Archimedes’ Hot Tub

Does the downturn herald a shift to the way people lived at the turn of the last century, in the wake of the panics of 1893 and 1907? In The Future Is the Past?, Jonathan Salem Baskin poses three points in favor of the idea:

1. The world is effectively unknowable - At the beginning of the 20th Century, the vastness of the world was beyond the reach of most people.  Sure, they got info about it, but the content was infrequent, often indirect, and many times anecdotal.  It would be fair to say that most folks ended each day knowing and believing what they’d started their days knowing and believing.  In 2009, it’s not all that much different.  We have infinite access to the world as rendered via the Internet, but the content we gain comes with a loss of confidence and veracity.  We see and hear more, but know less (generally speaking)
2. Communities are of paramount importance - This statement has been true for thousands of years, not just a hundred.  We base our beliefs and lifestyle/purchase decisions on the counsel and judgments of those whom we know, trust, and value.  Folks in the early 1900s were “members” of wide-ranging groups (organized religions, for instance), but the reality of that involvement was defined by very specific and focused involvement in a particular institution.  Civility required that men doff their hats in the presence of women, but that wasn’t the same thing as acknowledging active membership in the same club (i.e. it was no different than “friending” someone on Facebook today)
3. All business is local - Most commerce in the early 1900s was local…products and services were offered within (and limited to) reasonably nearby geographies.  Production and consumption were integrated into mutually-supporting networks, even as the manufacture of certain complex or expensive products was being centralized (like light bulbs and cars).  Most of the institutions on which society depended — banks, insurance, social services — were local, as was most of the food production and entertainment (people played music more than they listened to it, for instance)

Obviously, point number one is a bit of hyperbole (we may not individually know a lot more, but we benefit from collective knowledge), point two is debatable (studies suggest we are more disconnected and less in touch with our communities today than in the past) and point three sounds flat out wrong in a globalized economy.
Baskin acknowledges that point three looks wrong, but thinks that we are about to make a big reverse towards a local focus. Here’s his argument:

We have numerous crises these days — financial, environmental, social — and the problems all seem to stem from the enormity of the enterprises and their impacts on our lives.  Yet the solutions all seem to be local, or at least the crises reveal our interests to be so.

He posits far more community involvement, local purchasing, even for energy, neighborhood-oriented banks and mutual insurance, and the rise of micro-lending as a source of investing.

I find it hard to see how agricultural production will shift enough to create food for all those living in cities; much of the best farmland is now suburb, and it’s unlikely that foreclosure patterns will return enough land to the plow. The flow of capital away from the tiny percentage of people who still have it also seems unlikely. But the small-is-beautiful ideal of local production isn’t necessarily far-fetched. Mini-mills in steel are an example, and I’ve run across extremely efficient small plants producing things as diverse as yogurt andoil.
I’ll give him this: it’s contrarian. Is it feasible?

Internet thinker Clay Shirky has a great post on innovation, disguised as a death knell for newspapers. In Newspapers and Thinking the Unthinkable, he makes the case for why newspapers can’t be saved, online or off. Then he does something incredibly honest — he admits that he doesn’t know what’s next for text journalism, a valuable commodity.

Still, he’s got a powerful argument that it won’t be a printed medium in the way it is today. It’s a powerful piece of logic, built in part on Elizabeth Eisenstein’s The Printing Press as an Agent of Change, a 1979 book that looks at the impact of the printing press, but Shirky flips to look at the ugly, chaotic, whimsical impact of disruptive technology on the printing press itself.

It’s a long essay. For those not so interested in media, here’s the takeway:

Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did, as octavo volumes did.

Bill Gurley has an insightful post on why virtual goods will emerge as the economic engine for many kinds of online companies, especially those with a community aspect, like gaming, and social networks. Clearly, he does not expect a Puritan ethic to run through the Web, though even if it does, you only need 10 percent or so of your users to make a viable business out of virtual goods.
He also muses about why Silicon Valley firms like Facebook haven’t taken to virtual goods, when a number of Chinese companies that draw most of their revenue from virtual goods have gone public in New York. As he points out, “It is peculiar to have a situation where the NY-centric public market investors are more open minded to a new business model prior to the entrepreneurial executives on the west coast, but that is clearly the case here.”

Of course, Gurley’s firm, Benchmark Capital, has funded Second Life and Gaia, two worlds heavily dependent on virtual goods, and has at least one related investment, the infrastructure platform company Gigya. But his arguments make a lot of sense. Check it out in How to Monetize a Social Network.

Business Week has just published a piece on trickle-up innovation, Innovation trickles in a new direction.

