Economics of Technology – Page 34

“The Experts Keep Getting It Wrong and the Oddballs Keep Getting It Right”

“A worker at a hydraulic fracturing and extraction operation in western Colorado on March 29[, 2014].” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. C3) The experts keep getting it wrong. And the oddballs keep getting it right.

Over the past five years of business history, two events have shocked and transformed the nation. In 2007 and 2008, the housing market crumbled and the financial system collapsed, causing trillions of dollars of losses. Around the same time, a few little-known wildcatters began pumping meaningful amounts of oil and gas from U.S. shale formations. A country that once was running out of energy now is on track to become the world’s leading producer.
What’s most surprising about both events is how few experts saw them coming–and that a group of unlikely outsiders somehow did.
. . .
Less well known, but no less dramatic, is the story of America’s energy transformation, which took the industry’s giants almost completely by surprise. In the early 1990s, an ambitious Chevron executive named Ray Galvin started a group to drill compressed, challenging formations of shale in the U.S. His team was mocked and undermined by dubious colleagues. Eventually, Chevron pulled the plug on the effort and shifted its resources abroad.
Exxon Mobil also failed to focus on this rock–even though its corporate headquarters in Irving, Texas, were directly above a huge shale formation that eventually would flow with gas. Later, it would pay $31 billion to buy a smaller shale pioneer.
“I would be less than honest if I were to say to you [that] we saw it all coming, because we did not, quite frankly,” Rex Tillerson, Exxon Mobil’s chairman and CEO said last year in an interview at the Council on Foreign Relations.
. . .
The resurgence in U.S. energy came from a group of brash wildcatters who discovered techniques to hydraulically fracture–or frack–and horizontally drill shale and other rock. Many of these men operated on the fringes of the oil industry, some without college degrees or much background in drilling, geology or engineering.

For the full commentary, see:
GREGORY ZUCKERMAN. “ESSAY; The Little Guys Who Saw Our Economic Future; Corporate Caution and Complacency Come at a Cost.” The Wall Street Journal (Sat., Nov. 2, 2013): C3.
(Note: ellipsis, and bracketed year in caption, added.)
(Note: the online version of the commentary was updated Nov. 3, 2013, and has the title “ESSAY; The Outsiders Who Saw Our Economic Future; In both America’s energy transformation and the financial crisis, it took a group of amateurs to see what was coming.” )

Zuckerman’s commentary, quoted above, is partly based on his book:
Zuckerman, Gregory. The Frackers: The Outrageous inside Story of the New Billionaire Wildcatters. New York: Portfolio/Penguin, 2013.

Television Improved Test Scores

“Economist Matthew Gentzkow found media slant to be a function of audience preference.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A2) An economist known for pioneering work on slanted coverage in the news media won the John Bates Clark Medal, one of the profession’s most prestigious honors.

Matthew Gentzkow, a professor at the University of Chicago’s Booth School of Business, on Thursday was awarded the Clark medal by the American Economic Association, which every year honors the nation’s most promising economist under age 40.
. . .
A big theme in Mr. Gentzkow’s work is finding innovative ways to tackle questions that expand economists’ tool kits.
. . . , in 2008, he and Mr. Shapiro examined the fact that different parts of the U.S. got access to television at different times to gauge TV’s effects on high-school students in the 1960s.
The economists found that children who lived in cities that gave them more exposure to TV in early childhood performed better on tests than those with less exposure. The work also suggested TV helped American children in non-English-speaking households do better in school.

For the full story, see:
NEIL SHAH. “Economist Honored for Work on Media Slant.” The Wall Street Journal (Fri., April 18, 2014): 12.
(Note: ellipses added.)
(Note: the online version of the story has the date April 17, 2014.)

The Gentzkow and Shapiro paper on the effects of television, is:
Gentzkow, Matthew, and Jesse M. Shapiro. “Preschool Television Viewing and Adolescent Test Scores: Historical Evidence from the Coleman Study.” Quarterly Journal of Economics 123, no. 1 (Feb. 2008): 279-323.

Gilder’s Information Theory of Capitalism Will Boost Morale of Innovative Entrepreneurs

Source of book image: online version of the WSJ review quoted and cited below.

