, and do the greatest things? 

All this can be reversed almost immediately if the US government, private sector, and public really want to, however.  There are eight straightforward changes could push US economic growth onto a permanently higher trajectory.  These are not short-term stimuli meant to postpone the present malaise, but are ideas that have separately been floating around for a long time, but without a core theme to unify them.  These are also not unoriginal ideas (such as raising the retirement age in corelation with rising life expectancy), or unrealistic ideas (such as exporting violent criminals to some poor country to be detained there at low cost), even if those ideas would be effective and popular.  Instead, I aim to think bigger.  Each idea presented, thus, has to surpass the $1 Trillion mark in direct and indirect benefits, yet still be practical enough to implement immediately (if the mediocrity of the decision-makers in power were not a barrier). 

These ideas would usher in a permanent surge in the growth rate for the next 20 years, even though some of them would also bring an immediate burst nonetheless.  Most of the ideas are governmental, but there is one idea each for US corporations and for US citizens. 

I hereby present a path to unprecedented prosperity for America :

1) Immigration Reform : My detailed case for skill-based immigration can be found here.  In summary :

US immigration policy, at present, is exactly the opposite of what it should be.  Presently, highly skilled immigrants who seek to follow the law are put through an excruciating process lasting 7-12 years, fraught with restrictions on the changing of employers and the spouse's right to work.  At the same time, unskilled immigrants, many with criminal tendencies, have an incentive to enter the US illegally and consume services paid for by the US taxpayer.  US prisons are filled with a disproportionate number of unskilled illegal immigrants, while the next Andy Grove, Vinod Khosla, Elon Musk, Pierre Omidyar, and Sergey Brin are faced with a tortuous, interminable ordeal that may lead them to conclude that coming to America is not as worthwhile as it was a generation ago. 

If a corporation or a university can choose to accept only the best that it can get, why can't America do the same?  I propose that the US allow quick and unlimited immigration for anyone with a bachelor's degree from a recognized university in their country (a list of institutions by country which the US DHS maintains on a website).  This will create an influx of about 1,000,000 young, educated immigrants each year into the US, which is still lower than the number of unskilled immigrants, legal plus illegal, entering each year.  It takes $200,000 to educate a child from age 4 all the way through completion of a bachelor's degree, so such an influx would effectively create a knowledge import of $200 Billion into the US each year.  Only 30% of US citizens have a bachelor's degree, so these immigrants would increase the average educational level and median income of the country.  Simultaneously, unskilled immigration, legal and certainly illegal, should be halted/prevented until further notice. 

Every problem, from social security shortfalls to a surplus of unsold homes and cars to a lack of engineering and science talent in the US, will be solved.  Healthcare cost increases would be contained as the supply of doctors, nurses, and physiotherapists rises.  Every distortion caused by an aging population and the retirement of baby boomers will be offset.  Political, economic, and even social/familial ties with India and China will strengthen, as most of these skilled immigrants will be from these two countries. 

It is just about the most productive economic strategy that the US can employ, and would start taking effect almost immediately.  The shockingly uninformed notion that such immigrants 'take jobs away' or 'depress wages' has been debunked in the detailed case, and is a belief held by reactionaries who fail to consider that the same jobs can be offshored out of the US to find their candidates if the candidate is not brought here. 

2) Tax Simplification : My detailed case for tax simplification can be found here.  In summary :

Time is money, and moreso than ever in a prosperous society.  Before even discussing the reduction or increase in tax rates, there should first be a reduction in tax complexity.  If a family earning $100,000 is currently required to pay $20,000 in income taxes to the Federal Government, so be it.  But at least let the process of calculating this tax payment take 20 minutes instead of 20 hours.  For a small business, preparing their taxes can consume as much as 80 hours per year.  At present, the complexity of the tax code costs the US economy $400 to $600 billion a year in lost productivity and transactional wastage. 

Is there any possible argument against this, aside from the need to provide loopholes to favored groups, who themselves still suffer from the complexity of the tax code, outside of their custom loophole?  The present morass is a massive burden that is a disgrace to the spirit of free enterprise and unworthy of America. 

3) Tax Exemption for Entrepreneurial Innovators : The reason that innovation prizes like the X-Prize are so valuable is that they evoke superlative efforts out of their contestants.  This is entirely the opposite of most charities, which merely give ambition-dampening handouts to those deemed to be needy.  By some measures, a $10 million X-Prize creates $500 million or more of innovation value. 

However, after one team out of dozens of competitors wins a particular X-Prize of $10 Million or so, they have to turn around and pay 45% of it in income taxes.  So the real prize is just $5.5 Million.  If the IRS were to exempt these innovation prizes from taxation, the cost to the US government would be tiny, relative to the value of innovation that the now-larger prize would inspire. 

I would take this concept further, and state that anyone who founds a successful technology company should be exempt from taxes on his shares and stock options.  Effectively, a tax cut for creators of jobs, technologies, and wealth, who are known as 'change agents'.  Of course, proper restrictions must be made to prevent fraud, but this stimulus would create a tremendous incentive for entrepreneurial innovation, and actually lead to higher overall tax revenue from the surplus of new jobs created, as the employees of these companies are not exempt from taxes.

This is just about the highest gain targeted tax relief that could be employed, and, if combined with idea 1), would bring the most dynamic entrepreneurs to America from across the globe (at least 40% of Silicon Valley startups are founded by immigrants, even today).  For an initial cost of less than 0.1% of current tax collections, we could supercharge the economy.  History has shown that a society that is unfriendly to entrepreneurship is not a society worth living in, but a society where the entrepreneur is cherished is the best society of all. 

4) Make Sarbanes-Oxley Voluntary : The 'SarbOx' compliance requirements make it far more tedious for a young company to go public.  For a small public company, SarbOx compliance may cost $3 million per year in auditing and legal fees, which could otherwise be spent on research and development.  Even 8 years after the end of the dot-com collapse, the flow of high-tech IPOs remains a trickle, while corruption has arguably not seen any general reduction. 

The solution is to make SarbOx compliance voluntary.  A corporation can choose to comply, and then let the market decide whether compliance to SarbOx should result in a share price premium, or discount.  If a company that has chosen not to comply to SarbOx is later found to have conducted fraud, all other companies will see their decision regarding SarbOx reflected in their prices.  If a company that does not spend money on SarbOx instead outcompetes its rivals due to more R&D investment, let the market reflect that as well.  The entirely different situations facing blue-chip corporations relative to fresh IPOs can thus be catered to. 

5) Reform Divorce Laws : The present laws for the dissolution of marriage have resulted in millions of highly productive workers having a strong incentive not to perform at their full capacity.  This is a huge opportunity cost to the economy.

Two single people pay higher combined taxes than a married couple.  Beyond this, children who grow up with divorced parents tend to underachieve in many aspects of life, and become liabilities to the taxpayer.  Yet, we currently have divorce laws in America that provide perverse incentives for women to leave marriages that traditionally would have been considered acceptable, and consequently for the next generation of men to not enter marriage in the first place.  Thus, the percentage of adults in stable marriages continues to shrink.  Incentives matter, and the present incentive structure has disastrous long-term implications. 

A few decades ago, a person seeking divorce was required to provide significant justification.  Now, 'no-fault' divorce grants quick divorce to either party, without any burden of justification.  At the same time, the concept of alimony was meant to maintain a woman who did not have any financial security of her own, and to dissuade a man from leaving his family (i.e. when he was at fault).  Both of these laws independently had merit in the era that they were passed. 

However, both of these combined lead to 'no-fault alimony'.  A woman can decide to not work at all while the husband is out working long hours, and still leave him on a 'no-fault' basis and still get payments from him for years, possibly forever if the marriage was long enough.  Let me state that again : she decides to leave without having to provide any justification, and he still has to pay her for a very long time after that.  This leads to many women abusing the law for financial gain, or at the very least, threaten the husband throughout the marriage, knowing that the power of the state is behind her.  Perversely, the dutiful husbands are often the ones ruined by the machinery of the state under the current laws, while the 'bad boys' get off lightly.  70-90% of divorces are initiated by the wife due to this incentive stucture, and while feminists seek to punish 'bad boys', 'players', and 'deadbeats', it is actually the faithful, responsible men who usually suffer. 

Given the extreme risks to a man entering marriage in present-day America, more and more younger men are deciding that it is simply not worth the risk.  As a result, many good-hearted, average women who want nothing more than to create a picture-perfect family, will find themselves competing for a much smaller pool of men who are willing to marry, and thus many of these women will not find husbands within the window of their youth.  Such market forces have accelerated the meteoric rise of the pickup artist (PUA) industry complete with seminars, coaches, blogs, manuals, support networks of 'wingmen', and hidden-camera footage of successful pickups packaged and sold as instructional courses.  This is leading to an America of 'more cads, less dads'.  While this may be fun for practicing PUAs, it is not a sustainable societal model for any prosperous country.  Furthermore, many divorced men are forced to live off just 20% of their original income after being brutalized by the machinery of the state.  The natural response from such men would be to not work as hard, but such a disincentive for productive work would be ruinous.  As almost all technological inventors are men, why should an inventor paying alimony bother to invent?  Why not become a PUA instead, since that is a skill that no one can take away from him? 

If America (and other Anglosphere countries) make it too unattractive for men to marry, Anglosphere society will deservedly die.  This is where social conservatives have been an abysmal failure, shambolically unable to see the forest from the trees.  Their distracted focus on combating issues that are already done deals (abortion) or that affect very few people (gay marriage), while limiting their support of marital commitment to empty sermonizing about how marriage is 'sacred', has meekly ceded the defense of the fabric they hoped to preserve.  Their sermonizing, against legally sanctioned financial incentives for divorce combined with growing misandry in the media, is about as effective as a pea shooter against steel. 

The solution is to have either no-fault divorce, OR alimony, but certainly not both.  Either one by itself may be fair, but the two in combination certainly is not.  One of the two, preferably alimony, must end.  The second solution is for social conservatives to get their priorities in order, under a new generation of leadership that understands the 21st century social and legal climate. 

6) Make Tax Day One Day Before Election Day : The fact that April 15 and the first Tuesday in November are as far apart from each other as they are has itself cost the American taxpayer trillions of dollars, only due to human psychology.  If, however, elections were held precisely when the taxpayer is most irate with the wastage of taxpayer funds, fiscal conservatism will immediately become the highest priority of any political candidate. 

The recent 'Tea Party' protests are a step in the right direction, but are still too unfocused.  If anyone with Tea Party connections is reading this, please consider pitching this idea as a mission to focus the efforts around.  All other objectives of tax reduction, spending restraint, and penalties for pork-barrel wastage will automatically flow as downstream outcomes of this.  This would enable ideas 2) and 3) to become realities as well.  Politicians will resist this, but when cornered into a debate, they will not be able to produce any persuasive excuse that conceals their desire to maintain the profligate status quo. 

As you can see, many of these are policies that have existed in America in the past - when America was ascendant.  Out of these six, even one or two would create a dramatic economic boom.  I have no illusions that the mediocre minds in Washington would implement (indeed, re-implement) any of these ideas, or even have the courage to uproot the entrenched interests that profit from the moribund status quo. 

Related : Why Government is Set to Extinguish Silicon Valley

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However, US corporations are not blameless in all this.  The shortsightedness of many senior executives costs their corporations far more money than an approach that sees beyond merely the next quarter or the end of the fiscal year.  

1) A Measured Balance Between Layoffs and Salary Reductions : During economic contractions, headcount reductions are often necessary, and often facilitate the process of creative destruction and reinvention.  However, too many corporations are taking an axe, rather than scalpel approach to cost-reduction, that has collateral expenses that they do not account for. 

A layoff involves granting 2-12 weeks of severance pay to an employee.  When hiring resumes 6-18 months later (the average duration of most recessions), the employer has to spend time interviewing new candidates, paying them a signing bonus, and training them for a couple of months.  Even then, the new employee may or may not be a fit for the organization.  The whole layoff and re-hiring process has great inefficiencies and large transactional costs, leading to crashes in consumer confidence and then lengthy 'jobless recoveries' in the economy. 

There are also hidden costs, born by the former employee and broader society.  Divorces rise after layoffs, and the combination of many tragedies at once can often lead to the final tragedy - suicide.  The employer bears costs too, as an army of resentful ex-employees can join competitors, tarnish the company's reputation in this Web 2.0 era, or, in the most extreme cases, mentally snap and gun down a few of his former bosses (which does happen from time to time). 

At the same time, the concept of temporary salary reductions receives an illogical, knee-jerk dismissal.  The stupid claim that it 'discourages top performers' seems to assume that hearing about a divorce, suicide, or foreclosure in the life of your former colleague of many years, or the prospect of a shooting, is somehow not as discouraging. 

The solution is very simple : drain the bath water out systematically, rather than throwing the baby out with it.  Most corporations have a 5-point performance rating scale, with 5 being the top, 3 being adequate, and 2 or 1 leading to necessary termination.  A corporation could simply implement a reduction of 0% for employees rated at '5', 10% for employees rated at '4', 20% for employees rated at '3', for two quarters, before taking the more drastic step of layoffs.  If economic conditions stabilize, the salaries can be restored (which itself is quicker and cheaper than recruiting and hiring new employees).  If conditions worsen further, only then begin with either a deeper reduction or layoffs. 

No one gets divorced or suicidal from the ripple effects of a temporary 20% pay cut.  A few may leave, but those are likely to be average performers, and are leaving by their choice (and hence do not get severance pay).  In fact, most employees may not even know who got how much of a reduction, due to performance ratings being mostly confidential.  The dignity of the employee is preserved, the transaction costs of firing and re-hiring are avoided, and the 'jolt' to the employee, and thus collateral damage in society, is lessened.  Thus, the sharp plunge and jobless recovery cycle is greatly moderated, and the drop in consumer confidence that is found at the deepest part of the recession is avoided, which quickens the recovery itself. 

Some corporations already do this, and have been more successful than their competitors over cumulative business cycles.  But the concept of longer-term planning on this issue is still absent in most large employers, and it is shocking that the value of gradual staging and restoration is not recognized. 

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Last but not least, there is an elephant in the room of economic reform.  It is that of the US citizen, and one major aspect of the economy that is usually at the top of any list of economic issues. 

1) Americans Have to Adopt Healthier Habits: It is hard to go a single day without seeing an article about healthcare reform.  However, I did not put it in my list of 6 governmental ideas, as I was never quite convinced that it is entirely the government's responsibility to keep Americans healthy, or to extend their lifespan, despite their abuse of their own health.  Too much of our healthcare system is built around treatment, and too little around the prevention of illness in the first place.  Personal responsibility to reduce the habits that lead to disease has to be taken by the individual, and so I am going to hold the pudgy feet of the average American to the fire.

While America is the best county in the world in most ways, in terms of dietary health, it sadly is just about the worst.  What North Korea and Zimbabwe are to economics, America is to healthy cuisine.  So much so, that most Americans don't eat actual food at all, but rather 'food-like substances' as Michael Pollan calls them.  Dismantling and rebuilding the American diet will be about as hard as dismantling the USSR and Eastern Bloc. 

Cancer, cardiovascular disease, diabetes, and Alzheimer's disease are the four leading causes of death in America.  We spend, directly or indirectly, about $2 Trillion a year (15% of GDP) on these four diseases.  Yet, a person can greatly reduce their chances of getting all four with some very simple adaptations.  For all the anguish about life expectancy not rising quickly enough, and the need for more funding for research, the old adage of a penny of prevention outweighing a pound of cure still applies.  US life expectancy would rise by 5 years if all adults did the following :

1) Do not smoke at all, and only drink a little, of either beer or red wine.

2) Do not consume sugary foods or drinks, fried foods, fast foods, or too many processed foods.

3) Make sure that 80% of what you eat is fruits and vegetables of as many different varieties as possible (fresh, not canned).  Dairy consumption should be moderate.  Red meat should be kept to an absolute minimum (no more than 2 times a month), and should be of the highest quality. 

4) Berries, mangoes, lentils, whole beans, cauliflower, cabbage, beets, carrots, turmeric, garlic, green tea, avocados, wild greens, fresh tomatoes, salmon, olive oil, flaxseeds, walnuts, cilantro, oatmeal, yogurt, and dark chocolate should be favored ahead of all other foods, for reasons too lengthy to get into here. 

5) Cut every portion size by at least 10%, ideally 20%.

6) Exercise 3 times a week, for 30 minutes each.

7) Adopt a bit of yoga and meditation into your life. 

That is it.  Do just this, and you will gain both quantity and quality of years.  No one disputes the merit of these habits, and most discussion of them centers around why the person in question lacks and discipline or willpower to stick to these habits.  The death rates of cancer, cardiovascular disease, and Alzheimer's would plunge, and healthcare costs would be cut in half (saving $1 Trillion).  Furthermore, since healthier foods are cheaper than unhealthy ones, another $500 Billion will be saved in consumer spending, to be better used elsewhere. 

$1.5 Trillion saved per year, as well as 5 more years of life.  Yet, Americans can't seem to do it, and often become hostile when it is suggested that this program is easy.  It does not make much sense to whine about the lack of a cure for cancer before a person has taken the simple steps that can reduce their chances of getting cancer by 75% or more.  More education through some government initiatives is not the answer.  That has already been done to the extreme.  You can lead a horse to water, and even force its mouth into the water, but you cannot make it drink. 

Americans have to get their own health in order first, then talk about the healthcare system meeting them halfway.  Currently, the healthcare system is expected to magically undo too many self-inflicted maladies, an admission most Americans are unwilling to make. 

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Just eight steps to be taken, six by the government, and one each for corporations and individuals, to create the Golden Age, where US prosperity would triple between now and 2030.  All of these ideas have to do with creating better incentive structures, with an underpinning of more personal responsibility.  It is so simple, yet so distant.  

SETI and the Singularity

The Search for Extra-Terrestrial Intelligence (SETI) seeks to answer one of the most basic questions of human identity - whether we are alone in the universe, or merely one civilization among many.  It is perhaps the biggest question that any human can ponder. 

The Drake Equation, created by astronomer Frank Drake in 1960, calculates the number of advanced extra-terrestrial civilizations in the Milky Way galaxy in existence at this time.  Watch this 8-minute clip of Carl Sagan in 1980 walking the audience through the parameters of the Drake Equation.  The Drake equation manages to educate people on the deductive steps needed to understand the basic probability of finding another civilization in the galaxy, but as the final result varies so greatly based on even slight adjustments to the parameters, it is hard to make a strong argument for or against the existence of extra-terrestrial intelligence via the Drake equation.  The most speculative parameter is the last one, fL, which is an estimation of the total lifespan of an advanced civilization.  Again, this video clip is from 1980, and thus only 42 years after the advent of radio astronomy in 1938.  Another 29 years, or 70%, have since been added to the age of our radio-astronomy capabilities, and the prospect of nuclear annihilation of our civilization is far lower today than in was in 1980.  No matter how ambitious or conservative of a stance you take on the other parameters, the value of fL in terms of our own civilization, continues to rise.  This leads us to our first postulate :

The expected lifespan of an intelligent civilization is rising.       

Carl Sagan himself believed that in such a vast cosmos, that intelligent life would have to emerge in multiple locations, and the cosmos was thus 'brimming over' with intelligent life.  On the other side are various explanations for why intelligent life will be rare.  The Rare Earth Hypothesis argues that the combination of conditions that enabled life to emerge on Earth are extremely rare.  The Fermi Paradox, originating back in 1950, questions the contradiction between the supposed high incidence of intelligent life, and the continued lack of evidence of it.  The Great Filter theory suggests that many intelligent civilizations self-destruct at some point, explaining their apparent scarcity.  This leads to the conclusion that the easier it is for civilization to advance to our present stage, the bleaker our prospects for long-term survival, since the 'filter' that other civilizations collide with has yet to face us.  A contrarian case can thus be made that the longer we go without detecting another civilization, the better. 