It includes nice examples from GE, Nokia, Xerox, HP, Microsoft and Nestle. and also an example from Philips of how innovation doesn’t always trickle up. A nice source to underscore the trend I wrote about for Fast Company in Turn of the Century.  It includes a good video-based discussion of a GE device that has both trickled sideways and trickled up.

There’s lots of fretting about how the rise of big government in the U.S. will spell real trouble for U.S. business. I’ll rather glibly say that government seems to be pretty good for a lot of businesses. Lots of the Inc. 500 get to be big by selling to government, for instance. But Jeff Madrick’s book “The Case for Big Government,” makes Obama’s plans look small (little wonder that Madrick has skewered Obama’s economic team).
Madrick’s book gets reviewed in Government Beyond Obama? in the New York Review of Books. Richard Parker, a public policy lecturer at Harvard, starts out with a nice line: “Jeff Madrick’s The Case for Big Government arrives when one might think Wall Street has made the case quite persuasively on its own.”

Parker calls hte book “insightful and persuasive.” Madrick establishes the role of government as a change agent throughout U.S. history, and argues that what we need most of all right now is a government set to help drive transformation again.

Madrick’s book sounds like an economics tour-de-force. He exposes a lack of data supporting the assertions of small government theorists like Milton Friedman, shows how the U.S. government’s relatively low share of GDP (30 percent) correlates with the highest levels of poverty, infant death and other ills for any OECD nation, and calls for a reverse of free-market ideology.
The book’s flaw, Parker says, is that it is not as good on politics as it is on economics.
This is more important than it might sound, as Parker thinks that Madrick misses the impact of religious fundamentalism and the shift in religious voting patterns from Democrat to Republican, which he argues “have been more consequential to the spread of “small government” ideology than the intellectual realignment of academics, journalists, policy advisors and politicians.”

Parker also thinks Madrick misses the impact of military spending on the economy, though this is a muddled argument, in my view. Not having read the book, I can’t tell from the review how this doesn’t fit Madrick’s argument, even if not mentioned specifically.

I am more interested in reading Madrick’s book, after having read this review.

The New Normal is a less lucrative place for Americans, says McKinsey’s global managing director, Ian Davis. “We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order,” he writes in a new issue of the McKinsey Quarterly.

The order that will emerge is not yet a clear picture, but parts of it are in focus. For one, there will be less leverage, and it will cost more. As Davis says, tartly, “Business models that rely on high leverage will suffer reduced returns. Companies that boost returns to equity the old fashioned way—through real productivity gains—will be rewarded.”

Government will be bigger, and that will either mean something good: better transparency and global cooperation on finance; or something bad: protectionism.

Even in the best scenario, America will no longer be a nation of people playing “Pimp My Ranch House.”

it was clear before the crisis began that US consumption could not continue to be the engine for global growth. Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors—such as the entry of women into the workforce, an increase in the number of college graduates—that have now played themselves out. Moreover, although the peak spending years of the baby boom generation helped boost consumption in the ’80s and ’90s, as boomers age and begin to live off of retirement savings that were too small even before housing and stock market wealth evaporated, consumption levels will fall.

There will still be great business opportunities, Davis says, singling out genetic engineering, software and clean energy. But it sounds to me like the days when such businesses printed money for their founders are probably gone.

Last year I picked up Martin Marty’s “The Christian World: A Global History.”

Despite the breadth of the title, it’s a wonderful short look at Christianity from the beginning until more or less the present day.  It’s like an outline of everything that has gone on in Christianity. The Crusades get a page and a half of its 236 pages. The Inquisition gets one long paragraph, into which he manages to pack the context of it in both France and Spain.

Marty weaves in lots of delightful little nuggets like this: “One of the strengths in the East was the devotion to icons, representations of Christian saints that in many cases became the subject of what their critics called idolatry. Finally the Emperor Leo III in 726 was moved to attack them, thus becoming known as the “iconoclast,” the image-breaker.” What fun to learn the origin of iconoclast!
He also pulls no punches. Where the philosopher and theologian Keith Ward has argued that the last Christian war was the 30 years War, Marty is clear that World War I was a Christian war, “in that all sides appealed to the Christian God and used their interpretation of Christianity to justify their faith. It is hard to to read accounts of the cruelty, the carnage, and the atrocity of the war in the name of God without seeing it as a contributor to the decline of of Christian humanism and Christian expression in much of Europe, a decline from which it never recovered.”

Even when he shudders, he remains balanced.  Of missionaries, he writes “that their attitudes were often condescending if not racist goes almost without saying, but it is not the only thing to be said about them.” He goes on to detail both their great faith and some of the good they did.
True, nearly every sentence, every clause even, feels like it could be a book, and yet you still get a real feel for the whole glorious mess of Christianity. A tour de force of historical writing.  It would be a treat to find a similar book for Islam and other major religions.

