Inefficiencies: Everywhere

I have this running series of posts grouped into “Inefficiencies”, where I want to look at really poorly-run business sectors and figure out how to attack them if I were an entrepreneur in their space.  Thanks to the US’s infatuation with “free markets”, which really means protected corporatism these days, there’s a litany of examples of shitty practices that are deserving to be over-run:  cable TV (which my buddy MonkeyPope just got rid of now that there are just so many substitutes like Hulu and Netflix and free downloads from the content owners themselves), US government foreign language preparedness, and near and dear to our hearts these days:  cars.

I keep coming back to Clay Shirky’s amazing video on the “cognitive surplus”:

Shirky describes the “cognitive surplus” as all the hours of thought unlocked as people move from passively watching TV or listening to radio and now doing things like adding edits to Wikipedia or gaming online with other people.

He goes on to say that the internet is so much more enticing because it’s interactive, whereas before it was the content providers who determined what we were allowed to do.

And now that we have a taste for this level of interaction, we’re going to go out and “carve out” a bit of the cognitive surplus to look for interaction in all those areas we previously passively accepted what we were given.

So, where am I going with this?


Airports are the fucking worst.  They are like life’s black holes.  Thanks to the wonderfully competent TSA, we now spend a majority of our time at the airport circumnavigating various security roadblocks.  This is already after we paid quite a lot of money to get a flight we probably weren’t completely satisfied with, on an airline we know we hate but are willing to save bucks on to fly with.

We get through security eventually and then we’re stuck in a strip mall of shitty restaurants and tchotchke stores.  We couldn’t bring in liquids to drink, so we have to go buy those.  What’s the worst is that we can’t even use wifi for free to escape from the misery that is waiting for a flight!!  Crying babies, countless intercom messages, other passengers frazzled about their strained flights.

And we have to pay a fortune just to log on.  The airports in their wisdom have whored out to access providers who grant us very generously access to 24-hour accounts (because we plan on being there for 24 hours, right?) for a low price of $15.

Hope you brought a book or iPod or feel like using EVDO or 3G on your iPhone.

Government Offices

Need to renew your paperwork at the DMV or the election office or get a visa?  Get ready to wait in long lines with nothing to do.  The government always provides buildings with a nice sterile, fluorescent-lighted linoleum feel to it, as you’re helped by workers who are just so tired of dealing with your type.  The worst part is that you know exactly what you need to do and what needs to happen, but you have to wait for a gatekeeper to process you.  And probably enter typos in your information at that.


The whole routine and ritual of not being able to make reservations at a place, then waiting around for a table to open, if you didn’t go somewhere else instead, and then figuring out how to provide enough cash from ten different people to pay up is such a rigamarole.

It’s tough to fault waitstaff sometimes for not attending to your every need, but it would be nice to be able to pass along your requests electronically so that they can prioritize their tasks and respond to customers without actually being there.

Looking for the Mouse

Shirky calls the internetification of everything else a process of “looking for the mouse”, a metaphor he explains he got from his kid who saw a TV and tried to find the computer mouse to use it.  His kid wasn’t happy just watching the TV.

Well, I think it’s about time we found the fucking mouse in places like airports, government offices, and restaurants.

We should be able to use the internet in an airport and on the plane for free.  Allow advertising on individual monitors on the planes or something to help subsidize it.  I don’t know.  We should have a bill of rights for being passengers on planes.  We should be able to expect open, transparent ticket pricing.  Why do airports sit idle all night instead of running flights 24 hours a day?  I’d be willing to fly early in the morning if it meant less bullshit.

Why can we still not vote online?  Why can’t we request edits to our government-held information online instead of heading to the office to stand in line?  Why do we need visas to go to allied countries?  Why are most government actions still requiring laborious procedures in person conducted by overworked staff?  We’re sitting on the greatest social media tools to ever be available to a government to allow its many citizens to take action and make an online system that works, and we still insist that things be done the old way.

We should be able to order electronically from our tables, see how much our orders are, pay individually by selecting what we ate, and request special or extra things from the staff, including sending compliments to the chef.  If eating out is such a social ritual, why are we locked in to seeing a host and a waiter?  Why don’t more restaurants embrace online marketing, having better menu web sites and more engagement with the community?


