Archive

Archive for January, 2011

The power of water, and reflections on critical thinking

January 28, 2011 1 comment

A plot of the Q-function, the tail probability...
Image via Wikipedia

A testimony to the power of water, in recent Australian floods.

www.youtube.com/swf/l.swf?video_id=kYUpkPTcqPY

Water level in rivers follows the Log-Pearson 3 probability distribution(see attached picture)

Tightly clustered around the mean, with little variation, and a limit on how far the left hand tail can go (ie “dry”)

The right hand tail though is much fatter than the standard normal distribution. Even though it remains a very low probability event, the consequences keep going; they don’t trail off to insignificance like in the standard normal

In forecasting and then living the future, we see something like the Log-Pearson 3 distribution in practice. We get accustomed to extrapolating from previous “normalish” experience which works so often that it becomes a reasonable technique and standard practice. Our monkey brain is poorly adapted for remembering the lessons of fat tails and properly estimating their effect on our plans

When the underlying process though is NOT a generator of standard normal, but rather has elements of chaos and uncertainty in it, we can get to experience the surprise of consequences which conform to power laws: unpredictable as to frequency of occurrence or seasonality, and unpredictable in terms of magnitude of consequence.

Our monkey brain will tend to discount the early indications of potential disaster as a combination of a number of well-known biases and fallacies. Remember that cognitive biases get turned into fallacies when you start experiencing the consequences. Ask the guy holding the camera in the video clip.

We often can’t know the degree of chaos in the underlying process until we discover results that suddenly and stubbornly refuse to conform to standard normal expectations.

In digiworld you get do overs.

In realworld, you get the opportunity to learn from other peoples’ catastrophes; you don’t get to learn from your own catastrophes.

This is the basis for Nassim Taleb‘s (“Black Swan”) discussion of 4th Quadrant problems: when our statistically based insights can actually expose us to far more risk than standard models can/will describe.

http://www.edge.org/3rd_culture/taleb08/taleb08_index.html

Taleb’s advice on living in the 4th Quadrant: What Is Wise To Do (Or Not Do) In The Fourth Quadrant

1) Avoid Optimization, Learn to Love Redundancy

2) Avoid prediction of remote payoffs—though not necessarily ordinary ones

3) Beware the “atypicality” of remote events.

4) Time. It takes much, much longer for a times series in the Fourth Quadrant to reveal its property.

5) Beware Moral Hazard.

6) Metrics. Conventional metrics based on type 1 randomness don’t work in the Fourth Quadrant.

Advertisements

Reflections on economy, China and education

January 27, 2011 2 comments

Roosevelt Signs The Social Security Act: Presi...

Image via Wikipedia

http://online.wsj.com/article/SB10001424052748704062604576105952027426880.html
another step in the realization of the Chinese Century. They are in the same economic position the US was at the end of WW2: had all the money, the manufacturing base and the need & capacity to export to war torn countries of Europe. Look at what happened in the 50s and 60s until our wealth convinced us  that we could shape the world in our image. How is that foreign adventurism working out these days?
http://abcnews.go.com/US/ohio-mom-jailed-sending-kids-school-district/story?id=12763654&page=2
a story about a mother who didnt get the the word that the government wants her to simply Obey the master plan for what’s good for her kids.  How dare she try to do what’s best for them, using her own judgment?  Who is she to question authority?

http://apnews.myway.com/article/20110127/D9L0BDUG0.html
describes the awakening realization that the accounting shenanigans that have allowed us to loot Social Security are over, and that all the borrowing against the non-existent “lock-box” now has to be paid back with interest.  This has enormous implications for budgetary levels and lifestyle changes. Its not going to be economic pressure from external competitors that drastically realigns the US reality; it will be the implosion when the bill collector comes. Expect to see 10 years eventually added to retiremnet age, means testing for benefits, and the flight of capital to other countries like New Zealand and SIngapore where it is treated better. If you thought the ride up during the bubble years was fast, wait until you see the speed of the contraction

On the way in to work I listened to testimony from budget directors of local school districts talking about how they were going to address the need for cutbacks of millions of dollars in their districts. These are cuts that must be made before the newly elected republican governor even starts slashing at the state level.

Massive reorientation in national goals and priorities are needed soon or we will be cutting bone and muscle. Foreign adventurism and hundreds oif billions in non-productive defense expenditures are bleeding us dry.

I am looking at the specialized laptop that IT just put on my desk thats dedicated to running a piece of crap experimental logistics planning software suite thats already obsolete; But taxpayer dollars bought the laptop and paid the contractors to put it, and 100 just likeit, in my department where they sit gathering dust, cant be used for anything else. I compare that to the story earlier in the week I shared about the failures of “Laptops for 3d World Kids” , and the storyof this mother trying to get her kids squared away. Its absurd how much we spend on pseudo-threats

Reflections on Starobin’s Five Roads to the Future

January 18, 2011 3 comments

Paul Starobin’ s biography (from the author), from  NationalJournal.com

Related Link: http://www.afteramericabook.com

Paul Starobin is a staff correspondent for National Journal and a contributing editor to The Atlantic Monthly. He is author of the new book “After America: Narratives for the Next Global Age,” available in soft cover as “Five Roads to the Future: Power in the Next Global Age.”

