Thursday, March 31, 2005

Hard or soft?

There's been a lot of discussion in the blogosphere about whether the world economy will experience a hard or soft landing as currencies adjust to the US current account deficit. I recommend two particularly nice summaries of the soft and hard scenarios.

One point I think people may have missed is that whether there is a hard (disorderly or panic/crash/recession inducing) landing or a soft (gradual, Plaza Accord-like) landing, the dollar is set to decline substantially against many Asian currencies, and perhaps the Euro as well.

Here is a very nice comment on the soft scenario post I linked to above:

[Here’s how we worked our way out of the last current-account crisis (1984-88). The figures are what would be required in 2005, 2006 and 2007, to match the cumulative change in 1984-88.

Exports of Goods +9% p.a.
Export of Services +9.7% p.a.
Income Receipts –0.8% p.a.

Import of Goods +1.5% p.a.
Import of Services +3.7% p.a.
Income Payments +6.9% p.a.

Net Transfers –7.4% p.a.

Current Account Balance –9.4% p.a.
Nominal GDP Growth +3.9% p.a.

Net results: Current-Account Balance falls from 5.7% of GDP to 3.8% of GDP in 2007. Not quite as good (3.4%) as in 1988, but the Dubious Administration got us in a lot worse trouble this time around.

Other interesting things going on at the same (1984-88) time: The US dollar lost 60.7% of value against the Swiss Franc between 1984 and 1988, 51% against an artificial Euro, 85.5% against the Yen, and 38.5% against the Korean Won...]

See here, here and here for related comments and historical data.

Tuesday, March 29, 2005

Tech gap

Even Tech Execs Can't Get Kids To Be Engineers (WSJ)  

Vinod Dham is among a growing number of technology executives warning that the U.S. faces an engineer shortage. To stay globally competitive, he says, the nation must do better at steering its youth toward engineering careers. Mr. Dham knows how hard that is: He can't persuade his own kids to go into engineering.

The 54-year-old Mr. Dham would seem to be a prime role model. His engineering degree lifted him from his humble origins in India into a 16-year career at Intel Corp., where he became well-known for helping create the Pentium chip. His older son, 22-year-old Ankush, is studying economics, and that's fine with Mr. Dham, who says he couldn't get him interested enough to develop the rigor required for engineering. But ever since his younger son, 19-year-old Rajeev, was a boy, Mr. Dham has been urging him to pursue engineering -- and he, too, is going into economics. Rajeev "doesn't want to do electrical engineering," the elder Mr. Dham laments. "He tells me the job will be outsourced."

Silicon Valley is doing a lot of hand-wringing these days about a coming engineer shortage. Tech leaders such as Cisco Systems Inc.'s John Chambers and Stanford University President John Hennessey warn that the U.S. will lose its edge without homegrown talent. The U.S. now ranks 17th world-wide in the number of undergraduate engineers and natural scientists it produces, they point out; that's down from 1975, when the U.S. was No. 3 (after Japan and Finland).

But some of the nation's tech elite -- including many immigrants who benefited greatly from engineering careers -- are finding even their own children shun engineering. One oft-cited reason: concern that dad and his contemporaries will ship such jobs overseas.

Venture capitalist Promod Haque, for example, is in an ironic bind when it comes to advising his own kids. Like many other Silicon Valley financiers, Mr. Haque has recently begun funding tech start-ups in India and urging U.S. tech entrepreneurs to outsource from the start by forming companies that split operations between the U.S. and India. Mr. Haque chuckles about a recent dinner conversation with his college-age daughter, who he hoped would go into engineering just as he did. "She said, 'Dad, I'm not going to take any more computer-science classes,' " he recalls. "I asked her why. She looked at me straight and said, 'I don't want to go to India to get a job.' "

Experts cite a variety of other reasons for the U.S.'s engineer shortage, including poor math and science curricula in public schools. And there is also a persistent image problem. A recent study of 2,800 of Silicon Valley's youth by consultants A.T. Kearney found that 73% were familiar with high-tech careers but only 32% wanted to pursue them. In describing tech careers, students in the study used a variety of unflattering terms, including "intimidating" and "uninteresting." Others said they considered engineers to be "socially awkward" or "obsessed with work." Some female respondents linked computer engineering with work that is "tedious" or "antisocial."

That was the case for Susan Mason's two stepdaughters, Alexandra and Joanna. Ms. Mason, a Silicon Valley venture capitalist with a background in computer engineering, says she urged the girls to consider engineering when they were in high school. They ignored her advice: Alexandra became an audiologist and Joanna went into nursing.

"They felt that engineering was too solitary, even if they were working in a team environment," Ms. Mason recalls. "They wanted to have more interactions with people on a 'human' level," she says...

Sunday, March 27, 2005

How much information in the universe?

Suppose the universe is described by a single wavefunction which evolves in time according to Schrodinger dynamics. In this framework remarkably little information is required to describe the universe as a whole.

Consider the sub-volume V, just after the big bang, which evolves into our observable 15 Gy universe. Now suppose there is an ultraviolet cutoff (or minimum resolvable length) given by the Planck length. Then the entropy (log of number of degrees of freedom) is of order V in Planck units. To neglect quantum gravity effects, we need to wait sufficiently long after the big bang that curvatures are small in Planck units, so this entropy is a large number, but still much smaller than the observed entropy of our current universe. Given the wavefunction over this large but finite Hilbert space, and the Hamiltonian, we can evolve this system forward in time until today. Neither the informational complexity (number of bits required to specify the initial state) nor the algorithmic complexity (length of program required to evolve the system) is very large. (Note that memory requirements could grow quite rapidly - especially in an expanding universe.)

If this confuses you, just imagine you had to write a computer program to evolve this finite system (remember, we have both UV and IR cutoffs) forward in time. How much input would your program need, and how long would the code be? Then compare the answer to what would be required, e.g., to simulate to just a small part of planet earth today.

So what is the origin of the apparent complexity of our world? The answer is that the wavefunction described above contains all branches of Everett's many worlds (see previous post). In order to locate your particular branch (the one on which your consciousness resides), you have to specify the outcomes of the branchings in your past (or, at least, the important ones - I think Gell-Mann and Hartle refer to this as decoherent histories). The amount of information required to specify a particular history is related to the number of possible present universes, and is mainly responsible for the complexity we observe.

Everett and many-worlds

I recently found this wonderful biography of Hugh Everett III, the discoverer of the many-worlds interpretation of quantum mechanics. While its name suggests science fiction, one is naturally led to this interpretation by requiring completeness and economy of quantum mechanics.