I think entrepreneurs should focus on these questions and figure out how to solve them and take advantage of them.  There’s just so many inefficiencies out there that it’s a massive opportunity but also just incredibly disappointing.  People have come to expect the worst when they have to interact with these gatekeepers, but really the gatekeepers could fully embrace the new stuff become darlings of their customers.

We’re in the midst of a financial crisis that is still not resolved, and it’s causing a lot of pain to large, bloated, anti-competitive sectors of the US economy that refuse to change.  Automotive, media, telecommunications, publishing, pharmaceutical, industrial…all the things that worked in the past, no longer work quite as well.

This is a condemnation of current American “competitiveness”.  We better get our fucking heads in the game and figure out that we need to massively revamp our innovative capacity and challenge all our old assumptions, because right now we’re a rotting mess of dying companies that are begging for bailouts from a government infiltrated by failed businessmen under Bush’s corporatist regime.

Have any more places of inefficient misery that need fixing?  Comment below!

Hawai'i Trying to Be a Better Place

[NOTE:  Some of the stats used in this article are outdated but I think they still capture the depth of Hawai’i’s energy risks.]

Hawai’i wants greater energy independence and is taking active steps and forming policies to do so.

This has fascinated me since this summer when I went to visit my brother on O’ahu.  I stayed with him for a few days in Honolulu and we got a good chance to catch up, since Hawai’i and DC are quite far apart.  I went to Hawai’i to attend the International Achievement Summit on the Big Island (my write-up here).

My brother, who is a programmer for a project for NOAA, is always particularly well-informed.

We were driving to the airport and he was telling me how much the oil price crisis was hurting Hawai’i, back when oil was heading for $140/barrel.  The impact of higher oil prices is particularly significant to Hawai’i, since most of its imports must be petroleum from Alaska and the Pacific Rim to support its own economy (I was unable to find the exact percentage of the total trade balance spent on petroleum imports, but oil costs them $7bil/year to import).  My brother told me the taxi drivers were hurting in particular, but also anyone in the logistics and transportation sectors.  Even here in DC, there was a $1 surcharge on all cab rides to account for higher gas prices — they only recently removed it again after oil prices dipped into the $40’s.

Hawai’i in other words is highly dependent on energy imports, moreso than any other state in the union.  Petroleum in particular takes up 90% of all energy usage, 40% being imported from Alaska.  Hawai’i’s demand is highly inelastic for energy since it is a basic requirement for economic operations there.  However, in looking at the stats in depth, most of that oil demand comes from jet fuel and military operations.  Around 60% is used for transportation purposes, and about 1/3 of that oil is used on jet fuel alone, according to some sources.

A Better Place?

So when I read an article yesterday in the NYTimes describing Hawai’i’s electric company and government endorsements (whatever that means) of Better Place (press release here), a new automotive energy infrastructure start-up, I was excited but skeptical.

Better Place is a company started by an amazing salesman, Shai Agassi.  He recently had a long write-up in Wired Magazine (which, I should add, should be a must-read for anyone — it posts all its magazine articles online for free, but subscriptions run super-cheap).  And I saw Mr. Agassi speak on a panel for an electric car conference in downtown DC over the summer, featuring a Tesla Roadster and Jim Woolsey.  Agassi is considered to be (fairly over-optimistically) the leader in pushing for the future of automotive energy.

His plan for Better Place is to build an infrastructure of charge-up stations and battery-swapping stations using existing gas station infrastructure.  Combined with electric cars, which he sees as appealing to car companies because his company can separate the battery and energy production from the car design itself (which will allow car companies to execute on what they know (or should know) best), people will be able to drive longer distances and just swap out batteries interchangeably with ones at the stations.

“Agassi dealt with the battery issue by simply swatting it away. Previous approaches relied on a traditional manufacturing formula: We make the cars, you buy them. Agassi reimagined the entire automotive ecosystem by proposing a new concept he called the Electric Recharge Grid Operator. It was an unorthodox mashup of the automotive and mobile phone industries. Instead of gas stations on every corner, the ERGO would blanket a country with a network of “smart” charge spots. Drivers could plug in anywhere, anytime, and would subscribe to a specific plan—unlimited miles, a maximum number of miles each month, or pay as you go—all for less than the equivalent cost for gas. They’d buy their car from the operator, who would offer steep discounts, perhaps even give the cars away. The profit would come from selling electricity—the minutes.” (Daniel Roth, Wired)

Very ambitious.  And hard to get off the ground, apparently.

