Tuesday, May 29, 2007

New Space Age

Interesting article in Wired magazine about the new generation of space entrepreneurs. In particular it talks about Elon Musk, the founder of PayPal, and his ambitious plan to get us into orbit (instead of the boundaries of space as Burt Routan has done).

Possibly one of the reasons we are not on the moon and on Mars is that space travel has, since its beginning, been left in the hands of NASA.

Since Gordon Moore recognized that the number of transistors on a circuit at similar cost doubled roughly every 2 years, we have come to expect massive increases in computing power on a year by year basis. Storage, though less noticed, has also undergone a similar revolution. 2 years ago, i bought a 1GB memory stick for $100 approximately. It is now possible to get a 4GB memory stick for $50 (an 8 fold increase in 2 years).
Computing could have gone the direction of space travel if the government had been in charge. 60 years ago the Eniac cost around $5 million (in today's currency). The US government was just about to launch an ambitious program to develop better and more efficient nuclear warheads and the need for computational power would by necessity increase. If they had decided that computers were a national security issue they could have set up an agency to handle computation. Civilian computation needs would be satisfied by the state agency. Today we probably would have had machines considerably more powerful than the Eniac but only a handful of them, each of them costing a fortune and probably taking up entire warehouses (this is often the case in science fiction books from that era). Only the biggest corporations would have been able to afford time on them.
Space travel went down the state controlled route and computing went down the entrepreneurship route. Needless to say, there is no Moore's law for rockets. If there were, today we could be vacationing on Mars, sipping a pina colada under a thin plastic dome at the foot of Olympus Mons.

Monday, May 7, 2007

Building virtual magnetic monopoles and EM wormholes

Really interesting idea here from Alan Greenleaf (University of Rochester) et al. The idea is to manipulate electrical permittivity and magnetic permeability to create objects that act like invisible tunnels. The object would not be detectable to EM observations from the side but seen head on, one would see light passing through. The object would be constructed from meta-materials.

Sarkozy wins!

Congratulations Mr. Sarkozy. France has a chance now to reverse it's downward slide. Nicolas Sarkozy is far from perfect but he offers the best chance France has had in years. I'm optimistic that things will change in France and perhaps
even Europe now as well.

Congratulations Monsieur President

As an added bonus he said to America "You can count on our friendship." while saying something about taking global warming more seriously.
Considering the rift that has opened up in the West in the last couple of years at a time when we are facing one of our most serious threats in recent years, this is welcoming.
Not so welcome is is his protectionist bent such as nationalizing Alstom (2003). Mr. Sarkozy
should learn that the markets are a far better judge than governments of which companies should survive and which not. His tirade against Hedge funds during the campaign was also not entirely welcome either. But then, this is France where things are a little different.
As for Mdme Royal, it's interesting to note that even women voters stayed away from her. Understandable. Their concerns are the same as the male ones: security and jobs. France, at the moment, is not delivering either.

The sensitive candidate

Royal wanted to be a touchier feelier type of president (although it's rumoured that she is an autocrat). She understood your pain but was not prepared to do anything about it. People don't want a therapist for their president, they want someone who they believe can govern, which sometimes means making the tough, unpopular and sometimes brutal decisions. But maybe we shouldn't write her off yet. She didn't seem particularly upset when she conceded the election.

Sarkozy assumes office on May 16, 2007.

Zero corporate tax is the fairest

Good article here about why zero corporate tax is the fairest taxation rate. Taxing corporations amounts to taxing a legal entity made up of workers, shareholders and managers that trades with consumers. The typical reaction of a corporation is to pass the tax on to consumers who react by consuming (ie. buying less). Is this fair to the workers of the company who might be earning minimum wage?

I believe in a zero corporate tax because I believe that it is immoral to do otherwise (see my article on taxation and productivity)

Saturday, May 5, 2007

Nuclear fusion strategies

Broadly, there are two realistic competing strategies for sustainable nuclear fusion. The first is plasma confinement in a large torus and the second uses laser induced implosion. The first approach has been the one that has gained the most attention in the press and with the comissioning of the ITER project to be housed in Cadarche, France. Using superheated Deuterium and Tritium plasma, the ITER reactor confines the plasma using a magnetic field and heats it using Ohmic heating (the heat generated when a current passes through a conductor). The plasma is held in a large torus. The heat is carried away from the reaction chamber through neutrons.
ITER fusion reactor
ITER fusion reactor

The second approach is to use a bunch of high energy lasers focussed on a small almost perfect sphere containing the reaction fuels and use the pressure from the resulting implosion to drive a fusion reactor. HiPer goes one step forward by having a gold cone inserted into the fuel capsule. The fuel capsule is first compressed using lasers and then a second laser superheats the gold cone, converting it into a plasma, which then compresses the fuel into a high density at the tip of the cone. This type of reaction is called a fast ignition reaction.

HiPER Reactor

Aside from the physics, the other difference between the two approaches is cost. The first will cost around $10Billion, the second around $1 Billion. However, there is a much more significant criteria here - competition. Governments are notoriously bad at selecting and developing technologies and so competition is one way to ensure that at least two different approaches are attempted.