In the usual formulation, an isolated system is described by a wavefunction which evolves unitarily in time according to the Schrodinger equation. When an external observer makes a "measurement" on the system, its state "collapses" into a particular eigenstate associated with the quantity (operator) that is measured, such as position, momentum, spin, etc. However, an astute thinker (like Everett) is led to ask why one has to introduce the rather mysterious concepts of measurement and collapse. Shouldn't the universe as a whole be described by a single wavefunction, which evolves according to Schrodinger dynamics? In that case, a measurement is a process by which the state of the observer's brain (or apparatus) becomes correlated with the state of the observed system. All possible outcomes are described by different "branches" of the universal wavefunction (hence the many-worlds description). Each of our consciousnesses is a particular semi-classical branch of the part of the wavefunction describing the atoms and molecules in our brains.

Everett's interpretation doesn't (as far as I know) make any new experimental predictions - it predicts the same probabilities as the old Copenhagen measurement-collapse description. (There is some debate over whether it gives a more satisfying explanation of how probability arises in quantum mechanics.) However, I and many others find it more intellectually satisfying and complete. The real argument starts over interpretation of the "other" branches of the wavefunction. Are they real, or just a mathematical abstraction? Can we ever detect their existence?

The biography I linked to fills in a number of the historical questions I had about many-worlds. Why is it that so many younger physicists (perhaps without thinking too deeply about it) accept many-worlds, while many (but certainly not all) of our elders regard it as nutty? Apparently the idea languished in obscurity for 20 years before being re-introduced into the physics community by Bryce DeWitt and others. Everett himself, obviously a first-rate intellect, left physics and worked in the defense and software industries, where he made important contributions and became a wealthy man. This story should be a cautionary note to academic scientists about ignoring the many creative and original thinkers who continue doing interesting things outside the academy.*

See here for a nice FAQ on many-worlds. See here for a letter to Physics Today from Murray Gell-Mann in which both he and Feynman are identified as believers in many-worlds.

* Only a small fraction of our students manage to stay in academic research - a quick calculation confirms this: we have zero population growth in academic science, but each professor produces several if not many PhD students in their career. One might argue that it is the best and brightest among our students who stay in academia, but even if true on average, that leaves many talented former-academicians in the real world!

Times on hedge funds

NYTimes: [The numbers are mind-boggling: 15 years ago, hedge funds managed less than $40 billion. Today, the figure is approaching $1 trillion. By contrast, assets in mutual funds grew at an impressive but much slower rate, to $8.1 trillion from $1 trillion, during the same period. The number of hedge fund firms has also grown - to 3,307 last year, up 74 percent from 1,903 in 1999. During the same period, the number of funds created - a manager can start more than one fund at a time - has surged 209 percent, with 1,406 funds introduced in 2004, according to Hedge Fund Research, based in Chicago...

"Hedge funds are an innovation of compensation," said one fund-of-funds executive. "It's a compensation system, not an asset class."

...In the same way that there is no quelling the bulls, there will be no quieting of the critics. The Horvitz family of Cleveland, which made its fortune in road construction, media and real estate, started investing in hedge funds in the 1990's. A decade or so later, it has virtually no money in such funds, said Jeffrey Horvitz, who oversees his family's investments. Too often, he said, the funds produced disappointing returns.

"Hedge funds are no longer attractive," Mr. Horvitz said, noting the influx of start-ups. "I see no relief in sight, especially for taxable investors like us."]

See previous posts here and here, and many others ;-)

Friday, March 25, 2005

Gizmo report

I promised I would report on the Aiptek DV5300 I ordered. So far I would have to say it performs well, considering how inexpensive it was (note, I seem to have gotten a good deal, as the typical street price is around $120 now).

I've posted some video here (mostly of our physics building and the Institute of Theoretical Science - if your player has trouble connecting to the stream, just right-click and download the whole file). It is shot in ASF, 352 x 288 pixels and 30 frames per second. You can see some pixellation when I move the camera too fast. VGA (= TV) quality is possible at 640 x 480, but only 11 FPS, so is jerkier. The next generation of cameras at this price point will do 30 FPS at VGA resolution. Note that ASF is a Microsoft MPEG4 variant, so you may have trouble viewing it on OS X or a unix machine. I think you'll see manufacturers supporting more open MPEG4 formats like divX before long.

Ergonomically the camera is very easy to operate, with separate buttons for still photos and video capture. Still photos are not bad, but the optics are not as good as in my Sony Cybershot. I think digital video cameras using MPEG4 are the future - 1 GB of SD flash will store hours of fairly high quality footage, and units with 20-40GB hard drives aren't far away. Image files upload to a PC using a USB cable.

Core technologies in these devices: the CMOS (or CCD, in higher end models) chips for image capture, image processing CPU, some simple software controlling camera functions, and flash memory. Aiptek, a small Taiwanese company, designed the camera, but it was assembled in China. The market for these devices is obviously very competitive and fast-moving. The next generation of cameras will be out within a year. Higher end devices are typically made by Japanese companies (Sony, Sanyo, Panasonic), but probably also assembled in China. I don't see a big technology gap here - given slightly bigger R&D budgets and better distribution the little guys could easily out-innovate the bigger players.

Wednesday, March 23, 2005

China Development Forum

Stephen Roach of Morgan Stanley on latest China Development Forum. He is not expecting any near-term drastic changes in RMB policy.

"My bottom line for the markets: With China’s risk-reward calculus acutely sensitive to the all-important stability constraint, I read the message from this year’s China Development Forum as pretty much a green light on the growth front. 

As always, the highlight of this conference is a private session with the Premier in the Great Hall of the People.   Not surprisingly, this year’s discussions were framed around the hot topic du jour -- Chinese currency policy.  Our group of outside experts laid out both sides of the debate to Wen Jiabao.  He said nothing to tip his hand and simply reiterated that China continues to actively study the issue and is “now trying to select both the proper plan and timing for RMB reform.”  Here, as well, I suspect it will all boil down to stability.  In my own speech to the Forum, I stressed that the coming global rebalancing could have surprisingly important implications for Chinese stability -- especially for a dollar-pegged currency that gets caught up in America’s long overdue current account adjustment (see “China’s Rebalancing Imperatives,” presented to the China Development Forum, 20 March 2005).  Because of its rapid integration into the global economy and world financial markets, China may well find that its stability anchor is less secure than widely perceived.