Electric Cars in Hawai’i:  The Holy Grail and a Prototype?

But Hawai’i poses a unique environment that might be perfect as an Agassi prototype.  This is the sort of shit that an international affairs grad student such as myself really enjoys analyzing.

It is a small collection of islands with a diverse ethnic composition of mainlanders and haolis, native Hawai’ians, and many Japanese and other Pacific Islanders.  It is one of the most progressive states in the union (probably second only to DC in unanimity in voting for Barack Obama in 2008’s election).  It is a major hub for civilian and military travel.  It has the largest protected natural reserve under monument status in the country, which is what my brother is working on for NOAA.  As said before, it is highly dependent on energy imports.

So it is a highly progressive state that exists somewhat outside of the rest of US politics, its budget made frail by reliance on energy imports, and is geographically suited for not only a small-scale electric car prototype project and to rid itself of continued energy dependence.


Interestingly, Agassi’s first attempt to install a Better Place infrastructure has been Israel.  It also has interesting characteristics, being a highly-modernized nation dependent on oil, which it imports from its “enemies” (although it cuts deals with them all the time, normally) in surrounding Muslim countries.  It is essentially isolated by geography, and is small enough for electric cars’ limited ranges.

But in Hawai’i’s case, if much of its actual oil consumption is constituted by jet fuel, then Hawai’i is ages away from ridding itself of that energy hurdle.  Electric car models cannot be transferred to airplane models yet.  We won’t have “green planes” for a while.

So one has to be realistic about the ultimate impact switching to electric cars would provide to Hawai’i.  The other component is that electric cars will increase the demand for electricity production, which is also to some degree reliant on energy imports.

Hawai’i Policy

Hopefully the Hawai’ian government understands this with its more holistic solution for electric cars within a broader energy policy (read about it here).  It instituted the Hawai’i Clean Energy Initiative (HCEI) recently as an agreement with the local utilities as of October 20, 2008, to end up receiving 70% of its energy needs from clean alternatives by 2030 as opposed to the 92-95% dependence on petroleum as of now.

So there seems to be a lot of political traction right now.  My brother informed me that Lanai is trying to build large wind and photovoltaic farms and the islands are trying to unify their electricity grids, hopefully towards the smart grid that Agassi would like in order to distribute power and conserve it during peak times versus inactive times.  So the increase in demand for electricity could be off-set by a shift from dirty energy to clean, alternative energies, facilitated by Hawai’i’s policies and initiatives.

[My buddy Monkey Pope (just returning from O’ahu) in his comment below rightly pointed out that I left out the rail transit plan in Honolulu.  My brother mentioned this to me and said it was a highly-contested debate between people concerned about budget and environmental damage and people who want to remove the burden of cars on the gridlocked roads.  As it turned out, the last election day found that the rail plan passed a vote.  So this new railway may assist in removing pollution and energy burdens too.]


All of this is also interesting within the context of the automotive industry lobbying for a government bailout in DC.  Better Place and Tesla Motors are two companies started out of Silicon Valley circles of entrepreneurs and not out of Detroit.  Hawai’i and San Francisco have signed on to the Better Place project.  Tesla’s popular among the rich investors in California.  These projects may fail, but it’s sad that they receive so little support; in fact, the tech sector seems to be the only thriving source of innovation within the US right now save for its university research (pharma, auto, media, etc. are crumbling and are full of old minds that don’t understand why they’re losing) and if the US loses that, then we’re fucked.  On top of that, the Republican party and its masters and lapdogs make fun of the fags in San Francisco and Massachusetts and the cocktail-drinking elite in DC…all the people who are busy creating real value in this country instead of peddling old garbage in strip malls that no one wants to buy now that they’re having to pay off their overpriced mortgages and credit card bills.

Here’s hoping for an innovation commons promoted by Barack Obama (a Hawai’ian) that leads to more of these companies!

Thanks to my bro for getting me to think about this stuff.