Starobin was Moscow bureau chief for Business Week from 1999-2003. He has reported from Russia, Central Asia, the Caucasus, the Middle East, Europe and South America. Previous positions include reporter for Congressional Quarterly in Washington, business reporter for The Lowell Sun in Massachusetts, and public-policy case writer for the John F. Kennedy School of Government at Harvard University. He grew up in Worcester, Mass. and graduated from Wesleyan University in Middletown, Conn. in 1979. Starobin received a Masters of Science degree in International Relations from the London School of Economics and Political Science in 1981. He was an international journalism fellow for the Knight Foundation journalism program in 1998. When you try to get into trouble with your mother watches me to

Notes on 5  Roads to the Future

Starobin suggests that the American Century could not have continued in perpetuity, but has been accelerated by foolishness like war in Iraq and the consequences of the global financial crisis which has hit American credibility and economic strength more than other countries.

He describes finds potential/plausible scenarios for the future, all of which can be reasonably extrapolated from current conditions:

  1. Chaos: he believes he could either be a temporary condition until a new balance of power or world leaders in March or it could continue indefinitely as part of a dynamic world that does not permit a hegemon to develop. This is in line with a libertarian view of the world supported by dynamic technologies that support personal empowerment at the expense of the state.
  2. a Multipolar World: this would be built around a conventional array of multinational states with traditional nationalism providing the motivation for acting in global affairs. He suggests that new arrangements of alliances that might surprise us could act as counterweights to traditional superpowers. Consider Venezuela, North Korea and Iran; not so improbable. In this, world regional spheres of influence me come to dominate once more and the world may return to the era of The Great Game, when colonial powers battle for influence in the colonies. Military power would continue to be a factor in regional outcomes.
  3. A Chinese Century. In this scenario, the role of the world superpower is taken on by China with their new world leading economic power and manufacturing base. The one would replace the dollar as the reserve currency and the United States would be reduced to a second rate power status. China would be a hegemon less interested in promoting democratic ideals, more interested in securing economic advantage for the millennium, a path they have already undertaken while NATO and the US spend their national treasure in the mountains of Afghanistan. He considers the possibility of an Islamic Century considers that to be much less probable and certainly a far worse fate.
  4. An Era of Global City States: this scenario features the end of the nationstate as we know it and political economic strength being centered around major global metropolises. This is not a very convincing argument as the driver for the loss of the nationstate as a political player is absent. Certainly cities take on cultural characteristics that are unique to their locale, but it’s hard to see how instruments of regional and national power or default to mayors and city councils.
  5. The Universal Global Government: this scenario takes on the form of an expanded in more meaningful role for the United Nations either with or without regional governing boards like the Eurozone, NAFTA and CAFTA; it’s almost a logical extension of scenario to but with a global government sitting in a policy role above regional powers acting on behalf of oligarchs and the haves, probably preserving the rights of multinational corporations to preserve their hegemonic influence while providing minimum essential services and life support to the huddled masses. This is the era of the triumph of the bureaucrat and the international banking conspiracy. David Wingrove’s novels in the  “Chung Kuo” series are reminiscent of the scenario, with the incorporation of a Chinese style overlord global government based on Confucian traditions, which is ideally suited for the administration of an entire globe. In that sense scenarios three and five could blend into Wingrove’s vision, which anticipates this part of Starobin’s vision by about 5 years.

Comments:

  1. Starobin attribute the decline of American power to:
    1. loss of military dominance based on inability to achieve decisive victories in Iraq and Afghanistan. I would observe that the military defeat of Iraq was predictably decisive and so he must be thinking about the ability to implement a complete socioeconomic solution as opposed to simple military victory, in which case I would agree with him. The probability that future engagements will have exclusively military solutions is reducing to zero
    2. American political influence worldwide diminishing as a consequence of lack of trust and legitimate alternative economic options other than America.
    3. Unsustainable economic strength in the form of excessive debt and the weakening dollar and the loss of manufacturing base which makes the US a customer nation rather than an economic driver. He believes that the US economic model of deregulated capitalism seems discredited (p. 7), but I would argue the facts with him on that one and suggest that the American economic model is regulated capitalism, but poorly regulated for the short-term benefit of a ruling class. Other countries experimenting with truly unregulated capitalism are doing just fine: Singapore, Hong Kong, Taiwan to name a few.
    4. Loss of moral authority: the offers example of the loss of influence of the US Supreme Court in global jurisprudence

I would say there are any number of global intellectual elites who agree with all of these insights and hope it they continue to expand in order to punish America for her own success.

In part 1  Starobin offers a traditional recounting of the story of the rise of American influence that offers nothing new. In part 2 of his book, he explores the roots of America’s current crises as outlined above. In part 3,  he offers insights into what may develop further and this is where his interesting writing occurs as he builds the case for plausible scenarios.

He takes a decidedly “anti-heroic” view of historical forces, looking at the shaping forces that create the context and range of choices for leaders, rather than the dominant influence of clearsighted leaders as the motive force.