But one dimension that is conspicuously absent from all of these theories is an accounting for the accelerating rate of change.  I have previously provided evidence that telescopic power is also an accelerating technology.  After the invention of the telescope by Galileo in 1609, major discoveries used to be several decades apart, but now are only separated by years.  An extrapolation of various discoveries enabled me to crudely estimate that our observational power is currently rising at 26% per year, even though the first 300 years after the invention of the telescope only saw an improvement of 1% a year.  At the time of the 1980 Cosmos television series, it was not remotely possible to confirm the existence of any extrasolar planet or to resolve any star aside from the sun into a disk.  Yet, both were accomplished by the mid-1990s.  As of May 2009, we have now confirmed a total of 347 extrasolar planets, with the rate of discovery rising quickly.  While the first confirmation was not until 1995, we now are discovering new planets at a rate of 1 per week.  With a number of new telescope programs being launched, this rate will rise further still.  Furthermore, most of the planets we have found so far are large.  Soon, we will be able to detect planets much smaller in size, including Earth-sized planets.  This leads us to our second postulate :

Telescopic power is rising quickly, possibly at 26% a year.  

This Jet Propulsion Laboratory chart of exoplanet discoveries through 2004 is very overdue for an update, but is still instructive.  The x-axis is the distance of the planet from the star, and the y-axis is the mass of the planet.  All blue, red, and yellow dots are exoplanets, while the larger circles with letters in them are our own local planets, with the 'E' being Earth.  Most exoplanet discoveries up to that time were of Jupiter-sized planets that were closer to their stars than Jupiter is to the sun.  The green zone, or 'life zone' is the area within which a planet is a candidate to support life within our current understanding of what life is.  Even then, this chart does not capture the full possibilities for life, as a gas giant like Jupiter or Saturn, at the correct distance from a Sun-type star, might have rocky satellites that would thus also be in the life zone.  In other words, if Saturn were as close to the Sun as Earth is, Titan would also be in the life zone, and thus the green area should extend vertically higher to capture the possibility of such large satellites of gas giants.  The chart shows that telescopes commissioned in the near future will enable the detection of planets in the life zone.  If this chart were updated, a few would already be recorded here.  Some of the missions and telescopes that will soon be sending over a torrent of new discoveries are :

Kepler Mission : Launched in March 2009, the Kepler Mission will continuously monitor a field of 100,000 stars for the transit of planets in front of them.  This method has a far higher chance of detecting Earth-sized planets than prior methods, and we will see many discovered by 2010-11.

COROT : This European mission was launched in December 2006, and uses a similar method as the Kepler Mission, but is not as powerful.  COROT has discovered a handful of planets thus far. 

New Worlds Mission : This 2013 mission will build a large sunflower-shaped occulter in space to block the light of nearby stars to aid the observation of extrasolar planets.  A large number of planets close to their stars will become visible through this method. 

Allen Telescope Array : Funded by Microsoft co-founder Paul Allen, the ATA will survey 1,000,000 stars for radio astronomy evidence of intelligent life.  The ATA is sensitive enough to discover a large radio telescope such as the Arecibo Observatory up to a distance of 1000 light years.  Many of the ATA components are electronics that decline in price in accordance with Moore's Law, which will subsequently lead to the development of the..... 

Square Kilometer Array : Far larger and more powerful than the Allen Telescope Array, the SKA will be in full operation by 2020, and will be the most sensitive radio telescope ever.  The continual decline in the price of processing technology will enable the SKA to scour the sky thousands of times faster than existing radio telescopes. 

These are merely the missions that are already under development or even under operation.  Several others are in the conceptual phase, and could be launched within the next 15 years.  So many methods of observation used at once, combined with the cost improvements of Moore's Law, leads us to our third postulate, which few would have agreed with at the time of 'Cosmos' in 1980 :

Thousands of planets in the 'life zone' will be confirmed by 2025. 

Now, we will revisit the under-discussed factor of accelerating change.  Out of 4.5 billion years of Earth's existence, it has only hosted a civilization capable of radio astronomy for 71 years. But as our own technology is advancing on a multitude of fronts, through the accelerating rate of change and the Impact of Computing, each year, the power of our telescopes increases and the signals of intelligence (radio and TV) emitted from Earth move out one more light year.  Thus, the probability for us to detect someone, and for us to be detected by them, however small, is now rising quickly.  Our civilization gained far more in both detectability, and detection-capability, in the 30 years between 1980 and 2010, relative to the 30 years between 1610 and 1640, when Galileo was persecuted for his discoveries and support of heliocentrism, and certainly relative to the 30 years between 70,000,030 and 70,000,000 BC, when no advanced civilization existed on Earth, and the dominant life form was Tyrannosaurus. 

Nikolai Kardashev has devised a scale to measure the level of advancement that a technological civilization has achieved, based on their energy technology.  This simple scale can be summarized as follows :

Type I : A civilization capable of harnessing all the energy available on their planet.

Type II : A civilization capable of harnessing all the energy available from their star.

Type III : A civilization capable of harnessing all the energy available in their galaxy.

The scale is logarithmic, and our civilization currently would receive a Kardashev score of 0.72.  We could potentially achieve full Type I status by the mid-21st century due to a technological singularity.  Some have estimated that our exponential growth could elevate us to Type II status by the late 22nd century.  

This has given rise to another faction in the speculative debate on extra-terrestrial intelligence, a view held by Ray Kurzweil, among others.  The theory is that it takes such a short time (a few hundred years) for a civilization to go from the earliest mechanical technology to reach a technological singularity where artificial intelligence saturates surrounding matter, relative to the lifetime of the home planet (a few billion years), that we are the first civilization to come this far.  Given the rate of advancement, a civilization would have to be just 100 years ahead of us to be so advanced that they would be easy to detect within 100 light years, despite 100 years being such a short fraction of a planet's life.  In other words, where a 19th century Earth would be undetectable to us today, an Earth of the 22nd century would be extremely conspicuous to us from 100 light years away, emitting countless signals across a variety of mediums. 

A Type I civilization within 100 light years would be readily detected by our instruments today.  A Type II civilization within 1000 light years will be visible to the Allen or the Square Kilometer Array.  A Type III would be the only type of civilization that we probably could not detect, as we might have already been within one all along.  We do not have a way of knowing if the current structure of the Milky Way galaxy is artificially designed by a Type III civilization.  Thus, the fourth and final postulate becomes :

A civilization slightly more advanced than us will soon be easy for us to detect.

The Carl Sagan view of plentiful advanced civilizations is the generally accepted wisdom, and a view that I held for a long time.  On the other hand, the Kurzweil view is understood by very few, for even in the SETI community, not that many participants are truly acceleration aware.  The accelerating nature of progress, which existed long before humans even evolved, as shown in Carl Sagan's cosmic calendar concept, also from the 1980 'Cosmos' series, simply has to be considered as one of the most critical forces in any estimation of extra-terrestrial life.  I have not yet migrated fully to the Kurzweil view, but let us list our four postulates out all at once :

The expected lifespan of an intelligent civilization is rising.  

Telescopic power is rising quickly, possibly at 26% a year. 

Thousands of planets in the 'life zone' will be confirmed by 2025. 

A civilization slightly more advanced than us will soon be easy for us to detect.

As the Impact of Computing will ensure that computational power rises 16,000X between 2009 and 2030, and that our radio astronomy experience will be 92 years old by 2030, there are just too many forces that are increasing our probabilities of finding a civilization if one does indeed exist nearby.  It is one thing to know of no extrasolar planets, or of any civilizations.  It is quite another to know about thousands of planets, yet still not detect any civilizations after years of searching.  This would greatly strengthen the case against the existence of such civilizations, and the case would grow stronger by year.  Thus, these four postulates in combination lead me to conclude that :

 

 

 

Most of the 'realistic' science fiction regarding first contact with another extra-terrestrial civilization portrays that civilization being domiciled relatively nearby.  In Carl Sagan's 'Contact', the civilization was from the Vega star system, just 26 light years away.  In the film 'Star Trek : First Contact', humans come in contact with Vulcans in 2063, but the Vulcan homeworld is also just 16 light years from Earth.  The possibility of any civilization this near to us would be effectively ruled out by 2030 if we do not find any favorable evidence.  SETI should still be given the highest priority, of course, as the lack of a discovery is just as important as making a discovery of extra-terrestrial intelligence. 

If we do detect evidence of an extra-terrestrial civilization, everything about life on Earth will change.  Both 'Contact' and 'Star Trek : First Contact' depicted how an unprecedented wave of human unity swept across the globe upon evidence that humans were, after all, one intelligent species among many.  In Star Trek, this led to what essentially became a techno-economic singularity for the human race.  As shown in 'Contact', many of the world's religions were turned upside down upon this discovery, and had to revise their doctrines accordingly.  Various new cults devoted to the worship of the new civilization formed almost immediately. 

If, however, we are alone, then according to many Singularitarians, we will be the ones to determine the destiny of the cosmos.  After a technological singularity in the mid-21st century that merges our biology with our technology, we would proceed to convert all matter into artificial intelligence, make use of all the elementary particles in our vicinity, and expand outward at speeds that eventually exceed the speed of light, ultimately saturating the entire universe with out intelligence in just a few centuries.  That, however, is a topic for another day.   

Energy vs. Financials, RESULTS

On April 22, 2008, I wrote about how the Energy and Financial sectors had diverged from each other, up to that point, to a degree that rarely happens between any two major sectors of the market.  I proceeded to suggest a trade of shorting Energy while going long on Financials. 

Let us see how that trade turned out, about 1 year after it was suggested. 

 

Both sectors did worse than the S&P500, but as we were short on Energy, this is favorable.  With dividends reinvested (which for Financials, were substantial), we come to total returns of :

 

So this trade earned a return of -5.36%, vs. -32.20% for the S&P500.  This is a dramatic outperformance relative to the index, even though staying in cash would have been even better.

For a next step, I would cover the short on Energy, and double down on my long position in Financials, given the low current price of Financials. 

Wolfram Alpha : The Birth of Web 3.0

The Wolfram Alpha engine is set to be launched.  Rather than a search engine, it is an 'answer engine' that interprets actual questions and answers them in accordance with their intended meaning. 

Here is a video demonstrating the Wolfram Alpha engine. 

I have written about the Semantic Web back on June 11, 2007.  The Wolfram Alpha, at first, will seem rather underwhelming, and will merely enable high-school and college students (as well as bloggers) to conduct their research more easily.  But as refinements accumulate and users go through their own learning curve, we could see a major transformation in Internet usage starting around 2012. 

The Wolfram Alpha will be the first mainstream experience of the Semantic Web, much as the launch of the Netscape Navigator browser in late 1994 heralded the arrival of the World Wide Web to the mainstream.  The launch of the Wolfram Alpha will be a similar moment in technological progress, and while it will not be as much on an incremental jump in user experience as Netscape Navigator was, consider that when Netscape Navigator was launched, it could only be accessed by desktop PCs, as there were virtually no laptops and mobile phones in 1994.  Furthermore, countries like India and China did not even have more than a handful of desktop PCs at the time.  But today, in 2009, there are devices of many shapes and sizes, across many countries, than can access the Wolfram Alpha on the first day. 

This does not mean that Wolfram Alpha will be the most successful Web 3.0 product.  Recall how Netscape failed to win the marathon despite the early dominance, and how Google surpassed earlier search engines like Lycos, AltaVista, and Yahoo.  The technology, and the trends underlying it, always supercede any one company or individual. 

Thus, we have arrived at the start of the third chapter of the Internet age.  Web 1.0 (the information web) ran from 1991 until 2001.  2001-03 was a nuclear winter for the Internet, which ended with Web 2.0 (the collaboration web) that ran from 2003 until 2009, and Web 3.0 (the semantic web) will begin now, in May 2009. 

The Impact of Computing : 78% More per Year, v2.0

Anyone who follows technology is familar with Moore's Law and its many variations, and has come to expect the price of computing power to halve every 18 months.  But many people don't see the true long-term impact of this beyond the need to upgrade their computer every three or four years.  To not internalize this more deeply is to miss investment opportunities, grossly mispredict the future, and be utterly unprepared for massive, sweeping changes to human society.  Hence, it is time to update the first version of this all-important article that was written on February 21, 2006.

Today, we will introduce another layer to the concept of Moore's Law-type exponential improvement. Consider that on top of the 18-month doubling times of both computational power and storage capacity (an annual improvement rate of 59%), both of these industries have grown by an average of approximately 12% a year for the last fifty years. Individual years have ranged between +30% and -12%, but let us say that the trend growth of both industries is 12% a year for the next couple of decades.

So, we can conclude that a dollar gets 59% more power each year, and 12% more dollars are absorbed by such exponentially growing technology each year. If we combine the two growth rates to estimate the rate of technology diffusion simultaneously with exponential improvement, we get (1.59)(1.12) = 1.78

The Impact of Computing grows at a scorching pace of 78% a year.

Sure, this is a very imperfect method of measuring technology diffusion, but many visible examples of this surging wave present themselves.  Consider the most popular television shows of the 1970s, where the characters had all the household furnishings and electrical appliances that are common today, except for anything with computational capacity. Yet, economic growth has averaged 3.5% a year since that time, nearly doubling the standard of living in the United States since 1970. It is obvious what has changed during this period, to induce the economic gains.

We can take the concept even closer to the present.  Among 1990s sitcoms, how many plot devices would no longer exist in the age of cellphones and Google Maps?  Consider the episode of Seinfeld entirely devoted to the characters not being able to find their car, or each other, in a parking structure (1991).  Or this legendary bit from a 1991 episode in a Chinese restaurant.  These situations are simply obsolete in the era of cellphones.  This situation (1996) would be obsolete in the era of digital cameras, while the 'Breakfast at Tiffany's' situation would be obsolete in an era of Netflix and YouTube. 

In the 1970s, there was virtually no household product with a semiconductor component.  In the 1980s, many people bought basic game consoles like the Atari 2600, had digital calculators, and purchased their first VCR, but only a fraction of the VCR's internals, maybe 20%, comprised of exponentially deflating semiconductors, so VCR prices did not drop that much per year.  In the early 1990s, many people began to have home PCs. For the first time, a major, essential home device was pegged to the curve of 18-month halvings in cost per unit of power.  In the late 1990s, the PC was joined by the Internet connection and the DVD player. 

Now, I want everyone reading this to tally up all the items in their home that qualify as 'Impact of Computing' devices, which is any hardware device where a much more powerful/capacious version will be available for the same price in 2 years.  You will be surprised at how many devices you now own that did not exist in the 80s or even the 90s.

Include : Actively used PCs, LCD/Plasma TVs and monitors, DVD players, game consoles, digital cameras, digital picture frames, home networking devices, laser printers, webcams, TiVos, Slingboxes, Kindles, robotic toys, every mobile phone, every iPod, and every USB flash drive.  Count each car as 1 node, even though modern cars may have $4000 of electronics in them.

Do not include : Tube TVs, VCRs, film cameras, individual video games or DVDs, or your washer/dryer/oven/clock radio just for having a digital display, as the product is not improving dramatically each year. 

How many 'Impact of Computing' Nodes do you currently own?
	Under 10
	11-15
	16-20
	21+
Free polls from Pollhost.com

If this doesn't persuade people of the exponentially accelerating penetration of information technology, then nothing can.

To summarize, the number of devices in an average home that are on this curve, by decade :

1960s and earlier : 0

1970s : 0-1

1980s : 1-2

1990s : 3-4

2000s : 6-12

2010s : 15-30

2020s : 40-80

The average home of 2020 will have multiple ultrathin TVs hung like paintings, robots for a variety of simple chores, VR-ready goggles and gloves for advanced gaming experiences, sensors and microchips embedded into clothing, $100 netbooks more powerful than $10,000 workstations of today, surface computers, 3-D printers, intelligent LED lightbulbs with motion-detecting sensors, cars with features that even luxury models of today don't have, and at least 15 nodes on a home network that manages the entertainment, security, and energy infrastructure of the home simultaneously. 

At the industrial level, the changes are even greater.  Just as telephony, photography, video, and audio before them, we will see medicine, energy, and manufacturing industries become information technology industries, and thus set to advance at the rate of the Impact of Computing.  The economic impact of this is staggering.  Refer to the Future Timeline for Economics, particularly the 2014, 2024, and 2034 entries.  Deflation has traditionally been a bad thing, but the Impact of Computing has introduced a second form of deflation.  A good one. 

It is true that from 2001 to 2009, the US economy has actually shrunk in size, if measured in oil, gold, or Euros.  To that, I counter that every major economy in the world, including the US, has grown tremendously if measured in Gigabytes of RAM, TeraBytes of storage, or MIPS of processing power, all of which have fallen in price by about 40X during this period.  One merely has to select any suitable product, such as a 42-inch plasma TV in the chart, to see how quickly purchasing power has risen.  What took 500 hours of median wages to purchase in 2002 now takes just 40 hours of median wages in 2009.  Pessimists counter that computing is too small a part of the economy for this to be a significant prosperity elevator.  But let's see how much of the global economy is devoted to computing relative to oil (let alone gold).

Oil at $50/barrel amounts to about $1500 Billion per year out of global GDP.  When oil rises, demand falls, and we have not seen oil demand sustain itself to the extent of elevating annual consumption to more than $2000 Billion per year.

Semiconductors are a $250 Billion industry and storage is a $200 Billion industry.  Software, photonics, and biotechnology are deflationary in the same way as semiconductors and storage, and these three industries combined are another $500 Billion in revenue, but their rate of deflation is less clear, so let's take just half of this number ($250 Billion) as suitable for this calculation.

So $250B + $200B + $250B = $700 Billion that is already deflationary under the Impact of Computing.  This is about 1.5% of world GDP, and is a little under half the size of global oil revenues. 

The impact is certainly not small, and since the growth rate of these sectors is higher than that of the broader economy, what about when it becomes 3% of world GDP?  5%?  Will this force of good deflation not exert influcence on every set of economic data?  At the moment, it is all but impossible to get major economics bloggers to even acknowledge this growing force.  But over time, it will be accepted as a limitless well of rising prosperity. 

12% more dollars spent each year, and each dollar buys 59% more power each year.  Combine the two and the impact is 78% more every year. 

Related :

A Future Timeline for Economics

Economic Growth is Exponential and Accelerating

Are You Acceleration Aware?

Pre-Singularity Abundance Milestones

The Technological Progression of Video Games

The Form of Economic Recovery

It is time for me to put forth a prediction on the shape and form of when and where the present recession will end.  Recall that The Futurist correctly predicted when the recession will be deemed to have started, about 10 months before the NBER arrived at the same conclusion.  Also recall that The Futurist identified the housing bubble back in April of 2006, when suggesting such a thing could get you persecuted by fanatical home-owners. 

I hereby predict that :

1) The National Bureau of Economic Research (NBER) will declare the recession to have ended in the window of July-Sept, 2009.  However, they only declare this retroactively, several months after the fact.  The recession will thus have lasted 20-22 months in total. 

2) Employment will bottom at 130 Million jobs, which means that there are still another 3 million jobs to be lost (on top of the 5 million already lost in this recession).  This the steepest fall in employment of any recession in the last 50 years, even after adjusting for the size of the workforce. 

3) The Unemployment Rate will top out at 10.5% +/- 0.3% early in 2010. 

4) Neither deflation nor hyperinflation will happen to any significant degree.  No calendar year will have an inflation rate below -2% or above 5%. 

A conclusion of the recession, however, does not mean the recovery will be strong.  It will take many years for the unemployment rate to fall below 5% again.  It is, however, absolutely necessary for Americans to reacquaint themselves with the notions of frugality and delayed gratification, and hopefully this recession has taught a suitable lesson to enough profligate gluttons that better decisions are made in the future. 

Nanotechnology : Bubble, Bust, ....Boom?

All of us remember the dot-com bubble, the crippling bust that eventually was a correction of 80% from the peak, and the subsequent moderated recovery.  This was easy to notice as there were many publicly traded companies that could be tracked daily.