Reid Hoffman, one of the most connected people in Silicon Valley even before he founded LinkedIn, is out pumping long-term ideas that he thinks will help innovation.

In an editorial in the Washington Post, he opined that three things would help innovation in the long-term. He’s calling it grass-roots innovation.

1. Small loans — $50,000 or so — for small businesses
2. More visas for innovative foreigners
3. Matching funds for venture and angel investors

He argues counter to Alan Patricof that it is not a new era of lower returns for VCs. Instead,

Investors are keeping their powder dry in order to see if valuations decrease and to save capital for their top investments, in case they need more down the road. Let’s create incentives to invest now and to invest more widely. Even if there’s a higher failure rate, there’s also an increased likelihood of funding eventual winners. This is the kind of stimulus that creates not only more jobs, but more start-ups with a chance to succeed and contribute to a sustainable economy.

His argument about opening up to innovative immigrants seems like a no-brainer — our history shows they’ll create jobs here for others, and since he’s proposing a salary tax on them for use in re-educating U.S. workers, it seems like a big win all around for the U.S.

I’m less convinced by his plea for micro-lending. Don’t we already do this via the Small Business Administration and also through the more than 40 microfinance organizations operating in the U.S.?

The matching funds for VCs and angels is creative, but I’m not sure that it would work. Alan Patricof’s argument that VC funds are too big suggests that it’s not about lack of money. And why wouldn’t we be better served to have the government boost basic research spending?

Imagine the economy is a giant bunch of stuff and we are literally trying to pick up all this stuff, to lift it. We can’t quite get all of it, and some of it slips out of our hands as we start to walk, and it’s heavy and we have to keep putting it down and then we can’t get it all gathered up again.
That’s the image economic geographer Richard Florida has created in his essay How the Crash Will Reshape America. Sprawl has distorted our economy. Whatever we can’t get our arms around we need to let go, or we’ll be scurrying about trying to gather the pieces for decades.
Florida says suburbs were the right answer to industrialization. He says they’re exactly the wrong answer to what a knowledge economy needs.

(The economy) no longer revolves around simply making and moving things. Instead, it depends on generating and transporting ideas. The places that thrive today are those with the highest velocity of ideas, the highest density of talented and creative people, the highest rate of metabolism. Velocity and density are not words that many people use when describing the suburbs. The economy is driven by key urban areas; a different geography is required.

How do we reshape our economy?

He suggests several things:

• Eliminate incentives for buying homes; instead, create incentives for renters. For instance, offer foreclosed owners the chance to rent back their homes at the new market rate.
• Invest in areas that have the best innovation metabolisms; New York, of course, Los Angeles and Chicago, Austin and Boulder, but also regions like Silicon Valley and North Carolina’s Research Triangle.
• Abandon areas fated for decline to their fate. Not just Detroit, Cleveland and Buffalo, but also Phoenix.

Florida says the new America will look like this:

It will likely be sparser in the Midwest and also, ultimately, in those parts of the Southeast that are dependent on manufacturing. Its suburbs will be thinner and its houses, perhaps, smaller. Some of its southwestern cities will grow less quickly. Its great mega-regions will rise farther upward and extend farther outward. It will feature a lower rate of homeownership, and a more mobile population of renters. In short, it will be a more concentrated geography, one that allows more people to mix more freely and interact more efficiently in a discrete number of dense, innovative mega-regions and creative cities. Serendipitously, it will be a landscape suited to a world in which petroleum is no longer cheap by any measure. But most of all, it will be a landscape that can accommodate and accelerate invention, innovation, and creation—the activities in which the U.S. still holds a big competitive advantage.

Florida makes a radical argument. Coincidentally, he also fills in some of the gaps in Emma Rothschild’s argument against continuing the auto-industrial state. It shows a model for adding both public transit infrastructure without eliminating cars. It will not be easy to achieve. A lot of people may not like living in apartments and sharing washing machines with their neighbors, the way they do in Hammarby Sjostad in Sweden (see halfway down this Bill McKibben piece).  But it seems like intellectuals may be coalescing around a much different direction for government stimulus. The markets don’t like watching Obama try to gather up everything and lift it.

Perhaps this plan to grow by shrinking makes sense.

1) use a pedometer. Get to 10,000 steps a day.

2) use a calorie counter. Cut down your calories by about a quarter. In my case, that’s from 2400 a day to 1800 a day.

It took me about six weeks to lose my holiday 10 (in my case it was actually 7). It would’ve been faster, but there were a few too many parties and celebrations where I wasn’t interested in being disciplined about my cake eating.

Bring on the beach!