Category: Economics

Moore’s Law / Elon Musk

The Books of the Week are “Moore’s Law, The Life of Gordon Moore, Silicon Valley’s Quiet Revolutionary” by Arnold Thackray, David C. Brock and Rachel Jones, published in 2015, and “Elon Musk, Tesla, SpaceX, and the Quest for a Fantastic Future” by Ashlee Vance, published in 2015.

The former biography described not only Gordon Moore’s life, but the histories and cultures of his ancestors, his wife’s family, and the places where he lived.

Born in January 1929 in Pescadero California, Moore was the middle son of three. His father spent most of his working life in law enforcement. He, his father and brothers went fishing and hunting. The family moved to Redwood City in 1938.

At eleven years old, Moore fell in love with chemistry. His “… adolescent hobby of making bombs and explosions” or maybe also the cumulative effect of his noisy hunting excursions were thought to have caused his hearing loss later in life. He wed his college sweetheart and completed a PhD in experimental particle physics at California Institute of Technology.

In 1953, the transistor was starting to replace the vacuum tube in various devices, like TV sets. It also became a handy component in military electronics. In 1956, Moore went to work for William Shockley– a reputable scientist but a psycho boss. Shockley had hubris syndrome and, with his friends from Bell Labs, convinced his company’s major investor to fund the development of a diode rather than the silicon transistor.

In 1957, feeling disgusted and entrepreneurial, Moore and seven of his colleagues left the company and, financed by venture capitalists, eventually formed Fairchild Semiconductor in Mountain View, California. What with the space race, aerospace computing was all the rage. Silicon was a substance that had the right physical properties to advance it.

At Fairchild, Moore formed a research and development group that competed with the manufacturing department. Unfortunately, his temperament was non-confrontational, and his avoidance behavior was bad for business. Fortunately, in 1968, he, Bob Noyce and Andy Grove sported the appropriate diverse set of personalities and skills that maximized profits in a new venture they formed, called Intel. Their strategy was to introduce cutting-edge products to the technology market and be the first to do so.

Intel went public in October 1971, but NOT on a “stock exchange” as the authors wrote. Only on NASDAQ (not an exchange). Moore wanted the company to make computer parts, but not the whole computer, or else it would compete with its customers, such as IBM. By the mid 1970’s, Intel had factories in Malaysia and the Philippines. Moore motivated his initial employees through bribery– stock options and a stock purchase program. He even bribed his own son to finish school.

Intel’s labor- and time-saving devices proliferated in everyday products like calculators, color TV’s, telephone networks, cash registers and watches, not to mention inter-continental ballistic missiles. And spaceships. The authors downplayed the role of video games in the advancement of computer components.

Moore wrote about a concept that played out accurately through the decades that came to be known as Moore’s Law. In 1976, the price of silicon transistors– which are put on memory microchips– was less than a penny. That price got lower and lower as technology got better and faster. Unfortunately, according to the book, this economic growth has run its course in the United States and is predicted to come to an end in the next five years or so.

Read the book to learn how Intel cheated by taking a page from Microsoft’s playbook (and partnered with it)– to become a monopoly– in order to dominate the PC world; what the billionaire Moore did after he was forced to retire (very reluctantly; hint– he engaged in philanthropy from which he required measurability and accountability); and much more about his company, lifestyle and family.

Born into a relatively wealthy family in 1971 in Pretoria, South Africa, Elon Musk is the oldest of three children. A voracious reader, he, like Isaac Asimov, was also an insufferable know-it-all, and thus became a social outcast. At about eight years old, he chose to go live with his psychologically abusive, rabid-apartheidist father when his parents split.

Musk engaged in the usual leisure pursuits of nerdy boys of his generation: Dungeons and Dragons, computer programming, rocketry and chemistry explosions. Being super-smart, he learned that the United States was superior to South Africa in terms  entrepreneurial opportunities. He therefore got Canadian citizenship through his mother’s ancestors, and then moved to the United States as a young man.

Musk attended college and graduate school in Pennsylvania. He studied business, physics and economics. He charged admission for alcohol parties to raise money to pay for his tuition. In 1995, he went into business with his brother. Four years later, their website start-up, Zip2, was sold to Compaq for a tidy sum. He then started and/or worked on other projects, including an internet bank, an electric car, spacecraft and devices that harness solar power.