I believe that nanotechnology underwent a similar bubble, peaking in early 2005, and has been in a bust for the subsequent four years.  Allow me to elaborate.

By 2004, major publications were talking about nanotech as if it was about to surge.  Lux Capital was publishing a much-anticipated annual 'Nanotech Report'.  There was even a company by the name of NanoSys that was preparing for an IPO in 2004.  BusinessWeek even had an entire issue devoted to all things nanotech in February 2005.  We were supposed to get excited. 

But immediately after the BusinessWeek cover, everything seemed to go downhill.  Nanosys did not conduct an IPO, nor did any other company.  Lux Capital only published a much shorter report by 2006, and stopped altogether in 2007 and 2008.  No other major publication devoted an entire issue to the topic of nanotechnology.  Venture capital flowing to nanotech ventures dried up.  Most importantly, people stopped talking about nanotechnology altogether.  Not many people noticed this because they were too giddy about their home prices rising, but to me, this shriveling of nano-activity had uncanny parallels to prior technology slumps. 

The rock bottom was reached at the very end of 2008.  Regular readers will recall that on January 3, 2009, I noticed that MIT Technology Review conspicuously omitted a section titled 'The Year in Nanotech' among their year-end roundup of innovations for the outgoing year.  I could not help but wonder why they stopped producing a nanotech roundup altogether, and I subsequently concluded that we were in a multi-year nanotech winter, and that the MIT Technology Review omission marked the lowest point.

But there are signs that nanotech is on the brink of emerging from its chrysalis.  The university laboratories are humming again, promising to draw the genie out of its magic lamp.  In just the first 12 weeks of 2009, carbon nanotubes, after staying out of the news for years, have suddenly been making headlines.  Entire 'forests' of nanotubes are now being grown (image from MIT Tech Review) and can be used for a variety of previously unrelated applications.  Beyond this, there is suddenly activity in nanotube electronics, light-sensitive nanotubes, nanotube superbatteries, and even nanotube muscles that are as light as air, flexible as rubber, but stronger than steel.  And all this is just nanotubes.  Nanomedicine, nanoparticle glue, and nanosensors are also joining the party.  All this bodes well for the prospect of catching up to where we currently should be on the trendline of molecular engineering, and enabling us to build what was previously impossible. 

The recovery out of the four-year nanotech winter could not be happening at a better time.  Nanotech is thus set to be one of the four sectors of technology (the others being solar energy, surface computing, and wireless data) that pull the global economy into its next expansion starting in late 2009. 

Related :

Milli, Micro, Nano, Pico

Guantanamo Meets Geneva Convention Rules

For how many years have we been hearing Euro-leftists (known as EUnuchs), and US fifth-columnists whine about how the Guantanamo detention center is 'in violation of international law'?  Nevermind that the terrorists happily behead civilian hostages, yet these leftists never expect terrorists to adhere to any international laws, under a 'restrictions for thee but not for me' solidarity with the terrorists. 

It turns out that Barack Obama had a study done to show that Guantanamo does indeed meet Geneva convention standards of human rights.  The article is in the New York Times, no less.  Of course, there will be no apology from the left to former President George W. Bush.  In fact, they will not even stop claiming that it violates international law (which is the false term they use to describe leftist religious doctrine).

So it turns out that President Obama will not be closing down the Guantanamo Bay detention center in the near future.  At most, he will move the prisoners to a different location, technically enabling 'Guantanamo' to close and throwing the rabid leftists off the trail.  Thus, we will continue to enjoy a reduced risk of terrorist attacks on US soil (there have been none for the 7 years 5 months and counting since 9/11/01, despite several attacks in Europe and Asia during this period). 

In fact, another New York Times article describes how President Obama is widening his missile strikes inside Pakistan.  It appears that Obama subscribes to the Bush doctrine.  I am starting to like President Obama's War on Terror tactics.  I must also restate an earlier prediction, however, that Obama's approval ratings will be below 50% after 90 days in office, when people find out that he is actually not a magician. 

Be sure to access these links quickly when it is needed to crush a fifth-column leftist in a debate.

Related :

How We Decisively WON in Iraq in 2008

The Way to Debate Iraq

Deconstructing the Leftist Mind

The End of Rabbit Ears, a Billion more Broadband Users - Part II

Three years ago, I wrote about the end of broadcasted television signals through the air on February 17, 2009.  It was one of the earliest articles here on The Futurist, and we have now arrived at the date when this transition will take place. 

In the last 3 years, we have seen the Apple iPhone (now in a 2.0 version), as well as broad deployment of 3G service to cellular phones.  Neither were available in February 2006.  But these are small increments compared to what access to the previously unavailable 700 MHz spectrum will give rise to.  The auction for the spectrum fetched $19.6 Billion, indicating how valuable this real-estate is. 

Signals sent at this frequency can easily pass through walls, and over far greater distances than signals in higher frequency bands.  More importantly, since wireless is the dominant (and often only) means of Internet access in many developing countries, the innovations designed to exploit the 700 MHz band in the US will inevitably be modified to supercharge wireless Internet access in India, Latin America, and Africa.  An additional 1 billion broadband Internet users in developing regions will be connected by 2013, as predicted in Part I of this article.  There are few technologies that can help pull people out of poverty so quickly. 

In the depths of a recession, the events that spark the next expansion arise almost unnoticed.  WIthin 24 months of this event, there will be a vast array of exciting wireless products and services for all of us to enjoy.  Remember that today, despite the economy being in its darkest hour, was the day that it began. 

(crossposted on TechSector)

Solar Power's Next 5 Game-Changing Technologies

I have written beffore about the reduction in price of solar energy, and how each succcessive price decline would deliver a new generation of adoption.  Now, we can examine some of the specfic technologies that are driving the race to affordability, and will enable solar energy to be one of the only candidate technologies to lead an economic recovery from the present downturn. 

Popular Mechanics has a roundup of five new areas of innovation in harnessing energy from the Sun.  All five promise to make solar energy competitive with the cheapest sources of fossil-fuel energy, and many of these five technologies could work in combination with each other.  The five technologies are the following :

 

Now, many of these technologies were invented before 2008, so this roundup does not alter the fact that 2008 was a year of very low technological innovation.  However, all these innovations bode very well for a tremendous boom in solar power starting around 2010.  Each technology has one or more startup companies mentioned in each section.  The industry consensus is that solar power becomes competitive with conventional sources of power generation by around 2011, varying by the local cost of electricity and the solar intensity of a particular region (i.e Arizona becomes cost-competitive for solar before British Columbia does).

The greatest benefits, however, will accrue to emerging markets.  Many poorer countries not only have electricity rates that are much more expensive than in the US, but these countries, being in more southern latitudes, receive greater solar intensity to begin with.  Breakeven in these markets arrives even sooner than it does for the wealthy countries at more northern latitudes.  Many villages in India, VietNam, Iraq, Egypt, and Indonesia will go from having no electricity to having photovoltaic electricity. 

Related :

Solar Energy Cost Curve

The Solar Revolution is Near

A Future Timeline for Energy

(crossposted on TechSector)

Why Government is Set to Extinguish Silicon Valley

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

                                - Robert Heinlein

The secret sauce of Silicon Valley is the tradition of leaving established companies to start or join new ones, secure funding from venture capitalists, build the company to a suitable size, and then either float or sell the company for a windfall to the founders and early employees.  The incentive to continue this practice is the engine that keeps the fire of human technological innovation alive. 

Silicon Valley's unique ecosystem has so far been nearly impossible to eclipse.  The combination of research universities, the best and brightest immigrants from India and China, a culture of entrepreneurship, and a nearly perfect climate has kept the competitors to Silicon Valley at bay.  In the 1990s, the prevalent belief was that the high cost of living in Silicon Valley would enable Austin, Dallas, Seattle, and Phoenix to attract technology workers and cultivate their own tech sectors.  This did not happen, as the Silicon Valley ecosystem just had too strong of a gravitational pull. 

This, however, should not be an excuse for complacency, or a belief that Silicon Valley is a bottomless supply of tax revenue.  There are four steps that would make Silicon Valley prohibitively inhospitable to the formation of new ventures. Any one of these by itself would not be enough to dent the might of the Silicon Valley engine, but all four combined would exceed the breaking point.  The first two of these four steps have already happened, and the final two are set to happen, barring direct intervention. 

The four steps are :

1) Sarbanes-Oxley : This attempt to reduce the risk of another Enron-style fraud has inflicted a cost on the US economy greater than 100 Enron collapses.  In Silicon Valley, the crushing costs of Sarbanes-Oxley compliance (up to $3M a year) have dried up IPOs to a trickle, as the prospect of spending money of compliance that could otherwise be spent on R&D is unappealing.  IPOs are less frequent than they were even in the early 1990s, before the bubble, and start-ups can only hope to be acquired by a larger company.  In the last 8 years, only two IPOs were large enough to be considered 'blockbuster' : Google and VMWare.  This crushes the incentive to leave stable jobs to go work at a new venture. 

2) Tortuous Immigration Process : Any list of the most successful people in the history of Silicon Valley will quickly reveal that at least one third of them were born outside of the US.  In response, America has chosen to make it much harder for more such people to come here, even as the quality of life in their home countries is rising. 

While politicians pander to illegal immigrants with minimal education, they somehow refuse to make immigration easier for legal, highly-skilled immigrants who start new ventures in America.  This is significant given the fact that about half of Silicon Valley's skilled workforce is Indian or Chinese.  Many are choosing to return to their home countries when it becomes too hard to stay, and are advising their younger relatives that the US immigration process is so tedious that it is better to pursue their careers at home, working for Indian or Chinese branches of HP or Microsoft. 

Under current procedures, an engineer from India or China has to be on an H1-B visa for 6 years before he can get a greencard.  If he changes employers during that period, he has to start the clock again.  The immigrant's spouse cannot work during this period.  Even after the greencard, it takes 5 more years to become a US citizen.  More and more of the best and brightest are deciding that this 11-year limbo is not worth it, and return to their home countries (eventually starting companies there rather than in Silicon Valley).  In the 1990s, Americans had not even heard of Bangalore or Suzhou. 

I have written up a detailed solution to this problem over here. 

___________________________________________________________________________

If these two factors weren't bad enough, two more negatives are about to be piled on. 

3) California State Income Taxes are Set to Rise : The budget shortfalls and underfunded pensions in California are a ticking time bomb.  CalPERS, which invests in many of the top venture capital funds that nurture the growth of start-ups in Silicon Valley, is in a shambolic state, and has to add $80 billion in assets just to meet present obligations.  The top income bracket in California is already taxed at 9.3%, and this is set to rise.  Sales taxes are also set to rise.  Due to this horrendous mismanagement worthy of a banana republic, California will soon reach a tipping point where taxes are so high as to destroy California's private sector, which until now has been the envy of the world.  It would, of course, be better to reduce CA state expenditures, but government officials have made it clear that raising taxes is their preferred course of action. 

Victor Davis Hanson explains California's black hole in more detail. 

4) Federal Income Taxes are Set to Rise : If the Bush tax cuts are allowed to expire, then from 2011 onwards, the top income bracket will be taxed at 39.6% rather than the current 35%.  Here, too, the concept of reducing expenditures is not palatable to Washington decision-makers.  While this does affect the entire US equally, when this is combined with the increase in California Sate tax, the combined marginal tax rate in California rises several percentage points, and possibly rises well above 50%.

The danger here is that each of these factors by themselves are not life-threatening.  But all four of them in cumulative combination are deadly.  So on top of the difficulty of conducting an IPO, and the brain drain out of Silicon Valley back to Asia, if the financial windfall that a worker receives after his startup makes a successful exit is taxed at a grand total of 50-55%, fewer and fewer people will bother to toil away for years in a startup.  As a result, fewer startups will form in Silicon Valley, and instead will form in Bangalore, Shanghai, and Taipei. 

Furthermore, after these forces have been in effect for a few years a simple reversal of the higher tax rates, dysfunctional immigration policy, and Sarbanes Oxley will not simply restore Silicon Valley to its prior grandeur.  The technology centers in Asia will have achieved critical mass by then, and Silicon Valley will have permanently lost its exclusivity.  It would never recover the dominance it once had. 

Silicon Valley will be reduced to a location that still hosts the headquarters of HP, Intel, Cisco, and Google, but 90% of the employees of these corporations will be overseas, and startups will be rare.  Silicon Valley will effectively become like Cleveland or Pittsburgh, which even today host the headquarters of more than 20 Fortune 500 corporations each, but still have a lower population than they each had in 1960, and cannot attract new young people to come and live there.  Cleveland and Pittsburgh are still functioning societies, of course, but their economic vibrancy is irretrievably dead. 

This bleak outlook can certainly be reversed if prompt action is taken now.  Sadly, the current path is one that is set to have a smothering effect on Silicon Valley. 

(crossposted on Techsector)

The Futurist's Stock Portfolio for 2008 - RESULTS

On November 11, 2007, I created an investment portfolio to be frozen at that time, and evaluated on December 31, 2008, against the S&P500 over the same period.  The portfolio incorporated principles, economic trends, and technologies discussed in other articles here on The Futurist.  Dividends were reinvested, and so the price paid reflects dividend-adjusted cost-basis.  Yahoo and Google Finance do tend to miss recording some dividends, so one must go to a more reliable site like Morningstar to account for the exact dividends. 

So how did the portfolio do?  Well, the portfolio declined by 37.1% while the S&P500 declined by 36.0%.  So we lagged the benchmark by 1.1%.  Of course, this was a year when keeping money in cash would have been superior to almost any long equity portfolio. 

As always, weightage matters just as much as selection, and the largest component, IWN, outperformed the S&P500.  However, this was dragged down by IIF and GOOG.  Had I simply followed my advice on shorting energy stocks, I would have done better, but that was not a trade in this portfolio. 

At least the 2007 Futurist portfolio outperformed the S&P500 by a greater margin than the 2008 portfolio lagged by, so we are still ahead on aggregate.  Let us see what 2009 holds. 

 

Related :

A History of Stock Market Bottoms

2008 Technology Breakthrough Roundup

Each year, I post a roundup of technology breakthroughs for that year from the MIT Technology Review, and I now present the 2008 edition. 

2008 was a year of unusually low technological innovation.  This is not merely the byproduct of the economic recession, as some forms of innovation actually quicken during a recession.  Furthermore, the innovations from 2006 and 2007 (linked below) showed very little additional progress in 2008, except in the field of energy.  This also confirms my observation from February 2008 that technology diffusion appears to be in a lull. 

The innovations in 2008 are categorized below : 

The Year in Computing

The Year in Robotics

The Year in Biomedicine

The Year in Materials

What is conspicuously absent is any article titled 'The Year in Nanotechnology'.  Both 2006 and 2007 had such articles, but the absence of a 2008 version speaks volumes about how little innovation took place in 2008.  The entire field on nanotechnology was lukewarm. 

Most of the innovations in the articles above are in the laboratory phase, which means that about half will never progress enough to make it to market, and those that do will take 5 to 15 years to directly affect the lives of average people (remember that the laboratory-to-market transition period itself continues to shorten in most fields). 

Furthermore, The Wall Street Journal has its own innovation awards for 2008, but this merely confirms that 2008 was a poor year for innovation.  For example, the Tata Nano is chosen in the WSJ article, yet it is not available to consumers until mid-2009.  Let's hope 2009 has more genuine innovations. 

Into the future we continue, where 2009 awaits....

Related :

2007 Technology Breakthrough Roundup

2006 Technology Breakthrough Roundup

How We Decisively WON in Iraq in 2008

One of the boldest predictions ever made on The Futurist was back in May 2006, when I made a detailed case for why victory in Iraq would arrive precisely in 2008, not sooner or later.  There was also a half-time update in September 2007 to the initial May 2006 prediction over here.  This was an unusually bold prediction to make, given the state of Iraq in May 2006, which was before the Surge was even discussed. 

So now, in 2008, I am happy to declare that the United States has WON in Iraq, and has made Iraq a reasonably peaceful, functioning democracy with a strongly growing economy. 

The following five points support the declaration of victory, as per objectives detailed in the original May 2006 prediction :

1) US troop deaths are very low : US troop casualties to hostile attacks are now less than 10 per month, a dramatic improvement from as much as 100 deaths per month in the past.  The death rate is so low that the media avoids mentioning it.  Indeed, non-hostile deaths often surpass hostile deaths in certain months.  When more deaths occur due to road accidents, drowning, and training mishaps than at the hands of terrorists, the terrorists are quite ineffective.  If a country of 25 million people were against the presence of US troops, why are only 8-10 US troops being killed per month?  Many troops report not having had to fire their guns even once in the last 90 days. 

2) Iraqi deaths are low : It is very easy for terrorists to bomb schools, markets, and hotels indefinitely.  Yet even this has dropped to a level so low that the chance of being murdered in Iraq is actually lower than it is in Baltimore, Detroit, or the South Side of Chicago.  Less than 300 Iraqi civilians are being killed per month, which is remarkable in a country of 26 million people.  The Iraqi people have taken responsiblity for removing radicals from their midst, which was the most fundamental objective for installing democracy in Iraq in the first place.  Iraqi refugees, some who left as far back as during the 1980-88 Iraq-Iran War, are returning to Iraq for the first time in years.  Neither Iran nor Al-Qaeda are capable of causing major violence in Iraq anymore. 

Furthermore, many foreign terrorists have gone to Iraq in order to disrupt the nascent progress there, only to meet their deaths at the hands of the US and Iraqi militaries.  There has been a distinct drop in Al-Qaeda terrorist attacks worldwide since the start of 2007, and it is because the 'best and brightest' have all gone to Iraq and perished.  The 'flypaper' strategy has worked. 

3) The political process is stable : Iraqi elections have high voter turnout and minimal violence, with women voting in full force.  The Iraqi parliament and judiciary are functioning moderately well.  There is little to no threat of a coup.  If you consider how many cultural, regional, and sectarian forces were fighting against this outcome, the magnitude of this miracle becomes clear.  What took Germany and Japan 25 years after their defeat in WWII, Iraq has achieved in under 6 years.  Iraqi politicians are corrupt, but so are American politicians.  If Iraqi corruption is no higher than that of India (a fully functioning democracy), that is to be considered a success. 

There was scarcely a country more unlikely to function as a democracy, yet this miracle has happened.  We should be proud to have had the privilege to witness it.  This will, eventually, lead to a domino effect of greater freedom in Iran, Syria, and Jordan. 

4) The Iraqi economy is booming : This was the crux of my 2006 case for what it would take for Iraq to become a functioning nation.  History has proven repeatedly that once a certain level of prosperity is reached, a society becomes more interested in economic activity than destabilizing violence, and the general public will unite to combat elements that are bad for business.  Iraq is not at this level yet, but is on track to approach it rapidly. 

Iraq's real GDP continues to grow at about 7% a year.  Iraq's exports of oil are increasing, and the revenue amounts to thousands of dollars per year per Iraqi.  Beyond oil, industries like financial services, telecom, and solar energy are taking root in Iraq for the first time.  Internet use is surging.  Most Iraqis now have cellular phones, which is very complementary to the democratic process.  The Iraqi stock market is functional, and investor participation is increasing. 

5) US public opinion has turned around : For the first time in years, more Americans view the Iraq War as a positive endeavor than those who have the opposite view.  This psychological transition is almost as important as the actual data, as it prevents politicians from seeking to appease the public with promises of a 'cut and run' withdrawal.  Despite complete Democrratic control of the White House and Congress, they will quietly let the progress in Iraq continue.  It also paves the way for greater support of the next US military conflict, and helps bury the ghosts of Vietnam (which itself is not a conflict that the US technically lost, but that has been discussed here). 

These five dimensions of victory are comprehensive, and at this point, irreversible.  This sends anti-American fifth-columnists (8-10% of the US population) and Euro-leftists into apoplectic, writhing agony. 

