The Free Thinker

This is an interesting hypothesis ("Why Productivity Boost is Needed to End the Recession")...

What's it going to take to get the economy out of its rut? Tax cuts, says the right. Public investments, says the left. Some of both, says the center. But after listening to a recent discussion about the recent and distant history of innovation and growth between White House economic adviser Lawrence Summers, former Fed chief Alan Greenspan, and Harold Evans, author of They Made America: From the Steam Engine to the Search Engine, I began to think that tax cuts and stimulus spending may be secondary. If history is any guide, in order to get the economy back to the level of growth that we'd all like to see, we're going to need a substantial boost in productivity. And prolonged periods of high growth have always been spurred by a game-changing megatrend that ultimately touched every segment of the economy: the steam engine, electricity, railroads, the availability of credit, the microchip, and most recently, the Internet, globalization, and cheap money. Finally, when you're dealing with an economy the size of the United States, you need a pretty powerful lever to create meaningful growth. Having a boom in a few sectors likely won't be enough.

So it looks like we're in trouble. Right now, it's difficult to sense the Next Big Thing. (Of course, that's usually how it goes. Back in 1992, when the economy seemed mired in the mud, President-elect Clinton summoned the nation's best economic minds to a summit in Little Rock, Ark. In the voluminous briefing papers prepared for the event, the words the Internet likely appeared rarely, if at all.)

... but how can it be right?  How can something new be needed to get us back to the full unemployment we had just a couple of years ago?  One explanation is that we may have been "living off our capital," failing to do the business investment needed to keep our economy at the level we were at, incurring too many debts to foreigners, while doing things we thought were investment-- building homes, getting educations-- but that were really a waste.  But it's hard to quite believe that.

I have my idea for what the Next Big Thing will, or at least could, be: giant cargo airships.  Of course most people who think they know the Next Big Thing are wrong, but I could make the case for it.  I won't do so as well as I could in this space, for lack of time and also because of some lingering proprietariness associated with the work I did on this in the summer of 2007.  But the idea is that giant cargo airships could, among many other functions, carry people and goods long distances, and particularly over oceans, a lot more cheaply than airplanes, and a lot faster than ships.  A "roadless revolution" in transportation could accelerate the international division of labor, while reducing pressure on energy supplies, since airships are fuel-efficient because they use fuel only for propulsion and not for lift.  They could open up a new, cheaper "Greyhound of the Skies" alternative in international travel, too.

To do all this would require mobilizing huge amounts of capital.  Which, in a way, makes it even more timely, considering trends like this:

A Time magazine cover this spring featured a glass jar partially filled with coins labeled "The New Frugality."

Months earlier, BusinessWeek featured a red cover cinched by a black belt. It declared the recession had pushed us into "The New Frugality" age.

A new survey by the Pew Research Center's project on social and demographic trends found that 60 percent of all younger and middle-aged adults say they are doing more shopping at discount stores or avoiding more expensive brands.

Pew said nearly a quarter of younger adults say they plan to plant a "recession garden" to trim their food bills.

Another Pew study released in April found that from the kitchen to the laundry room to home entertainment, consumers are paring down the list of things they can't live without. I loved the title of that report: "Luxury or Necessity? The Public Makes a U-Turn."

Is this dawning age of frugality here to stay?

I'm not so sure. Frugality isn't like your basic black dress that is always in vogue. Frugality is a foul-weather trend quickly replaced by rampant consumerism the moment the economy begins to pick up.

I'll be counting the number of months it will take before people forget this recession and return to their wasteful ways.