In the seminal 1992 Harvard Business Review article “Strategy under uncertainty”, Courtney, Kirkland and Viguerie (1992), offer a 4 part ontology for selecting strategies based on the degree of uncertainty about the future. I think I have a pdf of it at work, and will try to upload it tomorrow. Briefly:

  1. Certainty: do the clear and best thing
  2. Partial uncertainty: use rational planning to evaluate clear and distinct courses of action against a framework of values and chose the optimal solution based on your forecast of predictable outcomes. This is the classic “rational man” economic approach
  3. Complexity: when we cannot forecast outcomes, and where a practically unlimited number of things could be reasonably extrapolated from current themes,  use scenario planning to describe a broad set of representative  future cases that are different enough to give meaningful insights into different choices. You must ensure that you representative scenarios trukly push the boundaries of the possible in order to have robust considerations.
  4. True uncertainty, in which the future cannot even be extrapolated from the present, in which case an artistic narration that imagines a potential future, however improbable, is just as likely to occur, and use that as a guide to select values-based actions based on general principles.

Starobin is clearly in case 3 of the above,  by offering 5 distinct possibilities. He doesn’ t have to be an advocate, simply a reasonable portrait painter, which I think he has accomplished. The only scenario I might quibble with is the “city states”  since a dissolution of nations as the holders of political power is, short of global nuclear catastrophe is unthinkable, in which case these scenarios are probably moot.

On page 55, Starobin summarizes the rise of the American civilization to hegemonic status as one of an accidental interplay between tidal forces beyond the planning and control of any nation. This is this the same general approach he will use to describe how the five scenarios could unfold.

He makes the point in part two on page 76 that great civilizations have their absent flows and cyclic rhythms but that what goes down does not necessarily have to come up since civilization is about culture and not about physics. His view of the diminishing of American power being part of the natural order of things will be objected to by believers in America’s exceptionalism, which is probably a position taken by all privileged members of the reigning empire as they began their slide into decline. That’s the sense that you get from a reading of history by given in Rome and by Churchill in his history of the English speaking peoples.

On page 80 he describes how even the US model of corporate management is beginning to fade as the exemplar for the world. It’s failure of vision, shortsightedness for the quarterly bottom line, cultural blind spots, combined with the weakening dollar serve to discredit the US model for global developments. You

In all matters of business, from manufacturing to finance to architecture to politics to the arts to healthcare to infrastructure to digital conductivity to economic inequality to education to sustainability, Americanism is increasingly seen as middle-of-the-road in unexceptional in Starobin’s narrative (pp81-93).

Chapter 5 narrates the problems associated with military overreaching combined with financial debts. Combined with a cultural imperialism with the storyline of American exceptionalism, these conspire to strip the US of allies on the far frontiers which are increasingly unaffordable in which undermine our moral and military authority. He makes the case on page 101 that the world does not share America’s view of Islamic fundamentalism as an existential threat on par with the former Soviet Union’s nuclear threat. On page 104 he describes the moral dilemma of American acting as a global policeman which is inconsistent with the history of America’s isolationism. On page 107 he describes the case that whatever global sympathy there might have been for America as a global security agent after the 9/11 attacks has been lost by the actual implementation of military strategy.

Chapter 6 narrates the return of Russia to the world stage combining first world military potential with third rate economic might operating on the fringes of America’s frontier. Whatever foothold democracy is making among the Russian people, the former Russian Empire is starting to thrive in places where America’s might is stretched too thin, such as Georgia, as told on page 123. I find this chapter less convincing than a chapter that should have been dedicated to China who has both the military power and the economic base to support a balancing of global power

Chapter 7 describes the chaos scenario: like oil spots, regions of chaos and civil war erupting globally with no central authority or international will to intervene in a reversion to tribalism and brute force. The scenario contemplates the use of tactical nukes by nonstate actors in the US homeland which would cause the shell of Empire collapsed and America withdraw to her own borders to clean up room house. The power vacuum would remain unfilled and the Globe would devolve into regional strife.Starobin considers the probability of chaos to be greater on the fringe of America’s Empire however rather than in homeland. In this form, chaos is recognized but is uneconomic to resolve and so is permitted to continue for pragmatic reasons. This is actually the ideal scenario for hybrid threats to US interests like Al Qaeda and narcotraficantes, who do not seek to replace nation-states as rulers, but who seek to thrive in the shadows like desperadoes in the wild West.

On page 139 he describes Turkey as a candidate for chaos based on its position at the crossroads between continents, cultures and civilizations historically. Much of his descriptions of chaos regions reminds me of the former Yugoslavia on a grand scale as the loss of centralized political and military authority is replaced by an explosion of competing historical demands fueled by racial and religious tensions that have been suppressed for decades.

On page 151 he tries to make the case for estate of happy chaos but it’s hard to see how anyone committed to raising the living standards of the world’s populations can be impressed by that argument. Chaos quickly devolves into a modern feudalism which increases the difference between haves and have-nots.

Chapter 8 notes: the multi polar world.

