February 20, 2013
YOUR NEXT CAR WILL BE A VOLT:
Tesla announced today that its revenues have jumped by 500 percent and that it's now making enough cars per week to deliver 20,000 of the vehicles by the end of this year. It also said it expects to make a small profit next quarter. Based on its gross margins, it seems that Tesla is now actually making its cars for less than it's selling them for, rather than losing money on every one it makes, as had been the case previously. Improved productivity and lower costs for parts are helping.
THE BOOM HAS NOT EVEN BEGUN:
And the borders haven't opened yet.According to the Census Bureau, vacancy rates for residential housing in the United States have fallen to levels last seen before the peak of the housing boom in 2006 and the subsequent recession.In the final quarter of 2012, the vacancy rate was 1.9 percent of homeowner housing, and 8.7 percent of the rental housing market. That's down from rates as high as 2.9 percent (2008) in the owner market and 11.1 percent (mid-2009) for rentals.
ONLY IF THERE WERE NO WITCHES WOULD WE NOT NEED WITCH HUNTS:
[A] new book, Benn Steil, a Senior Fellow at the Council on Foreign Relations, deals with White's activities as a Soviet spy. He has also published an excerpt as a major article in the current issue of Foreign Affairs, (available for purchase on the magazine's website), titled "Why a Founding Father of Postwar Capitalism Spied for the Soviets."
Steil's article is of importance for two reasons. First, it brings to the mainstream what many of us have known for years--that the New Deal administration was heavily penetrated by Soviet spies, many of them American citizens who were working for Stalin's intelligence agencies. Indeed, this is the focus of a new book, M. Stanton Evans and Hebert Romerstein's Stalin's Secret Agents: The Subversion of Roosevelt's Government, which fills in the broader picture. The most well-known, of course, is Alger Hiss. But he was merely the tip of the iceberg.
Second, since others who found evidence in the Venona papers and Alexander Vassiliev's KGB papers of White's espionage, the former Treasury undersecretary's reputation was defended by many writers who saw that charge as mere anti-Communist slander. Stephen Schlesinger, for example, writes that "Among historians, the verdict about White is still unresolved, but many incline toward the view that he wanted to help the Russians but did not regard the actions he took as constituting espionage." In a letter to The New York Times, White's daughter argues that "The content and provenance of all these documents have been studied in depth by serious scholars and have been found to raise as many questions as they answer. However they are interpreted, it can by no means be said that they establish my father's guilt." She then adds that "It should also be remembered that White himself vigorously and eloquently denied the accusations against him." And James J. Broughton authored an entire article devoted to exonerating White.
With the publication of Steil's book and article, we know that White, whom Steil points out had "by 1944 achieved implausibly broad influence over U.S. foreign and economic policy," sought to implement what Steil calls "a far more radical reordering of U.S. foreign policy, centered on the establishment of a close permanent alliance with...the Soviet Union." In this regard, he was on the same wavelength as his friend Henry A. Wallace, who had said he would appoint White to the Cabinet if he was to become president.
To accomplish this aim, White did more than Wallace. He took the next step, and from the 1930s on, "acted as a Soviet mole, giving the Soviets secret information and advice on how to negotiate with the Roosevelt administration and advocating for them during internal policy debates." Steil goes so far as to argue that White "was arguably more important to Soviet intelligence than Alger Hiss."
NEVER LET THE BEST PREVENT THE BETTER:
It's still not the best way to fix the government's finances. Since it would do nothing to prioritize the most useful federal programs, the sequester could inadvertently cost the government revenue, through tax receipts lost due to a slowdown in economic activity. That would obviously make the debt problem worse. It would be better if politicians could agree on targeted cuts that would be phased in slowly, giving everybody affected time to adjust.Yet even critics of the sequester grudgingly acknowledge it will help with deficit reduction. Budget gurus Alan Simpson and Erskine Bowles, for instance, called the sequester "mindless" in their latest blueprint for government reforms. Yet they also identified the sequester as one of four essential steps that must be taken to get the government back on track, with the other steps including tax and entitlement reform, along with further tax hikes and spending cuts.