(p. A13) Individuals like Ford and Jobs are key figures in the economic paradigm that George Gilder lays out in “Knowledge and Power.” He calls for an “information theory of capitalism” in which the economy is driven by a dynamic marketplace, with information widely (and freely) distributed. The most important feature of such an economy, Mr. Gilder writes, is the overthrow of “equilibrium,” and the most important actors are inventors and entrepreneurs whose breakthrough ideas are responsible for “everything useful or interesting” in commercial life.
. . .
Aspiring owners shouldn’t look to “Knowledge and Power” for practical advice on starting a company, but Mr. Gilder’s case for the central role of entrepreneurship might boost their morale. Certainly his argument could not be more timely. Census Bureau data show that startups were responsible for nearly all new job creation from 1996 to 2009. Yet entrepreneurship itself (as measured by new business formation) has been stagnant for about two decades. Thus the important question for America’s future may well be, as Mr. Gilder says, “how we treat our entrepreneurs.” He persuasively shows that creating a more supportive climate for entrepreneurs–by clearing away burdensome regulations and freeing information from its current imprisonment–will result in a more prosperous and vigorous society, creating not only more jobs but more Jobs.

For the full review, see:
MATTHEW REES. “BOOKSHELF; The Real Market-Maters; Economists as far back as Adam Smith have undervalued entrepreneurs–the restless, inventive, job-creating engines of the economy.” The Wall Street Journal (Tues., March 18, 2014): A13.
(Note: ellipsis added.)
(Note: the online version of the review has the date March 17, 2014, and has the title “BOOKSHELF; Book Review: ‘Knowledge and Power’ by George Gilder
Economists as far back as Adam Smith have undervalued entrepreneurs–the restless, inventive, job-creating engines of the economy.”)

The book under review is:
Gilder, George. Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World. Washington, D.C.: Regnery Publishing, Inc., 2013.

Government Wire Inspectors Only Showed Up to Get Their Pay

(p. 121) Edison had originally planned to offer service to the entirety of south Manhattan, south of Canal Street and north of Wall Street, but engineering considerations forced him to carve out a smaller district, bounded by Wall, Nassau, Spruce, and Ferry Streets. Still, his company had to place underground some eighty thousand linear feet of electrical wire. This had never been attempted before, so it should not have been a surprise when H. O. Thompson, the city’s commissioner of public works, summoned Edison to his office to explain that the city would have to be assured that the lines were installed safely. Thompson was assigning five inspectors to oversee the work, whose cost would be covered by an assessment of $5 per day, per inspector, payable (p. 122) each week. When Edison left Thompson’s office, he was crestfallen, anticipating the harassment and delays ahead that would be caused by the inspectors’ interference. On the day that work began, however, the inspectors failed to appear. Their first appearance was on Saturday afternoon, to draw their pay. This set the pattern that the inspectors followed as the work proceeded through 1881 and into 1882.

Source:
Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.

Arc Lights Leapfrogged Gas Lights Before Incandescents Leapfrogged Them Both

(p. 85) The gas interests had been dealt a number of recent setbacks even before Edison’s announcement of a newly successful variant of electric light. An “enormous abandonment of gas” by retail stores in cities, who now could use less expensive kerosene, was noticed. The shift was attributed not to stores’ preference for kerosene but as a means of escaping “the arrogance of the gas companies.” Arc lights had now become a newly competitive threat, too. The previous month, Charles Brush had set up his lights in an exhibition hall in New York and then added a display in Boston. Sales to stores followed in several cities; then, as word spread, other establishments sought to obtain the cachet bestowed by the latest technology. William Sharon, a U.S. senator for and energetic booster of California, retrofitted the public spaces of his Palace Hotel in San Francisco with arc lights that replaced 1,085 gas jets.

Source:
Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.

Edison, Not Antitrust, Reduced Power of Hated Gas Monopolies

Counterbalancing the angst of those hurt by the death of an old technology is sometimes the triumph creative destruction provides to those who were less well-served by the old technology. Some look to governments to restrain a dominant technology; but sometimes a more effective way is to replace the old technology through creative destruction’s leapfrog competition.

(p. 84) Gaslight monopolies had few friends outside of the ranks of shareholders. At the beginning of the nineteenth century, gaslight had been viewed as pure and clean; seventy years later, its shortcomings had become all too familiar: it was dirty, soiled interior furnishings, and emit-(p. 85)ted unhygienic fumes. It was also expensive, affordable for indoor lighting only in the homes of the wealthy, department stores, or government buildings. The New York Times almost spat out the following description of how gas companies conducted business: “They practically made the bills what they pleased, for although they read off the quantity by the meter, that instrument was their own, and they could be made to tell a lie of any magnitude…. Everybody has always hated them with a righteous hatred.”