On page 159 he oddly says that the prospect of a multi polar world is a monumental one – nothing even remotely like it has ever existed, which is followed in the next sentence by a description the last multi polar world: the 19th century balance of power that existed among the great nation states of Europe in the time of the great game. This seems like a relatively straightforward development of the loss of superpower status devolving into competing and entangling alliances of nation-states jockeying for position on tactical and strategic obeisance. The history of the Chinese dynastic cycle through most of the first millennium is another example of just exactly this kind of balance of power in multi polarity. If anything, this seems to be a more natural state of affairs than a world dominated globally by one or two superpowers, particularly in a world that is experiencing a proliferation of weapons of mass destruction.

On page 166 he starts toying with the ideas of a US – India alliance but this is simply one of an almost infinite number of possibilities for regional alignment. He makes a reasonable case on page 171 four the possibility of regional powers selectively improving their military postures for the purpose of establishing regional influence in the usual way.

He disposes of the possibility of Europe having a unified global interventionist presidents on pages 176 through 179, and I agree with him on this since there is little appetite for expensive policies among the NATO countries. They have enough troubles of their own trying to solve their internal debt crisis and have shown little to no willingness to export their regional military power beyond their borders.

He describes post-Soviet Russia is salivating at the opportunity of regaining its former prominence, but it’s hard to see realistically how Russia does that since their economic might consists of basic oil commodities and an aging nuclear arsenal which they use as a bargaining chip. They have almost no economic power otherwise and little capacity to expand beyond the existing boundaries on their frontier.

Iran is just as quickly dispensed with on page 180 is a regional power center while Brazil is considered a reasonable case on page 181, which I agree with. Whether Brazil can solve the problem of a slowly growing middle class and racial and social carriers to national integration remains to be seen. He does not make the case for a natural alliance between Brazil and the US which is more natural than that between US and India.

Japan is conspicuously absent in this chapter which is unusual given that they are the second largest national economy, have a history of technological innovation and adaptation, a great savings rate, a discipline work force and an educated society. The US Japanese alliance has neglected similarly.

Chapter 9 notes: Chinese century.

Starobin begins with a description of China’s commodities-based economic expansion globally, while the US fritters away its national treasure on the frontier. Economic alliances with Canada Chile and Brazil are noted. The discussion on page 192 of Chile and copper and the need for that basic commodity as part of a continued digitization of the world is spot on. Copper is the commodity that best defines where we are in the global business cycle because it is intrinsic in everything digital. If you want to study global business, you need to understand oil and copper. It remains to be seen if there’s any American president who’s willing to invoke the Monroe doctrine for economic reasons in our hemisphere.

On page 205 Starobin tries to make the case that a signpost of China’s attempt to achieve superpower status would be an expanded budget for military defense. He seems to think that duplicating American for structure is the only path to achieving that status. The Chinese strategy however is to target specific critical components of US capabilities in the short term and use a process of gradual erosion to achieve first parity and dominance. For example in an effort to absorb Taiwan without shooting, the Chinese are investing in anti-carrier missiles that can be fired from land bases which precludes the use of American seapower in defense of Taiwan. When carrier task forces are rendered impotent then China can absorb Taiwan at their leisure, and further their sphere of influence.

On page 207 he noticed particularly attractive appeal to the Chinese global narrative to the poor of the world. I think he places too much emphasis on a supposed Chinese need to be seen as the dominant power in the world rather than using a typical Chinese approach as a restoration of the Middle Kingdom surrounded by barbarian states. China has never attempted to completely dominate the countries around them, so long as they could extract their fair share of tribute. This is been the story of the dynastic cycle for several thousand years and there’s no reason to think that it would change going forward. An empire with an infinitely long time horizon is in no hurry to bend other countries to her will, China is sure that they have the long way of history and civilization on their side. Imperial expansion through economic and pragmatic means is much more their style. I think a cultural understanding of China is lacking in this chapter, although he gets the economic arguments pretty well, except for the part where he replaces the dollar with the yuan as a reserve currency. The Chinese have seen how being the owner of the world’s currency is actually like a set of handcuffs when you are in economic duress and they are much more likely to be satisfied with an international regime of multiple currencies which would favor their well-known pragmatic currency acumen. This gives them much more economic flexibility.

Chapter 10 notes: city states.

Unlike the other scenarios this one seems to start with the proposition for a fictional and state and tries to find ways to connecting back to present trends and it’s not very convincing to me. The reality of cities and regions organizing around their primary means of exported goods and services is nothing new but this doesn’t do anything with the problem of replacing the economic and political influence of nation-states in the lives of cities. Wishing that problem away is problematic in anything short of a nuclear catastrophe renders this scenario mostly moved in my opinion. It’s any advantage of city states to have a federal government to socialize best that they themselves cannot embrace and he gives him the possibility of peacefully levying taxes on other regions based on their own political advantages without resorting to protectionism were military power. As a practical matter, all you have to do is look at the history of in the former Yugoslavia to see just how easy it is to go from one nation-state to many nation-states to imagine what it would like it would be like to eliminate the nation-state altogether and devolve into principalities. This chapter reads more as an afterthought I think the only reason he didn’t include it as the last chapter is that he didn’t want the book to end on a weak note.

Chapter 11: universal civilization.