Certain aspects of Musk’s personality in the workplace are comparable to various other famous people. Musk’s dysfunctional managerial style is a blessing and a curse. He, like the late Steve Jobs, is hard-driving on employees to the point of meanness. But his focus and workaholic business ventures have achieved what many said was impossible. His keen entrepreneurial instincts, similar to those of Bill Gates, have seen him through. Also like Gates, he has delivered on what he promised, but usually way over deadline.

When it comes to space exploration, Musk, like Freeman Dyson, shoots not for colonizing the moon, but for colonizing Mars. Musk, like Richard Stallman, believes in the free exchange of information. He truly wants to improve humanity so much so that, according to the author, he eventually shared with the world (!) the intellectual property of his electric car company, Tesla. In 2005, its first car was completed by a mere eighteen workers.

However, in 2007, Musk was very possessive of Tesla. Contrary to the recommendation of an interim CEO, he stubbornly refused to cut the near-bankrupt company’s losses and sell it to an experienced international automaker. He was competing with not only overwhelmingly powerful and politically influential automakers, but also with military contractors and the oil industry.

Read the book to learn of two major automakers who have invested in Tesla; of how the Obama administration helped keep the company afloat; of the myriad benefits the world is deriving from Musk’s  innovations; and of Musk’s personal life.

See You in Court – BONUS POST

The Book of the Week is “See You in Court” by Thomas Geoghegan, published in 2007. The author, a labor lawyer in Illinois, argued in this short paperback that the decline of unions in the United States is responsible for all sorts of ills that were plaguing the nation at the book’s writing (and have gotten worse since), such as the replacing of the of Rule of Law, contract law, and anti-trust law– with tort litigation; the risk of the disappearance of retirement funds at the whim of employers, and the growing income gap between rich and poor.

The author failed to differentiate between unions in the private sector, and ones in the government. Beginning in the 1950’s, the unions in the private sector were becoming unnecessary with the way things were progressing in the United States.

Economics 101 says that a nation requires a healthy, well-educated workforce. Unions in the private sector discouraged upward mobility– why should workers want to acquire more training and edification in their careers if they were making a decent living and their jobs were protected? Unions in low-skilled positions especially, fostered complacency. Private-sector unions fostered a lazy, poorly educated nation of low-skilled employees who went to work to collect a paycheck.

By the 1990’s, non-union, private-sector employees needed no protection. Employee satisfaction gets the same score as customer service. Free-market competition usually kept employers in line.

If employees walked off the job en masse, other employers gladly accepted employees and business lost by the wayward employer. Customers and employees could go over to Wendy’s if McDonald’s was unsatisfactory, or to Target if Walmart didn’t deliver. Low pay and difficult working conditions should have encouraged fry cooks and greeters to go to school to get a better job.

In the early 20th century, there was a need to protect workers– who were easily subjected to exploitation because many workers were poorly skilled, poorly educated new immigrants. There was limited opportunity for education, and limited transportation options even if workers were willing to relocate to find a job. Into the 1990’s, workers had more resources than ever to find work or engage in professional improvement if they wanted to.

Unions are always needed in civil service and in a few monopolistic industries (such as couriers, transportation, education and healthcare services), because they are exceptional. They are providing essential services (health, education and welfare), or else the work they provide is a matter of life and death. Government employees who are providing essential services deserve due process, in exchange for not striking.  Striking is illegal, and rightly so. There would be massive economic and/or societal disruption, and possible deaths, if they were to walk off the job en masse. Therefore, civil service unions are a necessary evil.

The unions in the author’s day used to minimize the number of workers’ compensation claims, which have now become tort suits, in which the cause of action (grounds for suing) has become discrimination. Such suits are many more times complex than contract law. The legal bills for these suits keep soaring, as well. Pretrial discovery entails “fishing expeditions”– extremely intrusive investigations of, say, medical records and activities of the plaintiffs, so that the defendants can gain every possible legal advantage.

The author also ranted about various other issues. He wrote that hegemonic institutions such as nonprofit hospitals, Ivy League universities (which get billions of dollars in government grants) and nonprofit organizations sue people for nonpayment but get massive tax breaks themselves.

These entities get away with this because they are allowed to keep their accounting books secret– they file neither tax returns nor SEC documents. The author failed to specify how big a part of the U.S. economy this sector is. That situation has partially changed among the hospitals anyway (but not necessarily improved), due to Obamacare.