Enlarging the Playing Field

Tonight I was watching 60 Minutes and they were running a story on Obama’s advisors and how they managed the campaign.  Anita Dunn, the communications, research, and policy advisor, said of David Plouffe, the campaign manager:  “David’s mantra was that we were gonna enlarge the playing field.”

This struck me.  The idea was that the campaign was going to go everywhere it could in the United States to inspire a grassroots campaign of alienated voters who wanted someone to connect to.  It would go to states no one thought Obama could win in, just because there was a substantial number of people not previously involved in elections.  These people could be harnessed to campaign for Obama, become neighborhood captains, go door-to-door to get votes.  Morever, Obama recognized that these people WANTED to do so, whereas Obama’s adversaries just thought they were all politically lazy.  Obama was the example of a leader people wanted, and this brought out all these voters that the Clinton and McCain campaigns neglected.  Obama’s advisors, in fact, mention how well Obama responded as a leader, through calmness and thoughtfulness and consistency of purpose, and how that made all aspects of the rest of his campaign easier.

Read More »

Michael Porter on US Competitiveness

Michael Porter, the go-to-guy for studying firms’ competitiveness, wrote an article for Business Week about the need for a strategic economic policy in the US to maintain its competitiveness.

I’m not going to write too much on this but I thought for a few reasons that this article was important enough to blog about because:

1) I’m sick and tired of people who cling to the “free markets above all” argument.  It’s simplistic, naive, and incomplete.  Successful economies require rule of law, good government policy, and competitive markets.  Take daytraders for example.  I have a feeling most are older, fiercely Republican, and grew up in the days of Reagan when Reaganomics was backed up by Cold War victory, stock market rallies, and unprecedented American prosperity.

Read More »

Is the US in Decline?

Georgetown’s foreign policy discussions lately have been in love with the question of whether the US is in decline. For the most part, I think most of the experts I’ve listened to have fallen on the side of “not really”.

I tend to agree. My attempt to understand what’s been going on is this: my thoughts aided by Naomi Klein’s “Shock Doctrine”, I believe that the Friedmanites ran out of places to apply their shock and awe, what with South America resisting first, and then Russia, Iraq, and then Afghanistan. The only place left to try was the US, and privatization and starvation of government funding ran amok during Bush rule.

Loosening regulation on the financial markets led to a string of bubbles, resulting in massive redistribution of wealth to the rich and making the system unsustainable. Right now such a large failure of theory is forcing us to reevaluate what the best policies are: on preemptive war, the role of government, the subtlety of good governance (within international development in particular) and regulation.

The US left a lot of countries in its wake. People complain that the US is losing its dominance, but in fact it merely overstretched its bounds under neoconservative attempts to take advantage of unipolarity. The US spurned organizations it helped to create during its darkest hours, like the United Nations, Bretton Woods, and the World Bank. It sought to throw Iraq against the wall as an example to the rest. It pushed radical free market ideology to other countries.

The US is being hurt by its own financial greed, preying upon its own poor, but look at what’s happened elsewhere: Iceland’s stock market fell 76% in one day, heavily reliant on financial services. London has had to nationalize some of its institutions and it would not surprise me if London collapsed to some degree, being a close competitor to NYC in financial service offerings.

The countries our most slack-jawed patriots fear the most are not immune. Russia’s stock market was forced to halt on three occasions, I believe, because of volatility. Putin has gained popularity by bringing the Soviet Bear back to Russia (having thrown Georgia against the wall himself), but his oligopolistic, intimidation government is somewhat hollow and driven by commodity appreciation.

China, which has been fairly modest in its rise, despite our antagonism towards it publically, is also a victim. It depends on foreign demand for its goods, most of which are cheap and have little real value. It has not matured enough yet to wean itself off exports through adding value to its goods. According to an NPR article, it has lost 20 million jobs so far and is in danger of much more. The Shanghai stock market index has plummeted. (By the way, a hilarious paragraph from that article: “Harley Seyedin, the president of the American Chamber of Commerce in South China, says this slowdown was the result of deliberate action by the government.” Think that guy’s a Friedmanite?)

Many other countries lost half their stock market values during this mess as well. Jeffrey Sachs says the real victims won’t be third world countries, but the second world countries dependent upon globalization.