Once again it’s hard to see how a global civilization is going to take national and regional power away from existing power elites when they already act as a de facto global coverall aligned by economic and military interests these days. What part of world government do we not already have. We can look at the example of the abysmal performance of the euro zone and extrapolate that to the development of a global governing body that had both the authority and the capacity to compel behavior in client states to recognize that this is more of a pipe dream than a reality. If you cannot make the case for a convincing centralized global government, then most of the insights in this chapter referred back to those found in a multi polar world. In practice I believe both of these chapters and their insights can be merged into a reasonable future devoid of superpower domination. I think for purposes of this book Starobin makes the distinction so that he can have five scenarios. The one distinction I would make between a global government and that of the multipolar world is at a global government at least gives you the opportunity to resolve conflicts by bureaucratic infighting as opposed to border wars by competing alliances. That’s probably a better solution morally.

Anyone with experience working under United Nations command in military and peacekeeping operations would have to laugh at the idea of there being an effective global government that could work on the UN model. They are hopeless.

Chapter 12 notes: America after America.

Starobin begins describing a down-sized America, with a view of what I envision as a trans California that has alliances with the Latino culture in Mexico. I think I could make the case for California being the most likely state to secede followed by Alaska under peaceful conditions, and Starobin hints at this as a possibility. California already contains is widely a diverse vacation between the haves and have-nots is you can find anywhere in the world when you contrast downtown Oakland and Silicon Valley and the San Fernando Valley. You could be in three different countries. I can’t imagine California, with their budget crisis now wanting to take on the additional debt finance responsibilities of separate nationstate. That would only accelerate disaster they’re facing budget terribly.

On page 293, he examines the experience of multicultural Australia to show the real challenges California would likely experience as a separate nation state. It seems to me that he ran out of energy to go much further in this chapter since his treatment of California is brief, not comprehensive and is only one of many potential regions that need this kind of analysis to be complete.

Conclusion: life after the American century.

I think he’s a little quick to dismiss the idea of American exceptionalism on the moral and intellectual and political stage than is warranted. Even if you hypothesize a retreat from Imperial America and international interventionism, it’s entirely reasonable to say that America might still retain its position as a beacon of liberty and inspiration to others but now coupled with a more pragmatic and limited policy of foreign adventurism. Getting around economic house in order while retaining our privileged position as the Western Hemisphere’s dominant power in alliance with Chile and Brazil and Canada makes a very convincing argument for maintenance of America’s position as a country of influence and power but without reverting to being just another country in the world. This is the sixth scenario that I think he neglects and which is more reasonable than a couple of those he offered.

My conclusion is that this book is extremely well written.  It does not fall into the simplistic  trap of historic heroism.   It offers some new and interesting perspectives on America’s role and what happens in the great game of international power. It’s lacking in a few details and is not convincing in some of the scenarios but the effort was very well done and is very thought-provoking.

References:

Courtney, H. , Kirkland, J, & Viguerie, P. (1992). Strategy under uncertainty. Harvard Business  School Press,  Boston.

Reflections on “Sonic Boom” by Greg Easterbrook

January 17, 2011 2 comments

Commentary on Sonic Boom by Gregg Easterbrook

His reasons for believing that an explosion in globalization is coming:

  1. ease of communication
  2. freedom of speech and democracy
  3. markets tend to consumer demand
  4. rising education levels
  5. chip-based electronics
  6. equality of women
  7. reduced military spending and interlinked nations

My concerns after reading his introduction:  will he be addressing these global issues (in retrospect he gets to about half of them on the economic and complexity front, but not on the security and terrorism issues):

  1. tightly coupled economies exaggerate economic turbulence
  2. religious fundamentalism and terrorism
  3. weapons of mass destruction
  4. pandemics
  5. overpopulation and concentration along fault lines
  6. Agro terrorism
  7. economic rationalization: if prices converge at some point it’s no longer economic to ship goods made on one continent to another comment.
  8. Extending trendlines infinitely is a recipe for disaster in forecasting

Chapter 1 notes: Shen Zen

  1. ports as a measure of economic activity
  2. he sees the rise of the global middle class while I see the consolidation of capital into fewer and fewer hands at the top level. It’s clear that rising living standards is a good news story, but this makes the plight of the poor even more troublesome
  3. treats Arab nations as a governmental issue in not a religious or cultural issue
  4. ironically China is moving more towards free markets in the US away from free markets
  5. economic efficiency tromping cultural differences
  6. social progress intolerance increasing
  7. inflation held in check: this is open to some dispute as developed nations continue to print more money to print themselves out of excessive debt
  8. rise of the entrepreneurial class that a reliance on innovation to stay ahead of population dynamics
  9. the rise of urbanization as a way to more efficiently manage populations and distributes the benefits of growth: cities as accelerators of progress
  10. smaller families improve education and freedom; contrast this with the ideas that demographics are destiny that the rise of Third World religious-based populations threatening to overwhelm syrup population growth advanced countries
  11. the effect of network communications on freedom of information: this is a good insight when compared with the effect of samizdat in Eastern Europe in the 50s and 60s. The Hungarian and Czechoslovakian uprisings were crushed because of a lack of the ability to coordinate information among dissidents in real time.
  12. Declining industrial employment is inevitable in his you because of the improvements and efficiencies in robotics and automation
  13. cooperative superpowers: China and the US: this view acknowledges the economic interdependence of two superpowers, something that was not the case between the USSR and the US