The author pointed out that “The more we deregulate, the less stability and civic trust we have… More and more it seems we don’t trust government, we don’t trust business, we don’t even trust each other.”

But– in the 2020’s, after the Trump administration has continued its predecessors’ policies to the extreme–  running the government like one big brand (the president’s own) while allowing monster-sized corporations to ruthlessly profit with regard to neither the workers nor various populations who will be victims of pollution, poor quality education, housing and healthcare– history will have come full circle. There will be a need for unions in the private sector again (!)

Read the book to learn of additional outrages that have arisen in recent decades, such as the replacement of litigation with arbitration imposed by big corporations, how the law has changed to allow widespread usury, why people are suing Social Security to collect disability payments that are rightfully theirs, and how overpaid CEO’s (a redundant phrase) are making U.S. companies’ products less competitive overseas.

Start-Up Nation

The Book of the Week is “Start-Up Nation, The Story of Israel’s Economic Miracle” by Dan Senor and Saul Singer, published in 2009. The authors of this extended essay ponder why Israel had, at the book’s writing, a huger number of tech start-ups than all other industrialized nations, second only to the United States’. The reasons range from the cultural to the political to the economic.

The Israeli corporate and military mentality involves: complete focus; learning from errors (which are tolerated and treated as learning experiences); constant debriefings and self-criticism sessions; endless, heated debate; and empowerment of employees at all status levels to use their initiative and resources– even to the point of upstaging their bosses with their input. This atmosphere encourages independent thinking, and discourages herd mentality and blind obedience.

Militarily, all Israelis serve a minimum of two to three years and then become reservists for two more decades. Close social ties are formed that foster business relationships later. The exceptional rising stars participate in special nine-year training programs that create  “foxes” rather than “hedgehogs.” Foxes use diverse skills from operating and maintaining high-tech equipment to imaginatively solving problems.

After serving their country, many Israelis then attend university. Finally, employers consider quality and quantity of military experience as major hiring criteria.

The authors provided real-life examples of how the traits Israelis possess cause them to gravitate toward entrepreneurial ventures. In 1965, in one instance, kibbutzniks digging a well hoping to find drinking water instead encountered warm, salty water. A creative academic advised them to breed tropical food-fish. By-products of the fish-farm were used for fertilizer for their olive and date trees.

Read the book to learn of additional characteristics of and actions taken by Israelis and their government that have helped them achieve technological advances in various economically rewarding areas, including medicine, auto manufacturing and computing.

The Monopolists

The Book of the Week is “The Monopolists, Obsession, Fury, and the Scandal Behind the World’s Favorite Board Game” by Mary Pilon, published in 2015.

A passionate believer in Henry George’s philosophy– a Georgist– invented a board game called “The Landlord’s Game” which she patented in January 1904. The game had two versions, one whose object was to win by generating a monopoly; the other, to win by generating wealth through free-market competition. The latter was accompanied by the philosophy (Georgism) that land belongs to everyone, so only real-property ownership should be taxed, not income from other sources. In those days, ownership of land was a major source of income, but there was only so much land to go around.

Another incarnation of the aforementioned game– the monopoly-creating version only– was played by hundreds of Quakers and university students across the country. They made modifications to the names on the board spaces and the various rules on property purchases, monetary distribution, jail, etc. People fashioned their own boards, pieces, cards and money.

Somehow, Atlantic City streets became a theme for the property names of the game version eventually sold by Parker Brothers. In Atlantic City, the streets physically represented the division of rich and poor people, while the game indicated which was which by their purchase prices.

Read the book to learn the details of how Parker Brothers came to own the intellectual-property rights to Monopoly (by fittingly using tactics of monopolists), and how those rights were contested in prolonged, grueling litigation.

Digital Gold

The Book of the Week is “Digital Gold– Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money” by Nathaniel Popper, published in 2015.

This ebook is about Bitcoin, a bookkeeping system used on various websites that distributes, records and stores the value of units called Bitcoins.

