“It is these periods of transition, where the value of the currency is changing fast, but before price changes filter through all commerce and contracts, when financial and political disruptions often take place.”
Speeding the Cloud
For someone like me who studies cloud computing and Internet traffic, which is measured in tera-, peta-, and exabytes, Google’s terabyte sorting record is interesting:
we were able to sort 1TB (stored on the Google File System as 10 billion 100-byte records in uncompressed text files) on 1,000 computers in 68 seconds. By comparison, the previous 1TB sorting record is 209 seconds on 910 computers.
But I suppose I can see how you might not feel the same way.
Chang’s Fabless Chips
Not surprising, perhaps, that the Semiconductor Industry Association would give an award to long-time industry veteran Morris Chang. But the founder of Taiwan Semi played an absolutely crucial role in the history of computers, IT, communications, and anything that touches silicon.
TSMC, of course, popularized the idea of manufacturing chips that are designed by others. Such companies, called foundries, became essential partners to design specialists that save money by outsourcing production.
What people tend to overlook is how the Chinese-born engineer, who spent 25 years at Texas Instruments, helped propel a big American comeback. In the 1980s, Japanese chip makers used manufacturing muscle to hammer companies like Intel and TI. The U.S. manufacturers gradually rebounded, but newcomers such as Qualcomm, Broadcom and Nvidia — which might not exist without foundries — were an equally important factor.
With the publication of his Introduction to VLSI Systems in the late 1970s, Carver Mead predicted this “fabless” model, splitting the design and manufacturing functions of previously integrated semiconductor firms. Mead had performed the research for Gordon Moore’s profound prediction in 1965 that integrated circuits could — and would — continue doubling in transistor density every 18 months or so for decades into the future. Mead even named this observation-prediction “Moore’s Law.”
Companies that remained integrated all these years — like Intel — have continued to lead in manufacturing technology, finding ingenious ways to sustain Moore’s Law. But the breadth and creativity and economic power of the silicon revolution would not have happened without Morris Chang’s fabless model.
We’re all in this together
Zachary Karabell writes about China’s ever growing importance, especially now, with our stumbles and its $2 trillion in reserves.
China’s actions could also have direct — and positive — effects on the U.S. economy. An investment arm of the Chinese government is now deep in talks to buy up parts of AIG. China is already the primary source of growth for many U.S. companies, including ones like Caterpillar that make things in the U.S. and export them to China. As the developed world sags, China is becoming even more important to the global system.
China also needs a vibrant U.S. (and Europe). Beijing will likely take action to prevent a collapse by continuing to purchase U.S. Treasuries. We may not like the fact that China is our creditor, but having no creditor would be a good deal worse.
Even more important than its reserves, though, are the deeper sources of its economic strength — its decentralized entrepreneurial economy.
Update: In his final international address, President Bush pushed continued free trade with China. Good for him. But if only his administration had realized that its weak-dollar policy was effective protectionism, which boomeranged — as it always does. The policy inflated the home, oil, and credit bubbles, which of course led to our present crash.
Technocrat trumps thinker
It looks like Tim Geithner of the New York Fed is Obama’s pick for Treasury Secretary, beating out Larry Summers. Geithner is a wily technocrat good at working the bureaucracy and the press. Summers is an intellectual famed for the just the opposite — his lack of skill with colleagues and reporters. Especially at this dangerous economic moment, I would have preferred Summers’ substance over Geithner’s guile. But I know far less about Geithner’s policy views and will retain an open mind. Good luck to him.
Update: Missed this from the article:
The president-elect might name Mr. Summers, a highly regarded economist and a former president of Harvard University, as a senior White House adviser, people involved in the transition said.
On second thought, maybe that’s the perfect arrangement.
Update II (Saturday night): Summers will be director of the National Economic Council in the White House. Good move.
Quote of the Day
“We have the ability to create the most competitive nation in the world — or we could implode. . . . You could create the future or defend the past.”
— Sam Palmisano, IBM CEO, November 21, 2008
Size = Surprise
Sergey Brin didn’t think Wikipedia would work. But as Chris Anderson (and, in a linked video, Brin himself) explain, the power of scale offered by the Net often surprises even the savviest Google-founding multi-billionaires.
Update: Obama’s Digital Campaign
A few days after the election, I wrote about President-elect Obama’s decentralized entrepreneurial campaign, which fully exploited the Web and trusted people at the edge. Here’s a post-election debrief from the technology team — the so-called Triple-O — that made it happen. They offer a final tally of metrics:
— two million “MyBO” Web-volunteer profiles
— 13 million e-mail addresses
— more than half a billion dollars raised online
— three million online donors gave 6.5 million donations
— average online contribution of $80
— more than 200,000 volunteer-organized offline events
As I pointed out, this innovative “capitalist” campaign clashed with many of Obama’s tax-regulate-and-centralize policy proposals. We’ll see if the new President learns anything from his successful campaign and puts it to use reigniting the economy.
New Venture Firm: Potomac Capital
Thank goodness Nancy Pelosi and Harry Reid are reviewing the Big Three’s business plans before “investing” a couple hundred bil’ of taxpayer money. I’m so relieved. Silicon Valley could learn a few things from these bleeding edge venture capitalists…and the CEOs groveling for our money.