So why do Americans see the world from inside a bubble? Why do they think China (or the EU!) can develop a military to compete with ours? Why do they think China will leave our economy in shambles? China indeed will produce more than us by 2050 (yes, 2050 according to the estimates, which are all we have to go on), but per capita the US will still grow faster.

Now let’s look at the US. Clearly it has its own problems. Financial bankruptcy is a major concern, yes. How will we pay for our retirees or for medical care? How will we generate the political will to modernize our institutions for the internet age? Racism and intolerance has been exacerbated by economic uncertainty and by McCain and Palin standing idly by instead of speaking out against it. (“No, Obama’s not an Arab, he’s a good man.” Hmm.)

But unlike the EU and other large countries, we will continue to have more immigrants coming in, ensuring our replacement rate is sustainable. We have a diversified, innovative economy with no peer in terms of high-valued goods. Ironically the horrible subsidies we give to farmers have wrecked world crop markets enough that in crises we will fare better in terms of having access to raw materials. We still have protected strategic oil reserves that of course Republicans seem to want to tap out so we can be even more vulnerable in terms of national security.

We have the chance to roll out highly productive solar collectors and electric cars before other nations, and INCREDIBLY SOON, if we invest right. How’s that going to affect the Middle East, Russia, and Venezuela? And Canada for that matter?

Our military, although involved in two occupations, could redeploy and then deploy somewhere else and not fail. It is incredibly resilient as long as we can finance it. It can even be argued to provide a common good to international stability, according to Michael Mandelbaum. (highly contentious, but worth thinking about)

Sure, there’s no doubt that Fareed Zakaria is right: this is about the rise of the rest, not the decline of imperial America. But the rise of the rest what we SHOULD want as peaceful, freedom-loving, ultra-competitive Americans: no nations in poverty, more nations contributing to a globalized, efficient, tolerant world. (notice I didn’t assume democratic) And we will lose some of our influence as long as we remain backwards in our foreign policy, but that tide can turn quickly if we provide leadership by example.

So I think the naysaying is overblown. I expect a lot of what I just wrote to turn out to be incomplete or even blatantly wrong, but it is at least framed in a more holistic picture of what the levers are that affect international affairs than just the fact that the US has done some incredibly dumb things.

Besides, Barack Obama is about to win. Do you have any idea how big the fucking party in DC is going to be when he claims victory? Do you have any idea how much this will affect the rest of the world?

Female-Dominated Environment

One more thing for tonight.

I’m studying international development, and for my class, this concentration has been dominated by females. There are maybe four other guys studying it.

I’ve had a lot of female bosses in various disciplines (web design, the Army, USAID), so I’m used to it. It has benefits and drawbacks. Usually women tend to be more engaged in tasks than men do. Women are more studious and more detail-oriented. Men tend to get bored easily and drift about. That’s really all I should say on that topic.

I have a class on small-medium enterprise which has a few guys in it but is still female-dominated.

Last year I went on a ski trip with all women, except for my friend’s dad. Very bizarre — I think we just ceded our opinions to the girls on that one.

I go to yoga with my friend and I’m typically the only guy there except for a few random guys who are mostly gay. So I’m in all black and have tattoos and a beard.

I have a workshop on managing development in which I’m the only guy out of maybe 15 people. Our professor is a female. Her guest speakers have been all females so far. The other week we had a class on gender roles in project design. I told the class I was going to keep my mouth shut.

This has been nothing but a continuous source of amusement for my classmates.

To be honest I think a development strategy, as Muhammad Yunus and Grameen have been doing, focused on developing plans around the women in society is sound. Women have innate responsibility and control in communities, even in Muslim ones, so they tend to be more reliable even if legally or culturally speaking they are not empowered.

Anyway I guess I’m pointing this out because I think it’s interesting to note the changes going on in my life experiences. I spent five years in the Army which was extremely male-dominated and now I’m on the other side.

The good part is that I’ve succeeded in both environments. Bottom line is to make a lot of money as a result of helping people. Hopefully this process will help me get there, no matter who I have to work with. As all startup literature says, the most important thing is to have the smartest team you can find.


