Friday, April 29, 2011

Facts are to be Ignored

I had to abandon free market principles in order to save the free market system. George W Bush

All of the evidence tells me I am wrong, yet I don't want to believe it.

I believe today, and have believed from my earliest childhood, in the ideals of the free market. Let people, companies, ideas fight it out and the best will survive while the worst will disappear. That government can't pick winners in the marketplace. That people make choices benefiting their own best interest.

Ignore the airline industry. Decades after deregulation, only Southwest Air makes money, yet the other miserable companies continue on. The principle of the best winning out is right of course, it just takes fifty years.

And sure, Enron was a bad idea that failed, but AIG is still around. Oh, yes, that's because W bailed them out in order to save the free market system.

The NFL avoids competition, yet a few hundred million people enjoy watching it anyway. While the competition of the medical industry has provided the US with a product that is mostly hated.

I shouldn't let little things such as the massive capital barriers to entry that limit competition to the establishment bother me - try to find a new company in oil, mining, commodity chemicals, steel, automobiles, farm equipment.....and count the number of price fixing fines those companies have piled up.

Flawed as free markets are, they are far better then the alternative of having Government pick the winners and losers. I believe this despite all of China's evidence to the contrary.
"On Monday, March 14th, 2011, the Chinese government passed the Twelfth Five-Year Plan which seeks to: address rising inequality and create an environment for more sustainable growth by prioritizing more equitable wealth distribution, increased domestic consumption, and improved social infrastructure and social safety nets. The plan is representative of China's efforts to rebalance its economy, shifting emphasis from investment toward consumption and from urban and coastal growth toward rural and inland development." (I copied that from Wiki because it was so well written).

While aspects of free market are alive and well in China, any rational analysis must conclude that the government has been exceptionally good at picking winners.

Still, it must be true that people make decisions in their own self interest. I shouldn't be bothered by the crates of potato chips and candy bars in the shopping carts at Walmart, nor the lack of something that looks like food. I shouldn't consider cocaine, heroine, alcohol and tobacco purchases. People who drive drunk, aggressive and without seat belts also should be ignored.

Yes, despite all the evidence that it could BE different, I'm still a free marketer.

Tuesday, April 19, 2011

64 ounces

Economic growth springs from better recipes, not just from more cooking. Paul Romer

Oddly, there once was a time when convenience stores couldn't sell a 64 oz fountain drink because it wouldn't fit in most car cup holders. An innovation solved the 'problem': a plastic cup that had a 16 oz bottom and ballooned out a few inches later to a massive, almost need to hold it with two hands, width.

Simple, right?

Plastic cups are typically made by sucking a sheet of molten plastic into a mold (notice the little spur of plastic on the very bottom of the cup, that's where the air was sucked out and the plastic ran a little bit into the hole). When the mold is continuous and straight on the side, molding is very easy. Throw a big bend in it, like the 64 oz cup, and it changes the plastic flow. You see, hot plastic doesn't flow like water, it flows like....well, it is gooey, elastic complicated flow.

Without someone very knowledgeable in the physics of plastics, the 64 oz cup would be a mess, thin in some areas, thick in others. In addition, an engineer (or two) had to redesign the mold to meet the plastic physicist specifications. Then a few process engineers had to make adjustments to the production line because of changes in production rate, cooling times for the plastic, volume throughput, all resulting in hundreds of complex interrelated changes.

Simple? Sure, so simple it required a half dozen engineers and scientists. But yes, simple compared to developing a new drug or increasing the storage capacity of a computer chip or the hundreds of other innovations we've come to rely upon to solve tomorrow's problems.

If you look to ANY innovation, at the roots of its implementation will be engineers and scientists, often with PhDs. More engineers and scientists most likely equals more innovation.

But in the USA, we don't have more, we have LESS. The number of scientists, engineers and technologist graduations has been flat for a decade while the world has become more complex and competitive. Subtract from the number of graduates the foreign students who return home (often because immigration laws force them to do so) and it is a very bleak picture.

If we want a better tomorrow, then we must invest more in our future scientists and engineers. Create learning environments that encourage kids to pursue the sciences. Support the research funding that expands career opportunities. And expose our children at every opportunity to the wonders of innovation.

Now you know that it could BE different, if you help.