At the end of the meeting, the Premier shook his head and exclaimed, “I cannot sleep well at night with this issue of the RMB.”   He then glanced at his watch and politely excused himself.  As we left the Great Hall, a noisy motorcade rolled up to the official entrance.  We went out one door, and US Secretary of State Condoleezza Rice literally went in the other door.  There was a lot on Premier Wen Jiabao’s plate that day.  The growth and currency debates are only one piece in the big Chinese puzzle.  But in the end, always think stability when it comes to China -- whether the issue is economic or geopolitical.  For that reason alone, and based on what I picked up at this year’s China Development Forum, I have little reason to doubt that China is once again going for growth."

Chalmers Johnson on US-China-Japan relations

No Longer the "Lone" Superpower: Coming to Terms with China

Johnson rightly focuses on the tensions building around the Taiwan strait, and notes that the US is pushing Japan into a dangerous military role in the region.

[ Let me make clear that in East Asia we are not talking about a little regime-change war of the sort that Bush and Cheney advocate. After all, the most salient characteristic of international relations during the last century was the inability of the rich, established powers -- Great Britain and the United States -- to adjust peacefully to the emergence of new centers of power in Germany, Japan, and Russia. The result was two exceedingly bloody world wars, a forty-five-year-long Cold War between Russia and the "West," and innumerable wars of national liberation (such as the quarter-century long one in Vietnam) against the arrogance and racism of European, American, and Japanese imperialism and colonialism.

...The Bush administration is unwisely threatening China by urging Japan to rearm and by promising Taiwan that, should China use force to prevent a Taiwanese declaration of independence, the U.S. will go to war on its behalf. It is hard to imagine more shortsighted, irresponsible policies, but in light of the Bush administration's Alice-in-Wonderland war in Iraq, the acute anti-Americanism it has generated globally, and the politicization of America's intelligence services, it seems possible that the U.S. and Japan might actually precipitate a war with China over Taiwan.

Japan Rearms

...Since the end of the Cold War in 1991, the United States has repeatedly pressured Japan to revise article nine of its Constitution (renouncing the use of force except as a matter of self-defense) and become what American officials call a "normal nation." For example, on August 13, 2004, Secretary of State Colin Powell stated baldly in Tokyo that if Japan ever hoped to become a permanent member of the U.N. Security Council it would first have to get rid of its pacifist Constitution...

America's intention is to turn Japan into what Washington neo-conservatives like to call the "Britain of the Far East" -- and then use it as a proxy in checkmating North Korea and balancing China... Japan has so far not resisted this American pressure since it complements a renewed nationalism among Japanese voters and a fear that a burgeoning capitalist China threatens Japan's established position as the leading economic power in East Asia...

    Japan's remilitarization worries a segment of the Japanese public and is opposed throughout East Asia by all the nations Japan victimized during World War II, including China, both Koreas, and even Australia. As a result, the Japanese government has launched a stealth program of incremental rearmament. Since 1992, it has enacted 21 major pieces of security-related legislation, 9 in 2004 alone.

    A New Nuclear Giant in the Making?

    Koizumi has appointed to his various cabinets hard-line anti-Chinese, pro-Taiwanese politicians. Phil Deans, director of the Contemporary China Institute in the School of Oriental and African Studies, University of London, observes, "There has been a remarkable growth of pro-Taiwan sentiment in Japan. There is not one pro-China figure in the Koizumi Cabinet."

...Bush and Koizumi have developed elaborate plans for military cooperation between their two countries. Crucial to such plans is the scrapping of the Japanese Constitution of 1947. If nothing gets in the way, Koizumi's ruling Liberal Democratic Party (LDP) intends to introduce a new constitution on the occasion of the party's fiftieth anniversary in November 2005. This has been deemed appropriate because the LDP's founding charter of 1955 set as a basic party goal the "establishment of Japan's own Constitution" -- a reference to the fact that General Douglas MacArthur's post-World War II occupation headquarters actually drafted the current Constitution. The original LDP policy statement also called for "the eventual removal of U.S. troops from Japanese territory," which may be one of the hidden purposes behind Japan's urge to rearm.

    A major goal of the Americans is to gain Japan's active participation in their massively expensive missile defense program. The Bush administration is seeking, among other things, an end to Japan's ban on the export of military technology, since it wants Japanese engineers to help solve some of the technical problems of its so far failing Star Wars system. The United States has also been actively negotiating with Japan to relocate the Army's 1st Corps from Fort Lewis, Washington, to Camp Zama, southwest of Tokyo in the densely populated prefecture of Kanagawa, whose capital is Yokohama. These U.S. forces in Japan would then be placed under the command of a four-star general, who would be on a par with regional commanders like Centcom commander John Abizaid, who lords it over Iraq and South Asia. The new command would be in charge of all Army "force projection" operations beyond East Asia and would inevitably implicate Japan in the daily military operations of the American empire. Garrisoning even a small headquarters, much less the whole 1st Corps made up of an estimated 40,000 soldiers, in a sophisticated and centrally located prefecture like Kanagawa is also guaranteed to generate intense public opposition as well as rapes, fights, car accidents and other incidents similar to the ones that occur daily in Okinawa.

    Meanwhile, Japan intends to upgrade its Defense Agency (Boeicho) into a ministry and possibly develop its own nuclear weapons capability. Goading the Japanese government to assert itself militarily may well cause the country to go nuclear in order to "deter" China and North Korea, while freeing Japan from its dependency on the American "nuclear umbrella." ]

Tuesday, March 22, 2005

Hypomanic entrepreneurs

Hmm, this sounds a little like me... (at least, more so than autism or Asperger's syndrome :-)

hy·po·ma·ni·a: A mild form of mania, characterized by hyperactivity and euphoria.

From the intro to The Hypomanic Edge by J. Gartner, professor of psychiatry at JHU medical school.

"The 1990s will be remembered as the age of Internet mania, a time when entrepreneurs making grandiose claims for their high-tech companies swept up millions of Americans with their irrational exuberance, inflating the biggest speculative bubble in history. The idea that some entrepreneurs may be a little manic is hardly new. A Google search for "manic" and "businessman" yields more than a million hits. Entrepreneurs, as well as the markets they energized, were commonly described in the media as "manic." Yet, until now, there has never been a serious suggestion that the talent for being an entrepreneur and mania, the genetically based psychiatric disorder, are actually linked. Perhaps because I am a clinical psychologist, it was clear to me that "manic" was more than a figure of speech in this case.