It is one thing to oppose the war due to cost, or regret that we went in.  These are reasonable positions that should be respected.  It is quite another to hope for failure, to emphasize only bad news while ignoring good news, to excuse or even defend terrorists, and to condemn anyone who wants a positive outcome.  This is anti-Americanism, period. 

The anti-American fifth column previously loved to trumpet the running total of US troop deaths, as well as the monthly rate.  In order to oppose the Surge, they were quick to mention that 2007 had higher US troop deaths than 2006.  For example, see Matt Taibbi, an entertainment reporter, at 0:50 in this video.  But now that 2008 will have less than one third the US troop deaths as the previous year, these critics are silent.  Where is Matt Taibbi's admission that casualties are now low?  Anyone with any intellectual honesty would admit that the death rate is sharply lower than it was when they used that as their main argument, but a pre-requistie for being a fifth-columnist is dishonesty, so no further explanation is needed.   

Now that the most vocal opponents to the Iraq War have been trying to change the subject to hide their embarassment, their weak position is the perfect time to call them out and hold them accountable.  Do not show restraint towards those who themselves showed no restraint between 2003 and 2007.  Just as a strong offense towards Al-Qaeda hastened their collapse in Iraq, a strong offense against the fifth column will send them to the same fate as their Al-Qaeda allies.  We owe it to our troops to expose and shame those who hoped for their failure and even their deaths. 

Please submit this article to Digg, Reddit, and StumbleUpon, link to it in your own blogs, and send it to other bloggers.  Advertising the success of our mission in Iraq is a necessary ingredient of strengthening that very success.  We don't have to settle for merely having anti-Americans desist, but we have the opportunity to make this victory the graveyard of fifth-column fashionability.  By this, I mean that the Iraq victory should be proudly touted as an example of American exceptionalism prevailing against seemingly impossible odds.  After decades of hearing anti-Americans gleefully interject 'Vietnam' into every opportunity to put America down, it is our turn to do the opposite and turn 'Iraq' into a synonym for success. 

Here is a YouTube video on how to ferret out accurate information on the progress in Iraq. 

Related :

We Will Decisively Win in Iraq...in 2008, Part I, and Part II, along with the 2007 half-time update

The Way to Debate Iraq

The Winds of War, The Sands of Time

The Age of Democracy

Why the US Will Still be the Only Superpower in 2030

It's Official : The Recession Began in December 2007

The Nation Bureau of Economic Research (NBER) said that the US has been in recession since December 2007.  Of course, that is precisely the time I had given here on The Futurist, except that my declaration was back in February 2008.  So I arrived at the same timing estimation, just 10 months before the Federal Government, back when knowing this would actually have been useful. 

The longest post-war recession in the US lasted 16 months, so if this recession lasts beyond April of 2009 (which it very well may), it would be the longest post-war recession the US has had.  Of course, this recession was shallow for the first 10 months, and only turned sharply lower in October of 2008, so 'duration' is not the whole story. 

At present, the consensus is that all of 2009 will effectively be recessionary, putting the recession at 24 months in total duration.  Whether this occurs or that pessimism itself is over-shooting remains to be seen. 

A Few Electoral Statistics

Congratulations are in order to Barack Obama for becoming the 44th President of the United States.  When he first emerged at the 2004 Democratic Convention, no one thought he could topple Hillary Clinton, and go on to win the general election, just 4 years later.

And while I did not vote for him, his success proves once again that America is truly the land of opportunity, far more so than any other nation on Earth. 

Now, there are a few electoral statistics that reveal where the Democrats made the biggest gains relative to their losing effort 2004 (all data from CNN.com). 

First, in income :

What is remarkable is the the highest income bracket, earning $200,000 or more, has swung 17 points towards the Democrats.  Given that Obama wants to tax this group, this swing is surprising.  By contrast, those earning between $100,000 and $200,000 have swung just 7 points towards Democrats.

Now, onto race :

Black turnout rose enough for them to become 13% of the vote, vs. just 11% before.  The 7-point swing in favor of Obama relative to what Kerry got is unsurprising.  But where the GOP took the biggest damage is in the Latino vote.  A 13-point loss is huge, and resulted in states like Nevada, New Mexico, and Colorado shifting from the red column in 2004 to the blue column in 2008.

Lastly, we move onto ideology :

The GOP lost 6 points of the conservative vote.  That is appalling, and if McCain was able to maintain the same 84% of conservative votes that Bush captured in 2004, the whole 2008 election would have been much closer.  This also shows that Sarah Palin, as much as we may like her, did not enable  McCain to net Bush's 2004 share of the conservative vote.  Some may contend that Palin is the reason McCain got even 78% of the conservative vote, but this is impossible to prove or disprove. 

Conclusion :

For the Republican Party to return from the wilderness in a future election (whether 2012 or 2016), they must achieve at least three of the following four objectives.

1) Win at least 55% of the votes of those earning over $100,000 a year, including at least 60% of those earning over $200,000 a year. 

2) Win at least 15% of the black vote.  Blacks are the most loyal Democratic vote bank, but this also means Democrats are so dependent on the black vote that they cannot afford to let the GOP have even 15% of it.

3) Win at least 45% of the Latino vote.  This group is growing quickly, and without it, the GOP has no future.

4) Always win at least 85% of conservatives.  A party that cannot win 85% of its own base is in trouble.  Now that Obama has won 20% of the conservative vote, he has to do their bidding as well, which is a topic I have discussed here, and is bad news for leftists. 

So, of these four, pick any three.  These four points do overlap with each other, particularly points 1 and 4, so courting multiple groups can be done simultaneously.  But until at least three of these four are accomplished, the GOP will not win again.

A History of Stock Market Bottoms

Recent market turmoil has many wondering when the freefall will cease, and whether we are on the brink of a new Great Depression, which is supposed to happen every 70-80 years according to Kondratieff Wave theory.  I don't believe we are on the brink of a depression, even though the present recession is already in its 10th month.  But it would be instructive to compare the current situation with prior market corrections, and judge the present situation in a historical context. 

We can first start with a chart of the S&P500, from 1950 to today.  We can see that the deepest deviations from the trendline appear to be in 1950, 1970, 1974, 1982, 1987, 1990, and 2002.  We shall term these instances as historical 'bottoms' for the stock market.  All but the 1987 bottom were in the midst of economic recessions. 

  

From this chart, we can see that the time period between bottoms can be irregular, with over a decade passing between them, in some cases.  1974 and 1982 appear to be the deepest corrections.  These bottoms coincide with recessions, but interestingly do not coincide with other major crises.  The Cuban Missile Crisis, Kennedy assassination, and 9/11/01 did not induce major market crashes beyond the first few days.  Now, we can take the datapoints of each of these bottoms, and chart the exponential trendline that connects them.  This is purely a chart of index valuation, with dividends not included. 

 

From this chart. we can see that the equivalent value of the S&P500 in 2008, as designated by the red circle, would be around the 1000 level.  As of October 10, 2008, the S&P500 is at 899, or 10% below the level of the bottoms trendline.  However, we can see that both the 1974 and 1982 bottoms are substantially below the trendline. 

The S&P500, since 1950, has delivered an 11.4% average return, with 7.7% of that in the form of a rise in the index itself, and 3.7% of the return being in the form of dividends.  If the long-term underlying growth rate of the index is 7.7%, we can chart a 7.7% compounded projection trend from each of these bottoms as another method to compare them to an approximate 2008 equivalent.  We shall start this chart from 1970. 

It is apparent that 4 of the 6 bottoms cluster around a 2009 projection of 1100-1200, but the two deepest bottoms of 1974 and 1982 project to a 2009 equivalent of only 700-750.  These should be considered the two 'mega-bottoms' that happen a couple times per half-century, with the other 4 being only smaller bottoms that happen every 7-10 years, whenever there is a recession. 

Since we are presently at 900 for the S&P500, we are about half-way between a smaller bottom and a mega-bottom.  Therefore, do not be surprised if the S&P500 does, in fact, dip into the low 700s in 2009, merely to match this correction to 1974/1982 levels.  This would be a further 20% correction from the 900 close of October 10, 2008.  It may not happen, but it certainly could in terms of historical precedent.  This also means that the Dow Jones Industrial Average would simultaneously decline to as low as 6500.  Indeed, there is no guarantee that it could not go even lower, but that would he historically unprecedented.  Even the 1932 bottom in the Great Depression was not deeper than the 1974 and 1982 bottoms, by these measures.       

The Good News :

If the thought of a further 20% decline in the S&P500 or DJIA is depressing, also consider the following :

1) After both the 1974 and 1982 mega-bottoms, the stock market promptly returned at least 60% in the next 9 months.  This also happened after the 1932 bottom within the Great Depression. 

2) Never forget about dividend reinvestment.  Dividend yields are highest when the stock market is at the depths of a bottom, and reinvestment ensures that new shares are purchased at the lower prices.  This enables the investor to enhance his returns when the recovery finally commences.  Even in the 1970s, the major indices were stuck within a flat range for a decade, but dividend yields as high as 5% enabled total returns that were substantially better. 

Considering points 1) and 2), make sure that you are in a position to capture the recovery, and are not forced to sell at the unfavorable prices of the bottom.  This means that you must a) never hold any substantial margin debt, b) be positioned across a diversifed set of securities, preferably ETFs ahead of individual stocks, and c) watch as little financial news as possible, thereby reducing your chances of panic that could lead you to take ill-considered actions.   

Tremendous profits will be made by those who can steel themselves through this purging of the weak, and are subsequently prepared for the post-bottom recovery.  Put daily volatility aside, and enjoy the historical times that we are experiencing first-hand. 

Related :

Economic Growth is Exponential and Accelerating

The Housing Bubble - 20-year Gains May Never be Repeated

(crossposted on TechSector)

A Future Timeline for Economics

The accelerating rate of change in many fields of technology all manifest themselves in terms of human development, some of which can be accurately tracked within economic data.  Contrary to what the media may peddle and despite periodic setbacks, average human prosperity is rising at a rate faster than any other time in human history.  I have described this in great detail in prior articles, and I continue to be amazed at how little attention is devoted to the important subject of accelerating economic growth, even by other futurists.

The time has thus come for making specific predictions about the details of future economic advancement.  I hereby present a speculative future timeline of economic events and milestones, which is a sibling article to Economic Growth is Exponential and Accelerating, v2.0. 

2008-09 : A severe US recession and global slowdown still results in global PPP economic growth staying positive in calendar 2008 and 2009.  Negative growth for world GDP, which has not happened since 1973, is not a serious possibility, even though the US and Europe experience GDP contraction in this period.  The world GDP growth rate trendline resides at growth of 4.5% a year.

2010 : World GDP growth rebounds strongly to 5% a year.  More than 3 billion people now live in emerging economies growing at over 6% a year.  More than 80 countries, including China, have achieved a Human Development Index of 0.800 or higher, classifying them as developed countries. 

2011 : Economic mismanagement in the US leads to a tax increase at the start of 2011, combined with higher interest rates on account of the budget deficit.  This leads to a near-recession or even a full recession in the US, despite the recovery out of the 2008-09 recession still being young. 

2012 : Over 2 billion people have access to unlimited broadband Internet service at speeds greater than 1 mbps, a majority of them receiving it through their wireless phone/handheld device. 

2013 : Many single-family homes in the US, particularly in California, are still priced below the levels they reached at the peak in 2006, as predicted in early 2006 on The Futurist.  If one adjusts for cost of capital over this period, many California homes have corrected their valuations by as much as 50%. 

2014 : The positive deflationary economic forces introduced by the Impact of Computing are now large and pervasive enough to generate mainstream attention.  The semiconductor and storage industries combined exceed $800 Billion in size, up from $450 Billion in 2008.  The typical US household is now spending $2500 a year on semiconductors, storage, and other items with rapidly deflating prices per fixed performance.  Of course, the items puchased for $2500 in 2014 can be purchased for $1600 in 2015, $1000 in 2016, $600 in 2017, etc. 

2015 : As predicted in early 2006 on The Futurist, a 4-door sedan with a 240 hp engine, yet costing only 5 cents/mile to operate (the equivalent of 60 mpg of gasoline), is widely available for $35,000 (which is within the middle-class price band by 2015). This is the result of combined advances in energy, lighter nanomaterials, and computerized systems.

2016 : Medical Tourism introduces $200B/year of net deflationary benefit to healthcare costs in the US economy.  Healthcare inflation is halted, except for the most advanced technologies for life extension. 

2017 : China's per-capita GDP on a PPP basis converges with the world average, resulting in a rise in the Yuan exchange rate.  This is neither good nor bad, but very confusing for trade calculations.  A recession ensues while all the adjustments are sorted out. 

2018 : Among new cars sold, gasoline-only vehicles are now a minority.  Millions of vehicles are electrically charged through solar panels on a daily basis, relieving those consumers of a fuel expenditure that was as high as $3000 a year in 2008.  Some electrical vehicles cost as little as 1 cent/mile to operate. 

2019 : The Dow Jones Industrial Average surpasses 25,000.  The Nasdaq exceeds 5000, finally surpassing the record set 19 years prior in early 2000. 

2020 : World GDP per capita surpasses $15,000 in 2008 dollars (up from $8000 in 2008).  Over 100 of the world's nations have achieved a Human Development Index of 0.800 or higher, with the only major concentrations of poverty being in Africa and South Asia.  The basic necessities of food, clothing, literacy, electricity, and shelter are available to over 90% of the human race. 

Trade between India and the US touches $400 Billion a year, up from only $32 Billion in 2006. 

2022 : Several millon people worldwide are each earning over $50,000 a year through web-based activities.  These activities include blogging, barter trading, video production, web-based retail ventures, and economic activites within virtual worlds.  Some of these people are under the age of 16.  Headlines will be made when a child known to be perpetually glued to his video game one day surprises his parents by disclosing that he has accumulated a legitimate fortune of more than $1 million. 

2024 : The typical US household is now spending over $5000 a year on products and services that are affected by the Impact of Computing, where value received per dollar spent rises dramatically each year.  These include electronic, biotechnology, software, and nanotechnology products.  Even cars are sometimes 'upgraded' in a PC-like manner in order to receive better technology, long before they experience mechanical failure.  Of course, the products and services purchased for this $5000 in 2024 can be obtained for $3200 in 2025, $2000 in 2026, $1300 in 2027, etc. 

2025 : The printing of solid objects through 3-D printers is inexpensive enough for such printers to be common in upper-middle-class homes.  This disrupts the economics of manufacturing, and revamps most manufacturing business models. 

2027 : 90% of humans are now living in nations with a UN Human Development Index greater than 0.800 (the 2008 definition of a 'developed country', approximately that of the US in 1960).  Many Asian nations have achieved per capita income parity with Europe.  Only Africa contains a major concentration of poverty. 

2030 : The United States still has the largest nominal GDP among the world's nations, in excess of $50 Trillion in 2030 dollars.  China's economy is a close second to the US in size.  No other country surpasses even half the size of either of the two twin giants. 

The world GDP growth rate trendline has now surpassed 5% a year.  As the per capita gap has reduced from what it was in 2000, the US now grows at 4% a year, while China grows at 6% a year. 

10,000 billionaires now exist worldwide, causing the term to lose some exclusivity. 

2032 : At least 2 TeraWatts of photovoltaic capacity is in operation worldwide, generating 8% of all energy consumed by society.  Vast solar farms covering several square miles are in operation in North Africa, the Middle East, India, and Australia.  These farms are visible from space. 

2034 : The typical US household is now spending over $10,000 a year on products and services that are affected by the Impact of Computing.  These include electronic, biotech, software, and nanotechnology products.  Of course, the products and services purchased for this $10,000 in 2034 can be obtained for $6400 in 2035, $4000 in 2036, $2500 in 2037, etc. 

2040 : Rapidly accelerating GDP growth is creating astonishing abundance that was unimaginable at the start of the 21st century.  Inequality continues to be high, but this is balanced by the fact that many individual fortunes are created in extremely short times.  The basic tools to produce wealth are available to at least 80% of all humans. 

Greatly increased lifespans are distorting economics, mostly for the better, as active careers last well past the age of 80. 

Tourism into space is affordable for upper middle class people, and is widely undertaken. 

________________________________________________________

I believe that this timeline represents a median forecast for economic growth from many major sources, and will be perceived as too optimistic or too pessimistic by an equal number of readers.  Let's see how closely reality tracks this timeline.

The Futurist's Stock Portfolio for 2009

Today, September 15, 2008, represented just about a perfect day for buying new equity positons.  I am going to present my 2009 portfolio, that will be tracked over the next 15.5 months between now and the end of 2009, in relation to the S&P500 index.  My 2008 portfolio is still current, and will be evaluated at the end of 2008, so the start of this 2009 portfolio will overlap with the end of the 2008 portfolio.  To assess my track record, my 2007 portfolio delivered a superb 13.3% return, relative to just 4.3% for the S&P500 over the same period. 

For 2009, the portfolio is quite simple.  I believe that small-cap value and financial stocks are at historically compelling valuations, and have no choice but to rise.  A few major technology stocks are also at attractive valuations. 

So the portfolio will be :

  

This captures the following trends from previous articles on The Futurist :

The Next Big Thing in Entertainment, Part I and Part 2

The Impact of Computing

The Stock Market is Exponentially Accelerating too

I hereby sign and seal this portfolio, bought that the closing prices on September 15, 2008, to be evaluated on the last trading day before December 31, 2009.     

(crossposted on TechSector)

Pre-Singularity Abundance Milestones

I am of the belief that we will experience a Technological Singularity around 2050 or shortly thereafter. Many top futurists all arrive at prediction dates between 2045 and 2075. The bulk of Singularity debate revolves not so much around 'if' or even 'when', but rather 'what' the Singularity will appear like, and whether it will be positive or negative for humanity.

To be clear, some singularities have already happened.  To non-human creatures, a technological singularity that overhauls their ecosystem already happened over the course of the 20th century.  Domestic dogs and cats are immersed in a singularity where most of their surroundings surpass their comprehension.  Even many humans have experienced a singularity - elderly people in poorer nations make no use of any of the major technologies of the last 20 years, except possibly the cellular phone.  However, the Singularity that I am talking about has to be one that affects all humans, and the entire global economy, rather that just humans that are marginal participants in the economy.  By definition, the real Technological Singularity has to be a 'disruption in the fabric of humanity'. 

In the period between 2008 and 2050, there are several milestones one can watch for in order to see if the path to a possibile Singularity is still being followed.  Each of these signifies a previously scarce resource becoming almost infinitely abundant (much like paper today, which was a rare and precious treasure centuries ago), or a dramatic expansion in human experience (such as the telephone, airplane, and Internet have been) to the extent that it can even be called a transhuman experience.  The following are a random selection of milestones with their anticipated dates. 

Technological :

Hours spent in videoconferencing surpass hours spent in air travel/airports : 2015

Video games with interactive, human-level AI : 2018

Semi-realistic fully immersive virtual reality : 2020

Over 5 billion people connected to the Internet (mostly wirelessly) at speeds greater than 10 Mbps : 2022

Over 30 network-connected devices in the average household worldwide : 2025

1 TeraFLOPS of computing power costs $1 : 2026

1 TeraWatt of worldwide photovoltaic power capacity : 2027

1 Petabyte of storage costs $1 : 2028

1 Terabyte of RAM costs $1 : 2031

An artificial intelligence can pass the Turing Test : 2040

Biological :

Complete personal genome sequencing costs $1000 : 2020

Cancer is no longer one of the top 5 causes of death : 2025

Complete personal genome sequencing costs $10 : 2030

Human life expectancy achieves Actuarial Escape Velocity for wealthy individuals : 50% chance by 2040

Economic :

Average US household net worth crosses $2 million in nominal dollars : 2024

90% of humans living in nations with a UN Human Development Index greater than 0.800 (the 2008 definition of a 'developed country', approximately that of the US in 1960) : 2025

10,000 billionaires worldwide (nominal dollars) : 2030

World GDP per Capita crosses $50,000 in 2008 dollars : 2045

_________________________________________________________________

Each of these milestones, while not causing a Singularity by themselves, increase the probability of a true Technological Singularity, with the event horizon pulled in closer to that date.  Or, the path taken to each of these milestones may give rise to new questions and metrics altogether.  We must watch for each of these events, and update our predictions for the 'when' and 'what' of the Singularity accordingly. 