I doubt that.  I think people have gotten a deep scare about their economic security, which will alter behavior for a generation.  People thought they could count on the US economy to buoy them up.  Now they want much bigger cushions of what economists call "precautionary saving."  Policymakers, still caught in the errors of Keynes, think saving is the enemy:

Betting on a quick global recovery? Think again. Yes, the Federal Reserve saw recent signs of organic economic growth in the U.S. economy—"tentative signs of improvement," as the Washington Post phrases it this morning—in deciding last month to hold off on dramatic interventionist measures. But the global picture looks much more bleak. As the Wall Street Journal reports, Germany, Japan, and Mexico—three of America's largest trading partners—have reported "steep declines" in economic output in recent days with Mexico reporting yesterday a staggering 21.5 percent first quarter GDP drop. You can add Singapore to that list, too; it reports this morning a whopping 15 percent plunge in GDP in Q1, the Associated Press says. These are some of the worst economic performances in generations. For Japan, a country that's experienced very little growth in the past decade, you have to go back to 1955 to match such a poor performance.

Simply put, America's main trading partners are tanking because Americans are cutting back on purchases of autos, software, and other goods made abroad. "For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier," the WSJ reports. And the boomerang effect will hurt here, too. "The decline in output overseas reduces the market for U.S. exports and opportunities for investment," the newspaper adds. Even the same Fed officials who were making hopeful remarks about "stabilization" at home have reason to think we're a long way from recovery, speaking of the global financial system as being still "vulnerable to further shocks," Bloomberg reports.

But savings need not slow the economy if they are converted into investment.  Investment looks for a payoff in the future, short-run or long-run depending on the nature of the investment.  Short-run investment is unlikely to revive amidst so much volatility.  This would be a good-time for long-run investment, but for political risk.  Suppose you pitch the idea of building giant cargo airships to a multi-billionaire investor right now.  I suspect he'll be thinking, But how do I know all my profits won't just get confiscated, with the US government prospectively so desperate for revenues?

Good Luck to Aeros

Aeros 40D Sky Dragon airship MSN 21 begins flight testing activities (EMAILWIRE.com, 8/6/2008)

Aeros has announced that its airship model Aeros 40D Sky Dragon MSN 21 has entered the flight testing phase. Upon completion of the company’s scheduled flights, Aeros 40D will go through a series of FAA tests before it will be issued a standard airworthiness certificate.

The Aeros 40D was assembled and is being flight tested at San Bernardino International Airport.

The Aeros 40D was developed and manufactured at the Aeros’ engineering and manufacturing facilities in San Fernando Valley and Montebello (Los Angeles area). The Aeros 40D follows innovative traditions of Aeros’ engineering and incorporates the latest technology package that significantly reduces the pilot’s work load.

The Aeros 40D, holder of the United States Federal Aviation Administration (FAA) Type Certificate, was designed around the market demand for a multifunctional airship with low operating cost. The Aeros 40D airship has successfully supported a multitude of missions ranging from advertising and tourists rides to surveillance and broadcasting.

The MSN 21 will be utilized as a flying laboratory for the development of various systems of the new type of variable buoyancy air vehicle – the Aeroscraft, developed by Aeros.

Aeros is the world’s leading manufacturer of a wide spectrum of buoyant platforms. Aeros’ innovative approach has transformed the company into one of the leading research and development organizations for the aerospace industry.

About the Aeroscraft: The Aeroscraft is a new type – the variable buoyancy air vehicle designed to control lift in all stages of air or ground operations including the ability to off-load payload without taking on-board ballast. The key features of the Aeroscraft include the rigid structure, vertical takeoff and landing capability, ability to operate at low speed and hover, and operate from unprepared surfaces.

Can't find the specs. An older Aeros model is 210 ft long. Too small to revolutionize world trade. But if they can implemented the buoyancy control system effectively they can scale up.

Technology vs. Oil Prices

Why Fly When You Can Float? (NYT, 7/5/2008) 

Imagine gliding in a floating hotel over the Serengeti, gazing down at herds of zebra or elephants; or floating over Paris as the sun sets and lights blink on across the city as you pass the Eiffel Tower.

Such flights of fancy may one day be possible, if the dream of Jean-Marie Massaud, a French architect, comes true...