BOTH WOULD BE BETTER, BUT A MIX IS A START:
Both sides should agree at least to spend less money on the wealthy -- via means testing. It may surprise some Americans to learn that the United States spends quite a lot on the affluent, especially through the entitlement programs at the heart of the budget fight: Social Security and Medicare. Both programs move money from relatively poorer young people to relatively richer old people, and they are growing ever more expensive. Means-testing -- allocating benefits according to need -- might offer both sides a way out.The approach would require agreement on two principles. First, give less to the wealthy rather than take more from them. For Medicare, such means testing would mean giving prosperous older people fewer benefits rather than charging them higher premiums for the same benefits other elderly Americans get. Charging wealthy older Americans more, and then giving money back to them through an expensive and inefficient benefit, makes no sense. The goal should be to better target public benefits to those who need them.Second, assess wealth based on lifetime earnings rather than on income or assets -- the latter would discourage saving, and working past retirement age, as well as invite tax evasion and benefits fraud, as demonstrated by the abuse of Medicaid's long-term care benefit. Basing benefits on lifetime earnings, on the other hand, would encourage saving over time, would be far more difficult to game and, provided it was based on pre-retirement earnings, would not discourage older Americans who are able to work from continuing to do so.While many liberals oppose raising the Medicare age of eligibility, doing so on a means-tested basis would address most of their concerns while saving lots of money. For older people with the greatest lifetime earnings, the eligibility age could gradually rise to 70 from 65.
JOBS PEOPLE WON'T DO:
Baxter, the affordable, humanoid industrial robot recently unveiled by Rethink Robotics, is so easy to program that I once did it one-handed and drunk. We were at a party at the Massachusetts Institute of Technology (MIT), and he was standing in the corner, looking lonely. No, really--Baxter has expressive eyes projected on a touchscreen where you'd expect it to have a face, virtually guaranteeing that you'll anthropomorphize it.Drink in hand, I walked over and, with only the vaguest sense of how to get it to respond to my touch, grabbed it by the wrist. I guided its "hand" over to a box full of small objects. Its caliper-like fingers closed on a widget. Then I moved its hand, which offered almost no resistance at all, to another position on the table. It dropped the object.After that, it dutifully repeated the procedure I had taught it, again and again, emptying the box. In a display of the sort of capabilities that used to be almost impossible in robotics but are now routine, its machine vision allowed it to cope with the differences in position and shape of each of the widgets. Baxter was untroubled by the poor lighting, loud music or my clumsiness. In less time than it takes to update my calendar, I had, in essence, trained Baxter to pack a box for shipping, or to transfer goods from one conveyor belt to another--two tasks that are common in manufacturing and distribution centers.Since the end of the second world war, the proportion of people in the US who are working in manufacturing has declined steadily, from nearly 40% during the war to less than 10% today:Many have blamed this decline on outsourcing--the movement of factories to countries where labor is cheaper. And there's no doubt that outsourcing has led to fewer factory jobs in the US and other rich countries.And yet the US, like almost every other rich country on the planet, manufactures more stuff than it ever did. Manufacturers have replaced workers with machines--trading labor for capital. This means the manufacturing workers who remain are many times more productive than their forebears 50 years ago.Baxter and robots like it represent an inflection point in the long trend of top-of-the-line manufacturing: The point at which the old system, in which unskilled laborers still have a place in factories, is retired forever.