I called several reporters who had written profiles of these "manic" entrepreneurs and asked them, "Do you think he really was manic?" None said yes. "Not really manic; not clinically," was a typical response. They resisted applying the psychiatric diagnosis because the entrepreneurs they had interviewed were boastful, hyperenergized, and zany, but they "weren't crazy." And the journalists were right. Their subjects were not manic. They were hypomanic. Hypomania is a mild form of mania, often found in the relatives of manic depressives. Hypomanics are brimming with infectious energy, irrational confidence, and really big ideas. They think, talk, move, and make decisions quickly. Anyone who slows them down with questions "just doesn't get it." Hypomanics are not crazy, but "normal" is not the first word that comes to mind when describing them. Hypomanics live on the edge, betweeen normal and abnormal.

...My new hypothesis became that American entrepreneurs are largely hypomanic. I decided to undertake what social scientists call a pilot study: a small-scale, inexpensive, informal investigation meant to test the waters. I placed announcements on several Web sites devoted to the technology business, expressing my interest in studying entrepreneurs and requesting volunteers. I interviewed a small sample of ten Internet CEOs. After I read them each a list of hypomanic traits that I had synthesized from the psychiatric literature, I asked them if they agreed that these traits are typical of an entrepreneur:

* He is filled with energy.
* He is flooded with ideas.
* He is driven, restless, and unable to keep still.
* He channels his energy into the achievement of wildly grand ambitions.
* He often works on little sleep.
* He feels brilliant, special, chosen, perhaps even destined to change the world.
* He can be euphoric.
* He becomes easily irritated by minor obstacles.
* He is a risk taker.
* He overspends in both his business and personal life.
* He acts out sexually.
* He sometimes acts impulsively, with poor judgment, in ways that can have painful consequences.
* He is fast-talking.
* He is witty and gregarious.
* His confidence can make him charismatic and persuasive.
* He is also prone to making enemies and feels he is persecuted by those who do not accept his vision and mission.

I feared they might find the questions insulting. I needn't have worried. All of the entrepreneurs agreed that the overall description was accurate, and they endorsed all the hypomanic traits, with the exceptions of "paranoia" and "sexual acting out" (these traits in particular are viewed as very negative and thus may be more difficult to admit to). Most expressed their agreement with excitement: "Wow, that's right on target!" When I asked them to rate their level of agreement for each trait on a standard 5-point scale, many gave ratings that were literally off the chart: 5+s, 6s. One subject repeatedly begged me to let him give a 7."

Price to rent ratio

When will this bubble burst? This is like deja vu for me. It reminds me of Nasdaq P/E ratios in the late 90's when they were totally out of line with reality.

WSJ:"Since 1999 and 2000, the relationship between rents and home prices has "broken down," says Mark Zandi, chief economist of With interest rates falling, it's "not surprising that the relationship has changed," Mr. Zandi adds. "What is surprising is that it has changed so much."

In San Francisco, the monthly cost of renting an apartment is just 45% of the monthly cost of buying a home, down from 67% in 2001, according to an analysis of 21 key markets prepared for The Wall Street Journal by Torto Wheaton. In Washington, D.C., rental costs are now just 59% of the cost of owning, down from 82% in 2001. In Miami, rental costs are 63% of the cost of homeownership, down from 89% in 2001."

Monday, March 21, 2005

Fasten your seatbelts...

WSJ: "When the Federal Reserve raises interest rates, as it is expected to continue doing tomorrow, trouble usually follows. In 1987, the stock market crashed. In 1994, Orange County went bankrupt and Mexico devalued its peso, ravaging its economy. In 2000, the Nasdaq Stock Market bubble burst.

For months after the latest Fed tightening cycle began in June, everything seemed fine: Treasury-bond yields declined, stocks rose and volatility throughout markets fell -- the opposite of what happened in 1994, the last time the Fed reversed a prolonged period of easy money.

But in mid-February Fed Chairman Alan Greenspan declared low bond yields a "conundrum" and warned about "complacency." Since then, bond yields have shot up, closing at 4.51% Friday, and stocks have wobbled. The Dow Jones Industrial Average shed 144.7 points or 1.3% last week to close at 10629.67.

Are markets due for some kind of crisis?

"It seems likely," concludes a report from ISI Group, a New York economic-research firm.

Even with an expected boost in the Fed's target for the federal-funds rate, charged on overnight loans between banks, to 2.75% from 2.5% tomorrow, rates would remain historically low. But whenever the Fed tightens, borrowing costs rise and the economy slows. "If a company or country is a weak link, that combination of higher interest rates and reduced economic activity just tips them over," says ISI economist Nancy Lazar."

Let's see: leveraged carry-trade funds could blow up, the housing bubble could burst, equities could finally drop back to their historical P/E levels and corporate bonds could tank (the current spread vs treasuries is very low). On the other hand, higher rates are healthy for the dollar. I'd like to see the Fed funds rate above 4%, as I think the inflation rate is probably 3% right now.

Saturday, March 19, 2005

New Gizmo

I just ordered this digital camcorder (DV5300) from Aiptek for $79! It records in MPEG-4 (over an hour of footage on a 512MB SD flash card) and takes 3 megapixel stills. Only 4" by 2" by 2", it fits in the palm of your hand. Perhaps it is just a toy - I will report on how well it works. The competing product from Panasonic is about 3 times as expensive. Aiptek is a Taiwanese company based in Hsinchu, the silicon valley of Taiwan.

Last night I watched a movie "Last Life in the Universe" shot in Thailand with a Japanese/Thai cast, Thai director and Australian cinematographer Christopher Doyle (In the Mood for Love, and seven others in collaboration with Wong Kar-wai). I'm a huge fan of Doyle's, and Last Life is excellent (I had already seen it at the Pacific film festival in LA last year). Among the extra content on the DVD was a nice interview with the Thai director. It got me thinking about the possibilities of a small DV camcorder...

Friday, March 18, 2005

World savings glut or US profligacy?

Fed Governor Ben Bernanke wants to blame savers in developing countries for our current account deficit. You could make up a story that money flows into the US from the periphery because of our greater transparency (relative to developing economies), higher growth rates (relative to developed economies), etc. Perhaps savings rates (in excess of 40%) are too high in China, and structural reforms not far enough along to allow all of that capital can be efficiently invested locally.

For example, if you were a wealthy businessman in India or China, where would you invest your profits? Perhaps treasuries are still an attractive investment, all things considered. However, in this scenario, where demand for US assets is driven by fundamentals and not Asian central bank or FX policies, I can't imagine markets being so jittery about a possible collapse of the dollar.

Economist: "Mr Bernanke's opinion was bolder. Contrary to popular belief, he argued, the current-account deficit was not primarily “made in the USA”. It had less to do with American actions—whether the big budget deficit or low household saving—than with a “global saving glut” created largely by emerging economies. In 1996, he points out, the developing world was a net borrower, running a joint current-account deficit of over $87 billion. But after a string of financial crises, it became a big net lender. By 2003, the developing world was running a surplus of $205 billion.