Here is an even better suggestion. A couple of entries back, I suggested having a sort of government sponsored X-Prize of an order of magnitude greater than the current X-Prizes awarded for space colonization. Why not use a similar approach with nuclear fusion? Who is to say that these $billion+ dollar projects will ever reach the final answer.
Maybe there is a much more modest approach that will also yield sustainable fusion. For example, there are some tantalizing hints with recent results from an experiment carried out by Mosier-Boss and Szpak that came out just this year. This experiment is similar that infamous cold fusion experiment by Pons and Fleischman but seems to show that there are nuclear reactions going on. Reproducing this experiment is hard, which makes me skeptical but still...

While I am always skeptical of things that appear to good to be true (because they usually are), a prize awarded for the first commercially feasible fusion reactor would be an unambiguous way to say that someone's done it and it would sort out the good physics from the dodgy physics.

Friday, May 4, 2007

Excellent article about taxation

American.com magazine has posted an excellent article about the flat tax revolution. While not quite the solution to all ills, flat tax does stimulate growth by not penalizing people who want to earn more (0 marginal tax rate). The article lists several accomplishments:

* Stronger incentives for productive behavior. Flat tax rates almost always mean a lower tax rate on work, saving, investment, risk-taking, and entrepreneurship.
* Encouraging capital accumulation. As noted in the previous section, few if any flat tax systems live up to the Hall/Rabushka goal of eliminating all discriminatory taxes on income that is saved and invested. Yet most of the world’s flat tax systems have reduced the tax penalty on capital.
* Evening out the tax burden. Some nations (like Slovakia, Estonia, and Hong Kong) have done a better job than others, but most every flat tax system includes a reduction in the special preferences that distort market decisions and cause economic inefficiency.

Colonizing Mars

Copyright 2006 Rajeev Dutt
Robert Zubrin is one of the strongest advocates of space colonization living today. He has written two excellent books about our future space-faring selves: The Case for Mars (1997) and Entering Space (2000).
Normally, Zubrin could be folded under the Libertarian umbrella and he is a strong advocate of private space ventures but, as he rightly points out, colonizing space is expensive and the motivations of private corporations to go out there are not so strong. Launching sub-orbital tourist trips or even low earth orbit tourist travel requires radically different technologies from those that would take us to Mars or the Moon. He also points out that rocket technology hasn't changed that greatly from the time of von Braun. The much heralded space shuttle was a sinkhole for tax-payers money and was still a 3 stage vehicle. Maybe the new Orion space capsule is a step in the right direction...only time will tell.
I believe one of the most limiting factor has been to depend on handful of contractors to deliver space travel and as Zubrin pointed out using cost plus contracts (wherein Nasa agrees to pay for all the costs plus a percentage of the costs as payment) with the likes of Lockheed Martin and Boeing.
What has worked very well in the past and will probably still work - and is a very good use of tax payer's money is to offer prizes.

The Ansari-X Prize was a private prize for the first space craft to go suborbital twice in 2 weeks. Similarly Northrup Grumman has a lunar lander prize:
The Competition is divided into two levels. Level 1 requires a rocket to take off from a designated launch area, rocket up to 150 feet (50 meters) altitude, then hover for 90 seconds while landing precisely on a landing pad 100 meters away. The flight must then be repeated in reverse—and both flights, along with all of the necessary preparation for each, must take place within a two and a half hour period.

The more difficult course, Level 2, requires the rocket to hover for twice as long before landing precisely on a simulated lunar surface, packed with craters and boulders to mimic actual lunar terrain. The hover times are calculated so that the Level 2 mission closely simulates the power needed to perform the real lunar mission.

This is all well and good. But I think the real bang would come if the government would start offering prizes to the tune of $10 Billion for sending a manned spacecraft to land on Mars - or have a graduated approach wherein the government offers a prize for the first private unmanned mission to orbit Mars, the first private unmanned mission to land on Mars, the first manned mission to orbit Mars and the first manned mission to land on Mars (although if you're going to make the effort to get to Mars then you may as well stay there for a few months).
The advantage is that taxpayers get all the benefits without all the overhead of a typical government project such as overpaid contractors, scope creep and $100 pencils (sorry the $1 million pen is an urban myth).

Added benefits include, introducing real competition into the game, increasing the number of engineers - and therefore ideas - 10 fold (through all the private companies willing to take part), reducing bureaucracy and increasing the level of risk taking beyond what most government agencies are willing to stomach (witness the near shut-down of the shuttle program after the Challenger and Columbia accidents). Of course, senators and congressmen won't be able to inject the usual pork into the project because the rules would be clear and unambiguous about what constitutes winning.

There are some economic advantages. The present value of $10Billion discounted over 10 years by 10% is about $3.9B (assuming it takes 10 years to develop a spacecraft). Remember, this is money that doesn't have to be paid until someone delivers. The senator or congressman who suggests this would reap all the benefits of landing on Mars without having the associated costs. This is what I would call a win-win situation.

It would be a humbling of Nasa but on the other hand, we have a realistic chance of then getting to Mars and staying there.