Edison credited the gas monopoly for providing his original motivation to experiment with electric light years before in his Newark laboratory. Recalling in October 1878 his unpleasant dealings years earlier with the local gas utility, which had threatened to tear out their meter and cut off the gas, Edison said, “When I remember how the gas companies used to treat me, I must say that it gives me great pleasure to get square with them.” The Brooklyn Daily Eagle printed an editorial titled “Revenge Is Sweet” in which it observed that the general public greatly enjoyed the discomfort of the gas companies, too: “To see them squirm and writhe is a public satisfaction that lifts Edison to a higher plane than that of the wonderful inventor and causes him to be regarded as a benefactor of the human race, the leading deity of popular idolatry.”

Source:
Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.
(Note: ellipsis in original.)

Patent Trial and Appeal Board May Be Invalidating Low Quality Patents

One of the common complaints about the U.S. patent system for the past couple of decades is that the Patent and Trademark Office (PTO) has been approving too many low quality patents, that are then used by patent holders to extort licensing fees or out-or-court settlements from alleged infringers. One way in which the America Invents Act, signed in September 2011, tried to respond to the complaint was to strengthen the post-approval re-examination process for patents. The article quoted below suggests that the strengthened process may be having the intended effect.

(p. B4) The Patent Trial and Appeal Board is a little known but powerful authority that often allows a company embroiled in a lawsuit to skip the question of whether it infringed a patent–and challenge whether the patent should have been issued in the first place.

The board was launched in September 2012 as part of the massive patent overhaul passed by Congress the previous year and is currently staffed by 181 judges, many of whom have deep experience in intellectual property or technical fields like chemical and electrical engineering. Through last Thursday it had received 1,056 requests to challenge patents, far more than were received by any federal court over the same time period.
The board is part of the Patent and Trademark Office. But so far, it hasn’t shied away from upending the office’s decisions to issue certain patents. As of last week, the board had issued 25 written decisions concerning patent challenges, and upheld parts of challenged patents in only a few of them.
. . .
In recent months, Randall Rader, the chief judge of the Federal Circuit, has been one of the board’s most outspoken critics. At a conference of intellectual-property lawyers last fall, the judge called the board’s panels “death squads…killing property rights.”
In an interview with The Wall Street Journal, Mr. Rader said the board is too quick to toss out patents that demonstrate only modest innovation. “The board needs to incentivize human progress–and understand that it often happens one small step at a time,” he said.
But many company lawyers think the board is doing exactly as it should–taking a skeptical look at patents that have added little to the world.

For the full story, see:
ASHBY JONES. “New Weapon in Intellectual Property Wars; Panel Can Upend Patent Decisions, but Some Say It Goes Too Far; ‘Like Getting CAT-Scanned, MRI-ed, and X-Rayed’.” The Wall Street Journal (Tues., March 11, 2014): B4.
(Note: ellipsis between paragraphs, added; ellipsis inside paragraph, in original.)
(Note: the online version of the story has the date March 10, 2014, and has the title “A New Weapon in Corporate Patent Wars; Patent Trial and Appeal Board Can Upend PTO Decisions, but Some Say It Goes Too Far.”)

Government Regulations Slow U.S. Use of Drones

Three sophisticated drones. From top to bottom, the Insitu ScanEagle, the Yamaha RMAX, and the Trimble UX5. Source and photo: online version of the WSJ article quoted and cited below.

(p. B1) After Greek land surveyor George Papastamos bought his first drones a year ago, he let go most of his workers. Now, instead of a team of 12, he shows up to work sites with just a drone and an assistant.

“I could see this was the future,” said Mr. Papastamos, a second-generation surveyor from Athens. The drones have improved his maps and lowered his costs, enabling him to win more business. “It is much, much more profitable,” he said.
As U.S. regulators and courts grapple with when and how to allow the use of drones for commercial purposes, flying robots already are starting to change the way companies do business in countries from Australia to Japan to the U.K. They are showing the potential to provide cheaper and more effective alternatives to manned aircraft–and human workers–in industries like mining, construction and filmmaking.
The U.S. is “the world leader in producing drones,” but “the reality is the rest of the world has moved further ahead of us in terms of commercial applications,” said drone researcher Missy Cummings, director of the Humans and Autonomy Lab at Duke University.