Mr. Massaud, a designer of hotels in California and a stadium in Mexico, has not ironed out the technical details, nor has he found financiers or corporate backers for his project — to create a 690-foot zeppelin shaped like a whale, with a luxury hotel attached, that he has named Manned Cloud...

“A dirigible is something magical,” said Jérôme Giacomoni, who was 25 when he founded Aerophile with a friend. “But most of the ideas are crazy.”

Dirigibles, he said, “are very sensitive to storms. Their size requires large landing spaces; economically they’re not feasible.”

Not yet, say dreamers like Mr. Massaud. But gasoline prices are pushing airlines to reduce the number of flights and retire older, less fuel-efficient aircraft...

France’s postal service, La Poste, has civilian uses in mind. Postal officials have long searched for alternatives to trucks and planes, aiming to reduce emissions by 15 percent by 2012. At a strategy meeting last year, officials decided to explore the use of dirigibles on routes between France and Corsica or French territories in the Antilles.

The website of the proto-company I was "working" for last summer is still up, but there doesn't seem to be any activity there lately.  Too bad, it was a bright idea.  Though a little over-ambitious for the team we had.  I did a lot of analysis of the potential for airships in trans-oceanic shipping, and I thought they could be highly competitive and scoop up a fair chunk of the inter-continental freight market, by value or volume, with potential revenues up to hundreds of billions of dollars.  The catch is that it has to be done on a colossal scale.  Of course, I was working with figures provided by engineers, which I'm not qualified to verify myself.  Still, it seemed extremely promising.  And that was when gas prices-- one of the big competitive advantages of airships is their extreme fuel-efficiency-- were less than half of what they are now.

Ultimately, if economic growth is to weather the storms of natural resource scarcity, the response will have to come from technology.  This could be one of the technologies to make the difference.

Oil Prices and Airships

Oil hits new record above $92

LONDON (Reuters) - Oil rallied to a fresh record high above $92 a barrel on Friday as the dollar tumbled to a record low, Washington imposed new sanctions on Iran and gunmen shut more oil production in Nigeria.

While supply disruptions may trigger price spikes, the medium-term upward trend is due to rising demand from a booming world economy, especially in developing countries. 

We all see the downside of high oil prices at the gas pumps, but it's worth remembering the upside.  First, they indicate that somebody out there has a lot of buying power; they're indicators of economic growth.  Second, they transfer lots of money from countries that demand oil to countries that supply it; by and large, this transfer is from richer countries to poorer countries (although a lot of oil-poor developing countries can get hurt too).  Third, they spur investment in alternative energy technologies.

Three days from now I'll be in Winnipeg, Manitoba, attending the Airships to the Arctic IV conference there.  Airships are a far more fuel-efficient form of flight.  My fellow delegates and I may feel the mood of the conference brightened by this boost to our competitiveness.

Introducing... Loft Aeronautics

Here's what I'm working on this summer... starting up this new aerospace company! Very exciting. The website will probably evolve soon, but the current version is good for the technical aspect of the project.

"The Tragedy of Suburbia"

I'm not quite as strongly against cars and sprawl as this guy is. But I do think the externalities of cars are greatly underestimated. Think of the scenes that painters paint, the hillsides in springtime with cows grazing, the hilly landscape with a river and a ruined castle, the virgin forest beneath a rain-swept sky. Is there a single one that would not be spoiled by putting a highway full of cars through the middle of it? Cars are squalor and noise, and a civilization full of cars is to that extent squalid and noisy.

One of my many heresies from libertarianism is that I am a big fan of public space. Cars destroy the social function of public space, so that instead of the town square, the agora, the plaza or piazza, all we have is the mall, tainted by commercialism: a place for customers, not citizens. And yet if you think about it, millions of cars driving on public roads are really a deeply unlibertarian, un-free-market practice. And the iniquitous zoning regulations that do so much to force sprawl are also unlibertarian and un-free-market.

Is there a better way to organize a modern city? Or, a more specific and therefore more interesting question: Is there a more libertarian, more free-market way to organize a modern city?