Chapter 2 Notes: Waltham

  1. represents new generation of emerging global services businesses that are closely connected to educational centers for R&D
  2. holding a higher place on the growth ladder exposes you to more job insecurity as you are more exposed to the whims of change. Easterbrook calls this “churn”
  3. basic vulnerability of professional and business services: at the mercy of the actual manufacturers who can achieve a point where it’s easier to do that in house then pay for offshore support. Knowledge-based job security is vulnerable to the quality of your educational system and the quality of your network outreach
  4. job insecurity jeopardizes the social contract that once you’re in the middle class you stay there, that you can only go up
  5. job insecurity is combined with the two-way fluidity of socioeconomic class.
  6. Easterbrook finds fault with corporate boards and CEOs, which I agree with and have written about in another post.
  7. The irony is that Easterbrook sees growing inequality inside the American socioeconomic culture driven by the same economic forces that he sees driving people towards convergence globally. Which way is it?
  8. What Easterbrook describes as housing stress I see simply as economic rationalization as the distortions of the bubble years are gradually worked off. I believe he correctly identifies governmental intervention is a problem with Freddie Mac and Fannie Mae. He stopped short of describing the moral hazard of underwriting poor investment banker behavior which does nothing to fix the problems and which will almost guarantee a repeat of bubble mentality in the future.

Chapter 3 notes Yahkutsk

  1. effective climate change on economic growth is highlighted in this chapter
  2. identifies the problem of not in my backyard (NIMBY) behavior by environmentalists who are preventing the deployment of high-tech energy collectors in their backyards
  3. places a lot of faith in conservation which is hard to reconcile with the population explosion that is supported by a raising of quality of life standards
  4. observes that the world can no longer be understood because of the explosion of instant communication, freedom of expression and economic well-being that supports discretionary development
  5. observes that the world is becoming increasingly statistics driven: it must be in order to get your mind around rapid changes in large demographics. The book Supercrunchers is an excellent treatment of this phenomenon.  http://www.amazon.com/Super-Crunchers-Thinking—Numbers-Smart/dp/0553384732/ref=sr_1_1?ie=UTF8&qid=1295286476&sr=8-1
  6. a nice introductory discussion of the difference between data, information, knowledge and wisdom, or what David Chang calls data smog “. My sense is that it takes education to be able to understand the world statistically and to know the limits of the statistical inference. Taleb describes this quite effectively in his discussion of fourth quadrant problems. In my business as a financial advisor I find that an understanding of statistical insights is probably the best predictor of success in the financial markets, more than any other.
  7. The abundance of information sources and different points of view serves to highlight cognitive biases more than ever, particularly the confirmation bias in which it becomes easier to find pseudo-evidence that supports your preconceived notions. The strata polarizing public opinion insulated by half-truths and pseudo-facts.

Chapter 4 notes: Erie

  1. illustrates the downside of resisting the globalization move. An unwillingness to adopt open standards and global methods reduces you more and more to a backwater
  2. Erie shows the unusual blend between traditional perspectives and the constant reinvention of itself by General Electric. A curious combination of constant reinvention and respect for tradition.
  3. In Melton Comstock believed in the need to swing for the fences: it’s a success story because it worked but it’s dangerous to think that that’s the only way it can be done.
  4. This chapter supports a belief in basic R&D, some research out of Australia that I posted last week suggest that is not absolute R&D dollars that yields innovation but the quality of your network connections. This is similar to the idea of connectivism in educational theory.
  5. This chapter gives dangerously close to hero worship in the GE Way limits only one path to potential success. The biggest same problems as Collin’s ” Good to Great”, which is anecdotally attributing success in hindsight to what is now apparently obvious

Chapter 5 notes: Leipzig

  1. detailed discussion of the energy market which is at one in the same time: the largest in the world and yet the least innovative. Probably because of the high capital requirements for developing the capacity and the need to ensure that they are failsafe before rolling them out.
  2. Easterbrook treats the energy market choices almost exclusively on a cost-benefit basis and does not include very much about political realities and the political strength of multinational energy companies to preserve their favorable positions.
  3. An excellent connection between horsepower in miles per gallon and the shortsightedness of consumer demand
  4. good summary of the economics of solar power
  5. good discussion of the lack of economics of corn-based ethanol: the links I posted last week should debunk the whole myth of the wisdom of the political process to find sensible solutions. Politics is completely distorted the economics of ethanol. The case for Brazilian swamp grass as a source of biofuel is underestimated.
  6. Synthetic biology is a lot more promising than capital-intensive nuclear
  7. Easterbrook observes the irony that the probability of success in research and development is inversely proportional to how centralized the public research is. If you want clean energy get the government out of it is his.