This glut of saving, he points out, must be offset by a dearth elsewhere. In other words, the poor world's determination to live well within its means has forced America to live well beyond its own. America's current-account deficit, Mr Bernanke argues, is the “tail of the dog.”

Innocent of causing the current-account deficit, America's policymakers can also do little to resolve it, Mr Bernanke suggests. He cited a recent Fed study, which reckons that cutting America's budget gap by a dollar would knock less than 20 cents off the trade gap.

This may play well in the White House (no small concern for Mr Bernanke, who is keen to succeed Mr Greenspan when the chairman retires next January). But it downplays America's responsibility for its fate. After all, the two biggest global policy shifts in recent years—the White House's move from budget surplus to deficit and the Federal Reserve's decision to slash short-term interest rates—were both emphatically made in America. Both helped prop up the global economy, but they also aggravated external imbalances.

Mr Bernanke insists that cutting the budget deficit is worth doing for its own sake. His boss, Mr Greenspan, preaches fiscal virtue at every opportunity. But by suggesting that budgetary restraint may not do much to help the current account, Mr Bernanke's logic risks undermining what little enthusiasm Washington's politicians now have for fiscal discipline. Central bankers are paid to worry. Perhaps America's need to worry a little more."

Thursday, March 17, 2005

Backlog of thoughts

A trip to Portland interrupted my posts. Portland is a wonderful city with a very lively downtown, thanks to successful urban growth boundaries. Also home to Powell's Books, the largest bookstore in America. (Where else can you find the AMS volumes of lectures on QFT given to mathematicians at the IAS a few years ago?) However, finding WiFi hotspots is still not as easy as it should be :-)

Random thoughts:

* A sad day for Harvard: Summers suffered a no-confidence vote (by a narrow margin) from the FAS faculty. Earlier polls had shown more support among professional school faculty (who are not part of FAS) and scientists, and less among humanists and social scientists. The right wing is going to have a field day with this - liberal democrat Summers is too conservative for the academic thought police at Harvard!

* Steroids are in the news: amazingly, when I was a kid playing high school and college sports, many coaches, doctors and sports trainers told us steroids didn't work ("it's all placebo effect"). What a bunch of nonsense! I had several friends who took steroids, and believe me, they *do* work - affecting not just muscle development, but also personality. Next thing they'll tell us is testosterone has no effect on early brain development, despite convincing studies in rats and other mammals. (See previous thought.)

* Record fixed income profits for Goldman and Morgan Stanley last quarter. I guess the carry-trade is still a winner! :-)

Kasparov retires

Garry Kasparov, the highest ranked chess player of all time, and certainly one of the game's greatest champions, is calling it quits at age 41. I have always found Kasparov to be a deep thinker, with interesting opinions on areas far beyond chess. It appears he will take an active role in Russian politics, perhaps even seeking elected office. The excerpts below are from his editorial in the WSJ, announcing his retirement.

"In the past few years I have spent a great deal of time writing a book series called "My Great Predecessors." Studying the development of chess ideas through the lives of the world's greatest players -- such as Emanuel Lasker and my old teacher Mikhail Botvinnik -- made me realize that chess has taught me a great deal about every aspect of life, and that it could do the same for others.

This analysis of chess history synthesized in my mind with my extensive experience of playing against computers. For over 50 years, back to the earliest days of computing, chess has been recognized as a unique cognitive battleground. The world watched my matches with "Deep Blue," "Fritz," and "Junior" as man-versus-machine competitions and a way to see how computers "think." To me they were also helpful in revealing how humans make decisions. These computers looked at millions of positions per second, weighing each one to find the mathematically best moves. And yet a human, seeing just two or three positions per second, but guided by intuition and experience, could compete with the mighty machines.

The nature of the decision-making process is little explored and I have become fascinated with the possibility of using my expertise to illuminate these questions. I am currently working on a book on how life imitates chess, that will be released this fall in America by Penguin. It examines the unique formulae people use in thinking and problem-solving. For example, the way hope and doubt affect how we process information, or the way we perform in a crisis. I hope it will also serve as a guide to improving these processes.

Over the past several years I have made a number of speeches on the topic of chess themes in life, particularly in business thinking and strategy. The response has been overwhelming and enlightening and I am extracting a number of valuable parallels. For example: the difference between tactics and strategy; how to train your intuition; and maintaining creativity in an era of analysis. In particular, the topic of intuition is intriguing. When I analyzed a 1894 world championship game between Lasker and Wilhelm Steinitz, I also looked at their post-game analysis and the comments of other top players of the day. They all made more mistakes in analysis than the players had made during the game! The intuitive decisions of the players during the game were correct in most cases, and more often so than when they had all the time in the world to analyze later.

The more time I spend exploring the limitless realm of human thought, the harder it becomes to contain my energy within 64 black and white squares. The huge amount of work required to stay at the top has led to diminishing returns both for me and for the chess world. Every year it takes more study time to keep up with my young competitors, who have all followed my methods of working ceaselessly with computers to prepare. Opening variations must be analyzed to depths of dozens of moves and you carry around a "mental database" of tens of thousands of moves that is constantly updated."

Monday, March 14, 2005

String controversy reaches the public

This is the first time I've seen these issues discussed in the popular press (SF Chronicle). (I found this link via Peter Woit's blog; he is quoted in the article.)

I have to say both critics and defenders of string theory make valid points in the article. It is not implausible to me that it could take generations to sort out any theoretical model of quantum gravity. On the other hand, how will we ever know whether a proposed model is right or wrong without experimental input? In order for the subject to qualify as scientific, there must be falsifiable predictions. This doesn't seem to be the case with string theory - in fact, things are moving in the wrong direction with the discovery(?) of more than 10^{100} possible vacua, each with different low-energy physics.

I am not against some number of theorists studying string theory, but by now most of the top departments in the world have string theory groups. If I had to guess I would say resources within theoretical physics are over-allocated to string theory. Even its supporters admit the work is speculative, and unlikely to be subject to experimental test in the near future. This being the case, why are funding levels for string theory research not closer to those in math departments, rather than physics departments? (Physicists, even theorists, generally teach less and get bigger grants than mathematicians. Shouldn't the stringers be lumped with the math guys until they come up with actual testable predictions?)

Nature's guiding hand manifests itself in the form of experimental data. Without this guidance, theoretical physics is in danger of reverting to a subjective field dominated by trends and fashion, like the humanities and social sciences.