Wednesday, April 13, 2011

All or Nothing

"Let's go!" first man into space while awaiting launch

50 years ago this week, a man of slightly more than 5 feet in height was sealed inside an iron sphere atop a column of 600 lbs of high explosives. The explosives burned over the course of a minute and, rather than being obliterated, he was launched into space. 108 minutes later he had traveled around the earth, opened a hatch, jumped out and parachuted 4 miles to a safe landing.

For hundreds of years to come, children will learn his name and people will celebrate his accomplishment as the first human into space.

Before we celebrate the man, let's rethink what he did. On the actual flight he....sat, talked on the radio, guided his parachute.

And let's rethink what he didn't do. He didn't build the rocket, fund the project, contribute to the science of the rocket design, set the strategic direction of the space program or frankly anything. In fact, the engineers gave him no control on the flight for fear that low gravity could cause him to go insane.

Now to be selected, he had to meet some criteria. First, he had to be really small. Second, he had to be in top physical condition (just in case, although just in case of what is unclear). Third, he had to be an unquestionably loyal poster boy for the Soviet Union.

In fairness, he did have one other attribute. He had to believe....despite the prior five 'launches into orbit' in which: 1) two dogs died when the rocket exploded. 2) two dogs survived. 3) rocket explosion killed 100 people. 4) two dogs made it into orbit but not back. 5) two dogs got off the ground, never reached orbit but the dogs survived for 2 days in -40C weather before rescue.

Yes, this man had to believe that the 80% chance he would die was worth the 20% chance that it could BE different. For that belief, people a thousand years from now will know the name Yury Gagarin.

Friday, April 8, 2011

The President's Patent

"To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."US Constitution, Article 1, Section 8, Clause 8

The foundation of the innovation system in the USA is the Patent Office and its financial implications. While a patent doesn't guarantee a customer, it does guarantee a lack of competitors. The promise of a monopoly attracts investment and maximizes profits.

"Lincoln said that the Patent Office adds the flame of interest to the light of creativity. And that is why we need to improve the effectiveness of our Patent Office." Jay Inslee

While I was not able to confirm Inslee's claim to Lincoln's statement, it seems reasonable. Lincoln was the only president to have a US patent issued. It was a method for lifting boats over shoals when they became unwittingly grounded. Lincoln also made a fair part of his living litigating patents prior to becoming President.

This 'flame of interest' was almost snuffed out by that very Patent Office in the last several decades. By approving marginal applications and by taking 3+ years to make a finding on most applications, the Patent Office greatly devalued the US patent.

The marginal patents, marginal because prior art (other peoples patents) were essential similar, created havoc as the civil courts, not the Patent Office, determine the final enforceability of a patent. If an investor can not trust that an issued patent will hold up in civil court, then they are wary to make an investment. Companies with patents found themselves in billion dollar lawsuits for infringing on other companies' patents which were rather similar.

The 3+ years to approve a patent was not only costly in legal fees, but made capital investment during the approval process very risky (ie - expensive) for small companies and made larger companies cautious to launch new products before knowing their legal positions.

Thankfully, the Patent Office has started to reverse its decades long slide.

Albeit, the Supreme Court had to act before the Patent Office increased its threshold of novelty (the level of proof the inventor must provide that the invention would not be obvious to someone skilled in the art), it is clear that the Patent Office has increased its standards. While it is still unclear where it is headed, this was a much needed change.

Recently, the Patent Office has become more serious about reducing the time to obtain a ruling. Now, if you are willing to pay an extra $4,000, the Patent Office will guarantee a ruling in one year rather than 3.

While still a long way to returning the flame of interest to the USA's light of creativity, it is nice to see that at the US Patent Office, it could BE different.

(and in case you were wondering, Lincoln never commercialized his patent)

Friday, April 1, 2011

Science Fiction or Innovation

No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be. Issac Asimov

A few months back I asked a group of bright, talented researchers why they were bothering to cure cancer? They should do something bigger. Stop aging!

They thought and, probably as some of them read this, still think I'm crazy for suggesting it. But consider that at some point in the not so distant future that today's big problems will be no more. What should we be inventing that will meet the needs of such a new world.

Imagine the only way in which people die would be accidents and intentional killings. If you think OSHA, FDA and EPA have excessive safety procedures today, then consider the rules for zero risk tolerance that would come from a single death. Population growth, birth control, security, food supplies, education, retirement, health care.... everything we know would change.

Before you write off my challenge to consider such a world, read a few short stories by Asimov or Arthur C. Clarke or Robert Heinlein this weekend. Take a look at WHEN they were written. It could BE different is right around the corner.