So the G7 is meeting up with Dubya this weekend and so far nothing substantial has been announced. These people are useless. Dubya gets wheeled out to give a clueless speech that inspires no confidence. If anything, it encourages fear. Fear that we have no leadership to help us fix these problems. McCain for his part offers this fucking stupid platitude that Americans are the hardest-working people in the world, EVER. How banal.

Last week’s stock market action was unlike anything I’ve ever seen — relentless selling every day for the last few months. This made 2001 look like a cakewalk.

This in turn caused the web crowd to froth itself into a tizzy talking about the coming Silicon Valley slowdown. Led by Sequoia Capital, the clarion call is for cutting costs, firing employees, reducing burn rate, and trying to extend runway.

I guess my question is: if you’re a start-up, you’re already concerned about bootstrapping every nickel. Why wouldn’t you be relentlessly cutting costs before this crisis even started? Doesn’t this suggest there’s some bloat in the web space right now, a lot of people who are just dragging down companies with salary, ideas that don’t add value to the value chain, etc.?

So isn’t this a good thing?

I tend to be optimistic about this downturn, personally. Then again, I’m a wannabe entrepreneur who is still safe within the confines of grad school. I have less than a year now before I’ll be looking for a job so this will directly impact me.

There’s reason to be optimistic. Check out what Gary Vaynerchuk says about advertising, for example, in this totally awesome video:

“ROI. I am talking about Return on the Investment of your advertising dollar. Traditional media advertising is incredibly expensive and doesn’t provide nearly the rate of return you can derive from intelligent web-based marketing campaigns in 2008 and beyond.”

His point is that those who will be truly hurt by the downturn will be newspaper, magazine, and TV advertisers. Smart advertisers will move more and more towards Google Adsense and online marketing. It’s a lot cheaper and you’ll get a lot more bang for your buck.

The underlying point is that there’s still a lot going on on the internet. There’s projects created by love and collaboration that will continue to grow while the economy reorients itself towards the internet model. The shakeup in the workforce will reorient workers towards better ideas, letting bad ideas die. I still think good ideas will be funded by angels since the startup costs are so low.

Even if the good ideas aren’t profitable, they’ll still thrive through word of mouth and love online. At least in this way, the downturn will resemble 2001’s bubble burst: the internet will continue to evolve.

The good news for me I think is that layoffs might make it easier for me to find coders who want to help me build a reputation management platform for persistent identities. So far I haven’t had much luck.

The only thing I’m really looking for in terms of something negative looking forward is policy or legislative change. In the same way that we need structural changes worldwide to fix the financial system, Congress or the EU or the incoming president (doubtful if it’s Obama since he has a great tech policy lined up) could pass laws that fuck things up for the internet.


After experiencing a lot of bureaucracy when I was younger, I promised myself that if I ever ran a company, I would never have meetings.

Now obviously this is unrealistic, but I think it illustrated some awareness of the uselessness of certain types of meetings. There are great meetings: you bring in a group of people who really click together and immediately start crafting a strategy or fixing a large systemic problem. It’s a way to bring together participatory involvement.

And then there are bad meetings: the arbitrary weekly meetings that are held at a bad time (i.e. Monday morning, first thing), don’t get anything done, and mainly recap what different teams have been doing (i.e. this is why we’re behind on our deliverables).

The Army loves meetings whether they are weekly update meetings, morning/afternoon/evening formations, weekly barracks cleaning meetings, chew-your-ass meetings, whatever.

I have a weekly meeting with my fellow Yahoo! fellows, which is quite good because each meeting we end up pushing our methodologies and frameworks further, thanks to the senior fellow who is doing an excellent job. I also meet weekly with my partner on a development consultancy project in which we discuss strategy and reaching the next milestone.

Anyway, this is all beside the point of this post. I’ve found through my recent research that Twitter and Facebook’s News Feed are built perfectly for reducing the our most useless meetings’ impetus: explaining why the project is behind.

These tools promote lifestreaming or passive sharing, where each person gives microupdates on what he’s doing, and other people can tune in to what he’s doing instead of having to waste the time of asking. Certainly conversation is good for catching up, but within a workplace, it may be that you do not know what many other departments outside yours are doing.

With lifestreaming within the organization, you could get “just published” updates on a great report on mobile penetration released from the R&D department, even if you work in the product design department. This information flow promotes internal innovation and knowing what the other hand is doing.