Those interested in a sociological analysis of the political and cultural economy of the academic field should read the work of Pierre Bourdieu, who argued that academics mainly fight over the "power to consecrate" - that is, the power to determine which subjects or approaches are deemed worthy or unworthy. This is exactly what I see going on in quantum gravity these days.

My earlier posts on this topic are here and here.

Sunday, March 13, 2005

Niall Ferguson on the dollar

From the Times Sunday magazine. He seems pretty optimistic about how long this can go on, but doesn't give any concrete reasons. I think historical precedent may be a poor guide here, given the volatile nature of global financial markets today.

"Meanwhile, the United States may be discovering what the British found in their imperial heyday. If you are a truly powerful empire, you can borrow a lot of money at surprisingly reasonable rates. Today's deficits are in fact dwarfed in relative terms by the amounts the British borrowed to finance their Global War on (French) Terror between 1793 and 1815. Yet British long-term rates in that era averaged just 4.77 percent, and the pound's exchange rate was restored to its prewar level within a few years of peace.

It is only when your power wanes -- as the British learned after 1945 -- that owing a fortune in your own currency becomes a real problem. As opposed, that is, to someone else's problem."

Thursday, March 10, 2005

Startup howto

This is a nice essay on how to start a startup. The author, Paul Graham, a Harvard PhD in CS, founded an e-commerce software startup that was acquired by Yahoo! in the early days of the boom. Interestingly, his co-founder was Robert Morris, of Internet worm fame. I can still remember back in 1988 when his worm brought down the entire network. A team in the Berkeley CS department were the first to figure out what had happened.

I don't agree with everything Graham writes, but his perspective is interesting nonetheless. You can find my take on startups here (warning - PowerPoint slides).

"In a technology startup, which most startups are, the founders should include technical people. During the Internet Bubble there were a number of startups founded by business people who then went looking for hackers to create their product for them. This doesn't work well. Business people are bad at deciding what to do with technology, because they don't know what the options are, or which kinds of problems are hard and which are easy. And when business people try to hire hackers, they can't tell which ones are good. Even other hackers have a hard time doing that. For business people it's roulette.

Do the founders of a startup have to include business people? That depends. We thought so when we started ours, and we asked several people who were said to know about this mysterious thing called "business" if they would be the president. But they all said no, so I had to do it myself. And what I discovered was that business was no great mystery. It's not something like physics or medicine that requires extensive study. You just try to get people to pay you for stuff.

I think the reason I made such a mystery of business was that I was disgusted by the idea of doing it. I wanted to work in the pure, intellectual world of software, not deal with customers' mundane problems. People who don't want to get dragged into some kind of work often develop a protective incompetence at it. Paul Erdos was particularly good at this. By seeming unable even to cut a grapefruit in half (let alone go to the store and buy one), he forced other people to do such things for him, leaving all his time free for math. Erdos was an extreme case, but most husbands use the same trick to some degree.

Once I was forced to discard my protective incompetence, I found that business was neither so hard nor so boring as I feared. There are esoteric areas of business that are quite hard, like tax law or the pricing of derivatives, but you don't need to know about those in a startup. All you need to know about business to run a startup are commonsense things people knew before there were business schools, or even universities.

If you work your way down the Forbes 400 making an x next to the name of each person with an MBA, you'll learn something important about business school. You don't even hit an MBA till number 22, Phil Knight, the CEO of Nike. There are only four MBAs in the top 50. What you notice in the Forbes 400 are a lot of people with technical backgrounds. Bill Gates, Steve Jobs, Larry Ellison, Michael Dell, Jeff Bezos, Gordon Moore. The rulers of the technology business tend to come from technology, not business. So if you want to invest two years in something that will help you succeed in business, the evidence suggests you'd do better to learn how to hack than get an MBA. [3]

There is one reason you might want to include business people in a startup, though: because you have to have at least one person willing and able to focus on what customers want. Some believe only business people can do this-- that hackers can implement software, but not design it. That's nonsense. There's nothing about knowing how to program that prevents hackers from understanding users, or about not knowing how to program that magically enables business people to understand them."

More Sony vs Samsung

Hey! Did someone at the Times read my post on this? :-)

New Sony CEO Stringer's expertise is confined to the two little grey boxes (see second figure below) labeled "movies and television" and "music".

Times: Samsung has become what Sony could once claim - the competitor with both the breadth of products and the appeal of a premium brand.

This rapid reversal of fortunes illustrates the highly competitive world of consumer electronics that Sir Howard, a media man, is entering. Complacency and coasting on best-selling products have contributed to a nearly 75 percent decline in Sony's stock value since its March 1, 2000, peak. The invincible "factory of ideas" founded almost six decades ago by Akio Morita, the company that brought the world the transistor radio, the Walkman and the Trinitron television tube, seems to have lost its way.

"Samsung is now the anti-Sony," George Gilder, an American technology analyst, said here Wednesday. "Sony is layered with bureaucracy. The amazing thing about Samsung is that it is like Apple with Steve Jobs involved in designing the iPod, it is like Sony with Morita deeply involved in developing products."

Samsung has kept a lean corporate structure, with authority increasingly delegated to front-line managers around the world, and almost a quarter of the far-flung staff of 88,000 dedicated to research and development.

But in Monday's boardroom purge, Sony demoted the one engineer credited with developing a new, world-beating product line, the PlayStation game consoles. Ken Kutaragi remains chief executive of Sony Computer Entertainment, but he loses supervision of Sony's consumer electronics and semiconductor business just as it is preparing the Cell Chip, a superchip that is to run the next generation of game machines and also high-definition televisions. With the hand-held PlayStation Portable selling like hotcakes since it was released here in December, the next PlayStation is to come out next year, in time to compete with a new Xbox console by the Microsoft Corporation and a new console by Nintendo.

"I meet many Sony employees here who are so gloomy," Takeshi Oyabu, an assistant professor of Keio Business School, said in an interview here. "Without me saying anything, they say things like 'I am from Sony whose reputation is very bad.' "

Japan to diversify FX reserves?

Japan probably won't be the first to abandon the dollar, but it is obvious that currency markets are jittery.

Bloomberg: The dollar fell to a nine-week low against the euro in Asia after Japanese Prime Minister Junichiro Koizumi said his country "in general'' needs to consider diversifying its foreign currency reserves, the world's largest.

The U.S. currency erased losses against the yen and pared some versus the euro after a Ministry of Finance official said Japan has no plan to make a change, comments echoed by Finance Minister Sadakazu Tanigaki. Japan's official reserve assets totaled $840.6 billion at the end of February, mostly in U.S. Treasuries.