Related : The Top 10 Transhumanist Technologies

Can Buildings be 'Printed'?

I have discussed the possibility of 3-D printing of solid objects before, in this article where company #5, Desktop Factory, is detailed.  However, the Desktop Factory product can only produce objects that have a maximum size of 5 X 5 X 5 inches, and it can only use one type of material. 

On the Next Big Future blog, the author quite frequently profiles a future product capable of 'printing' entire buildings.  This technology, known as 'Contour Crafting', can supposedly construct buildings at greater than 10 times the speed, yet at just one-fifth the cost of traditional construction processes.  It is claimed that the first commercial machines will be available in 2008 itself. 

Despite my general optimism, this particular machine does not pass my 'too good to be true' test, at least before 2020.  A machine that could construct homes and commercial buildings at such a speed and cost would cause an unprecedented economic disruption across the world.  There would be a steep but brief depression, as existing real estate loses 90% or more of its value, followed by a huge boom as home ownership becomes affordable to several times as many people as today.  I don't think that we are on the brink of such a revolution.

For me to be convinced, I would have to see :

1) Articles on this device in mainstream publications like The Economist, BusinessWeek, MIT Technology Review, or Popular Mechanics.

2) The ability to at least print simple constructs like concrete perimeter walls or sidewalks at a rate and cost several times superior to current methods.  Only then can more complex structures be on the horizon. 

I will revisit this technology if either of these two conditions is solidly met. 

(crossposted on TechSector). 

Ten Myths in America

I feel compelled to dispel ten myths that I see as pervasively present in American society. These are beliefs that are repeated so often, and with so little opposition, that they are taken as fact. However, they fail to stand up to mathematical analysis, logical reasoning, or both.  These combined myths have cost the US economy trillions of dollars in direct and indirect losses.  In no particular order, let me evoke John Stossel and proceed to puncture these oft-unchallenged myths.

1) School Teachers are Underpaid in America : In any free-market setting, no major profession will be perpetually underpaid, relative to output produced, or the profession simply will not attract any new entrants.  Another clue is that private school teachers actually earn less than public school teachers.  As a private school is a business that has to pay market wages to teachers, something is seriously amiss with public school teacher salaries.

An average public school teacher earns about $54,000 a year, but this is for 9 months of work.  Thus, they earn about $6000 per month.  Most teachers have a BA degree in education, and some have an MA degree.  A wage of $6000/month compares favorably to what people with similar education will earn in a corporate job.  Furthermore, a public school teacher is shielded from economic conditions, and thus has higher job security than, say, engineers have during recessions.

So no, teachers are not underpaid, on a monthly or hourly basis, relative to professions that require a similar level of education.  To compare teacher salaries to the wages of doctors and lawyers is false, as the educational qualifications, hours worked, and stress levels are entirely different. 

2) Women Earn Less than Men in America : It is true that women, on average, earn less per year than men do.  It is also true that 22-year-olds earn less, on average, than 40-year-olds.  Why is the latter not an example of age discrimination, while the former is seized upon as an example of gender discrimination?  Because men are too afraid to challenge the false statement. 

If women truly did earn 20% less for doing exactly the same job as a man, any non-sexist CEO could thrash his competition by hiring only women, thus saving 20% on employee salaries relative to his competitors.  Are we to believe that every major CEO and Board of Directors is so sexist as to forego billions of dollars of profit?  Women entrepreneurs could hire other women and out-compete any male-dominated business, but we don't see this happening.  Individual cases of discrimination may exist, but it cannot possibly be a universal norm in a profit-driven economy.  Market forces would correct such mispricings, if they actually existed. 

This myth is closely tied to Myth #1, with the same people propagating both.  It is sad that the feminists reciting this myth are devaluing one of the most important roles in any society, that of a mother with the responsibility of cultivating the next generation of citizens, who chooses to work part-time.  The backlash of this will punish feminists greatly, as immigrants from countries quite unsympathetic to feminist notions move to the US and reproduce prolifically. 

3) Whites Prevent 'Minorities' from Achieving Economic Parity : Many of the points from Myth # 2 also can apply here.  But let me also add that the leftists who spread this myth go to great lengths to avoid revealing that Asians actually earn more than Whites in America today.  This inconvenient reality will become harder to conceal as Asians grow in number and visibility.

Furthermore, if Whites are the reason that Blacks still earn less than Whites in 2008, is it not fair to point out that Whites created a system where immigrants from poor countries like India, China, and VietNam can come to America and do so well that they surpass their White hosts, economically?  Fair is fair.  If Black poverty is due to Whites, then Asian success is also due to Whites.  If this is not acceptable, then the only other explanation is that each group's outcome is primarily due to their own actions, rather than the invisible hand of the white majority. 

Lastly, people have always migrated away from places where they are discriminated against, and into places that are relatively better for them.  We see Mexicans coming to the US by the millions, even at great personal risk.  Blacks from the West Indies, Africa, etc. also immigrate into the US in large numbers.  At the same time, we never see African Americans voting with their feet by going to some country where they might be able to earn more.  Where is the evidence of an African American exodus to Canada, Sweden, Britain, Jamaica, South Africa, etc.?  In fact, Liberia was a country created specifically for this purpose, but Liberia clearly is not able to entice any African Americans to relocate or even vacation there. 

Reverend Jeremiah Wright has become wealthy by pretending to be a man from a race he does not belong to, who is oppressed by people from the race he does belong to.  Amazing.  I am both infuriated and envious at the same time. 

4) Healthy Foods are Expensive, and Unhealthy Foods are Cheap : While I think America is the best country in the world in most ways, in dietary terms, America is sadly one of the worst.  What North Korea and Zimbabwe are to economics, America is to dietary health.  Most Americans are so alien to the concept of regularly consuming fresh fruits and vegetables, that I wonder if they even know what people ate before the 20th century.  That the 'poor' people in America have much greater rates of obesity than higher-income people is shocking to most of the world, and also leads Americans to assume that fast food is the cheapest available choice. 

On the contrary, if one goes to any no-frills grocery store, several bags of fruits and vegetables can be purchased for under $20.  Tomatoes, potatoes, bananas, carrots, cauliflower, onions, cabbage, green beans, apples, broccoli, zucchini, garlic, celery, beets, kidney beans, lentils, and dozens of other plant foods all cost less than $2/pound, and sometimes under $1/pound.  If all one eats are fruits, vegetables, and whole grains (which in fact is normal in many cultures), one can easily eat their fill for under $4/person/day.  Compare that to $15/day for someone who eats all three meals at McDonald's.  The tens of thousands of dollars of lifetime healthcare costs that a person can save with a fruit/vegetable diet are additional. 

The best kept secret in America is that the cheapest food is actually the healthiest food.  The barrier to eating healthy meals is not cost, but rather knowledge, habit, and culinary skills.  Do you dispute the $4/person/day figure?  Then you haven't actually seen how many pounds of tomatoes, bananas, carrots, apples, cabbage, etc. can be bought with $4 from a modest store.  Try this for 30 days, and the rate at which you fatten your bank account will be surpassed only by the rate at which you shed bodily tonnage.     

5) America's Foreign Policy is the Reason for the 9/11 Attacks : This clearly does not explain why the same group conducted attacks in Bali (twice), London, Madrid, Bombay, Jordan, Turkey, Morocco, and dozens of attacks in Iraq and Israel.  They also have massacred schoolchildren in Russia, Indonesia, and Thailand.  How are each of these attacks against unrelated victims due to America, rather than the logical conclusion that this group seems to have a problem with anyone who does not subscribe to their ideology?  Whatever America's flaws, America does not make a terrorist behead his hostages.  It is odd when an anti-American worldview itself is tainted by the US-Centric thought that anti-Americans love to condemn. 

6) Leftists are 'Liberal' and 'Progressive' :  You will notice that on The Futurist, I never refer to leftists as 'liberals'.  Those who were truly liberal at one time became the 'neoconservatives' of today, while the fascists of yesteryear became the leftists of today.  They are illiberal, intolerant, opposed to free speech, and incapable of defending their claimed beliefs in the face of incisive questions.  In the modern era, the Left can best be described as a vehicle through which people can fancy themselves as intelligent without having to put in the effort previously required to become intelligent, simply by believing a set of agreed-upon dogma.  The cost-benefit analysis of this approach is attractive, but this strategy falls apart spectacularly when a leftist is confronted by an informed non-leftist in a debate, hence the efforts to silence informed non-leftists through extremely illiberal means.  Ace of Spades has a superb article about what attracts people to Leftism. 

7) Republicans are Less Intelligent than Democrats :  This is the natural extension of Myth # 5, reinforced by George W. Bush's subpar oratory skills.  I simply have to point you to the voting trends by income bracket as reported by the CNN website.  Let me repost the table here :

Income certainly does not corelate exactly to intelligence, work ethic, and determination, as someone in college may have all of these things but still not yet be earning a high income.  But to believe the 'leftist' view that Bush supporters are stupid is to believe that intelligence is inversely corelated to an ability to earn a high income.  This is vastly more difficult to logically accept. 

This, more than anything else, explains why the Democrats have failed to get 50% of the vote in the last seven Presidential elections since 1976, while the GOP has achieved this feat 4 times (1980, 84, 88, 2004).  The median-income voter does not like being told that he/she is stupid. 

8) Democrats Have a Better Record on Racism than Republicans : It is an utter failure of the GOP's branding efforts that this myth has gained traction, despite :

• Abraham Lincoln being a Republican

• FDR's interning of Japanese Americans

• George Wallace running for President as a Democrat as recently as 1976

• Robert Byrd, a former leader in the KKK, still acting as the seniormost Democrat in the Senate, even to this day.

• Strom Thurmond running for President on a segregationist platform as a Democrat, becoming a Republican only 16 years later. 

• The first two black Secretaries of State being appointed by George W. Bush

Clearly, a foreign visitor with no prior exposure would not possibly conclude that the Republican Party is somehow more racist than the Democrats.  That the GOP has gotten stuck with this label despite the facts above, is remarkable.  The GOP also has some unfortunate racial incidents in the recent past, but they certainly have not done more than Democrats have.  I guess that Democrats say this partly because the GOP lets them. 

9) Houses Always Rise in Value : Here on The Futurist, we identified the Real Estate bubble back in April of 2006, when it was heresy to suggest that home prices could not detach from incomes.  Real estate is an investment class, just like stocks, bonds, art, wine, gold, and Internet domains are.  Yet, you never see people nagging you about how you 'must own stocks', or 'must invest in art'.  Residential real estate is the only investment category where emotion dominates quantitative analysis.  Remarkably, such a belief does not exist for commercial property, but somehow the existence of a kitchen and shower bestows a structure with magical immunity to price declines.  Emotions about residential real estate reveal the following two major errors that many proponents consistently make :

a) The failure to distinguish between high prices and rising prices :  A good school district or California weather can certainly justify high prices, but as these factors are the same from one year to the next, there is no reason for them to result in home prices rising faster than the salaries of workers in that area.  Is the school getting dramatically better each year?  Is California weather improving each year?

b) The failure to account for cost of capital when calculating a home price gain :  Otherwise intelligent people who fully grasp the concept of inflation still manage to think that if their home price is flat for 5 years, that they 'at least didn't lose money'.  If one's cost of capital (a mortgage rate can suffice) is 6%, then 5 years of flat prices are effectively (1.06)^5, or a 34% real loss.  On a $1 million home, 5 years of flat valuation is a $340,000 effective loss to one's net worth. 

It will take a decade for home owners to fully accept that homes are not guaranteed to rise in price any more than stocks, art, wine, or antiques are. 

10) High Oil Prices Will Create Permanent Long-Term Poverty : This belief is thoroughly debunked here.  One must have very little faith in market-driven technological change or human adaptability to believe that the world of 2020, 2030, or 2040 will be so poor that car ownership will be rare. 

Notice a common theme in these 10 myths.  Myths 1, 2, 3, 9, and 10 betray an ignorance of free-market economics or even an active attempt to suppress evidence of it.  Myths 1, 2, 3, 4, 5, 6, 7, 8 are propagated by the same ideology, indicating a total inability of that ideology to actually generate compelling ideas.  Myths 1, 2, 3, and 9 are derived from a sense of entitlement and unwillingness to accept personal responsibility.  Believing myths 2, 3, 4, and 5 require having never ventured outside of the hotel in any non-Western country.   

Clearly, a couple of unsavory philosophies have managed to disguise themselves and dupe a majority of mainstream Americans (and the foreigners who watch our television news) into believing things that are simply illogical.  As citizens, we must fight to overturn these myths, lest they give rise to even more absurdities that cost trillions of additional dollars. 

More on the Economics of Medical Tourism

On 3/21/08, I wrote an article about the economic and technological implications of medical tourism.  True to our long tradition here at The Futurist, this article made predictions months before a major publication arrived at the same expectations.  The Economist has an article this week that predicts everything that by original article does, from a rapid increase in Americans going abroad, to the loss in revenue to the US healthcare system triggering overdue reforms.  I particularly like the following sentences from the article :

"Jagdish Bhagwati, an economist at Columbia University, thinks that the offshoring of, for instance, customer service and claims-processing could save America alone $70 billion-75 billion a year."

"By Deloitte’s reckoning, medical travel will represent $162 billion in lost spending on health care in America by 2012. "

"A bit of rivalry from top foreign facilities may introduce transparency and price competition into an inefficient system riddled with oligopolies and perverse incentives. "

If some people thought the outsourcing of technical support and software development was significant, then medical tourism promises to be several times larger by the middle of the next decade.  The Economist article provides a chart projecting the number of US patients expected to partake in medical tourism.  The number is expected to grow from under 1 million today to over 15 million by 2017.  By then, this could carve $250 Billion/year out of US healthcare spending, and pump $50 Billion/year into the destination countries, introducing $200 Billion/year of net deflationary benefit into the US economy.  Everyone will know someone who went abroad for a medical procedure, with many customers comparing their experiences in India vs. Thailand vs. Jamaica.   

To repeat the sequence of predicted events from the first article, they are :

1) Americans with no insurance are forced to make a life or death decision to get their surguries abroad, where the service meets or exceeds their expections.   

2) More insurance companies offer medical tourism with liability guarantees and cash/vacation incentives to American patients.  Only a small fraction of patients are adventurous enough to do this, but all insurance companies are compelled to offer these options.

3) Major centers for medical tourism, after a track record of about a decade, develop solid brands that can attract American patients. 

4) When we finally get to the point that 10% of Americans are traveling abroad for a wide array of procedures, the US will be forced to begin to take measures to reduce costs throughout the healthcare system.  Losing 10% of the market is all that it will take to force some positive changes.  This could begin to happen by 2020. 

This confluence of market forces, globalization, and biotechnology is about to bring overdue reform to one of the biggest and worst sectors of the US and global economies.  There are tremendous investment opportunities here, which I will write about in the near future. 

 

Surfaces : The Next Killer Ap in Computing

Computing, once seamlessly synonymous with technological progress, has not grabbed headlines in recent memory. We have not had a 'killer ap' in computing in the last few years.  Maybe you can count Wi-fi access to laptops in 2002-03 as the most recent one, but if that is not a sufficiently important innovation, we then have to go all the way back to the graphical World Wide Web browser in 1995.  Before that, the killer ap was Microsoft Office for Windows in 1990.  Clearly, such shifts appear to occur at intervals of 5-8 years. 

I can, without hesitation, nominate surface computing as the next great generational augmentation in the computing experience.  This is because surface computing entirely transforms the human-computer interaction in a matter that is more suitable for the human body than the mouse/keyboard model is. In accordance with the Impact of Computing, rapid drops in the costs of both high-definition displays and tactile sensors are set to bring this experience to consumers by the end of this decade.

BusinessWeek has a slideshow featuring several different products for surface computing. Over ten major electronics companies have surface computing products available. The most visible is the Microsoft Surface, which sells for about $10,000, but will probably drop to $3000 or less within 3-4 years, enabling household adoption.

As far as early applications of surface computing, a fertile imagination can yield many prospects. For example, a restaurant table may feature a surface that displays the menu, enabling patrons to order simply by touching the picture of the item they choose.  The information is sent to the kitchen, and this saves time and reduces the number of waiters needed by the restaurant (as waiters would only be needed to deliver the completed orders).  Applications for classroom and video game settings also readily present themselves. 

Watch for demonstrations of various surface computers at your local electronics store, and keep an eye on the price drops.  After seeing a demonstration, do share at what pricepoint you might purchase one.  The next generation of computing beckons. 

Related :

The Impact of Computing

(Crossposted on TechSector)

The Culture of Happiness

This is a supplement to my article from Demember 2006 titled The Culture of Success.  In that article, I make a detailed case on how certain cultures are far more likely to produce economic prosperity than others.  A recent chart from The Economist, however, adds another dimension to this thesis.  Economic prosperity is not always a guarantee of happiness.  So which cultures generate greater happiness?

It appears that happiness corelates moderately, but not exactly, with economic prosperity, as Japan and South Korea are less happy than Brazil.  However, happiness certainly does corelate with Western values.  The oldest Democracies, such as the US, Britain, Denmark, etc. are also the happiest countries. 

India warrants special mention.  While India is a genuine democracy, human development indicators reveal India to be one of the least successful societies in terms of wealth creation, even as it was once the world's wealthiest society for over two thousand years.  However, we additionally see from the above chart that India is one of the unhappiest societies in the world.  Suffice it to say that Indian culture, with thousands of years of accumulated baggage calcifying into a rocklike rigidity, has mutated into the most efficient machine imaginable for stripping away human happiness.  One could scarcely invent a more sophisticated infrastructure for extinguishing the basic joys of life if they tried.  The typical American, Australian, or Dane cannot even begin to imagine the sheer variety of obstacles to the pursuit of happiness that can be constructed around the human soul. 

Much more will be written on this subject in the future.

Related :

The Culture of Success

Why the US Will Still be the Only Superpower in 2030, v2.0

One of the most popular dinner party conversation topics is the possibility that the United States will be joined or even surpassed as a superpower by another nation, such as China.  Let us assess the what makes a superpower, and what it would take for China to match the US on each pillar of superpowerdom.  Two years ago, in May 2006, I wrote the first version of this article, and it became the most heavily viewed article ever written on The Futurist.  The comments section brought a wide spectrum of critiques of various points in the article, which led me to do further research, which in turn strengthened the case in some areas while weakening it others.  Thus, it is time for a tune-up on the article. 

A genuine superpower does not merely have military and political influence, but also must be at the top of the economic, scientific, and cultural pyramids.  Thus, the Soviet Union was only a partial superpower, and the most recent genuine superpower before the United States was the British Empire.  Many Europeans like to point out that the EU has a larger economy than the US, but the EU is a collection of 27 countries that does not share a common leader, a common military, a uniform foreign policy, or even a common currency.  The EU simply is not a country, any more than the US + Canada comprise a single country. 

The only realistic candidate for joining the US in superpower status by 2030 is China.  China has a population over 4 times the size of the US, has the fastest growing economy of any large country, and is mastering sophisticated technologies.  But to match the US by 2030, China would have to : 

1) Have an economy that matches the US economy in size.  If the US grows by 3% a year for the next 22 years, it will be $30 trillion in 2008 dollars by then.  Note that this is a modest assumption for the US, given the accelerating nature of economic growth, but also note that world GDP presently grows at a trend of 4.5% a year, and this might at most be 6% a year by 2030.  China, with an economy of $3.2 trillion in nominal (not PPP) terms, would have to grow at 11% a year for the next 22 years straight to achieve the same size, which is already faster than its current 9-10% rate, if even that can be sustained for so long (no country, let alone a large one, has grown at more than 8% over such a long period).  In other words, the progress that the US economy would make from 1945 to 2030 (85 years) would have to be achieved by China in just the 22 years from 2008 to 2030.  Even then, this is just the total GDP, not per capita GDP, which would still be merely a fourth of America's. 