"Roadless Trucking"

An innovative young company, Ohio Airships, thinks their new aircraft, the DynaLifter, can revolutionize transportation:

“Roadless Trucking” is Ohio Airships’ largest vision for Dynalifter® aircraft. Most of the world (Africa, Asia, South America, and Australia) has a desperate need for the market features that a sophisticated trucking system would offer. However, the largest cost in building any trucking system is not in the “mode” (i.e. the trucks or trains), but rather in the “road” (i.e. the highways or rails).

Conversely, a “roadless” system built entirely of existing freight aircraft would be prohibitively expensive for any nation (as is the case in the US). Therefore, a Dynalifter® “Roadless Trucking” system, with transport costs and speeds comparable to trucking without the need of building a sophisticated highway network, could essentially be afforded by every developing nation. Such a system could, almost overnight, improve a nation’s standard of living and rate of growth...

Only a few times in a generation does a technology emerge that has the potential of changing the world’s economy. For centuries, man has sought to find more cost-effective ways of transporting goods over vast distances. Successful examples of this include the Roman road network, the Panama & Suez canals, the Trans-continental Railroad, and the US Freeway System.

There is a direct correlation between a nation’s transportation & communications infrastructure and their standard of living. Where developing nations once could not afford to ‘catch up’ with First World nations’ complex telecommunication systems, they are suddenly able to leapfrog ‘landline’ technology with the creation of wireless networks. Many people in these countries who have never had telephones in their home are currently conducting global business with cell phones and on the Internet.

A transportation breakthrough comparable to the wireless revolution does not yet exist. Ohio Airships feels that it holds the key to such a transportation revolution with the inception of Dynalifter “Roadless Trucking” systems.

They've convinced a paying customer:

During mid-2006, a British sales firm contacted Ohio Airships regarding their interest in obtaining orders for Dynalifter aircraft.  Using their existing business relationships the firm has received preliminary interest in approximately 650 Dynalifter variants in Africa, the Middle East, and Asia.  Also, the firm has ranked these potential customers according to their level of interest, and has identified five customers who are most likely to place the first orders.  These initial orders would total $4.09B in aircraft sales alone (excluding service contracts, parts, etc.).

This is great news for libertarians, because roads and other infrastructure create a nasty public choice problem. Congestion charges, which force customers to internalize the costs of road use, are a great idea and should be more widespread, but the deeper problem is that road networks are a natural monopoly. DynaLifter could enable the creation of a new "roadless" urban model. A city supplied by DynaLifters could be placed in the midst of the ineffable peace of nature, the wonderful stillness-with-birdsongs that our ancestors took for granted but we have to retreat into the remote wild to get. Yet they would have full access to the cornucopia of world trade. In the internet age, most office jobs can be converted to a telecommuting basis. Corporations could establish back-offices in DynaLifter-supplied outposts in case of terrorist attack, then outsource more and more of their operations there to take advantage of the low cost of living and the absence of urban distractions.

Go, DynaLifter!

How Does One Found a Technology Start-Up?

I'm in touch with some people who have an idea for a technology startup.  I've done a bit of economic modeling of their idea-- let's call it Invention X-- and I think that it could lead to the creation of an industry that would generating hundreds of billions of dollars a year in revenues, while having significant positive effects on the environment and on the development prospects of a number of poor countries.  The catch: It would require a few hundred million dollars of capital to get it started.  Invention X cannot start smaller than that and then scale up.

Question: How can Invetion X be turned into a reality?  There are vast profits to be had, but it will take years, organization, determination, a lot of capital investment.  Who do we need to get in touch with?  What kind of contracts and managers do we need to get on board?  Can venture capital do it, or do we need to get on the inside of some current giant corporation-- or several of them-- or in touch with very big private investors? 

And who do we need on our own staff?  I had a friend who worked with a technology start-up that went bust.  He said it was sad, because they had a good idea but the people just didn't know how to manage it.  How do we avoid that?

