Reasons Unbeknownst

If you have an hour to kill check out this speech on the American middle class by Elizabeth Warren of Haaavaad Law. If not, read my summary below.

In a nutshell: The things we want are getting cheaper and the things we need are getting more expensive. Two incomes are now required to have a family and after expenses the typical 4 person family has less money to spend, in spite of the fact that two people are making money. She does not go into why the shrinkage is happening which needs the devotion of more thought in my opinion. We’re still in the “Wow, it’s really happening” instead of “What do we do?” phase of the problem.

In my weird take on the world this all makes sense. The shrinkage is due to two major things which are somewhat related. Globalization and technological innovation. Globalization is fueled by innovation (think software development via Skype and call center offshoring) to some degree but they are separate ideas.

I have a theory that if you stripped out the inflation from increased demand for resources and speculation the Fed would have rates at zero right now. In other words, the Fed loves the fact that everybody is worried about inflation instead of the potentially more likely alternative. If the Fed can’t prevent a deflationary price spiral with monetary policy maybe shortages are a god send.

I don’t think inflation can last because wages aren’t inflating along with food prices and that’s not sustainable. If this were an America specific problem then I’d be more optimistic. But it’s not. Technology doesn’t care about borders (unless you’re in Cuba) so the problems with automation are affecting every country.

Theory of the day #1: America is getting hit first with this crisis because emerging nations are benefiting from globalization (wage arbitrage) but it’s only temporarily offsetting the inevitable pain of unemployment that comes when software can suddenly do your job better than you can.

Theory of the day #2: Creative Destruction in a country with nothing to destroy is probably better off than a country faced with massive change and consequent job losses. In other words, America has something to lose and the political consequences of that loss will probably put us at a disadvantage.

Theory of the day #3: The right gets free markets but they tend to confuse the notion of wealth transfer with Socialism. They’re usually seen together but can exist separately. The problem is that the right won’t consider solutions that embrace free markets and wealth transfer. Sufficiently regulated free markets work regardless of wealth divides. Insufficient wealth transfer leads to the death of Capitalism (Schumpeter).

The erection (hah) of a country’s infrastructure creates jobs. Unfortunately for emerging countries, they’ll skip over tech that also implies job growth. There will probably never be many telephone poles, travel agents, or bank tellers in Africa because they’re going from snail mail straight to cell phones. The outcomes will probably be similar (huge wealth divide) but our American journey to that destination will be much more painful (psychologically at least).

Schumpeter (dracula looking guy to the right) talks a lot about this shift and it bothers me that nobody is making the connection yet. Maybe it’s because of what he assumed would happen in the event of what we’re witnessing is unpalatable to anybody without a granite-like intestinal fortitude.

A modest proposal: Let’s assume that automation will lead to huge job losses, economic turmoil, increased productivity from those who keep their jobs and a growing wealth divide. The answer would be to ramp up wealth re-distribution, focus on improving our infrastructure, and figure out how to keep people sane when they’re sitting around for days at a time with nothing to do. There will be service sector jobs left, like masseuses, waiters, teachers, police, etc., but those jobs will be increasingly filled by highly skilled people forced from other careers which die off due to technological progress. The wealth divide isn’t going away.

Coming soon:
Hosting your music library on your blog.
& Hosting your photo library on your blog (and why professional photogs probably want to go this route).

Photo by photopunx2 on Flickr. Click it for more info.

It’s been a little while but there’s actually a lot going on behind the scenes. I’m working on the biggest and deepest blog post of my life which should be up in the next couple of weeks.

Also, in the right column I’ve added photos (Gallery v2), a calendar (WebCalendar), and my music library(Ampache).

I no longer have to rely on or pay for Flickr, YouTube, iTunes, or Google Calendar. Some of the replacements I’ve installed are actually much better than their free alternatives. It was a major hacking challenge getting everything working on BlueHost’s servers but it’s finally stable.

Some benefits of DIY:
Gallery v2 - I don’t have to pay for Flickr Pro. The uploaded video (flash) isn’t subject to quality or length limitations like YouTube.
Ampache - This is blowing my mind. My whole MP3 library is now online and I can listen to it from any computer with a web browser and Internet access. Some people have this working on their Internet capable mobile phones meaning storage is no longer an issue.
WebCalendar - Not many benefits over Google Calendar but it’s easier for people to see my public events (just click the link to the right).