The subject of PPP GDP arises in such discussions, where China's economy is measured to a larger number.  However, this metric is inaccurate, as international trade is conducted in nominal, not PPP terms.  PPP is useful for measuring per capita prosperity, where bag of rice in China costs less than in the US.  But it tells us nothing of the size of the total economy, which could be more accurately measured in commodities like oil or gold.  Nonetheless, in per capita GDP, the US surpasses any other country that has more than 10 million people (and is thus too large to rely solely on being a tax haven or tourist destination for GDP generation).  From the GDP per capita chart, we can see that many countries catch up to the US, but none really can equal, let alone surpass, the US.  An EU study recently estimated that the EU is 22 years behind the US in economic development.  The European Chamber of Commerce estimated that the gap between the EU and US was widening further, and that it would take 75 years for the EU to catch up to the US.  Again, these are official EU studies, and are thus not 'rigged by America'.         

The weak dollar leads some who suddenly fancy themselves as currency experts to believe/hope that the US will lose economic dominance.  However, we see from this chart that the US dollar comprises a dominant 65% of global currency reserves (an even greater share than it commanded in 1995), while the second highest share is that of the Euro (itself the combined currency of 21 separate countries) at just 25%.  Furthermore, the Euro is not rising as a percentage of total reserves, despite the EU and Eurozone adding many new member nations after 2001.  Which currency has any chance of overtaking the US, particularly a currency that is associated with a single sovereign nation?  The Chinese Yuan represents under 2% of world reserves, and China itself stockpiles US dollars.  Clearly, US dominance in this metric is enormous, and is not dwindling in the forseeable future. 

2) Have a military capable of waging wars anywhere in the globe (even if it does not actually wage any).  Part of the opposition that anti-Americans have to the US wars in Afghanistan and Iraq is the envy arising from the US being the only country with the means to invade multiple medium-sized countries in other continents and still sustain very few casualties.  No other country currently is even near having the ability to project military power with such force and range, despite military spending being only 3% of US GDP - a lower proportion than many other countries.  Mere nuclear weapons are no substitute for this.  The inability of the rest of the world to do anything to halt genocide in Darfur or other atrocities in Burma or Zimbabwe is evidence of how such problems can only get addressed if and when America addresses them.

3) Create original consumer brands that are household names everywhere in the world (including in America), such as Coca-Cola, Nike, McDonalds, Citigroup, Xerox, Microsoft, or Google.  Europe and Japan have created a few brands in a few select industries, but China currently has almost none.  Observing how many American brand logos have populated billboards and sporting events in developing nations over just the last 15 years, one might argue that US cultural and economic dominance has even increased by this measure.

4) Have major universities that are household names, that many of the worlds top students aspire to attend.  17 of the world's top 20 universities are in the US.  Until top students in Europe, India, and even the US are filling out an application for a Chinese university alongside those of Harvard, Stanford, MIT, or Cambridge, China is not going to match the US in the knowledge economy.  This also represents the obstacles China has to overcome to successfully conduct impactful scientific research. 

5) Become the center of gravity for all types of scientific research.  The US conducted 32% of all research expenditures in 2007, which was twice as much as China, and more than the 27 combined countries of the EU.  But it is not just in the laboratory where the US is dominant, but in the process to deliver innovations from the laboratory to the global marketplace.  To displace the US, China would have to become the nation that produces the new inventions and corporations that are adopted by the mass market into their daily lives.  From the telephone and airplane over a century ago, America has been the engine of almost all technological progress.  Despite the fears of innovation going overseas, the big new technologies and influential applications continue to emerge from companies headquartered in the United States.  Just in the last four years, Google emerged as the next super-lucrative company (before eBay and Yahoo slightly earlier), and the American-dominated 'blogosphere' emerged as a powerful force of information and media.  Even after Google, a new batch of technology companies, this time in alternative energy, have rapidly accumulated tens of billions of dollars in market value.  It is this dominance across the whole process of university excellence to scientific research to creating new companies to bring technologies to market that makes the US innovation engine virtually impossible for any country to surpass. 

6) Attract the best and brightest to immigrate into China, where they can expect to live a good life in Chinese society.  The US effectively receives a 'education import' estimated to be above $200 billion a year, as people educated at the expense of another nation immigrate here and promptly participate in the workforce.  As smart as people within China are, unless they can attract non-Chinese talent that is otherwise migrating to the US, and even talented Americans, they will not have the same intellectual and psychological cross-pollination, and hence miss out on those economic benefits.  The small matter of people not wanting to move into a country that is not a democracy also has to be resolved.  The true measure of a country is the net difference between how many people seek to enter, and how many people seek to leave.  The US has a net inflow of immigrants (constrained by quotas and thus a small fraction of the unconstrained number of people who would like to enter), while China has a net outflow of native-born Chinese.  Click on the map to enlarge it, and see the immigration rate to America from the world (which itself is constrained by quotas in the US and forcible restrictions on fleeing the country in places like Cuba and North Korea). 

7) Be the leader in entertainment and culture, which is the true driver of societal psychology.  China's film industry greatly lags India's, let alone America's.  We hear about piracy of American music and films in China, which tells us exactly what the world order is.  When American teenagers are actively pirating music and movies made in China, only then will the US have been surpassed in this area.  Take a moment to think how distant this scenario is from current reality.  Which country can claim the title of #2 in entertainment and cultural influence?  That such a question cannot easily be answered itself shows how total US dominance in this dimension really is. 

8) Be the nation that engineers many of the greatest moments of human accomplishment.  The USSR was ahead of the US in the space race at first, until President Kennedy decided in 1961 to put a man on the moon by 1969.  While this mission initially seemed to be unnecessary and expensive, the optimism and pride brought to anti-Communist people worldwide was so inspirational that it accelerated many other forms of technological progress and brought economic growth to free-market countries.  This eventually led to a global exodus from socialism altogether, as the pessimism necessary for socialism to exist became harder to enforce.  People from many nations still feel pride from humanity having set foot on the Moon, something which America made possible.

China currently has plans to put a man on the moon by 2024.  While being only the second country to achieve this would certainly be prestigious, it would still be 55 years after the United States achieved the same thing.  That is not quite the trajectory it would take to approach the superpowerdom of the US by 2030.  If China puts a man on Mars or has permanent Moon bases before the US, I may change my opinion on this point, but the odds of that happening are not high. 

9) Be the nation expected to thanklessly use its own resources to solve many of the world's problems.  It is certainly not a requirement for a superpower to be benevolent, but it does make the path to superpower ascension easier, as a malevolent superpower will receive even more opposition from the world than a benevolent one, which itself is already substantial.  If the US donates $15 billion in aid to Africa, the first reaction from critics is that the US did not donate enough.  On the other hand, few even consider asking China to donate aid to Africa.  After the 2004 Indian Ocean tsunami and the 2008 cyclone in Burma, the fashionable question was why the US did not donate even more and sooner, rather than why China did not donate more, despite being geographically much closer.  Ask yourself this - if an asteroid were on a collision course with the Earth, which country's technology and money would the world depend on to detect it, and then destroy or divert it?  Until China is relied upon to an equal degree in such situations, China is not in the same league. 

10) Adapt to the underappreciated burden of superpowerdom - the huge double standards that a benign superpower must withstand in that role.  America is still condemned for slavery that ended 140 years ago, even by nations that have done far worse things more recently than that.  America's success in bringing democracy to Afghanistan and Iraq, and defending local populations from terrorists, is condemned more than the UN's inaction in preventing genocide and slavery.  Is China prepared to apologize for Tianenmen Square, the genocide in Tibet, the 30 million who perished during the Great Leap Forward, and the suppression of news about SARS, every day for the next century?  Is China remotely prepared for being blamed for inaction towards genocide in Darfur while simultaneously being condemned for non-deadly prison abuse in a time of war against opponents who follow no rules of engagement?  The upcoming 2008 Olympics will be an event where political demonstrations are going to grab headlines perhaps to a greater degree than the sports themselves, and the Chinese leadership will be tested on how they deal with simmering domestic discontent under the scrutiny of the world media.  The amount of unfairness China would have to withstand to truly achieve political parity with America might be prohibitive given China's history over the last 60 years. 

Economically, is China prepared to withstand the pressures that the US presently bears?  How long before the environmental movement (at least the fraction of it that is actually concerned about the environment) recognizes that China is a bigger polluter of the atmosphere than the US is, and that the road to pollution reduction leads straight to China?  How long before China is pressured to donate aid to Africa in the manner that the US does?  What happens when poorer nations benefit from Chinese R&D expenditures, particularly if those are neighboring countries that China is not friendly with? 

Furthermore, China being held to the superpower standard would simultaneously reduce the burden that the US currently bears alone, allowing the US to operate with less opposition and more equitable treatment than it experiences today.  Is China prepared to take on the heat?  Arguably, there is evidence that the Chinese public has not even begun to think that far. 

Of the ten points above, Britain, France, Germany, and Japan have tried for decades, and have only achieved parity with the US on maybe two of these dimensions at most.  China will surpass European countries and Japan by 2030 by achieving perhaps two or possibly even three out of these ten points, but attaining all ten is something I am willing to confidently bet against.  The dream of anti-Americans who relish the prospect of any nation, even a non-democratic one, surpassing the US is still a very distant one. 

A point that many bring up is that empires have always risen and fallen throughout history.  This is partly true, but note that the Roman Empire lasted for over 1000 years after its peak.  Also note that the British Empire never actually collapsed since Britain is still one of the most successful countries in the world today, and the English language is the most widely spoken in the world.  Britain was merely surpassed by its descendant, with whom it shares a symbiotic relationship.  The US can expect the same sort of very long tail if it is finally surpassed, at some point much later than 2030 and probably not before the Technological Singularity, estimated for around 2050, which would make the debate moot.   

That writing this article is even worthwhile is a tribute to how far China has come and how much it might achieve.  I would not bother to write such an article about, say, India or Germany (the largest of the 27 EU countries).  Nonetheless, there is no other country that will be a superpower on par with the US by 2030.  This is one of the safest predictions The Futurist can make. 

More on American Exceptionalism by Tunku Varadarajan at Forbes. 

Related :

The Winds of War, the Sands of Time

Who Hates America?

Who Does America View Favorably?

The Age of Democracy

The Culture of Success

The Solar Revolution is Near

I have long been optimistic about Solar Energy (whether photovoltaic or thermal) becoming our largest energy source within a few decades.  Earlier articles on the subject include :

A Future Timeline for Energy

Solar Energy Cost Curve

Several recent events and developments have led me to reinforce this view.  First of all, consider this article from Scientific American, detailing a Solar timeline to 2050. The article is not even Singularity-aware, yet details many steps that will enable Solar energy to expand by orders of magnitude above the level that it is today.  Secondly, two of the most uniquely brilliant people alive today, Ray Kurzweil and Elon Musk (who I recently chatted with), have both provided compelling cases on why Solar will be our largest energy source by 2030.  Both Kurzweil and Musk reside in significantly different spheres, yet have arrived at the same prediction.

However, the third point is the one that I find to be the most compelling. There are a number of publicly traded companies selling solar energy products, many of which had IPOs in just the last three years.  Some of these companies, and their market capitalizations, are :

Now consider that the companies on this list alone amount to about $50 Billion in capitalization.  There are, additionally, many smaller companies not included on this list, many companies like Applied Materials (AMAT) and Cypress Semiconductor (CY) for which solar products comprise only a portion of their business, and large private companies like NanoSolar (which I have heavily profiled here) and SolFocus that may have valuations in the billions.  Thus, the market cap of the 'solar sector' is already between $60B and $100B, depending on what you include within the total.  This immense valuation has accumulated at a pace that has taken many casual observers by surprise.  A 2-year chart of some of the stocks listed above tells the story. 

While FirstSolar (FSLR) has been the brightest star, all the others have trounced the S&P500 to a degree that would put even Google or Apple to shame over this period.  Clearly, a dramatic ramp in Solar energy is about to make mainstream headlines very soon, even if the present valuations are too high. 

Is this a dot-com-like bubble?  Yes, in the near-term, it is.  However, after a sharp correction, the long term growth will resume for the companies that emerge as leaders.  I won't recommend a specific stock among this cluster just yet, as there are a wave of private companies with new technologies that could render any of these incumbents obsolete.  Specific company profiles will follow soon, but in the meantime, for more detail on the long-term trends in favor of Solar, refer to these additional articles of mine :

Why I Want Oil to Hit $120 per Barrel

Terrorism, Oil, Globalization, and the Impact of Computing

(crossposted on TechSector)

Nanohealing Material Heads to Market

I first wrote on October 14, 2006 about a liquid that quickly self-assembles into a solid gel upon contact with blood, sealing the wound quickly.  At that time, it appeared that military use of this type of substance was 8-10 years away from 2006.  However, it appears that progress has accelerated, and we are much closer to market availability than it initially appeared.  An update on the progress is posted this week in MIT Technology Review.

The material consists of naturally occurring amino acids that have been engineered to form peptides that spontaneously cluster together to create long fibers when exposed to salty, aqueous environments, such as those found in the body. The fibers form a mesh that serves as a physical barrier to blood and other fluids.

Needless to say, this could save many lives on the battlefield, in car crashes, and during surgery.  If it becomes inexpensive enough, it could even be part of home first-aid kits.  Arch Theraputics is the company that is licensing the technology from MIT, and clinical trials are set to begin soon.

Let's hope the next hurdles are quickly cleared. 

Ten Biotechnology Breakthroughs Soon to be Available

Popular Mechanics has assembled one of those captivating lists of new technologies that will improve our lives, this time on healthcare technologies (via Instapundit).� Just a few years ago, these would have appeared to be works of science fiction.� Go to the article to read about the ten technologies shown below.�

Most of these will be available to average consumers within the next 7-10 years, and will extend lifespans while dramatically lowering healthcare costs (mostly through enhanced capabilities of early detection and prevention, as well as shorter recovery times for patients).� This is consistent with my expectation that bionanotechnology is quietly moving along established trendlines despite escaping the notice of most people.� These technologies will also move us closer to Actuarial Escape Velocity, where the rate of lifespan increases exceed that of real time.�

Another angle that these technologies effect is the globalization of healthcare.� We have previously noted the success of 'medical tourism' in US and European patients seeking massive discounts on expensive procedures.� These technologies, given their potential to lower costs and recovery times, are even more suitable for medical offshoring than their predecessors, and thus could further enhance the competitive position of the countries that are quicker to adopt them.� If the US is at the forefront of using the 'bloodstream bot' to unclog arteries, the US thus once again becomes more attractive than getting a traditional procedure done in India or Thailand.� But if the lower cost destinations also adopt these technologies faster than the heavily regulated US, then even more revenue migrates overseas and the US healthcare sector would suffer further deserved blows, and be under even greater pressure to conform to market forces.� As technology once again acts as the great leveler, another spark of hope for reforming the dysfunctional US healthcare sector has emerged.�

These technologies are near enough to availability that you may even consider showing this article to your doctor, or writing a letter to your HMO.� Plant the seed into their minds...

Related :

Actuarial Escape Velocity

How Far Can 'Medical Tourism' Go?

Milli, Micro, Nano, Pico

US Ideological Distribution, 2008

The Pew Research Center has presented a simple linear chart that places the ideology of the three Presidential contenders and the current President on a left-right scale, along with the median ideology of the voting public. A two-axis chart would be more informative, but this one-dimensional distribution reveals a great deal :

1) The center of gravity of the US public is significantly right of the center, no matter what leftists may say/wish.  McCain, thus, is far closer to the center of gravity than Bush, who in turn is closer than Obama or Clinton. The GOP is far less dependent on centrists to win elections than Democrats are.

2) The notion that McCain is 'not conservative enough' does not stand up to statistical evidence. Those who whine about McCain's support for amnesty of illegals or compromises on judicial appointments forget that even Ronald Reagan did three things that were not purely conservative.

a) Reagan granted amnesty to illegals in 1986

b) Reagan appointed two moderate Supreme Court Justices, Kennedy and O'Connor, and only one conservative, Scalia.

c) Reagan did increase income taxes, after first lowering them

No President will be purely conservative, nor should he/she be.  So I reject the initial conservative hostility to McCain (which seems to have somewhat abated). The job of a political party is to win elections, and the fact that Republicans span a wider ideological spectrum than Democrats should be a source of pride, which brings us to observation #3.

3) The Democratic Party has been enslaved by fringe leftists.  Obama and Clinton are nearly identical in ideology, yet very far to the left of the center of gravity.  The purple oval I have inserted, along with the question mark, represents a vacuum in the moderate left.  A large number of voters clearly reside there, but the Democratic party of today will not nominate someone who resides in the purple zone, leaving these voters as ideological orphans.  Thus, Clinton and Obama have to lie (assisted by a complicit leftist media) to appear more moderate than they are, and hope that the public doesn't figure that out.

Joseph Lieberman, the VP candidate against Bush/Cheney just seven years ago, was run out of the Democratic Party simply for not being opposed to bringing democracy to Iraq.  Bill Clinton's actions of supporting free trade agreements like NAFTA, sending troops to fight proto-Al-Qaeda terrorists in Somalia in 1993, reforming welfare, cutting taxes on capital gains in 1997, attacking Saddam Hussein to remove his WMD programs in 1998, etc. are all actions that the modern Democratic party would not take.

I am a political moderate, in that I care about only three issues.  These are, in order of importance to me :

a) aggresively fighting against terrorists and other enemies of democracy and women's rights,

b) the preservation of free market meritocracy, and the use of market forces to solve problems, and

c) a judicial system that punishes crime, instead of ignoring justice and proceeding to reward the criminal as a poster-child for some perverted cause.

I have a neutral/uninterested position on abortion, gay marriage, gun ownership, prayer in schools, and many other domestic issues.  Yet, I am considered 'right wing' by some extreme leftists, on account of holding the above three positions alone.  Until 2001, it did not even occur to me that only one of the two parties still advocates these three basic principles - I assumed that these were values held by any logical person.  I wish I had a true choice between two parties, but I don't.  In the words of once-Democrat Ronald Reagan, I did not move away from the Democratic Party, it moved away from me.

The moderate left died in 1968, when two of their most promising young leaders were assassinated.  Since then, Democrats have only won three of the last ten elections.  After the disaster of Jimmy Carter, Democrats never again won 50% of the popular vote in SEVEN attempts, while Republicans achieved this feat 4 times over that period (1980, 84, 88, 2004).  This is a truly shambolic performance from the Democrats of the modern era.  Jimmy Carter did more to ensure a generation of GOP dominance than Reagan, Gingrich, Limbaugh, or Rove ever could.

Furthermore, Democrats are not capable of getting a majority of voters who earn over $30,000 a year.  The middle class earning between $50,000 and $75,000 voted just 44% for Democrats.  A party that is soundly rejected by the middle class and upper class is not positioned for long-term success.

2008 is a year where more factors, from a weak economy to an unpopular incumbent, are working against Republicans than at any time since 1976.  Thus, Democrats should be in a position to win by a landslide, but even now are trailing in the polls, and have at best a 50/50 chance of winning the White House in November, with a nominee far more distant from the voting public than John McCain is.  Even if, say, Obama wins, he might repeat the Carter-esqe phenomenon of ensuring another generation of GOP dominance starting from 2012.  If 2008 is 1976, 2012 could be 1980.

Once again, the job of a political party is to attract the votes of 50% of the public, and Democrats can only hope to achieve this by fluke.  If Democrats want to become a national party again, they must move into the purple zone, period.  I sincerely want them to do this, as this will force the GOP to compete to become a better party as well, rather than stagnate into mediocrity with the knowledge that they only have to be better than the most pathetic of opponents.  

When will Democrats purge the leftists and move to the center?