Incidentally for those of you interested in the colonization of Mars here's a couple of websites:
The Mars Society (Robert Zubrin was one of the founders)
Red Colony

Thursday, May 3, 2007

China Bashing

The US has an annual trade deficit of $186 Billion with China. The US cites the Yuan's low value as a major source of this deficit. The US criticizes China on human rights abuses as well as for building up their military and there are plenty of congressmen willing to jump on the anti-China bandwagon. And now to top it all off, there is criticism about China becoming the world's biggest emitter of CO2. Let's not get facts get in the way of hysteria.

Trade Deficit
The facts are as follows. Firstly, China is not the biggest source of imports for the US, Canada is. In 2005, China was responsible for 14.6% of US imports. Canada was responsible for 16.9%, Japan for 8.2% and Germany 5%. About 50% of the US imports from China were through US multinationals.
China has one of the lowest import barriers in Asia and is also one of the highest recipients of Foreign Direct Investment (FDI). Finally in areas where the US has been investing and is highly innovative, the US actually has a trade surplus - ; areas such as high-tech items, agriculture and aerospace. The dragon turns out not to be so fierce. It is also worth remembering that much of what China has earned from selling to the US has also been reinvested in US companies and assets.
This is not to say that a trade defecit is good but the reasons do not stem from an unfair China (in fact it is the US that keeps using thuggish state intervention to tame China such as Senators' Lindsey Graham (R-SC) and Chuck Schumer (D-NY) attempt to impose a 27.5 percent tariff on Chinese goods.) but a US that has become less efficient of late, suffering from lack of investment and innovation in key areas. Much of this can be blamed on excessive protection given to US firms, strong unions and heavy handed taxation and regulation of firms. If the US is bad, Europe is far worse (in case the Europeans feel like gloating).
Instead of pointing fingers at China, US legislators should be reminded that the massive trade deficit is only a symptom of far deeper issues in the world's largest economy.

Finally, if we look at the current account deficit (of which trade is a part), then we come to two blaringly obvious conclusions - US consumers should start saving more and borrowing less and the US government needs to start going on a spending diet.

Currency Issues
Another red herring. The US has a trade defecit with Germany even though the $ has been devalued several times during this period against the euro. At the same time, China has moved away from pegging the Yuan against the US$ and has adjusted it more in the direction of its proper world price. It is estimated that even if China were to completely float their currency, this would not eliminate the US trade deficit with China.
China should be persuaded to float their currency but this is just a red herring used by China bashers.

Human rights and arms spending
China is guilty of egregious violations of human rights. It has the world's highest execution rates, condones torture, limits free speech, the list goes on. It is right to condemn China for these abuses but it is wrong to use it as a crutch to justify setting up massive trade barriers with China. One of the encouraging signs from China in recent years is that dissent is more openly tolerated. This is logical - as people become wealthier, they demand more rights and more power. People tend to forget that S. Korea was once a dictatorship but is now a thriving democracy.
Prosperity leads to democracy. I am hard pressed to think of a counter-example (although the opposite is definitely not true - India has been a democracy for over 50 years but is one of the poorer countries in the world by per-capita GDP).
I'm inclined to believe that a richer China will have more in common with the West than it will with Iran, for example.
In terms of military spending. A quick look at the CIA world fact book should set things in perspective. China spends about 4.3% of its GDP on military spending, which works out to about $108 Billion based on the official exchange rate. The US spends about 4% of its GDP on the military, which amounts to $528 Billion. $ for $, the US spends over 5x as much as China on it's military. If one adjusts to purchasing power parity, the difference narrows. China, based on a PPP adjusted GDP, spends about $403 Billion while the US spends $519Billion. But as the US produces most of its own military hardware and China imports much of it's hardware so the non PPP adjusted GDP figures are probably closer to reality.
There is room for concern here; namely, a potential flashpoint over Taiwan. But I think that as the two sides become more interconnected through trade, such a flashpoint is unlikely to materialize into open war.

Global CO2 emitter
In absolute numbers China will probably overtake the US in CO2 emissions very soon but let's not talk about absolute numbers. China has 1 billion people while the US has 300 million. The US (2003) produced about 5.762 Billion tons of Carbon while China produced 3.473 billion tons. On a per capita basis (which is one of the fairest ways to calculate CO2 emissions), the US produced about 19.2 tons per person while China produced about 3.5 tons per person. The US produces over 5x the amount of CO2/person than China. This puts the US at 5th place and puts China at around 80th (Qatar is the worst emitter). Of course China's rate of CO2 production is growing much faster than the US, which is a point of concern but for now we can safely conclude that China is not a CO2 monster.
Finally on the subject of the environment, people should remember that every country that became industrialized went through a phase when the environment suffered in the name of economic growth. It is unfair to single out China in this respect. If anything, China will benefit from modern technology by having factories that pollute less and are considerably more efficient than their counterparts in the West 100 years ago.

Tuesday, May 1, 2007

The stupidity of our authorities...

Article in Wired about a student who was arrested for writing a disturbing essay. Words like inane, stupid and pointless spring to mind.

Labour Day woes

Labour Day again. That outmoded day commemorating the struggle of labour against the evil capitalists. I would suggest that we set aside a second day to commiserate with those poor evil capitalists. Like that scene in Life of Brian: what did the capitalists do for us anyway? Erm...

  • They created a middle class and freed us of Feudal monarchs and princes thus producing the seeds of modern democracy.