EVERYTHING IS FINE...AND THEN IT'S NOT:
Howe: And then your dissertation ended up on the best-seller list? Not bad.Christensen: It became Innovator's Dilemma, yes. I brought one big question with me to Harvard. Why do smart companies fail? It was clear that CPS, which made advanced ceramics--silicon nitride--was going to make it. But there were big companies like GE that had spent more than $100 million trying to make ceramics into a business. They all stumbled and withdrew. I couldn't attribute it to stupidity; they're all smart people who knew so much more about business than I did. That's where the basic puzzle came from. How did these big, smart businesses fail and not CPS? I had my dissertation all laid out. I was going to study mechanical motor drives--the switches that turn an engine on and off. The industry had gone through upheaval as the mechanical switches were replaced by electronic ones. Then one of the faculty said to me, "Check out disk drives. I think the same phenomenon happened there too."Howe: Disk drives: The fruit flies of the business world, I think you called them.Christensen: Right. I didn't know anything except that disk drives were a thing inside a computer. But it turned out disk drives have really short lifespans. Every few years a new innovation turns the industry upside down. I kept seeing mentions of something called the Disk/Trend Report. It was published by some guy in Mountain View, California. It turned out that he had data on every disk drive company ever organized, whether it sold a product or not. He had the background on the people who started them, on the technologies themselves, sales by product line, everything. My kids helped me put it all into a spreadsheet. You could see how, in each generation, an established company would start focusing on bigger, more powerful disks for the top end of the market and then just get wiped out when the lower end of the market found a way to make smaller, cheaper disks, even though those had lower profit margins. It made my thesis. Smart companies fail because they do everything right. They cater to high-profit-margin customers and ignore the low end of the market, where disruptive innovations emerge from.Howe: Is this around the time that Intel CEO Andy Grove heard about your work?Christensen: This was before the book came out. I'd published two papers on my theory, and a woman who worked in the bowels of Intel's engineering department went to Andy and said, "You have to read this article. It says Intel is going to get killed." I hadn't even mentioned Intel, but the implications were there. So Grove called me up, and he's a very gruff man: "I don't have time to read academic drivel from people like you, but I have a meeting in two weeks. I'd like you to come out and tell me why Intel's going to get killed." It was a chance of a lifetime. I showed up there. He said, "Look, I'll give you 10 minutes. Explain what you think of Intel." I said, "I don't know anything about Intel. I don't have an opinion. But I have a theory, and I think my theory has an opinion on Intel." I described the idea of disruptive innovations, and he said, "Before we discuss Intel, I need to know how this worked its way through another industry, to visualize it." So I described how mini mills killed off the big steel companies. They started by making rebar cheaper than the big mills did, and the big mills were happy to be rid of such a low-margin, low-quality product. The mini mills then slowly worked their way upward until there was nothing left to disrupt.Howe: What did Grove say?Christensen: He cut me off before I could finish. "All right. I got it," he said, and then he described the whole thing. Instead of the mini mills, there were two microprocessor companies, Cyrix and AMD, making cheap, low-performance chips. Grove says, "What you're telling me, Clay, is that we have to go down and kill them, set up our own business unit, and launch our own low-end competitor." I didn't say anything. I wasn't going to be suckered into telling Andy Grove what he should do with Intel. I knew nothing about semiconductors. Instead of telling him what to think, I told him how to think.Howe: What did Intel wind up doing?Christensen: They made the Celeron Processor. They blew Cyrix and AMD out of the water, and the Celeron became the highest-volume product in the company. The book came out in 1997, and the next year Grove gave the keynote at the annual conference for the Academy of Management. He holds up my book and basically says, "I don't mean to be rude, but there's nothing any of you have published that's of use to me except this."Howe: If you had to list some industries right now that are either in a state of disruptive crisis or will be soon, what would they be?Christensen: Journalism, certainly, and publishing broadly. Anything supported by advertising. That all of this is being disrupted is now beyond question. And then I think higher education is just on the edge of the crevasse. Generally, universities are doing very well financially, so they don't feel from the data that their world is going to collapse. But I think even five years from now these enterprises are going to be in real trouble.
Excerpted from "Research and Labor: A Chemist Looks at Modern Life," in the December 1929 issue of The Technology Review, by Arthur D. Little, founder of the management consulting firm that bears his name.We are living in the age of science, the machine, and mass production. Like all the ages which have gone before, it is not without its contemporary critics. They would have us believe that ... the worker has become the slave of the machine, and that mass production has engulfed us in materialism, converted the craftsman into the tightener of the bolt, and robbed the world of beauty ... All this, if true, would be, indeed, a sorry outcome of the long series of intellectual triumphs which, during the last one hundred and fifty years, have given man so large a measure of mastery over his environment ... [...]The machine is saving us much time. We produce, transport, and distribute the necessities of life with the expenditure of a small fraction of the time and effort required of our forefathers. The time cost of living has gone down.