Energy vs. Financials, A Divergence of Historical Extremes

Energy and Financials are both large sectoral components of the S&P500.  Yet the two have diverged immensely over the last 2 years.  Not since the technology bust at the start of the decade have any two sectors diverged so much from each other, and from the composite S&P500 index. 

XLE is an exchanged-traded fund for the Energy sector, while XLF is the equivalent for the Financial sector.  First, let us view a two-year chart : 

Energy has outperformed the S&P500 by an equal margin that Financials have lagged the S&P500 by.  Next, we can view a five-year chart :

While Financials only began to fall away in 2007, Energy has gone so high above the composite market that it reminds one of the technology bubble of the late 1990s. 

It seems quite obvious here that while it is impossible to identify the exact top of the Energy run, or the exact bottom of the Financials correction, it would be very prudent to sell any existing holdings in Energy (or even short Energy if you have the appetite) and rotate the proceeds into Financials.  The gap could widen in the short term, but rarely do two sectors reach such extreme disparities that make a profitable trade so obvious. 

(crossposted on TechSector).

Reverend Jeremiah White,...I mean, Wright

The Futurist, above all else, is devoted to bringing original ideas, observations, and analyses to the blogosphere.  The Jeremiah Wright controversy has been heavily analyzed from a mind-boggling array of angles.  Yet one noteworthy detail just has not emerged in the discussion.  Maybe, as an Indian-American, I am truly a third party, and what was utterly invisible to the two races involved in the discussion, was somehow the very first question that entered my mind. 

What immediately struck me is that Barack Obama, who is half Kenyan and half white, still has a darker skin tone than Jeremiah Wright.  Indeed, in Africa, Barack Obama himself would be considered white.  Could it be that less than half of Mr. Wright's ancestors are black? 

To be fair, one must examine additional datapoints.  Fortunately, this research exercise required no additional effort beyond what I was about to do anyway.  I proceeded to search for photographs of Halle Berry, known to have had one white parent, in order to assess her skin tone.  She, too, appears to be of a similar hue as Barack Obama, but distinctly darker than Wright.  Here is more video footage of Wright.  There just is not enough evidence to believe that even 50% of Mr. Wright's DNA originated from sub-Saharan Africa.  Clearly, more than 50% of his ancestry is white. 

Reverend Wright has built a career out of being a leader to a community from which less than 50% of his ancestry comes from, while condemning a race that apparently more than 50% of his ancestry comes from.  He could just as easily have been a pastor in a white community, where the average skin tone would be closer to his own.  White Americans have become so post-racial that it has entirely escaped their notice that the man can scarcely be considered black.  His defenders claim that his anger is a byproduct of the racism he experienced in the Jim Crow era, yet he is actively applying the one-drop rule to himself. 

It is curious that a man who refers to this country as the "U.S. of KKK-A", managed to attend the University of Chicago, and will soon reside in a 10,340 square foot mansion that his church has provided to him.  Most white people are not fortunate enough to live in homes of that size.  Indeed, most Harvard graduates don't manage to acquire such an impressive residence.  Far from shame America, he has demonstrated how generous, to the illogical extreme, this country is.  Nowhere else can someone with light skin pretend to be black, then condemn whites who are closer to his own skin color, and in the process achieve wealth from a nation while simultaneously condemning the same nation through the worst possible insults. 

It appears that Reverend Wright identified a profitable niche, positioned his career accordingly, and reaped a rich bounty.  As appalled as I am as an American, I am just as impressed as an entrepreneur. 

Only in America......

We shall close with a poll.  Choose multiple answers if desired (poll closed 4/21/08).

A Rebuttal to 'Peak Oil' Doomsday Predictions

At The Oil Drum, a detailed article by 'Gail the Actuary' speculates on how declining production of oil combined with rising demand will cause an economic catastrophe, leading to the global economy contracting so severely, that by 2040 it is much smaller than it is today.  The author actually believes that in 2040, most people will no longer be able to afford cars, electricity will be unreliable, and goods and services will be fewer and rarer than today. 

Another article submitted by an different contributor on The Oil Drum arrives at the same pessimistic conclusion, stating that 'economic growth will end one way or another'.  Most of the commenters on both articles are in a groupthink state of agreement that can best be described as a Maoist-Malthusian cult. 

I would normally not bother to rebut something like this, except that this particular essay is so stunningly wrong and annoyingly pessimistic, despite the seemingly meticulous research the author has conducted, that I am compelled to disect how insulated groupthink can spiral into a zone where even the most extreme conclusions are accepted. 

Note that I happen to be someone who actually does believe in Peak Oil theory, but that such a condition generates long-term positives that outweigh short-term negatives. 

The assumptions that the 'Peak Oil' doomsday scenario makes are :

1) That rising oil prices do not cause a long-term downward adjustment in demand.  Oil demand may be inelastic in the short-term, but in the long term, people will buy more efficient cars, carpool, ride bicycles, reduce discretionary trips, conduct more commerce online, etc.  To assume otherwise is to ignore the most basic law of economics.  This is before even accounting for the indirect benefits of declining oil demand such as a drop in traffic fatalities (which cost $2 million apiece to the economy), less wear and tear on roads and tires, less pollution, less real estate consumed by gas stations, less competition for parking spaces, etc. 

2) That rising grain prices will not move consumption away from increasingly expensive meat towards affordable grains, fruits, and vegetables, thereby reducing grain and water demand.  This, too, is economic illiteracy.  If the price of beef triples while the price of rice and potatoes does not, consumption patterns shift.   

3) That there will be very little technological innovation in alternative energy, automobile efficiency, batteries, or information technology from this point on.  In fact, there is innovation in all of those areas, so we have multiple layers of protection against the doomsday scenario, as detailed by these articles :

A Future Timeline for Energy

A Future Timeline for Automobiles

Batteries Set to Advance, Finally

Solar Energy Cost Curve

Terrorism, Oil, Globalization, and the Impact of Computing

4) That most economic growth is now in knowledge-based industries, which consume far less energy per dollar of output.  The US economy today produces twice the financial output per unit of oil consumption as it did in 1975, with information technology rising as a portion of total economic output. 

5) That a major economic downturn, featuring skyrocketing food prices for people in poorer countries, will somehow not translate to a lower birth rate that inhibits population growth and hence curbs demand, and that population projections will somehow not change. 

6) That there will be no humans living beyond the Earth (whether in orbit or on the Moon) by 2040.  The reason this point is relevant is because a society cannot advance in space travel without simultaneous advances in energy technology.  I say that advances in photovoltaic efficiency make Lunar colonies closer to viability by that time. 

7) That we are going to have over 30 years of negative growth in World GDP, despite not having had a single year of negative growth since 1973, and despite the trendline of growth solidly registering at 4.5% a year even today.  I happen to think that by 2040, the world economy will be 4 times larger than it is today.  Even the Great Depression was only 5 years of negative growth, followed by a recovery that elevated prosperity to levels higher than they were in 1929, at a time when World GDP was only at a trendline of 2% annual growth, or less than half the level of today.  Yet Gail the Actuary thinks car ownership will no longer be affordable to most people by 2040. 

Peak oil may be on the horizon, but the US economy has already adapted to oil at sustained prices of $70 or $80/barrel (which is the biggest story that no one is noticing yet), and will soon adapt to $100/barrel.  I want oil to hit a sustained $120/barrel by 2010 to start a virtuous cycle of technological and geopolitical chain reactions that make the world a better place in the long term.  If oil hits $200/barrel, that will cause a deep recession that could last several years, but after that point, we will have adapted out of the oil burden almost entirely, and World GDP growth will resume at 5% a year. 

Could I be wrong and they be right?  Well, let us first see if oil rises substantially above $120/barrel, and if that year has negative World GDP. 

Does anyone feel like defending the doomsday prediction from The Oil Drum?

Actuarial Escape Velocity

Every now and then, an obscure concept is so brilliantly encapsulated in a compact yet sublime term that it leaves the audience inspired enough to evangelize it. 

I have felt that way ever since I heard the words 'Actuarial Escape Velocity'.

For some background, please refer to an older article from early 2006, 'Are You Prepared to Live to 100?".  Notice the historical uptrend in human life expectancy, and the accelerating rate of increases.  For more, do also read the article "Are You Acceleration Aware?".

In analyzing the rate at which life expectancy is increasing in the wealthiest nations, we see that US life expectancy is now increasing by 0.2 years, every year.  Notably, the death rates from heart disease and cancer have been dropping by a rapid 2-4% each year, and these two leading causes of death are quickly falling off, despite rising obesity and a worsening American diet over the same period.  Just a few decades ago, the rate on increase in life expectancy was slower than 0.2 years per year.  In the 19th century, even the wealthiest societies were adding well under 0.1 years per year.  But how quickly can the rate of increase continue to rise, and does it eventually saturate as each unit of gain becomes increasingly harder to achieve?

Two of the leading thinkers in the field of life extension, Ray Kurzweil and Aubrey de Grey, believe that by the 2020s, human life expectancy will increase by more than one year every year (in 2002 Kurzweil predicted that this would happen as soon as 2013, but this is just another example of him consistently overestimating the rate of change).  This means that death will approach the average person at a slower rate than the rate of technology-driven lifespan increases.  It does not mean all death suddenly stops, but it does mean than those who are not close to death do have a possibility of indefinite lifespan after AEV is reached.  David Gobel, founder of the Methuselah Foundation, has termed this as Actuarial Escape Velocity (AEV), essentially comparing the rate of lifespan extension to the speed at which a spacecraft can surpass the gravitiational pull of the planet it launches from, breaking free of the gravitational force.  Thus, life expectancy is currently, as of 2007 data, rising at 20% of Actuarial Escape Velocity.

I remain unconvinced that such improvements will be reached as soon as Ray Kurzeil and Aubrey de Grey predict.  I will be convinced after we clearly achieve 50% of AEV in developed countries, where six months are added to life expectancy every year.  It is possible that the interval between 50% and 100% of AEV comprises less than a decade, but I'll re-evaluate my assumptions when 50% is achieved. 

Serious research efforts are underway.  The Methuselah Mouse Prize will award a large grant to researchers that can demonstrate substantial increases in the lifespan of a mouse (more from The Economist).  Once credible gains can be demonstrated, funding for the research will increase by orders of magnitude. 

The enormous market demand for lifespan extension technologies is not in dispute.  There are currently 95,000 individuals in the world with a net worth greater than $30 million, including 1125 billionaires.  Accelerating Economic Growth is already growing the ranks of the ultrawealthy at a scorching pace.  If only some percentage of these individuals are willing to pay a large portion of their wealth in order to receive a decade or two more of healthy life, particularly since money can be earned back in the new lease on life, then such treatment already has a market opportunity in the hundreds of billions of dollars.  The reduction in the economic costs of disease, funerals, etc. are an added bonus.  Market demand, however, cannot always supercede the will of nature. 

This is only the second article on life extension that I have written on The Futurist, out of 154 total articles written to date.  While I certainly think aging will be slowed down to the extent that many of us will surpass the century mark, it will take much more for me to join the ranks of those who believe aging can be truly reversed.  To track progress in this field, keep one eye on the rate of decline in cancer and heart disease deaths, and another eye on the Methuselah Mouse Prize.  That such metrics are even advancing on a yearly basis is already remarkable, but monitoring anything more than these two measures, at this time, would be premature. 

So let's find out what the group prediction is, with a poll.  Keep in mind that most people are biased towards believing this date will fall within their own lifetimes :

When will Actuarial Escape Velocity be achieved for wealthy individuals?
	2010-2020
	2020-2030
	2030-2040
	2040-2050
	2050 or later, if ever
Free polls from Pollhost.com

How Far Can 'Medical Tourism' Go?

Studying what lies beneath the surface of market forces can be fascinating.

BusinessWeek has a slideshow depicting major centers for medical tourism, as well as the cost savings of various procedures in relation to the US.  This got me thinking about several dimensions of this concept, particularly since healthcare is 15% of the US economy, yet is also the sector of the US economy, outside of government, where wastage and ineffeciencies are the greatest. 

Many procedures that cost $100,000 or more in the US can be done with equal competence for $10,000 in Thailand or India.  Normally, if something of comparable quality is available for just a tenth of the cost, demand migrates to the cheaper alternative in a huge torrent.  Even after accounting for travel costs, the gulf is immense.  Yet it appears that only a small percentage of US patients for cardiovascular surgery, joint replacements, etc. are going overseas for their operations.  Medical tourism will still only earn a miniscule $4 Billion in 2008 for India, Thailand, and Singapore combined, of which only one-third is from American patients.  Thus, only a fraction of a percent of the US, European, and Japanese healthcare sectors have been dented. 

This, of course, can be due to two reasons :

a) Fears about quality/safety, either real or perceived.

b) Net out-of-pocket cost to the patient still being lower in the US, due to insurance. 

Regarding quality, many of these surgeons are certified by US boards or even educated in US colleges, and accidents do not appear to happen at any greater rate than in the US.  At the same time, it is not possible to pursue malpractice suits against facilities in India or Thailand, which, while certainly an element of risk, itself is part of the reason for their lower price relative to the US.  It is inevitable that some mishap befalls an American patient in Asia, and the media latches onto the story for a week or more, reversing the market demand for medical tourism for years, even if the incidence of such tragedies may be no more than in US hospitals.  In fact, I am surprised it has not happened already. 

In terms of cost, that brings us to the elephant in the room, which is the revelation that it is not India or Thailand that are too cheap, but rather that US healthcare is too expensive to begin with.  I am no expert in this field, but it seems obvious that a lack of market forces in the value chain, a lack of regulation of lawsuits, the horrendous dietary habits of most Americans, and the tendency of consumers to not care about how much the insurance company pays are all contributory factors to what is arguably the greatest tragedy in US economic history.  Socializing the healthcare system will worsen it, for reasons too vast to delve into here.  It is true that many Canadians come to the US for urgent procedures that would require a 3-month wait in Canada. 

However, millions of Americans don't have health insurance at all, and while for some this is by choice, for some it is not.  For them, traveling abroad for a $10,000 heart procedure may be the only affordable option.  Even if the most experienced and well-frequented facilities are in India and Thailand, nearby options also exist in Jamaica and Costa Rica.  Over 20 other countries across Eastern Europe, Asia, and Latin America are also vying for a slice of the pie. 

As unintended consequences ripple through, herein lies the path to forcing some degree of reform of the US healthcare system.  As more Americans either choose or are forced to seek low-cost procedures abroad, even if it is only a small percentage American patients, this will compel insurance companies to include medical tourism options to patients.  The insurance company can offer their own version of malpractice insurance to the patient, cover all travel expenses for the patient and spouse, and even throw in a vacation package and cash incentive.  Even after all this, if the cost of the $10,000 procedure in India or Thailand has now risen to $30,000, it still outcompetes the $100,000 US alternative handily.  Some insurance companies are already starting this with enthusiasm, and before long, all insurance companies will effectively have to compete on this level. 

As the number of Americans combining surgeries with a tropical vacation becomes a small but significant percentage of the total patient pool, the US healthcare system will have no choice but to undertake the difficult reforms to bring costs down at a systemic level, thus benefiting even those Americans who refuse to go overseas, and even procedures that are not candidates for offshoring.  If software development can be outsourced to India where it is one fourth the cost, surgeries cannot expect to be perpetually immune to competition that is a tenth or twentieth of the cost.  Through some combination of tort reform, free-market principles, and preventative focus, US costs will gradually be brought down closer to a market rate.  Perhaps the US can comfortably sustain prices that are 3 times that of Thailand, but not 10 times.  This will be the next industry in the US that is forced to adapt. 

To review, the expected sequence of events is :

1) Americans with no insurance are forced to make a life or death decision to get their surguries abroad, where the service meets or exceeds their expectations. 

2) More insurance companies offer medical tourism with liability guarantees and cash/vacation incentives to American patients.  Only a small fraction of patients are adventurous enough to do this, but all insurance companies are compelled to offer these options.

3) Major centers for medical tourism, after a track record of about a decade, develop solid brands that can attract American patients. 

4) When we finally get to the point that 10% of Americans are traveling abroad for a wide array of procedures, the US will be forced to begin to take measures to reduce costs throughout the healthcare system.  Losing 10% of the market is all that it will take to force some positive changes.  This could begin to happen by 2020. 

Such a sequence of events, of course, will boost the US economy greatly.  Of the $2 Trillion mentioned above, as much as half of that, a whopping $1 Trillion or 7% of the US economy, is estimated to be wastage incurred due to a shortage of market forces in healthcare.  Imagine if that $1 Trillion could be redeployed elsewhere.  A person who saves $90,000 on a heart procedure can choose to use that money on emerging innovations in biotechnology that may be available in the 2020s, such as treatments to slow down or halt some aspects of aging. 

This is not going to be a trend that moves as quickly as some of the others discussed here on The Futurist.  But the economics involved are massive enough that it has certainly caught my eye.  Let's see what happens, both before and after the predicted media frenzy over a foreign medical mishap. 

Update (4/3/08) : Businessweek has an article on how technological advances in medical instrumentation are enabling some surgical procedures to be done with far tinier incisions.  Patients who previously would have to stay in the hospital for a week to recover now can leave in under a day. 

The article also mentions how hospitals are opposed to these technological advancements, as they reduce the number of days of revenue a hospital can collect while a patient recovers after surgury.  This anti-productive, entitlement mentality will hasten the downfall of the US healthcare cartel, as shorter recovery times due to smaller incisions will make a trip to a tech-friendly facility in Thailand or India even more compelling.  When the cost is a tenth and the recovery time is a fifth of what it would be in the US, how long before market forces dominate?

'Outsourcing' - What a Non-Crisis That Turned Out to Be, v2.0

I wrote version 1.0 of this article on November 26, 2006.  16 months later, it is time for version 2.0 to provide more historical context on how misplaced the hype over some fashionable issues eventually turns out to be, and why what once appeared to be a harbinger of doom is now all but forgotten. 

In the 2001-03 economic downturn, the aftermath of the technology bust resulted in hundreds of thousands of software engineers and assorted high-tech workers losing their jobs.  A jittery public was vulnerable to influence from isolationist politicians, with the likes of Lou Dobbs and Pat Buchanan fanning the flames in the media.  As a result, the simple business practice of moving certain components of daily operations to a lower-cost location, if only to keep up with competitors already doing the same, became a dirty word - 'outsourcing'. 

The cover story of Wired Magazine's February 2004 issue was on the outsourcing of software jobs to India.  Within the article, a core theme was the supposedly tremendous hardships that white-collar Americans were about to experience due to a 'giant sucking sound' of jobs going to India.  In the same month, then Presidential candidate John Kerry screamed about the practicies of "Benedict Arnold CEOs" who outsource American jobs to India, hoping to gain the support of isolationists and the economically ignorant.  Elsewhere, very uncharitable things were said by leftists about brown-skinned Indians, due to their rapid adoption of capitalism and globalization at the expense of the leftist plantation where Indians were required to symbolize Gandhian non-violence, zen spirituality, yoga, curries, and the glorification of poverty. 

Let's call February 2004 as time when the bubble of 'outsourcing' fears reached a fevered peak.  Now, what happens whenever a bubble of psychology reaches a peak?

A quick glance at a few economic indicators from the Bureau of Labor Statistics in the 4 years since then reveals the following :

So 7.5 million jobs were created in this short time, the unemployment rate is lower than it has been for 33 of the last 37 years, and wages have risen while real GDP has grown at a 3.2% clip.  There is thus no evidence of job losses, wage erosion, or underemployment over this period.  Take that, Lou Dobbs, Pat Buchanan, John Kerry, Dennis Kucinich, and other assorted demagogues, who have no ability whatsoever to truly grasp the trends that shape our world. 

India, in the meantime, has benefited greatly as well.  GDP growth has averaged 8% a year over this same period, pulling 100 million people out of poverty.  Political ties with the US have strengthened in a manner unlike any previous episode in the last 50 years.  The faster these ties broaden, the better the world will become.  A prosperous India is a critical component to the US achieving favorable outcomes in both the War on Terror and with China, as seen from where India resides on this particular map.  Anti-Americans become apoplectic when they learn that India is the most pro-US country in the world. 