  • They empowered women by enshrining property rights as one of our fundamental rights (although Aristotle was sympathetic to private property) enabling women to own and control their own property from which women could launch the emancipation movement.

  • They improved the standard of living by accelerating technological development through competition most notably by accelerating communication (through the Gutenberg press), improving transportation (through rail and steam engines) and by reducing prices (through mass production).

  • They have lifted billions of people out of poverty by generating wealth on an unimaginable level and are continuing to do so.

  • They improved the quality of goods sold through competition.

  • They have provided security for us as we grow older through efficient financial systems that allow us to save for our retirement with the confidence that our wealth won't suddenly disappear.

  • ...

But aside from this what have the capitalists ever done for us?

For more on the miracle of capitalism, I would recommend reading Friedrich Hayek and Milton Friedman. Here's to capitalism's future and hail to chairman Friedman and general secretary Hayek:

Chairman Milton Friedman

General Secretary Friedrich von Hayek

Monday, April 30, 2007

Alan S. Blinder has gone soft

Alan Blinder is a brilliant economist but judging from this article in the WSJ opinion journal, I'm wondering what he's been drinking. He has missed out a very large part of the outsourcing issue and because of this, he is wrong.

One of the determinants of price is productivity. If Lineland can produce 3 widgets per worker while Flatland can produce 9 widgets per worker then all things being equal, a worker in Flatland will earn 3x as much (if he earns more than 3x then it is more economical to produce in Lineland). Now because of comparitive advantage if a worker in Lineland can produce either 3 widgets or 1 blob and a worker in Flatland can produce 9 widgets and 15 blobs then even though Flatland has a considerable productivity advantage for both widgets and blobs, Flatland will tend to specialize in blobs and Lineland will specialize in widgets as this will yield the biggest advantage to both nations.
China fits into this classic mould - China produces widgets (manufactured goods) with relative efficiency while the US produces blobs (services) with relative efficiency. The end result is that the US is still a net exporter of services. That there is a huge trade deficit stems from other issues that we can discuss later (clue: a huge source of the US trade defecit is not China...).

It gets murkier when both Flatland and Lineland have specialized in the same area.
India is one of these anomalies. Blessed by a decent higher education system, and the fact that the manufacturing section was tied down by red tape, their services sector took off. This is not a sustainable model. India has hundreds of millions of poor people who don't have a hope of ever getting a high school education let alone a university education - many these people are unemployed because the traditional route up through manufacturing is blocked to them. This will be a source of major social instability in the future.

This anomaly in India is manifested in some pretty obvious ways. Witness the airport in Delhi compared to Shanghai. Shanghai is a modern, efficient airport where it is clear where to go and how to get there while Delhi is a total mess. If you're not careful in Delhi, you could easily get into some serious trouble. Other differences are also apparent - bad roads, terrible train transportation, awful telephone system, unbelievable amount of red tape - the list goes on. The services sector is booming but everything else in India seems to be struggling. Already their infrastructure deficiencies are having an impact on their growth.

Are there productivity differences between an information worker in the US vs. an information worker in India (for example)? While I am not questioning the talented young men and women in India, the answer is clear. An IT worker in India has to contend with: poor communications networks, bad roads (to go to and from work), inefficient retail networks (and logistics), less powerful machines (though the cost of a PC has been going down steadily while becoming more powerful, the cost of the most powerful machines at the time has remained high), less efficient financial markets to produce venture capital and less effective management. Were all of these factors equalized, the cost of an IT resource in India would be the same as that in the West.

It is almost surprising that we are able to outsource to India given the fact that the West has the same relative efficiencies as India. But this is not surprising when we start to break down the numbers. Where India has excelled is in the low margin, high volume sort of work. In sheer quality of research and product development, most of the innovation still happens in the West (with some notable exceptions). This does not mean that the West should be complacent. Protected industries are ripe for outsourcing as the price far exceeds the productivity of the resources. Restrictive immigration laws also works as a form of industry protectionsim by reducing the supply of workers. Old controls need to break down - unions and professional bodies need to accept that the market must determine wages not committees. And in the end, it is better to have workers come and work in your country than having the firm move away in search of workers.

Returning to Mr. Blinder, a professional in the West does not have anything to worry about if they keep their productivity advantage and if their industry has a relative productivity advantage to the rest of the economy of their country.

Olympic Security

Interesting how security is chosen for the London Olympics. Considering how London is a potential target for the myriad terrorist outfits out there, this is quite plainly stupid. Forget about quality of service and ability - anyone can arrange for security as long as they sponsor the events. Encouraging wouldn't you say?

