SETI and the Singularity

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


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


The expected lifespan of an intelligent civilization is rising.       


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


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


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


Extrasolar_Planets_2004-08-31This Jet Propulsion Laboratory chart of exoplanet discoveries through 2004 is very overdue for an update, but is still instructive.  The x-axis is the distance of the planet from the star, and the y-axis is the mass of the planet.  All blue, red, and yellow dots are exoplanets, while the larger circles with letters in them are our own local planets, with the 'E' being Earth.  Most exoplanet discoveries up to that time were of Jupiter-sized planets that were closer to their stars than Jupiter is to the sun.  The green zone, or 'life zone' is the area within which a planet is a candidate to support life within our current understanding of what life is.  Even then, this chart does not capture the full possibilities for life, as a gas giant like Jupiter or Saturn, at the correct distance from a Sun-type star, might have rocky satellites that would thus also be in the life zone.  In other words, if Saturn were as close to the Sun as Earth is, Titan would also be in the life zone, and thus the green area should extend vertically higher to capture the possibility of such large satellites of gas giants.  The chart shows that telescopes commissioned in the near future will enable the detection of planets in the life zone.  If this chart were updated, a few would already be recorded here.  Some of the missions and telescopes that will soon be sending over a torrent of new discoveries are :


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


The expected lifespan of an intelligent civilization is rising.  


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



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


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


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


2030



 


 


 


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


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


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





















Eight Ways to Supercharge the US Economy

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


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


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


I hereby present a path to unprecedented prosperity for America :


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Related : Why Government is Set to Extinguish Silicon Valley


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


_______________________________________________________________


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

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

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


The prediction issued in 2006 was:


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


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


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


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


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


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


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


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


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


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


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


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


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


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

Video Conferencing : A Cascade of Disruptions

Prod_large_photo0900aecd80553a7e Almost 3 years ago, in October of 2006, I first wrote about Cisco's Telepresence technology which had just launched at that time, and how video conferencing that was virtually indistinguishable from reality was eventually going to sharply increase the productivity and living standards of corporate employees (image : Cisco). 


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


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


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


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

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


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


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


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


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


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


This, my friends, is progress. 

Energy vs. Financials, RESULTS

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


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


EF 


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


Results  


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


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

The Futurist’s Stock Portfolio for 2008 – RESULTS

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

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

2008 Portfolio

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

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

Aggregate 

Related :

A History of Stock Market Bottoms

Why Government is Set to Extinguish Silicon Valley

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

                                - Robert Heinlein



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


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


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


The four steps are :


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


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


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


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


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


___________________________________________________________________________


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


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


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


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


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


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


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


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


(crossposted on Techsector)


Solar Power’s Next 5 Game-Changing Technologies

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


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


Solar 


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


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


Related :


Solar Energy Cost Curve


The Solar Revolution is Near


A Future Timeline for Energy


(crossposted on TechSector)

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

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


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


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


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


(crossposted on TechSector)

Guantanamo Meets Geneva Convention Rules

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


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


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


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


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


Related :


How We Decisively WON in Iraq in 2008


The Way to Debate Iraq


Deconstructing the Leftist Mind

Nanotechnology : Bubble, Bust, ….Boom?

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


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


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


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


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


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


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


Related :


Milli, Micro, Nano, Pico

The Form of Economic Recovery

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


I hereby predict that :


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


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


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


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


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

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


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


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


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


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


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


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


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



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


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


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




















How many 'Impact of Computing' Nodes do you currently own?
Under 10
11-15
16-20
21+

  
Free polls from Pollhost.com

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


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


1960s and earlier : 0


1970s : 0-1


1980s : 1-2


1990s : 3-4


2000s : 6-12


2010s : 15-30


2020s : 40-80


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


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


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


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


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


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


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


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


Related :


A Future Timeline for Economics


Economic Growth is Exponential and Accelerating


Are You Acceleration Aware?


Pre-Singularity Abundance Milestones


The Technological Progression of Video Games


















Wolfram Alpha : The Birth of Web 3.0

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


Here is a video demonstrating the Wolfram Alpha engine. 


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


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


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


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

A Few Electoral Statistics

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


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


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


First, in income :


Voter Income


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


Now, onto race :


Voter Race


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


Lastly, we move onto ideology :


Voter ideology

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


Conclusion :


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


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


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


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


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


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

It’s Official : The Recession Began in December 2007

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


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


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

How We Decisively WON in Iraq in 2008

125px-Flag_of_Iraq_svg One of the boldest predictions ever made on The Futurist was back in May 2006, when I made a detailed case for why victory in Iraq would arrive precisely in 2008, not sooner or laterThere was also a half-time update in September 2007 to the initial May 2006 prediction over here.  This was an unusually bold prediction to make, given the state of Iraq in May 2006, which was before the Surge was even discussed. 


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Related :


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


The Way to Debate Iraq


The Winds of War, The Sands of Time


The Age of Democracy


Why the US Will Still be the Only Superpower in 2030

2008 Technology Breakthrough Roundup

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


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


The innovations in 2008 are categorized below : 


The Year in Computing


The Year in Robotics


The Year in Biomedicine


The Year in Materials


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


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


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


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


Related :


2007 Technology Breakthrough Roundup


2006 Technology Breakthrough Roundup

A History of Stock Market Bottoms

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


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


S&P500  


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


Bottoms 


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


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


7projS&P500


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


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


The Good News :


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


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


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


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


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


Related :


Economic Growth is Exponential and Accelerating


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


(crossposted on TechSector)

More on the Economics of Medical Tourism

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

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

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

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

MedicalTourism

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

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

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

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

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

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

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