I think what’s coming is the maturation of these tools from something that even my friends scoff at as being completely useless and narcissistic towards something that increases innovation and collaboration and organizational identity.

And that means better-prepared, more interesting meetings. And not the complete lack of meetings that I’d originally envisioned!

Amazon as an Investment

Back in 1999 I bought a lot of AMD on the basis of their developing a chip, popular among overclockers and DIY builders, that would be superior to Intel’s. The market hadn’t picked up on this superior product yet. Later, when the market finally got wise, AMD stock went from something like $10 to $60, before the bubble popped; eventually of course Intel’s superior warchest of resources punished AMD again, and almost a decade later, AMD stock is under $5.

In 2006 I invested my Iraq blood money into Nintendo on the basis of the new Wii being a sleeper hit with gamers. I was right. Its stock went from the low teens to $77, so I made a killing.

After I sold my Nintendo, I looked for another stock to invest in and couldn’t find anything. Apple had already made its run, and Google’s stock had been stagnating for a year.

The IPO market is pretty dry and there’s not really any web companies that are currently private that would be screamers if they IPO’d. I mean, would Facebook be able to justify a high valuation?

That should have been a sign to me that a bull market was taking a break…   I love to study tech and web stuff and I couldn’t find a single stock worth investing in with expectation of a large gain. There are great tech companies of course but they’ve matured to the point where they won’t have screaming stock prices.

The closest contender I can find is Amazon. Even the daytraders right now are not clued in to what Amazon is doing these days. Most think Amazon is just selling books and CDs online still. But they’re doing so much more.

It’s not just the Kindle, which is the first of the gadgets that will end up turning books into nostalgia purchases. It’s also the massive cloud of computers Amazon, using Amazon Web Services, built in order to handle their order processing and database calls so that you get pages of books displayed on your screen.

Now they are letting other companies buy time on their cloud or grid to borrow process time for their own web sites, database queries, and sales. Imagine you have an online retail company: you can use Mechanical Turk to get bored programmers to construct parts of your site for you. You can use Amazon’s database format to save some of your inventory list of stock. You can use Amazon’s front-end order processing system so that people can easily buy your goods.

In other words, Amazon is making money multiple times off the same hardware and software that it runs to manage its own inventory system. They make money off you vacuuming up books and magazines into your Kindle (since it’s so easy for you to acquire new reading through the Kindle now).

And there is a perception gap: most people do not know Amazon is doing this, even though they are by far the leaders in providing cloud services. Most people doubt the Kindle will succeed also, even though the paper book is doomed once e-readers can add more utility like pull out your favorite quotes and publish them online, fully search books on the fly, etc.

An e-reader will be a killer app one day. (but probably as part of a multi-use device)  The Kindle will take off in its next iteration or two, if Amazon can improve the look and versatility of the device (although this potential re-design for Kindle 2.0 isn’t what I was hoping for…).

I’m not naive enough to think Amazon will do well in the current environment. Both weakness in retail (consumer confidence is low and there’s less perception of disposable income) and stock market pressure on tech stocks will drive (and have driven) AMZN down. Here’s a chart:

Costs are also dropping so fast that margins will decrease on sales of media as well as on processor time.

But if I had to bet on any stock out there to be low risk, high reward, I think Amazon is the play. I haven’t bought it yet, for full disclosure.  Given that the market is in danger of crashing, AMZN’s stock could very well get crushed as well.  If macroeconomic factors take precedence, stock price means nothing.  So I’m watching, but wary.

Amazon is one of the nimblest companies out there right now and Jeff Bezos knows how to manage his resources. He’s at the forefront of the companies exploring the future of the Internet.  He has a good architecture in place; certainly we do not know what the future will look like, but the companies with the smartest people and the best tools will be the ones who will recognize it before the rest.

That’s my best bet right now.  What do you think?

What Next?

What’s most distressing about this whole financial mess is that very few people seem to understand what’s going on. This of course greatly reduces the quality of the options that we will choose from in order to get out of trouble. As poor choices are implemented and then do not work out as intended, people become even more confused about what’s actually going on.

So when I hear the sentiment that we should let the banks fail, all sorts of red flags go off in my head. Everyone is confused.