Friday, April 20, 2007

Why I stopped worrying and learned to love string theory

I learned about superstrings when I was 12. But it was in university that I first started to really learn about what they were and the mathematics behind them. The phrase that came to mind was EPICYCLES (see above). It could be a natural bias of mine but I wouldn't characterize string theory as elegant. Aside from the fact that dimensions spring out of the theory like grasshoppers out of an open box and that the theory predicts an inordinately high number of possible universes and that just about nothing in string theory is testable, it lacks any sort of unified set of principles. It still treats space-time as a stage where strings are the actors. Fast forward to today.
String theory has become M theory and the lack of testability is beginning to worry some physicists (and the fact that all the best talent is being sucked up by this monster). Two good books address this Lee Smolin's The Trouble with Physics and Peter Woit's Not Even Wrong. And some recent developments such as the accelerating universe seem to cause problems for string theory. Of course anything can be explained by string theory, just as the positions of the planets could be explained by epicycles if you added enough epicycles.
So what are the alternatives to string theory? Well there are a few:
  • Abhay Ashtekar's and Lee Smolin's Loop Quantum Gravity which quantizes space-time and worries about unification later (makes sense as one of the biggest problems is that gravity and quantum theory are incompatible).
  • Then there is Alain Connes's noncommutative geometry which looks at a geometry linked to the noncommutativity of quantum phase space (position and momentum). Unlike ordinary numbers where 2x3=6=3x2, certain operations are noncommutative (ex. moving on the surface of Earth - if you start on the equator and move 200km north and 200km west, this will put you in a different position on earth then first travelling 200km west and then 200km north).
  • Twistor String theory, which is based on Roger Penrose's Twistor Theory, which relates real 4 dimensional Minkowsky space to 4 dimensional complex space.
I suspect that all of the theories (including M)are orbiting some common theory that they don't see yet. There are some striking similarities sometimes in the mathematics of the theories that suggest this is the case. Problem is that M Theory is getting all the limelight and funding to the detriment of the other theories and to science.

But I do like string theory and it is mathematically quite splendid.

Wednesday, April 18, 2007

Tax Pipe Dreams

Excellent article here about how the tax code can be changed.
My personal favourite is the flat tax. Several of the Baltic states have adopted a flat tax and have done really well. A flat tax is the fairest as everyone pays the same portion of their income as taxes and a 0 marginal tax rate does not penalize success or risk taking. Interestingly enough, a flat tax actually increases the tax revenues for the state because firstly there is a strong positive incentive to earn more (the Laffer curve) and there would be fewer people wanting to dodge taxes because they deem it unfair.

Gun Control

Although greatly saddened by the events in Virginia Tech, we need to sit back for a moment before we start to react and start legislating.
The US is one of the few places in the world where citizens are allowed to carry arms with little or no restriction. The problem is that most citizens don't exercise that right. This is why some punk can walk into a school and gun people down - few take their own protection seriously and even if they did, ham-fisted laws barring guns from schools and campuses prevent them from exercising that right.

Mass murderers will always find ways of killing - either by walking into a school in broad daylight and gunning people down, or by burning down the house of a sleeping family, or by hunting people down one-by-one in dark allies. The question is whether we give citizens the ability to defend themselves.

Perhaps this episode should tell us less about the legality of guns than about the structure of our communities. Remember that the warning signs for Mr. Cho's psychotic nature were abundant - but nobody cared to follow up.

Tuesday, April 17, 2007

Space Pragmatism: NASA Goes Open Source for Missions

Space Pragmatism: NASA Goes Open Source for Missions Cool idea here to leverage the open source community. Might make for some leaner more interesting code. This can only be better for science.

Irrational persistence

Michael Shermer from Skeptic Magazine is always a good read. He also has a monthly article in Scientific American. This month's article is quite interesting - about why we persist knowing that the chances of success are quite limited. Anyone who's worked for a big company knows this. The company spends $200M on a project that is going nowhere fast. Everyone knows it but no one is willing to say "Enough is enough". Anyway Mr. Shermer can explain it better than me here.

Monday, April 16, 2007

This is scary...

The German government is planning to introduce really intrusive laws that allow the government to access the computers of individual people. According to Scaeuble:

Under certain conditions it must be possible for the Federal Criminal Police Office to search computers in secret.

This is a very worrying trend. There are typically three excuses that governments use to justify this sort of nonsense: Terrorism, child pornography, and now increasingly copyright infringement. Remember the recipe of would-be authoritarians - find/invent bogeymen and cower the citizens into submission.
The article can be found here. Mr. Schaeuble has a history of suggesting draconian civil-liberties infringements. Apparently the history of his own country hasn't made an impression on him.

Camille Paglia's articles in Salon magazine

Just found a collection of Camille Paglia's writings at Salon magazine here. I've always admired her writings and her ability to see past much of the intellectual baggage that the West has been accumulating for the last 100 years (read Derrida, Foucault etc.) that has condemned impressionable college students to mediocrity.

US productivity revisited

Interesting article here about the slowdown in US productivity. Basically there are short-term impacts to productivity that are dependent on the business cycle and long term impacts that are dependent on the "fundamentals".

Short term influences happen because during an expansion period in the economy, companies may delay hiring, which means that fewer people do more work. During a slow down, companies delay letting people go, which means that more people do less work. This is just a quirk and is more indicative of whether or not the economy will slow down in the short term.

Long term influences are more important. These depend on the right regulatory framework, investment by companies and technology.
The Economist report seems to suggest that productivity growth in the non-housing sector in the US is growing at a robust 2.8%. This is "good" news. This means that outside of the housing sector, which is currently massively bloated and is slowing down, companies are doing more with less. However, on the whole, productivity growth in the US is slowing (because housing and construction are weighed so heavily).