The system was created in 2009 by a computer geek who called himself Satoshi Nakamoto. His vision was to create a worldwide means-of-exchange to be used online that would be:

  • a decentralized network of users so that no one central authority has the majority of power over the system– unlike the current situations in the world; in other words, place power in the hands of the users, rather than the economic royalists. (Nevertheless, the irony is that Bitcoin has largely stayed in the realm of the wealthy computer geeks- so there has basically been redistribution of wealth among the wealthy);
  • created and maintained by users of the system on a consensus basis rather than by the powers-that-be, whose political campaigns are funded by financial institutions, and who stay in power by doing their will;
  • anonymous (like cash– no third parties acquire the information of buyers and sellers);
  • secure (no one point of failure would mean vulnerability for the whole system, plus have protections against identity theft, malware, counterfeiting etc.); and
  • offered at a lesser cost than the current system (avoiding financial institutions with their fees).

However, no utopian vision is perfect. Various tech-startups around the world have been created to store and exchange Bitcoins. That is all well and good. In the last seven years or so, a “remarkably engaged online community” has sprung up to discuss the ideology and all the different issues attendant to the new system. Even the major American financial institutions, fearing competition, have begun to rethink the security of their online dealings, and so have assembled task forces to research how to harness Bitcoin’s loss-prevention technology.

Bitcoins are acquired by computer users who log on to a specific site on the Internet. The users get the virtual “coins” for free, but might have to pay to store them elsewhere to keep them secure.

Bitcoins are more like a security than a means of exchange like cash because:

  • The system distributing Bitcoins is like a combination slot machine and a financial market where instruments are bought and sold, and the value of Bitcoins fluctuates.
  • There’s an inherent unfairness in the system in that– technologically astute users of the system have banded together to create devices that mine Bitcoins at a significantly faster rate than individual users.
  • People can acquire a national currency such as the American dollar in many more ways than they can Bitcoins, most of them honestly– earning, borrowing, begging or stealing.

Anyway, the purpose of Bitcoins as a means of exchange has yet to catch on among mainstream consumers of industrialized countries. There is no sufficiently compelling reason for consumers to start to buy things online with Bitcoins rather than credit cards. “Why should they trust a digital code that had nothing backing it but the computers of some libertarian nerds?”

Argentina is one country where Bitcoins have been useful. The super-speedy inflation of the peso there has meant people must spend their Argentinian money the minute they acquire it or risk the inability to buy anything because they wouldn’t be able to afford it– even food. In China, Bitcoin is popular because the government regulates the yuan exchange rate in order to stem “capital flight” and sell more of its own goods to the world.

As with all human-created systems that rely on the honor system, ALL users must act ethically. One American Bitcoin-processor in particular created a drug-distribution entity called Silk Road that was deemed illegal according to U.S. law.

Another bad actor hacked into a company called Mt. Gox in Japan. All users of that service suffered. “Bitcoin users eventually went to government authorities that Bitcoin had been designed, at least partly, to obviate.”

Besides, the Treasury Department’s Financial Crimes Enforcement Network has been examining the legal aspects of Bitcoin as a virtual currency. Homeland Security is concerned about the fact that Bitcoins could be anonymously sent to terrorist cells overseas.

Read the book to learn much more about the good and bad consequences of the creation of Bitcoin.

Mastering the Art of Soviet Cooking

The Book of the Week is “Mastering the Art of Soviet Cooking” by Anya Von Bremzen, published in 2013. This volume recounts the food-related details of the lives of the author (born in 1963) and her mother, who, up until 1974, lived in the former Soviet Union before moving to the United States. As can be surmised, they suffered many hardships from successive oppressive regimes that gave rise to hunger.

Under Vladimir Lenin in 1918 Russia, “The very notion of pleasure from flavorful food was reviled as capitalist degeneracy.” Millions died of starvation under Stalin in 1927 when he took over the means of grain production. The author’s grandfather, possessor of exceptional survival skills, was an intelligence officer under Stalin, so Von Bremzen’s family had access to the food of the wealthy. The author’s mother raised her to be a food snob. Stalin’s personal culinary expert Anastas Mikoyan visited America in 1936. “Unlike evil, devious Britain, the US was considered a semi-friendly competitor – though having American relatives could still land you in the gulag.” That attitude had changed by 1952.

The author’s mother celebrated the anniversary of Stalin’s March 1953 death, with a dinner party. She wed in 1958 at a government office and “…moved into her mother-in-law’s communal apartment where eighteen families shared one kitchen.”