The big bad media monopoly
In the context of potential federal media regulation known as “à la carte,” my colleague Adam Thierer comments on new Internet video technologies and content here and here, and expertly reiterates an old theme of mine, namely that the Internet *is* à la carte.
“Buy property”
Really? That seems like an odd thing to advise at a time like this. But read David Dreman’s argument:
One last investment that should work out well over time: Buy property, if you live in a place with a forest of for-sale signs. The housing crisis is terrible, but it won’t last forever. If you can get a mortgage, and if I’m right about inflation, you will eventually be paying it back with 50- or 60-cent dollars. Pay 20% down on a house that rises 40% in five years and you’ll triple your investment, assuming you can cover the interest and maintenance with rental income. If prices rise above the rate of inflation, a reasonable possibility given how depressed they are now, your return will be still higher, possibly significantly so.
William Baldwin of Forbes comments:
Shrewd advice from an accomplished money man. But, at the same time, it’s dispiriting that he’s right. The way to make money is not by financing progress but by speculating against the ability of the Federal Reserve to do its job.
Gambling by investors is a good thing, if by that we mean gambling on the next Orville Wright or Steve Jobs. But the gamble against the dollar is something different. It’s one in which your windfall profit is matched by a windfall loss for the fellow on the other side of the table–the unfortunate saver who lent you the money for the house.
Quote of the Day
“The answer is yes.”
— David Bonior, former U.S. Rep., November 20, 2008, when “asked if this was the industrial policy of the incoming Obama administration….”
“Stick wax in your ears”
Andy Kessler says to ignore the stock market and go do something else until February:
So which is [the stock market] now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I’d say stick wax in your ears and don’t listen to the market until February.
Don’t get me wrong. The freezing of the credit markets is wreaking havoc on the world economy. Corporate profits are dropping. Central banks are fighting off deflation and may not turn off the spigots fast enough — which could ignite runaway inflation. But because of the credit mess, I am convinced the stock market is at its least efficient today. Don’t read too much into any move.
Bailing on Free Trade
Matthew Slaughter of Dartmouth’s Tuck School, one of today’s best thinkers on trade and globalization, says the consequences of any Big Three Auto bailout go far beyond the initial price tag.
First, it would hurt foreign direct investment in the U.S. and thus the insourcing of U.S. jobs:
In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.
At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.
Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation.
Second, Slaughter says, a Big Three bailout could hurt U.S.-headquartered multinationals:
these companies employ more than 22 million Americans and account for a remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access foreign customers. . . .
This access to foreign markets has been good for America. But it won’t necessarily continue. The policy environment abroad is growing more protectionist. . . .
Will a U.S.-government bailout go ignored by policy makers abroad?
No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies’ U.S. employment, R&D and related activities. That would be bad for America.
Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. In 2007, GM produced more motor vehicles outside North America than in — 5.02 million, or 54% of its world-wide total.
Finally, a bail-out further endangers the dollar:
Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?
Not likely. Instead, America runs the risk of creating the kind of “political-risk premium” that investors have long placed on other countries — and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.
Read the whole thing.
Bailing out Detroit means bailing on free trade and American innovation.
Aftershocks
Bruce Gilley writes that the Sichuan earthquake will prove a bigger jolt to Chinese society and government than the Olympics:
A survey of 784 people in the quake zone conducted in August by Beijing-based Horizon Research Consultancy Group found that 98.8% were satisfied with the central government’s performance. Premier Wen Jiabao told a meeting on post-quake reconstruction in Sichuan in September the government had achieved a “major victory.”
Yet the price of that victory was to unleash forces of liberalization that will prove irreversible in coming years. For starters, the earthquake undermined support for local government in the affected areas, and intensified the campaign against corruption.
Quote of the Day
“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”
— F.A. von Hayek
To Hayek’s observation, I would only add the corresponding phenomenon of “deflation.” Both inflation and deflation can be grouped into a singular category. Robert Mundell once called both inflation and deflation a decline in the monetary standard.
Off the Grid
Sorry, Mr. President. Please surrender your BlackBerry.
Those are seven words President-elect Barack Obama is dreading but expecting to hear, friends and advisers say, when he takes office in 65 days.
This would be excruciatingly difficult.
End of the World?
Or opportunity of a lifetime? That’s the question economist Scott Grannis asks as he surveys the sickly prices of stocks and corporate bonds.
Any way you look at it, the pricing on corporate bonds and stocks today implies that the next several years will be the most disastrous in the history of the U.S.
In order to fully appreciate why that prediction is unlikely to prove correct, consider that not one of the key ingredients that precipitated the depression exists today.
(Hat tip: Real Clear Markets)
Quote of the Day
“The point is not to deflate asset bubbles, but to avoid them in the first place.”
— Gerald P. O’Driscoll, Jr., November 17, 2008
Reboot
After an exhausting political season, Rich Karlgaard relaunches his great Digital Rules blog to focus on innovation, mavericks, and entrepreneurs.