Subsidizing Sprawl

Lenders have been plowing money into home-mortgage lending a bit too zealously, and now some subprime lenders are facing bankruptcy.  But Fannie Mae and Freddie Mac are high and dry (The Economist, 2/15):

[There have been] over 20 casualties [bankruptcies in recent months] among America's “subprime” mortgage lenders, which serve borrowers with spotty credit histories at higher interest rates. This end of the market took on $605 billion of new mortgages last year, more than a fifth of the total...

They are not the only ones exposed to America's home-loan blues. Citigroup peddles mortgages to risky borrowers through CitiFinancial, its consumer-finance arm. Subprime lenders have also been scooped up by investment banks, including Morgan Stanley, Merrill Lynch and Deutsche Bank, in recent months. Notably absent are Fannie Mae and Freddie Mac, America's government-sponsored mortgage giants. Both were set up for people who dreamt of homeownership, but could not afford it. They also have the best data on borrowers, including those rejected for loans in the past. Perhaps they knew something others did not...

Fannie Mae and Freddie Mac also have lower capital costs because of an implicit guarantee from the taxpayers (Cato PA, 10/7/2004):

Free Roads = American Communism

What's California's biggest problem?  Communism.  LA is like paradise except for two things that spoil it all: (a) smog and (b) traffic.  You spend hours sitting in traffic jams.  And it's no mystery why: free roads distort the incentives.  People should pay for roads like any other commodity.  But I've usually assumed that this isn't politically feasible.  Well, good news:

This week the Bush administration asked Congress for $175 million for state and local governments to reduce traffic congestion, in addition to the $105 million earmarked last year. One of the White House's marquee projects is congestion pricing, or charging motorists a fee for using a particular roadway based on its traffic volume at any given minute.

Recent reports seem to claim congestion pricing is a sop to Democrats, or as the Christian Science Monitor put it, jumping on "the Al Gore bandwagon." The Wall Street Journal's John D. McKinnon finds it "reminiscent of ... Gore's 2000 campaign proposal to relieve traffic and other effects of urban sprawl through 'smart growth' initiatives" and portrayed it as part of a "climate change strategy."

In other words, the press is playing the story as a Republican president weakened by mid-term elections who is trying to outflank the Kyoto wing of the House and Senate majority.

But the fact is that congestion pricing is conservative economics at its best. For decades, conservatives have championed market-oriented solutions to highway problems as a means to allocate scarce resources. Congestion pricing gives consumers the opportunity to decide when it is in their economic interest to ride crowded roads, and whether the price charged for a given trip is worth their travel time savings.

In the former Soviet-bloc states, the standard way to allocate scarce goods was to set the purchase price low enough for everyone to afford, but to make consumers wait in long lines to buy them. The real price depended on what value consumers placed on their time.

This approach is the way we've always allocated access to most roadways in capitalist America - access is "free," just like for a public park. But our real cost skyrockets when we consider the time we spend crawling along in bumper-to-bumper traffic and with no option to pay extra for a faster trip.

Joseph Giglio makes the case for congestion pricing, with the help of Electronic Toll Collection technology, thanks to which "we can [now] charge motorists for using roadways without forcing them to stop at toll-booths, or even slow down."  This would do a lot to fight the sprawl problem that turns suburbia into an archipelago of desert islands for anyone without a car, and leaves kids with nothing to do but play computer games.

Of course, once people have to pay for them, we may find that building roads on it is not an efficient use of land, particularly in urban centers where land values are sky-high.

A thought-experiment for the free-thinking readers: Would it be possible to have a city entirely without roads?  What would it look like?  Imagine you have a network of underground trains and monorails, and maybe a few service roads, but above ground you just have broad, beautifully landscaped pedestrian malls.  The roadless city would be more vertical, probably, reducing the need for horizontal travel, as well as the raw distance from a tpyical Point A to a typical Point B within the city.  One would avoid not only pollution in the usual sense but also the noise pollution associated with cars.  It would be a lot safer, since cars are a leading cause of death.  What do you think?