The Soviets recycled mayonnaise jars all the time for many purposes, including medical samples; the jar itself was expected to be provided by the patient. When the author and her mother moved to the U.S., “Ahead of us was an era of blithely disposable objects.” Von Bremzen’s culture shock arose while food-shopping not from the dizzying array of products, but from the inability to show off those products to less fortunate people, such as Soviets. All Americans took such cornucopia for granted. She was disgusted that American food appeared to be phony and lowbrow, like Spam. At Christmas, Von Bremzen was grossed out by Oreos: “…charcoal-black cookies filled with something white and synthetic. A charcoal-black cookie! Would anyone eat such a thing?”

Mikhail Gorbachev’s anti-alcohol campaign ired many Soviets, as “Getting booze for the holidays ranked at the top of everyone’s concerns.” All the Soviet intelligentsia drank excessively. It was unpatriotic to not drink. Everyone had a drinking partner. Proposing toasts and making conversation with the partner was mandatory. Drinking alone was anathema, socially unacceptable.

Read the book to learn more about the Soviet culinary culture and history through the decades, and even see some authentic recipes.

Red Notice

The Book of the Week is “Red Notice, A True Story of High Finance, Murder and One Man’s Fight For Justice” by Bill Browder, published in 2015. This suspenseful, emotional saga should be made into a motion picture, as it is not only entertaining and engaging, but is a comprehensive picture of the extremes of human nature.

Rebelling against his left wing intellectual family, Browder became a capitalist. During his career, he worked under two big bosses who died under mysterious, suspicious circumstances– Bob Maxwell and Edmond Safra. As a young whippersnapper, he longed to do investment consulting in Eastern Europe, but had to settle for London. Browder got in on the ground floor when the Russian securities industry was in its infancy in the early 1990’s.

In early 2000, the power of Russian Federation president Vladimir Putin, was actually held by “… oligarchs, regional governors, and organized-crime groups.” Browder started a hedge fund called Hermitage. What with complex economic and political goings-on, his hedge fund became the victim of the Russian mentality. In 2006, Hermitage had to “… sell billions of dollars worth of Russian securities without anyone knowing.” That was just one of many traumatic episodes in Browder’s career.

The author had the brains and skills to become not only a successful financial consultant and investor, but a muckraker; however, this made him a “Darwin Award” candidate. He became involved in a true thriller with intrigue, greed, power hunger, human rights abuses and karma. Russia struck at his attorney, Sergei Magnitsky. Numerous Russians in positions of authority– in the government, prisons, the police– all lied to the world about what happened to Magnitsky. Under Putin’s rule, Russia had reverted to the Stalinism of the 1920’s, with thousands of dissidents tortured and killed.

The few people whose eyes were open, who were raising the alarm– were risking their own lives. The rest of the world didn’t want to get involved because they were of the mentality that the violence was confined to Russia, and it wouldn’t spread to them. And they might end up like those dissidents if they rocked the boat. Besides, in the 2000’s, people have become desensitized to human rights abuses due to the widespread, propagandized publicizing of them (like video clips arousing viewers’ morbid curiosity, of the alleged beheadings of journalists by Middle Easterners on YouTube).

(Please excuse the legalese in this paragraph- but it is the briefest way of explanation) Some people would say that Browder had “unclean hands” and there was “contributory negligence” on his part, so his story should not have deserved the special attention it got. Admittedly, he was out for revenge, not because he truly wanted to stem uncivil behavior in the world. He made his living in an industry full of greedy people whose scruples are less than stellar– securities. He made a ton of money by engaging in “self-dealing” and insider trading, which would be considered violations of American securities laws. He was from America, the country that gave rise to the corrupt economic system in Russia in the first place. It might be recalled that Harvard economist Jeffrey Sachs gave bad advice to Boris Yeltsin (to put it generously), convincing him to adopt “shock capitalism” — a ruinous financial plan. Lastly, Browder had “constructive knowledge” that doing business in Russia was especially risky (not just financially), compared to other countries. Arguably, he was trying to apply American morals and laws to get justice in a situation in which he had profited from Russian morals and lawlessness. Some people would say, “Pox on everyone’s house.”

Browder wrote, “There was something almost biblical about Sergei’s story, and even though I am not a religious man, as I sat there watching history unfold, I couldn’t help but feel that God had intervened in this case.” This blogger thinks that, but for Browder’s powerful professional and political contacts who intervened in this case, it would be just another infuriating, depressing, suppressed, and eventually forgotten human rights abuse story.

Read the book to learn the details of the story, including the actions taken against the morally bankrupt, brazen Russian criminals, and learn whether justice was done.