Productivity growth, for those who don't know, is important because this is the key driver for economic growth. This means that prices go down because fewer resources go into producing more and people earn more because they are producing more (incidently, this is one of the reasons why an Indian worker typically earns less than a US worker - because of the massive differences in productivity).

Stagnant productivity means that wages can't go up without impacting inflation and prices remain constant or even increase because increased competition for the same resources will drive up prices. Stagnant productivity growth means that the economy can't grow very fast without causing inflation unless the working population is growing.

Monday, April 9, 2007

Neurological origins for the law of diminishing returns...

An interesting article on Scientific American on the neurological origins of the law of diminishing returns. I suspect that there might even be a physical reason. One can see that much of economics could have a thermodynamic origin - ie. conserveration of energy. I wonder whether there might be a physical link to diminishing returns too...

Sunday, April 8, 2007

Space Pragmatism: Venture Capital Firms Looking to Invest in New Space

Encouraging. Private space companies are probably one of the few ways that we will see some serious advancements in rocket technology. Our rockets haven't really changed that much from Goddard and Oberth.
Space Pragmatism: Venture Capital Firms Looking to Invest in New Space

DRM coming down???

After Apple, now Microsoft? Have the record companies finally come to their senses and realized that treating their customers like criminals is not the best way to sell their products. The study of online trading of music and p2p networks is a study of disruptive technologies. There will always be people who will try to shut Pandora's box but they have always failed. Oh but the damage that they can do while trying...

Will the dismantling of DRM now be accompanied by legislative changes because our enlightened leaders will see that the DMCA is no longer that relelvant? Probably not without some fights ahead but the story with COPA ( Child Online Protection Act) gives some hope.

Companies need to understand when their business model has become obsolete otherwise they risk becoming obsolete. No amount of legislation will save bad business models - at least not for long.

Saturday, April 7, 2007

The economics of climate change

I find it worrying that policy makers are rushing headlong into the climate change hype without considering the serious ramifications of what they are doing to us and future generations. Instead of spending (ie. losing) billions on reducing emissions or going for energy sources that are intrinsicallly uneconomic (read inefficient), we should be building wealth to mitigate against any future catastrophe. I know from personal experience how important wealth is to mitigate against what life throws at you - the same principle applies on a global level.
Current approaches include paying billions for wind farms, which are inherently unreliable as a continuous source of power, building solar power stations in the South of Germany (which having lived there I can attest to the fact that the sun is not something you normally see there), funding corn-based ethanol in the US even though it is still considered vastly inefficient, requires imported natural gas to produce, and artificially raises the price of corn, a staple food for many people around the world. Another approach is the use of taxation, which is gaining traction among some economists. This makes very little sense as well. Taxation of energy means that we pay more for everything. Paying more for something that is delivering the same value is equivalent to inflation. Furthermore, the money goes to the government - not exactly the pinnacle of efficiency. What will the government do with the winfall from a fuel tax? Fund more billion dollar roads to nowhere?
A more sensible approach is to build a hedge against a future crisis - and what better hedge than wealth?

Scientific Consensus

Many times before, scientific consensus has proven to be ill founded - sometimes with dangerous ramifications such as Eugenics - which made itself present in the laws of many countries. Today, we are dealing with a new scientific consensus - "climate change". While I'm not disputing the evidence surrounding climate change and I do acknowledge that it might be happening, I find suspicious anything that we have universal agreement and dissenters are treated like blaspheming heretics to be burned at the stake.

Ronald Bailey wrote an excellent article about the problem of consensus which can be found here.

Tuesday, April 3, 2007

Chinese moon rover

The Chinese are bent on moon exploration and I can already see a mini-space race in the making. Unlike the West, China has no issues about using nuclear energy in space as is demonstrated by their intention to power their moon rover with nuclear energy. Indeed if we are really serious about establishing colonies on Mars and on the Moon, and further afield, there is no choice but nuclear. The power that one can derive from solar energy decreases as the square of the distance from the sun. Mars is approx 1.5 AU from the sun (with a max. distance of approx 1.6 AU). This means that the power that we are able to derive from the sun is between 2.2 - 2.6 times weaker than on Earth. This means that either the solar panels need to be twice as efficient or the collecting area twice as big to get the same power as on Earth.
Batteries are also problematic. For example, if we powered the Galileo space probe using conventional batteries instead of Radioctive Thermal Generators (RTGs) and expected the same duration for the mission (70000 hours), the probe would have batteries weighing 47T! This does not include the fact that the batteries themselves need to be kept warm.
Robert Zubrin in his excellent book Entering Space, discusses the use of nuclear power in space. He goes one step further and recommends the use of an actual nuclear reactor.
Not only do we need RTG's, we need to move beyond them to actual space nuclear power reactors that use nuclear fission, rather than mere radioisotope decay, to generate tens or hundreds of kilowatts. The reason for this is very simple. On Earth, it has been said, knowledge is power. IN the outer solar system, power is knowledge.
Perhaps its time to get past the neo-luddites and start to look at nuclear power more rationally.

Sunday, April 1, 2007

US productivity growth slowing...