"By saying Japan could diversify its holdings, it's opened a Pandora's Box,'' said Harvinder Kalirai, chief market analyst in Sydney at State Street Corp. ``They can just stop buying Treasuries. It could impact the behavior of other central banks. This is going to weigh heavily on the dollar.''

The dollar dropped to $1.3429 per euro at 1:59 p.m. in Tokyo from $1.3391 late yesterday in New York, according to electronic currency-dealing system EBS. It also traded at 104.08 yen from 103.93. The dollar dropped as low as $1.3455 a euro, the weakest since Jan. 4.

The dollar may fall to a record $1.40 per euro and below 100 yen this year, Kalirai said. State Street is the world's largest custodian of assets, managing more than $1.2 trillion.

Speaking in Parliament, Koizumi said Japan needs to make an "overall judgment'' on how to invest reserves by considering the stability of such investments. Tanigaki later said the comments were made as a general argument and don't mean the government will shift its holdings.

"There's never been a comment from Japan that it might diversify, so the dollar getting sold off is understandable,'' said Robert Rennie, a currency strategist in Sydney at Westpac Banking Corp. Ministry clarifications "helped shore it back up.''

The dollar fell 1.4 percent against the euro and the yen on Feb. 22 after South Korea's central bank announced plans to boost returns by diversifying its currency reserves. The bank later said it wouldn't sell dollars from its current holdings to achieve its goal.

Koizumi's comments pushed U.S. 10-year Treasury yields to the highest in more than seven months. Japan, the largest foreign holder of U.S. Treasuries, owned $711.8 billion of them as of December, and cut its note holdings in three of the last four months of 2004.

Tuesday, March 08, 2005

Huawei rising

Economist: "A report based on a survey of over 100 telecoms operators worldwide, carried out by Heavy Reading, a market-research firm, found that Huawei ranked eighth among wireline-equipment suppliers, up from 18th last year. (Cisco came top.) Most strikingly, Huawei ranked fourth in service and support. The report calls Huawei's ascendancy “astounding” and says it has already surpassed several incumbent vendors in perceived market leadership.

As a result, incumbent western firms should be “very scared” of Huawei, says Jean-Charles Doineau of Ovum, a consultancy. Huawei's reputation as a low-cost vendor is only the visible part of the iceberg, he says. Below the waterline, the company has high technical standards, though it is not known for its ability to innovate. It also has a 30% share of the vast Chinese market, equivalent in size to Europe's. Having developed products at the behest of its demanding domestic customers, Huawei can then sell them elsewhere.

Initially, Huawei concentrated on developing countries, but it is now gaining traction in the developed world, in Europe in particular. Last week it was named a key supplier by COLT, a British operator, and also won a $100m broadband contract from Optus, an Australian firm. Huawei has yet to win the endorsement of a first-tier operator, but its gear is being evaluated by BT, Britain's incumbent operator, and by Vodafone, the world's largest mobile operator. BT is expected to announce the suppliers for its new “21st Century Network” soon, and Huawei is on the short list. Arun Sarin, Vodafone's boss, says his firm is watching Huawei closely.

Much of Huawei's competitiveness derives from its low labour costs. Richard Lee, a company spokesman, says Huawei can pay its senior engineers a quarter of the going rate in the developed world, and junior engineers just an eighth."

I don't see any shortage of engineers in China, with over 400K science and engineering degrees awarded each year! (Several times the US figure.) See here for a rough calculation suggesting a larger population of science and engineering PhDs in China than in the US by 2020.

See also this survey of China and India development trends.

Monday, March 07, 2005

Global housing bubble

Economist: "The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall."

Sell Sony, buy Samsung

The issue isn't that the new CEO Stringer is non-Japanese, but that he is a "content guy" and not a technologist. Idei, the current CEO, was a marketer, the first non-technologist to lead the company. (Founder Akio Morita was an applied physicist who created Sony from the ruins of postwar Japan.) Idei's reign has been lackluster, and I expect the same or worse from Stringer. Expect lots of expensive marketing-driven strategies based around the "convergence of digital content," while other companies eclipse them in core technology development. Does anyone remember AOL-Time Warner?

This is great news for Apple and the iPod, which is ironically the digital successor to Sony's Walkman.

Sony should have appointed Ken Kutagari CEO to have any chance of competing with Samsung, whose growth prospects, profit margins and market cap are superior.

From the Times coverage: "The appointment of Sir Howard appears to be a blow to Ken Kutaragi, the 54 year old executive who built Sony's PlayStation video game unit into the company's most profitable division. A defiant and idiosyncratic engineer, Mr. Kutaragi, who has long been seen as the leading candidate to become Sony's next chief executive, was given responsibility for electronics and semiconductors two years ago. Now he will again just run the game unit. And he gives up his seat on Sony's board."

This article paints Stringer as a skilled politician and corporate climber who knows all the Hollywood movers. Wonderful - perhaps he's even better than Carly - but that doesn't mean he can successfully run a tech company. Will Sony continue to be a player in flat panel display? (Who will make the billion dollar fab investment decisions?) Will their Cell CPU be a competitor in mainstream computing applications? Will they produce a viable iPod competitor?

Nasdaq bubble shifts to real estate

WSJ: In market experiments conducted by George Mason University professor Vernon Smith, who shared in the 2002 Nobel Prize for economics, participants trade a dividend paying "stock" with a very clear fundamental value. A bubble invariably forms, and then bursts. If the experiment is repeated with the same people, a bubble forms again. The second time, though, participants think they will be able to sell their positions before trouble strikes. Participants express surprise that they weren't able to get out before the second collapse.

In the wake of the Nasdaq collapse, this echo-bubble phenomenon doesn't seem to have occurred in quite the same way as in the lab. Unlike Mr. Smith's experiments, where there is only one thing to trade in, the world offers investors myriad choices.

The zaniness that characterized 1999 and the early months of 2000, when shares of untested companies built on blue-sky expectations could skip 30% higher on the slightest scrap of news, for the most part doesn't exist any longer, says Doug Kass of the hedge fund Seabreeze Partners. He believes much of the mania has shifted into real estate.

Along with big price jumps in many housing markets, 23% of U.S. home sales last year stemmed from investment purchases, according to the National Association of Realtors. For his part, Mr. Kass says people he knew from near his Palm Beach, Fla., home who were day trading stocks back in 2000 are now all real-estate brokers.

"We have day trading in homes instead of day trading in stocks," he says. "It will end the same way, and it will be the same guys delivering the product."