Chapter 6 notes: Arlington

  1. shift from giant corporations to nimble quick thinking entrepreneurial startups. This is a good discussion of what it takes to generate new ideas that can be implemented.
  2. The real discussion is whether or not innovation is better supported by an existing infrastructure of a large company that has a built-in network effect in resources that can be applied and proven methodologies of scaling up innovations for global effect quickly as opposed to individual startups that have to make the leap to global development themselves. Think about Cisco, Microsoft, Apple and Intel whose R&D strategy includes buying up small competitors when they had achieved a sufficient level of effectiveness that may be the best hybrid approachable. This keeps governmental policymakers out of the economics decisions that they are unsuited to make as we saw in the previous chapter.
  3. Nice discussion of the effect of tax policy on capital gains as a way of encouraging or squelching entrepreneurial activity.
  4. A good insight that to succeed in the global era you can either be a low-cost producer or have a fundamentally new innovation. America is betting the farm on being an innovator, which means that the quality of the educational system is more important than ever.
  5. Very good summary of the dynamics of venture capitalism
  6. Easterbrook asked why people with money are so prone to make foolish decisions: this is part of the problem of lack of statistical appreciation of the world. People who studied made office results new that something was fishy well before the disaster set in.
  7. Regulatory solutions to entrepreneurial funding are likely to make capital flee elsewhere rather than fixing inherent problems.

chapter 7 notes: Chippewa Falls

  1. this is a discussion of lean globalization, and the flattening of organizations. How do global corporations continue to reinvent themselves at a pace that allows them to maintain their large size. The law of large numbers suggest that this should be very difficult.
  2. Easterbrook makes the argument that the pace of reinvention may be so great as to be unforcastable, and suggest the idea of flexible manufacturing is a way to preserve competitive advantage while retaining the efficiency of large numbers.
  3. Makes a strong case for nanotechnology and nano manufacturing
  4. Easterbrook is implying the drive globally to reduce manufacturing jobs makes me wonder about the wisdom of having fewer and fewer locations for manufacturing and the corresponding political and economic power that would consolidate in fewer and fewer hands.. A really nice discussion of this in a futuristic sense is the book “The Diamond Age” by Neal Stephenson who foresaw this world in 2000: it’s a combination of nanotechnology meets multinational corporation and competing cultures. It’s one of the best five books that I’ve ever read and one that I highly recommend to future thinkers  http://www.amazon.com/Diamond-Age-Illustrated-Primer-Spectra/dp/0553380966/ref=sr_1_1?s=books&ie=UTF8&qid=1295288028&sr=1-1

Chapter 8 notes: Camden

  1. describes the effect of emergent organizational change in the competitive world of consumer appliances. Supports the idea that this cannot be done by planning and forecasting but only through adaptation, testing, cycles of reflection and action. This is action research applied to business dynamics. If this model continues to be successful than the argument is that societies that offer the most freedom and rewards for innovation and flexibility and social organizational have a competitive advantage. Those that are tied to restrictive laws and regulations will suffer because they will be slower to adapt or restricted in their adaptive choices.
  2. Easterbrook is almost becoming an apologist for Marx in this chapter. An interesting comparison between Marxist 10 proposals in the Communist manifesto and global economic developments. Does not follow up with the idea of these modern developments emerging without design even though he is made that point in other chapters.
  3. An excellent point is made that the economy is not something that can be run by a politician or a single corporation or by any method of central planning. I’m uncomfortable with his notion that the increasingly tightly coupled global financial markets will be disaster resistant simply because previous system shocks haven’t brought it crumbling down. Studies of complex adaptive systems examine networks in a number of dimensions to determine how robust they are. Tightly coupled networks for example are more efficient and effective at distributing positive effects than loosely coupled ones; however, they are more vulnerable to system shocks that are disastrous because there is less slack in the system and harmful effects are transmitted more quickly. Over long periods of time there is a good reason to have loosely coupled networks to allow for firewalls to be built at the cost of decreases in efficient propagation of positive signals throughout the network. It may be that the best contribution national governments can contribute to the global network is there very inefficiency and the fact that they are slow to adapt. This may be the source of the kinds of firewalls that are needed to prevent disaster in the future. Not by design, but by the protective qualities of bureaucratic ineptness.

Chapter 9 notes: Los Angeles

  1. this chapter argues for the growth of cultural diverse city, even as previous chapters have argued about the convergence of economic says world becomes increasingly global. The irony is that the convergence of economic realities across nations produces a rising standard of living for all which actually supports increased cultural diversity.
  2. This chapter makes the argument for the core competency of the US being high-quality colleges. He draws the correlation to their commitment to universal public education. A very telling point is made on page 181: in 1940 the average young American was a high school dropout while today the typical young American has at least some college.
  3. Easterbrook points to the clear economic benefit of higher education, and we have seen in other postings by Easterbrook why very good colleges are every bit as a whole as the top tier.
  4. He observes that advancement in the modern officer corps the US Armed Forces is unlikely without a bachelors degree; I would actually extend this to say that a Masters degree is required for advancement to senior ranks. There’s an increasing trend in the search for general officers with terminal degrees especially if taken in nontraditional areas, such as the example of David Petraeus. This is one of the most important discussions we have inside my college as part of broad Army educational responses to it dynamic world.
  5. In my mind it remains to be seen how long the US can afford to have the cost of this high quality college education outstripping the rate of inflation, particularly as college education becomes more mainstream. I I can easily see how teacher salaries are going to be seen as a public entitlement by teachers unions and this serves to inform the debate about educational testing as an evaluation of program effectiveness and why unions are so resistant to that idea.
  6. The global increase in IQ scores and SAT scores is fascinating. The chapter is a pretty good case for the importance and economic value of investing in quality education