According to the Wall Street Journal, the US productivity growth is slowing from an impressive high of around 4% in 2004 to just 1.4%. The Economist newspaper highlighted this in 2006. If this is not just a glitch then it would suggest that we are unlikely to grow as fast without incurring the cost of inflation. The WSJ suggests that the lull in productivity is due to technology already achieving it's impact and that there is little productivity growth to be squeezed out from IT. While this might be contributing, I tend to disagree that this is the biggest part. There are huge sectors of the economy that still haven't embraced IT such as medicine and construction. Furthermore, there are still huge strides to be made in automation such as automating IT support and supply chain automation across all sectors of retail (not just the Walmarts).

Here's my theory: Productivity growth is slowing partly because of the increased regulatory burden in the US.

Productivity growth depends on output increasing per worker (I could be mean and suggest per hour worked but let's move on). In a tough regulatory framework, companies are forced to spend more on tasks that don't increase their ability to produce. This usually entails hiring more people, which works to reduce productivity growth.

The last few years has seen one of the most aggressive increases of regulation in the US for the last 20 years - Sarbanes Oxley. Section 404 of SarbOx requires firms to place strict internal controls on finance such as record keeping, auditing etc. This means huge spending on IT such as storage, security and software without squeezing any benefit from it. So for many large firms a part of their IT budget has been sunk into SarbOx without giving them the benefits from that expenditure.

Another less direct impact has come from the post September 11 paranoia of foreigners studying in the US. This has led to a massive drop in the import of talent that in the past has fuelled many of the bright young start-ups that have contributed to the growth in productivity.

While regulation alone probably doesn't explain the dramatic drop in productivity growth, I certainly see it contributing a fairly large component of it.

Ronald Coase the Nobel Prize winning economist first coined the word "Transaction Cost" to describe the costs associated with an economic exchange. He related transaction costs to the size of the firm. Regulators should keep this in mind when they place new shackles on business.

Wednesday, March 28, 2007

Libertarians of the World Unite

Here's an interesting idea - get a whole bunch of committed libertarians and put them in one place to create a sort of libertarian homeland. That's what the Free State Project is about. Basically, they are looking for about 20000 people who will commit to move to New Hampshire where they will uphold libertarian principles. New Hampshire was chosen because it has no state income tax or state sales tax and with a motto "Live Free or Die", it's bound to be libertarian leaning. While I question whether it will make a difference, I do see it as an important step in libertarian activism.
Large governments don't work. Give a man power and he will abuse it. There are no ifs about it. My hat goes off to the Free State Project.

Saturday, March 24, 2007

As good as it gets...

Indur Goklany has written an excellent essay about the state of the world, which can be found here. No surprise really - we are healthier, wealthier and dare I say it, happier. Of course too much of a good thing can be a bad thing witness all those angst ridden teenagers at anti-globalization marches.
On the topic of globalization, few years ago, an excellent book by Martin Wolf called Why Globalization Works, looked at trade as the panacea for the world's poor. Indeed the percentage of people living on less than $1/day has more than halved in the last 20 years, global literacy levels have increased from 52% to 82%, and infant mortality rates have decreased almost everywhere. All this at a time of unprecedented increases in trade and freer movements of people and goods. It's almost painfully obvious that increasing trade is better for everyone. We wouldn't give the time of day to someone who would suggest increasing tariff barriers between the State of New York and the Commonwealth of Pennsylvania to protect jobs in New York and yet these are exactly the same sorts of arguments we are making on an international level.
Of course some people argue that a wealthy country trading with a poor country is not the same thing as two wealthy countries trading. Complete tosh. We haven't seen a drop in living standards in the US as a result of increased globalization. True average family incomes have not really increased but on the other hand, people's net wealth has, which is more important. More importantly, globalization has led to a stabilization in prices. Never have Americans looked so good dressed in low cost clothing from China.
The other thing that people forget is that the US economy has transformed itself in the last 40 years from manufacturing to services. Services now make up nearly 80% of the US economy. The US is the recognized leader in the services industry.
Indeed that "Great sucking noise" failed to materialize. Instead the US has gained massive benefits from free trade with Mexico. That Mexico hasn't benefited to the same degree is largely due to the inherent inefficiencies in the Mexican Economy.
The developing world has also benefited from globalization - witness India and China. Two economic basket cases 40 years ago are now poised to become the biggest economies this century.
Things are getting better with time. Increased globalization has led to greater innovation, more productivity, and increased trade. Increased competition keeps prices down while at the same time encouraging increased diversity of products and services. Consumers benefit from this and we are all, at the end, consumers.

Friday, March 23, 2007

Global warming Redux

Came across this interesting article about global warming. Another reason why we should not rush head-long into any solution that might fix global warming. In the end, we need to weigh the costs of doing something against the costs of doing nothing except mitigating the effects of global warming when or if (a very big if) they happen.

There are some, however that would take a more extreme approach such as building huge sunshades to lower the amount of energy reaching the earth or purposefully polluting our planet with aerosols to block sunlight. Now they do say "as a last resort". This, of course makes it all sound really dire. Reality is that even the worst predictions don't even come close to warranting these sorts of "remedies" but it all makes it sound very exciting.