What does the future of outsourcing hold?  Is there still a risk of jobs vanishing from the US at a rate faster than they can be produced, as pessimists still maintain?  Unlikely, even though Internet backbone bandwidth has quintupled in the last 4 years, and many more people in India have PCs and Broadband connections today than in early 2004.  This is because aggregate demand growth has saturated even India's vast labor pool.  Salaries in India have been rising at over 12% a year due to labor shortages, causing their cost advantage to erode.  The Wired article from 2004 stated that the average salary of an Indian programmer was $8000 a year; today, it is closer to $15,000 a year in US dollars.  India itself has started outsourcing to Bangladesh and Eastern Europe, which are much smaller labor pools and will also saturate quickly.  Indeed, the trends favor more job creation in America and India. 

Now that we are in another recession, phony issues like this one emerge again.  Democrats are still speaking in protectionist tones, bashing NAFTA and opposing free-trade agreements with Columbia.  But other than a few pessimists, socialists, and racists, it is unlikely to gain much traction, as Americans have seen that the benefits have outweighed the costs by a handsome margin.  BusinessWeek also had an article from 4/24/07, six months after version 1.0 of this article was post, on how misrepresented the outsourcing issue is.

Thus, the bubble of fashionable pessimism has moved to the next topic, which happens to be the decline of the dollar.  This, too, will turn out to be a passing concern that the economy adjusts to after a brief period of pain.  Among other things, a competitively priced dollar has led to Europe outsourcing jobs to the US, and is also working towards reducing US dependence on oil.  A debunking of the 'weak dollar' fad will be posted on another day. 

Related :

Terrorism, Oil, Globalization, and the Impact of Computing

Why I Want Oil to Hit $120 per Barrel

Outsourced Education - the Latest Flattener

Batteries Set to Advance, Finally

The Economist has a great article on the history and near-future outlook for battery technology. Batteries have scarcely improved in the last century, and there have been too many false starts for a seasoned observer to get his hopes up too easily.  But this chart of battery capacity by unit weight, in particular, is something I have been seeking for a long time.  It vindicates my belief that lithium-ion technology is improving at a rate far faster than traditional nickel batteries (that have scarcely improved at all in the last half-century).  Note, importantly, that if we join the multiple curves, we see a strong indication of the classic accelerating technology exponential curve.  This time we know it's for real. 

This is exciting on multiple levels, because it opens to door to not just mainsteam electical vehicles in the next decade, but to a variety of wearable electronic devices, 20-30 hour laptop batteries, household robotics, and other applications that have not yet been imagined. 

Future projections are usually over-optimistic, you say?  Let's also not forget Stanford University's nanowire research to increase Lithium-ion battery capacity, which was wide acclaimed as among the most important scientific breakthroughs of 2007. 

Related :

A Future Timeline for Energy

A Future Timeline for Automobiles

Why I Want Oil to Hit $120 per Barrel

Is Technology Diffusion in a Lull?

There are minor but growing elements of evidence that the rate of technological change has moderated in this decade.  Whether this is a temporary trough that merely precedes a return to the trendline, or whether the trendline itself was greatly overestimated, will not be decisively known for some years.  In this article, I will attempt to examine some datapoints to determine whether we are at, or behind, where we would expect to be in 2008. 

There is overwhelming evidence that many seemingly unrelated technologies are progressing at an accelerating rate.  However, the exact magnitude to the accelerating gradient - the second derivative - is difficult to measure with precision.  Furthermore, there are periods where advancement can be significantly above or below any such trendline. 

This brings us to the chart below from Ray Kurzweil (from Wikipedia) :

This chart appears prominently in many of Kurzweil's writings, and brilliantly conveys the concept of how each major consumer technology reached the mainstream (as defined by a 25% US household penetration rate) in successively shorter times.  The horizontal axis represents the year in which the technology was invented. 

This chart was produced some years ago, and therein lies the problem.  If we were to update the chart to the present day, which technology would be the next addition after 'The Web'? 

Many technologies can claim to be the ones to occupy the next position on the chart.  IPods and other portable mp3 players, various Web 2.0 applications like social networking, and flat-panel TVs all reached the 25% level of mainstream adoption in under 6 years in accordance with an extrapolation of the chart through 2008.  However, it is debatable that any of these are 'revolutionary' technologies like the ones on the chart, rather than merely increments above incumbent predecessors.  The iPod merely improved upon the capacity and flexibility of the walkman, the plasma TV merely consumed less space than the tube TV, etc.  The technologies on the chart are all infrastructures of some sort, and it is clear that after 'The Web', we are challenged to find a suitable candidate for the next entry. 

Thus, we either are on the brink of some overdue technology emerging to reach 25% penetration of US households in 6 years or less, or the rapid diffusion of the Internet truly was a historical anomaly, and for the period from 2001 to 2008 we were merely correcting back to a trendline of much slower diffusion (where it take 10-15 years for a technology to each 25% penetration in the US).  One of the two has to be true, at least for an affluent society like the US.

This brings us to the third and final dimension of possibility.  This being the decade of globalization, with globalization itself being an expected natural progression of technological change, perhaps a US-centric chart itself was inappropriate to begin with.  Landline telephones and television sets still do not have 25% penetration in countries like India, but mobile phones jumped from zero to 10% penetration in under 7 years.  The oft-cited 'leapfrogging' of technologies that developing nations can benefit from is a crucial piece of technological diffusion, which would thus show a much smaller interval between 'telephones' and 'mobile phones' than in the US-based chart above.  Perhaps '10% Worldwide Household Penetration' is a more suitable measure than '25% US Household Penetration', which would then possibly show that there is no lull in worldwide technological adoption at all. 

I may try to put together this new worldwide chart.  The horizontal axis would not change, but the placement of datapoints along the vertical axis would.  Perhaps Kurzweil merely has to break out of US-centricity in order to strengthen his case and rebut most of his critics. 

The future will disclose the results to us soon enough.

(crossposted on TechSector)

Related :

Are You Acceleration Aware?

The Impact of Computing

These are the Best of Times

Nine Tantalizing Small Companies

In scouring the startup universe for the companies and technologies that can reshape human society and create entirely new industries, one has to play the role of a prospective Venture Capitalist, yet not be constrained by the need for a financial exit 3-6 years hence. 

Therefore, I have assembled a list of nine small companies, each with technologies that have the potential to create trillion-dollar economic disruptions by 2020, disruptions that most people have scarcely begun to imagine today.  Note that the emphasis is on the technologies rather than the companies themselves, as a startup requires much more than a revolutionary technology in order to prosper.  Management skills, team synergy, and execution efficiency are all equally important.  I predict that out of this list of nine companies, perhaps one or two will become titans, while the others will be acquired by larger companies for modest sums, enabling the technology to reach the market through the acquiring company. 

1) NanoSolar : NanoSolar produces low-cost solar cells that are manufactured by a process analogous to 'printing'.  The company's technology was selected by Popular Mechanics as the 'Innovation of the Year' for 2007, and Nanosolar's solar cells are significantly ahead of the Solar Energy Cost Curve.  The flexible, thin nature of Nanosolar's cells may enable them to be quickly incorporated onto the surfaces of many types of commercial buildings.  Nanosolar's first shipments have already occurred, and if we see several large deployments in the near future, this might just be the company that finally makes solar energy a mass-adopted consumer technology.  Nanosolar itself calls this the 'third wave' of solar power technology. 

2) Tesla Motors : I wrote about Tesla Motors in late 2006.  Tesla produces fully electric cars that can consume as little as 1 cent of electricity per mile.  They are about to deliver the first few hundred units of the $98,000 Tesla Roadster to customers, and while the Roadster is not a car that can be marketed to average consumers, Tesla intends to release a 4-door $50,000 sedan named 'WhiteStar' in 2010, and a $30,000 sedan by 2013.  The press coverage devoted to Tesla Motors has been impressive, but until the WhiteStar sedan successfully sells at least 10,000 units, Tesla will not have silenced critics who say the technology cannot be brought down to mass-market costs. 

3) Aptera Motors : When I first wrote about Tesla Motors, it was before I had heard about Aptera Motors.  While Tesla is aiming to produce a $30,000 sedan for 2013, Aptera already has an all-electric car due for late 2008 that is priced at just $27,000, while delivering the equivalent of between 200 and 330 mpg.  The fact that the vehicle has just three wheels may reduce mainstream appeal to some degree, but the futuristic appearance of the car will attract others.  Aptera Motors is a top candidate for winning the Automotive X-Prize in 2010. 

The simultaneous use of Nanosolar's solar panels with the all-electric cars from Tesla and Aptera may enable automotive driving to be powered by solar generated electricity for the average single-family household.  The combination of these two technologies would be the 'killer ap' of getting off of oil and onto fully renewable energy for cars. 

Related : Why I Want Oil to Hit $120/Barrel.

4) 23andMe : This company gets some press due to the fact that co-founder Anne Wojcicki is married to Sergey Brin, even as Google has poured $3.9M into 23andMe.  Aside from this, what 23andMe offers is an individual's personal genome for just $1000.  What a personal genome provides is a profile of which health conditions the customer is more or less susceptible to, and thus enables the customer to provide this information to his physician, and make the preventive lifestyle adjustments well in advance.  Proactive consumers will be able to extend their lifespans by systematically reducing their risks of ailments they are genetically predisposed to.  As the service is a function of computational power, the price of a personal genome will, of course, drop, and might become an integral part of the average person's medical records, as well as an expense that insurance covers. 

5) Desktop Factory : In 2008, Desktop Factory will begin to sell a $5000 device that functions as a 3-D printer, printing solid objects one layer at a time.  A user can scan almost any object (including a hand, foot, or head) and reproduce a miniature model of it (up to 5 X 5 X 5 inches).  The material used by the 3-D printer costs about $1 per cubic inch. 

The $5000 printer is a successor to similar $100,000 devices used in mechanical engineering and manufacturing firms.  Due to the Impact of Computing, consumer-targeted devices costing under $1000 will be available no later than 2014.  I envision an ecosystem where people invent their own objects (statuettes, toys, tools, etc.) and share the scanned templates of these objects on social networking sites like MySpace and Facebook.  People can thus 'share' actual objects over the Internet, through printing a downloaded template.  The cost of the printing material will drop over time as well.  A lot of fun is to be had, and expect an impressive array of brilliant ideas to come from people below the age of 16. 

6) Zazzle : Welcome to the age of the instapreneur.  Zazzle enables anyone to design their own consumer commodities like T-shirts, mugs, calendars, bumper stickers, etc. on demand.  If you have an idea, you can produce it on Zazzle with no start-up costs, and no inventory risks.  You profit even from the very first unit you sell, with no worries about breakeven thresholds.  You can produce an infinite number of products, limited only by your imagination.  At this point, those of you reading this are probably in the midst of an avalanche of ideas of products you would like to produce. 

While the bulk of Zazzle users today are would merely be vanity users who manage to sell under ten units of their creations, this new paradigm of low-cost customization will inevitably creep up to major industrial supply chains.  Even more interesting, think about #5 on this list, Desktop Factory, combining with Zazzle's application, into an amazing transformation of the very economics of manufacturing and mass-production. 

7) A123 Systems : Read here about how battery technology is finally set to advance after decades of stagnation.  A123 Systems is at the forefront of these advances, and has already received over $148 Million in private funding, as well as an article from the prestigious MIT Technology Review.  A123 is a supplier for GM's upcoming Volt, and has already has begun to sell a module to convert a Toyota Prius into a plug-in hybrid.  For choices beyond those offered by the #2 and #3 companies on this list, A123 Systems is poised to enable the creation of many new electric or plug-in hybrid vehicles, greatly increasing the the choices available to consumers seeking the equivalent of more than 50 mpg.  A123 may just become the Intel of batteries.  Combine A123's batteries with Nanosolar's cells, and the possibilities become even more interesting. 

8) Luxim : Brightness of light is measured in Lumens, not Watts, which is a measure of power consumption.  Consumers are learning that CFL and LED bulbs offer the same Lumens with just a fifth or a tenth of the Watts consumed by a traditional incandescent bulb, and billions of tons of coal are already being saved by the adoption of CFLs and LEDs.  Luxim, however, aims to take this even further.  Luxim makes tiny bulbs that deliver 8 times as many Lumens per Watt as incandescent bulbs.  The bulbs are too expensive for home use, but are already going into projection TVs.  With $61 Million in funding to date, Luxim's main hurdle will be to reduce the cost of their products enough to penetrate the vast home and office lighting market, which consumes tens of billions of bulbs each year.   

9) Ugobe : Ugobe sells a robotic dinosaur toy known as the Pleo.  A mere toy, especially a $350 toy, would not normally be on a list of technologies that promise to crease the fabric of human society.  However, a closer look at the Pleo reveals many impressive increments in the march to make inexpensive robots more lifelike.  The skin of the Pleo covers the joints, the Pleo has more advanced 'learning' abilities than $2500 robots from a few years ago, and the Pleo even cries when tortured, to the extent that it is difficult to watch this. 

The reason Ugobe is on this list is that I am curious to see what is the next product on their roadmap, so that I can gauge how quickly the technology is advancing.  The next logical step would be an artificial mammal of some sort, with greater intelligence and realistic fur.  The successful creation of this generation of robot would provide the datapoints to enable us to project the approximate arrival of future humanoid robots, for better or for worse.  Another company may leapfrog Ugobe in the meantime, but they are currently at the forefront of the race to create low-priced robotic toys. 

This concludes the list of nine companies that each could greatly alter our lives within the next several years.  Of these nine, at least three, Nanosolar, Tesla Motors, and 23andMe, have Google or Google's founders as investors.  The next 24 months have important milestones for each of these companies to cross (by which time I might have a new list of new companies).  For those that clear their respective near-term bars, there might just be a chance of attaining the dizzy heights that Google, Microsoft, or Intel has. 

Related :

The Impact of Computing

A Future Timeline for Automobiles

A Future Timeline for Energy

The Imminent Revolution in Lighting

Batteries Set to Advance, Finally

(crossposted on TechSector)

US Recession Began in December 2007

The US government usually declares a recession only several months after it has begun.  I find the Economic Cycle Research Institute to be a vastly more reliable source of leading indicators.  While the ECRI has still not declared a recession as 'unavoidable', the economic data of the last week tells me that it is, indeed, not just unavoidable at this point, but that it actually began in December 2007.  It is far too late for any 'stimulus' to prevent a recession, nor will the EU manage to avoid hardship of its own. 

When I identified the pervasive nature of the Housing Bubble way back on April 13, 2006, I stated that housing may do poorly in inflation-adjusted terms even for the next 20 years (until 2026).  Few were convinced then, now only somewhat more are.  But supporting data for my prediction of the housing bubble being an event of generational duration is accumulating steadily. 

Furthermore, when the US economy was not at any risk of recession on November 4, 2006, I wrote an extended piece to refute the broken clocks who always insist the US is on the brink of collapse.  I declared that if recession does not happen by the end of 2007, then the housing bubble will no longer be a cause of recession, due to the housing correction being lengthy (hence digestible) rather than sharp.  As the recession began in December 2007, we missed passing into the safety zone by just a hair. 

As the question of recession is now in the past, the next question is when a recovery may take place.  The drop in economic conditions between October and January was so steep, and the Federal Reserve's reduction in rates in January, while belated, was so large in magnitude, that GDP recovery may arrive as soon as Q4.  But I am not making a prediction on recovery timing yet. 

Update (3/20/08) : The ECRI has officially declared the economy to be in recession, six weeks after The Futurist. 

(Crossposted on TechSector).

Related :

The Housing Bubble - 20-Year Gains May Never be Repeated

The Futurist's Stock Portfolio for 2007 - RESULTS

On January 23, 2007, I created an investment portfolio to be frozen at that time, and evaluated on December 31, 2007 against the benchmark of the S&P500 index.  The portfolio incorporated principles, economic trends, and technologies discussed in other articles here on The Futurist.  Dividends were reinvested, and so the price paid reflects dividend-adjusted cost-basis.  Yahoo and Google Finance do tend to miss recording some dividends, so one must go to a more reliable site like Morningstar to account for the exact dividends. 

So how did the portfolio do?  I achieved a return of 13.3%, vs. just 4.3% for the S&P500, from January 23 to December 31.  Most fund managers are unable to beat the S&P500 index despite the advanced tools at their disposal.  The fraction of those that can beat the index by a margin 9.0 percentage points is even more exclusive, putting this portfolio in the top 10% of all mutual fund results for this period. 

 

As always, weightage matters just as much as stock-picking.  The first two securities, amounting to 50% of my portfolio, were a total disaster.  In fact, when I first created the portfolio, I listed FXI as a security that was strongly considered but left out.  FXI returned an eye-popping 83% over the same period, so if I had included FXI instead of ICF, the portfolio's total return would have exceeded 25%.  But it was not included, so 'what ifs' do not count. 

The India Investment Fund (IIF) was a star, more than compensating for the failure of the first two securities.  But the real home runs came from the video game stocks.  Three of the four outperformed the S&P500, and two of those, Activision and GameStop, surged into the stratosphere.  My selection and detailed analysis of this sector way back on April 17, 2006 yielded a spectacular payoff.  As a quartet, these 4 gaming stocks returned a combined 49% over this period. 

So there you have it.  Futurism is not impossible after all.  I have already started my 2008 portfolio, and we shall see how that goes on December 21, 2008.  The same principles covered in the articles below, are being applied.  Let us see if the success can be repeated or exceeded. 

The Next Big Thing in Entertainment, Part I, Part 2, and especially Part 3

The Culture of Success and Stock Market Capitalization in Developing Countries

The Stock Market is Exponentially Accelerating too

(cross-posted at TechSector)

2007 Technology Breakthrough Roundup

One year ago, I posted a roundup of 2006 technology breakthroughs from MIT Technology Review.  Of the breakthroughs listed at that time, displays, plug-in hybrids, and solar cells showed impressive progress over the subsequent 12 months. 

Now, we arrive at the 2007 list, which has expanded from four categories last year to five this time. 

The Year in Software

The Year in Hardware : Gadgetmania

The Year in Energy : Solar power inches closer.

The Year in Biotechnology : Stem cell research methods that no longer need embryos.

The Year in Nanotechnology : Stanford University research into nanowires that dramatically increase battery capacity is the most promising breakthrough of 2007, in any discipline.  Think 30-hour laptop batteries. 

Most of the innovations in the articles above are in the laboratory phase, which means that about half will never progress enough to make it to market, and those that do will take 5 to 15 years to directly affect the lives of average people (remember that the laboratory-to-market transition period itself continues to shorten in most fields).  But each one of these breakthroughs has world-changing potential, and that there are so many fields advancing simultaneously guarantees a massive new wave of improvement to human lives. 

This scorching pace of innovation is entirely predictable, however.  To internalize the true rate of technological progress, one merely needs to appreciate :

The Milli, Micro, Nano, Pico curves

The Impact of Computing

The Accelerating Rate of Change

We are fortunate to live in an age when a single calendar year will invariably yield multiple technological breakthroughs, the details of which are easily accessible to laypeople.  In the 18th century, entire decades would pass without any observable technological improvements, and people knew that their children would experience a lifestyle identical to their own.  Today, we know with certainty that our lives in 2008 will have slight but distinct and numerous improvements in technological usage over 2007, just as 2007 was an improvement over 2006. 

Into the Future we continue, where 2008 awaits..

(cross-posted at TechSector).

Hiatus

Dear Readers,

Due to a convergence of professional and personal responsibilities, I will not be posting any new articles between now and January 31 (except maybe a year-end roundup).  I will, however, be updating existing articles sporadically.  I also will be starting a different blog on a somewhat different subject, as well as working on updating the book manuscript that I had written up before starting The Futurist (from which many of the articles here are extracted). 

Thanks for your readership, and I will return in 11 weeks time.

GK