Chapter 10 notes: Sao José Dos Campos

  1. this chapter describes the phenomenon of non-US centric growth stories by focusing on resource rich Brazil, which is blessed with abundant natural resources, the military protection of the US in the Western Hemisphere, broad population and geographic diversity, and the lack of the regional security challenges experienced in Asia Africa and Europe. Combine this with the recent news that Venezuela now has oil reserves larger than that of Saudi Arabia and you can easily see how the Western Hemisphere center of power could shift southward.
  2. Over the last 15 years I have noticed with interest how changes in global economic conditions alter the demographics of people who come to my investment seminars: recently South America and Australia have begun to dominate where once it was US and Europe.

Chapter 11 notes: your town

  1. Easterbrook quickly moves on to the many forecasting future changes that serve to put your results more and more on your own shoulders: constant change, a blending of home and work, responsibility for your own changing career three time, increased risk by being left behind, lack of happiness with your improved material conditions and a concern for assured healthcare. This is a description of an atomistic self-reliant society that is very susceptible to the political message of central planners who seek to provide a governmental solution for these kinds of safety nets. You can see that every day in the mantras of the Democratic Party and why they are so attractive. I’m not judging this is a bad thing just recognizing that it’s a human thing.

My conclusions:

  1. excellent insights from a variety of perspectives. Still has more of a US centric cultural approach than some might like, but as long as the US continues to be the leader in innovation and the production of exportable cultural products, I think that focus is warranted.
  2. Several thought expanding discussions, particularly the comparison of Marx with modern developments I found to be refreshing and insightful.
  3. The discussion of education and public policy could have gone more in depth in the US experience. I would’ve liked to have seen a comparison between US universal public education with that of perhaps the caste system of education in India.
  4. Could have gone deeper into the consequences of government directed safety  networks
  5. a very good treatment of the reality of uncertainty and complexity and how it overwhelms centrally planned strategies.
  6. Stop short of arguing for the importance of ensuring that we have an appreciation for the utility and boundaries of statistical reasoning, particularly when dealing with the law of large numbers and reduce time available for decision-making. There are implications for organizational structure and limits on power that are implied in that discussion that he stopped short of describing. Nicholas Taylor’s work is a logical next step for those interested in that idea.
  7. All in all an excellent reading, very well written and highly recommended.

Innovation as a function of R&D investments? not so much; check your network first

January 12, 2011 1 comment

One of a number of posters created by the Econ...
Image via Wikipedia

Some excellent insights into the power of quality connections and the network effect with respect to R&D, innovation and open borders

Hard times call for new solutions and we are starting to take a good hard look at how innovation really works and what we can do to improve performance. Recent reports from theOECD on national innovation strategy represent a big shift from the old linear models that start with R&D and end in successful products. One of the major points from a study of innovation indicators is that the measurement of R&D is a poor indicator of innovation. Even in Australia where there are tax benefits for R&D spend, the product innovation difference between firms that report R&D and those that don’t is minimal

Excellence at work

January 12, 2011 1 comment

Malcolm Gladwell speaks at PopTech! 2008 confe...
Image via Wikipedia

I sure wish i had said this:

#6: Malcolm Gladwell is right, it takes 10,000 hours.

I don’t think I ever appreciated what it takes to just stay current and, in hindsight, never comprehended what it takes to become good. I mean really good.

Not to be overly dramatic but. . . blood, sweat and tears.

Most blogs die in 30 days, most Twitter accounts are full of crap and have few followers, most of us never read books, most of us rarely curate a really good list of RSS feeds and then read every post, most of us will never engage in a meaningful online debate, most of us will not start a website and care and feed it and implement 15 tools every single year purely to learn and push the universe known to us, most of us never consider taking a class or two to learn new skills, most of us refuse to work a few hours extra every week, most of us refuse to experiment with what makes us uncomfortable.

And yet it takes all that to be good at what you do.

Do the job you were hired to do as well as you possibly can, regardless of whether it is a dream job or not. Then in small and big ways, figure out how to spend an extra five hours a week on you. Just five.

He is discussing web analytics, but is really discussing right thought and right action and right attitude;  he is nudging his way to excellence, sharpening his tools daily. admirable and inspiring

Racism explains everything ….for racists

January 8, 2011 1 comment

Citizens registered as an Independent, Democra...
Image via Wikipedia

How soon will it be before whites are a minority, and will be treated as a single voting block, and be summarized by a “stereotype for marketting purposes only”?  What will those characteristics be defined as? and how will the characteristics be explained away as not being representative of individuals, but merely as identifiable, statistically significant data points from among the larger population?

Is racism really the best explanation for the behavior of voters in 2008 regarding the rejection of the Democratic Party’s agenda?