Yale University economist Robert Shiller, who like Mr. Kass had a negative view on the U.S. stock market in 2000, also says the real-estate market is where the speculation is. While his survey work shows that investors still have a positive view of stocks, he believes that view reflects more grudging optimism than glee.

Sunday, March 06, 2005

View from Omaha (Warren Buffett)

From the annual Berkshire Hathaway report (total mkt cap is about $135B, so FX component is 15%):

Berkshire owned about $21.4 billion of foreign exchange contracts at yearend, spread among 12 currencies. As I mentioned last year, holdings of this kind are a decided change for us. Before March 2002, neither Berkshire nor I had ever traded in currencies. But the evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come – so since 2002 we’ve heeded that warning in setting our investment course.

...But as I argued in a November 10, 2003 article in Fortune, (available at, our country’s trade practices are weighing down the dollar. The decline in its value has already been substantial, but is nevertheless likely to continue. Without policy changes, currency markets could even become disorderly and generate spillover effects, both political and financial. No one knows whether these problems will materialize. But such a scenario is a far-from-remote possibility that policymakers should be considering now. Their bent, however, is to lean toward not-so-benign neglect: A 318-page Congressional study of the consequences of unremitting trade deficits was published in November 2000 and has been gathering dust ever since. The study was ordered after the deficit hit a then-alarming $263 billion in 1999; by last year it had risen to $618 billion.

...Americans end up owning a reduced portion of our country while non-Americans own a greater part. This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8 billion daily, an increase of 20% since I wrote you last year. Consequently, other countries and their citizens now own a net of about $3 trillion of the U.S. A decade ago their net ownership was negligible.

Saturday, March 05, 2005

Democratic revolution in the middle east?

Perhaps too much to hope, but things seem to be stirring. History is full of sudden, unanticipated transitions!

I'm not a neocon sympathizer, and neither is the Times, but this article comes amazingly close to supporting their model of how elections in Iraq (and other factors, like technology) might lead to transformation of politics in the middle east.

[A combination of outside pressure and internal shifts have merged to create this unique moment. Arabs of a younger, more savvy generation appear more willing to take their dissatisfaction directly to the front stoop of repressive leaders.

They have been spurred by the rise of new technology, especially uncensored satellite television, which prevents Arab governments from hiding what is happening on their own streets. The Internet and mobile phones have also been deployed to erode government censorship and help activists mobilize in ways previous generations never could.

Another important factor, pressure from the Bush administration, emboldens demonstrators, who believe that their governments will be more hesitant to act against them with Washington linking its security to greater freedom after the Sept. 11 attacks. Washington says it will not longer support repressive governments and young Arabs, while hardly enamored of American policy in the region, want to test that promise.

...New technology has driven the steps toward greater freedoms. Satellite stations like Al Jazeera and Al Arabiya brought news of demonstrations to a widening audience. Indeed, the crowds in Beirut swelled in part because potential demonstrators could see that government troops had not opened fire. Months earlier, Arabs watched similar events unfold in Ukraine and some wondered why the Arab world should stand apart.

But undoubtedly the most important new element is the spontaneous involvement of people themselves.

"You need democrats to produce democracy, you can't produce it through institutions," Mr. Salame said. "You need people to fight for it to make it real. Neither American tanks or domestic institutions can do it, you need democrats. In Beirut, you have a hard core of 10,000 to 15,000 youngsters who are democrats and who are imposing the tempo."]

Friday, March 04, 2005

Times on China Internet censorship

The Shanghai bureau chief called me about this in January after Zhao Zhiyang died. I'm actually quoted in the article.

The PRC government is expending a lot of resources on this, and is in many ways quite successful. But, around the edges, there is no stopping the flow of information. While there is no effective political organization in China beyond the government, ordinary people (or, at least, the few hundred million people with direct or indirect access to the Internet) have greater and greater access to uncensored information.

Fairly soon the expectations of the average person in China for democracy and personal freedom will be no different than in other parts of the world. There will be a consensus view that it is "normal" for the government to implement democratic reforms, if only in a gradual way.

Expectations for better governance are increasing everywhere (well, perhaps not in the US ;-) As shown in Georgia, Ukraine and Lebanon, fewer and fewer soldiers are willing to shoot peaceful demonstrators in support of an unpopular government, and the demonstrators know this. Perhaps satellite TV deserves as much credit for this as the Internet, but both are playing an important role.

An interesting (and optimistic) quote from the article: "All of the big mistakes made in China since 1949 have had to do with a lack of information," said Guo Liang, an Internet expert at the Chinese Academy of Social Sciences in Beijing. "Lower levels of government have come to understand this, and I believe that since the SARS epidemic, upper levels may be beginning to understand this, too."

Wednesday, March 02, 2005

History repeats

Brad Delong, in his course on economic history, lists the following among the reasons for the decline of the British empire and its loss of industrial superiority to Germany and the US.

British deficiencies:
* low infrastructure investment
* poor educational system
* lags behind in primary education
* teaches its elite not science and engineering, but how to write Latin verse

Sound familiar? What is the ratio of Harvard students who have studied Shakespeare, Milton or (shudder) Derrida to the number who have thought deeply about the scientific method, or know what a photon is? Which knowledge is going to pay off for America in the long haul?

Most photon experts are imported from abroad these days. We're running a search in our department for a condensed matter experimentalist (working on things ranging from nanoscale magnets to biomembranes). The last three candidates we've interviewed are originally from (1) the former Soviet Union (postdoc at Cornell), (2) India (postdoc at Berkeley) and (3) China (postdoc at Caltech).

Of course, these Harvard kids may be making a smart decision - why fight it out in an efficiently globalized meritocracy (i.e. science), when there are more lucrative career paths available? Nevertheless, I think we would be better off if our future leaders had at least some passing familiarity with the science and technology that will shape our future.

Tuesday, March 01, 2005

Housing bubble II

Last time I checked, speculative buying and prices decoupled from fundamentals were sure signs of a bubble...

NYTimes: "According to LoanPerformance Inc., a San Francisco mortgage data firm, about 8.5 percent of mortgages nationwide in the first 11 months of last year were taken out by people who did not plan to live in the houses themselves, up from 5.8 percent in 2000. In some markets, that proportion is much higher: in Phoenix, more than 12 percent of mortgages were taken out by investors; in Miami, the figure is 11 percent.

The National Association of Realtors, a trade organization that represents real estate brokers, said in a study being released on Tuesday that the percentage of homes bought for investment might be as high as one-quarter of the 7.7 million sold last year.

"Americans are treating real estate as a viable alternative to stocks and bonds," said David Lereah, chief economist at the Realtors association. And some are buying at least two properties at a time."

Blog Archive