Monday, March 19, 2007

Questioning climate change

My current beef is climate change. Before I begin, let's organize some of the arguments:

1) Climate change is happening and we must act.
2) Climate change might be happening but the risk of catastrophe is so great that we should spend now to counteract its effects.
3) Climate change is or might be happening but we can only mitigate it's effects.
4) Climate change might be happening and we should apply appropriate cost/benefit analysis methods.
5) Climate change is not happening or the evidence is quite shaky.

Most greens would put themselves in the category (1).
The Stern Report would be in category (2)
Robert J. Samuelson fits into category (3).
The Copenhagen Consensus would be in category (4)
And writers such as Nigel Calder would be in category (5).

Where I fit is between 4 and 5. I agree very much with the Copenhagen consensus that we need to consider how best to spend our money. ie. if I give you $1, where would you get the best return on this money. The Copenhagen consensus report found out that the top 4 best returns would be from investing in eliminating diseases such as HIV/AIDS, eliminating malnutrition, eliminating subsidies and tariffs (which is a major reason why the world's poor can't climb out from the trap of poverty), and preventing malaria which has a terrible social and economic impact on African countries. Somewhere at the bottom of the list was climate change.

Of course, we must adjust our thinking as new facts come in. The problem is that with all the hysteria surrounding Global Warming and Al Gore doing his global warming dance around the world, it's hard to seperate fact from theory and politicians are climbing over each other to figure out new ways to tax us (too bad they couldn't use the same level of creativity to tackle some other issues like completing the Doha round, which would give poor countries access to Western markets). The Stern Report was the first serious attempt to put a price tag on global warming but an excellent rebuttal came from Bjorn Lomborg in the WSJ, where he dismantles some of the assumptions (such as a very low discount rate) and puts into question whether we should be basing policy on this document. Problem is that it's already too late. The Stern Report is considered Fact.

So what's the point of this rant? No point really. Just wanted to air my frustrations with this whole global warming thing. A few years ago activists got all flustered by globalization. Now the new bogeyman is global warming (and of course the old enemies remain - corporate America and evil multinationals). Sigh...

Friday, February 9, 2007

Taxation and productivity

I had a recent discussion with a friend of mine regarding taxation and he pointed out that Sweden had very high taxation but didn't seem to suffer so much. Well on closer examination not all is right in Sweden. Their low unemployment includes people who are working on Government work programs. If you remove these people then the unemployment in Sweden shoots up to 15 - 17% (http://www.economist.com/displayStory.cfm?story_id=7880173&login=Y).
I wondered whether there might be some other impacts. But to start off, we must first think about what taxation does.
Most countries have two types of taxation - corporate and individual. I would argue that corporate taxation is morally and economically unsound and individual taxation is a necessary evil.
Let's start with corporate taxation. Most types of corporate taxation tax the profits of a corporation. This type of taxation is fundamentally wrong.

Firstly taxing the profits of a corporation means that there is less money being cycled into the company ie. through investment, research and development or profit sharing for the employees. Furthermore there is less money going to investors who are taking a risk in investing. This means that investors are either not getting a fair return on the risks that they are taking or the investors will only invest in firms that have a risk profile that match the size of their returns. In the long run, I believe that investors will wise up to the fact that they are not rewarded for risk taking and they will move to safer investments.
What does less risk taking mean? It means that that high risk, high return investments are less likely to occur, which typically means those investments that can potentially have tremendous benefit to the productivity and well being of society.

Secondly, taxing the profits of a corporation move resources from an entity that efficiently utilizes (the corporation) to an entity that is notoriously inefficient (the government). P J O'Rourke, once commented that there's nothing worse than someone spending someone else's money on someone else. Governments do just that. Bureaucrats and politicians have no initiative to spend the money wisely or efficiently and we see profligate spending.

Thirdly, corporate taxation is a form of double tax. The corporation as an entity is taxed and then each worker is taxed on top of that. This means that each worker loses in terms of investment (training, profit sharing, etc.) and loses in terms of his income (through individual tax). On top of that, investors are double taxed in many countries. Firstly by a cut in their dividends (through the corporate tax) and through a tax on capital gains.

So much for corporate tax. Individual tax is a necessary evil. Necessary because the state needs some form of funding even for it's minimal responsibilities (security and justice). However let us not have any illusions that individual tax is evil. The best sort of tax is a flat one as people are not penalized for being rich (or poor for that matter). "Progressive" taxation means that we have a positive marginal tax rate, which means that the rich are in some sense penalized for being rich. The rich tend to be the ones who are more likely to have the money to invest in risky projects (witness Jeff Bezos and his space tourism initiative). There is a well known corrolation between wealth and the amount of risk that an investor is willing to take. The average middle class investor is looking for a safe investment to ensure his/her retirment - there is very little money to put into things that may not pay off. The wealthy, on the other hand, have enough left over to put into riskier things like private equity funds and venture capital. High risk ventures very often are where we see the most impressive strides in productivity growth. Taxing the wealthier more, therefore, is essentially taxing risk taking.

In conclusion. Corporate taxation reduces productivity, double taxes individuals and impairs risk taking in a society. Individual taxation, though necessary, is an evil as well especially progressive tax regimes that penalize the wealthy. Progressive tax regimes put a marginal burden on risk taking, which works toward reducing the amount of risk a society is willing to take.