For the full story, see:
JACK NICAS. “From Farms to Films, Drones Find Commercial Uses.” The Wall Street Journal (Tues., March 11, 2014): B1 & B6.
(Note: the online version of the story has the date March 10, 2014, and has the title “Drones Find Fans Among Farmers, Filmmakers; FAA Still Debating Rules but Drones are Spraying 40% of Japan’s Rice Fields.”)

William Vanderbilt Helped Disrupt His Gas Holdings by Investing in Edison’s Electricity

(p. 84) But even the minimal ongoing work on the phonograph would be pushed aside by the launch of frenzied efforts to find a way to fulfill Edison’s premature public claim that his electric light was working. A couple of months later, when asked in an interview about the state of his phonograph, Edison replied tartly, “Comatose for the time being.” He changed metaphors and continued, catching hold of an image that would be quoted many times by later biographers: “It is a child and will grow to be a man yet; but I have a bigger thing in hand and must finish it to the temporary neglect of all phones and graphs.”
Financial considerations played a part in allocation of time and resources, too. Commissions from the phonograph that brought in hundreds of dollars were hardly worth accounting for, not when William Vanderbilt and his friends were about to advance Edison $50,000 for the electric light. Edison wrote a correspondent that he regarded the financier’s interest especially satisfying as Vanderbilt was “the largest gas stock owner in America.”

Source:
Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.
(Note: ellipses, and capitals, in original.)

Gary Becker’s Grandson Ponders Opportunity Cost of College

“Louis Harboe with his parents, Frederik Harboe and Catherine Becker. Louis, now 18, got his first freelance tech job at age 12. Last year, he attended the Apple Worldwide Developers Conference in San Francisco.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) Ryan was headed to South by Southwest Interactive, the technology conference in Austin. There, he planned to talk up an app that he and a friend had built. Called Finish, it aimed to help people stop procrastinating, and was just off its high in the No. 1 spot in the productivity category in the Apple App store.
. . .
Ryan is now 17, a senior at Boulder High. He is among the many entrepreneurially minded, technologically skilled teenagers who are striving to do serious business. Their work is enabled by low-cost or free tools to make apps or to design games, and they are encouraged by tech companies and grown-ups in the field who urge them, sometimes with financial support, to accelerate their transition into “the real world.” This surge in youthful innovation and entrepreneurship looks “unprecedented,” said Gary Becker, a University of Chicago economist and a Nobel laureate.
Dr. Becker is assessing this subject from a particularly intimate vantage point. His grandson, Louis Harboe, 18, is a friend of (p. 6) Ryan’s, a technological teenager who makes Ryan look like a late bloomer. Louis, pronounced Louie, got his first freelance gig at the age of 12, designing the interface for an iPhone game. At 16, Louis, who lives with his parents in Chicago, took a summer design internship at Square, an online and mobile payment company in San Francisco, earning $1,000 a week plus a $1,000 housing stipend.
Ryan and Louis, who met online in the informal network of young developers, are hanging out this weekend in Austin at South by Southwest. They are also waiting to hear from the colleges to which they applied last fall — part of the parallel universe they also live in, the traditional one with grades and SATs and teenage responsibilities. But unlike their peers for whom college is the singular focus, they have pondered whether to go at all. It’s a good kind of problem, the kind faced by great high-school athletes or child actors who can try going pro, along with all the risk that entails.
Dr. Becker, who studies microeconomics and education, has been telling his grandson: “Go to college. Go to college.” College, he says, is the clear step to economic success. “The evidence is overwhelming.”
But the “do it now” idea, evangelized on a digital pulpit, can feel more immediate than academic empiricism. “College is not a prerequisite,” said Jess Teutonico, who runs TEDxTeen, a version of the TED talks and conferences for youth, where Ryan spoke a few weeks ago. “These kids are motivated to take over the world,” she said. “They need it fast. They need it now.”

For the full story, see:
MATT RICHTEL. “The Youngest Technorati.” The New York Times, SundayBusiness Section (Fri., MARCH 9, 2014): 1 & 6.
(Note: ellipsis added.)
(Note: the online version of the story has the date MARCH 8, 2014.)