One, the banks are not like failed web startups. They weren’t bad ideas with no monetization potential. They actually hold peoples’ money and lend out money for investment. Finance allocates capital for businesses to operate.

Two, there is danger in ascribing punishment onto the market for its “sins” so that it can learn a lesson instead of profiting from gaming morally hazardous opportunities. In my opinion it is a fundamental misunderstanding of capitalism to assume that businesses will be morally responsible. Businesses are required to make as much money as possible. If regulations and laws allow a company to do things that are morally questionable, they will still do those things unless the CEO/board has some belief that certain moral principles actually lead to more profit.

That is to say, the “lessons learned” and avoiding moral hazard are tasks of the government. Laws and regulations should be crafted in such a way so as not to impede business or tempt government interests, but to allow for a fair market. In the financial sector, this is even more important because of the large gains to be made by gaming the system. Past loosening of restrictions allowed for sub-prime mortgage disasters, and now the government is trying to fix it by restricting of short sales and mark-to-market accounting. The sense one gets from these actions is that those making the laws have no understanding of the sector they’re trying to regulate.

Right now we’re on the precipice and it’s unclear to anyone whether we’ll get out of this okay — anyone who says differently must remember acts like Smoot-Hawley (in which govt. fucked up) or the 1987 crash (in which govt. did nothing) as counter-examples to each other.

So what happens next? People are confused: some say that this is the end of radical free-market capitalism. Some say that this is another attempt to grab power from the people and return it to government. While Naomi Klein in “The Shock Doctrine” argues that this fits within the context of Milton Friedman’s desire to prey upon disasters and instability

“Only a crisis, real or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

— in order to implement a completely free market, I recently read an article that argued that socialists operate within the same mentality. So the two opposite ends of the spectrum accuse each other of the same thing.

That is some scary shit. The implication is that certain ideologies are waiting for weakness in order to implement programs that run completely counter to the wishes of a democratic state — that is, the will of the people. If these ideas were valid in the first place, one wouldn’t have to wait until the people are mortally afraid to get them to agree. The ideas could be worked into the political debate normally.

Let me provide a more optimistic take on what happens next.

It is true that Congress is unlikely to have the vision to institute the proper reforms and regulations needed. So money flows will fall into the next scam that will probably affect the poor and the taxpayer.

It is also true that a lot of companies will go out of business due to lack of capital and demand.

Also true is that the common American is not yet pissed off enough that he’s protesting in Washington about the nation’s conditions.

So large change is not likely to take place structurally.

But I do believe Obama getting voted in (which is a lock after this recent mess…sorry Republicans, but you blew it) will provide more stability and maturity to our policies.

I also believe that the internet’s rise is the first glimpse of a new future economic reality, one where barriers to entry in many productive enterprises will approach a cost of zero. Publishing is easy. Financial transaction and data and idea diffusion is almost instantaneous. Information can be duplicated without degradation for near free. Processing power is exponentially growing to the point where complicated tasks will cost near nothing to compute. If we are able to capture solar power efficiently enough, an internet-like upheaval of old economic principles with regards to energy costs will occur.

So the old oligopolies will be forced to change or die. Large record labels can’t exploit musicians and buyers by limiting distribution. Newspapers will have to compete with a fluid sea of small publishers. Oil companies will need to change their face considerably.

At this point, we may be able to see Muhammad Yunus’s desire for the social business, a business whose stated goal is not to make profit for investors, but for reinvestment to solve social problems. Such a business is largely untenable right now, but that’s because the costs and stakes are too high to operate a business.

In this new economy, the internet model will make sense financially. Customers and clients will be able to reward internet-model companies in different ways than they are able to now, because they will be rewarding business goals other than shareholder profit.

Reduce costs enough and people will help others instead of just exploit them since their reputations will become their key metric for income. Traditional businesses of course will continue to be a major force, but for the rest of us, when we’re at work or not at work, we’ll be able to monetize our productivities in other ways beyond just showing up at a desk job every day.

I know this is optimistic and takes a long-term view, but I see the ground being laid quietly for a new infrastructure, as the old companies die out and as people continue to argue about socialism versus radical free markets. Remember 2001-2003? People predicted the end of the internet as a business opportunity after the stocks blew up, and meanwhile it was quietly building upon itself and growing up.