My argument: Everybody will have a similar setup in a few years but it’ll be vastly easier to configure. It’ll also be seamless meaning fewer logins for the various services and they will be connected and social using OAuth and OpenID.

Photo by BridgePix, click for credit.

This is a test post. I’m trying to host video on my blog without using an external provider like YouTube, Vimeo, or the new Flickr Video. I’m also using free and open source tools to encode and play this video…

This is a short video I shot at La Jolla Cove in 2005. It’s set to repeat, click it to stop.

And here’s a widescreen clip from Juno:

The benefit is that I can host videos of unlimited length, at no cost, without quality restrictions or a goofy logo hovering over the video. I also don’t have to worry about my videos disappearing without notice. And if you care about keeping the rights to your work it’s probably a good idea to keep your files on your server.

Update: YouTube just enabled ad overlays on their videos. So if you upload a video of your kid’s first steps your family might see a slightly transparent ad for Nikes hovering over it.

Cons are complexity and bandwidth costs but bandwidth cost is approaching zero these days so unless you host the next big thing you shouldn’t have any problems.

You’ll need your own sever and a little gumption to pull it off but these two links should get you started:
Flash Video Player for embedding into your blog.
http://www.jeroenwijering.com/?item=JW_FLV_Media_Player

Flash Video Encoder for turning your mpegs and what-not into Flash/FLV video files for use with the player.
http://www.rivavx.com/index.php?downloads0&L=3

Update: I’m getting some traffic from Intel’s servers according to my logs, maybe I’m on to something…

Intel is about to release some new hard drive replacements in the form of Solid State Drives. The only way I think these will be interesting for the average consumer is with a price much lower than current SSD offerings. Let’s presume that these drives can max out SATAII bandwidth at 250-280MB/s. (edit: according to this article, they’re going to do 250MB/s read and 130MB/s write.) That’s about twice as good as offerings from MTron et al. but the reason current SSDs kick mechanical drive butt is due to the super low latency (see Vista bootup benches with SSDs in RAID here).

So the latency probably won’t drop which means regular users will only see minor performance benefits over MTRON drives. So why did Intel bother creating these things? I have three theories.

1> They’ve figured out how to create better drive controllers which allows them to use inexpensive flash memory without losing performance. This probably includes something like MFT(managed flash technology) and a drive controller designed specifically to work with flash memory. These things suck down twice as much power (not overall though) as competing SSDs which is a good sign that there is a lot going on under the hood.

2> The use of something like the aforementioned MFT solves the problems associated with random write performance in flash drives. That doesn’t matter (much) in a home computer but for servers it can be crippling. Even if the price is not significantly lower than the competition at launch I would expect these to be hugely popular in servers which are often bottlenecked by disk IO. In a great article by BigDBAHead flash with MFT was roughly 15x faster than Raptors in random write operations. The same drive sans MFT was only half as fast as the Raptor. MFT is currently a software add-on but my guess is that Intel has it built into the drives.

3> The new drive controller will allow higher reliability which the old school drive manufacturers are trying to use as a way to scare people into buying old technology. If these things are as reliable as they claim…

“Grimsrud kicked off half an hour or so of amazing bravado by declaring the endurance of Intel SSDs should be roughly 50 times better than the competition.”

then cost will be the sole remaining concern.

My only hope is that Intel releases smaller versions of this drive. Good RAID controllers can handle 800MB/s these days so if Intel can eek out 200MB/s with one drive an affordable 4×16Gig RAID 0 array would be possible and it would change the hard drive industry over night.

Note: People talk about the processors on RAID cards without mentioning the fact that the chips run at various speeds. Someone with money to burn needs to get a RAID card with an Intel chip @1.2 Ghz (instead of 800Mhz) which should be at least 50% faster than the NextLevelHardware Array which would yield 1.2GBytes / second or so. The brand spanking new Areca ARC-1680ix-12 looks like the perfect RAID card for this environment.

Update 2: A theory: They’re using an underclocked IOP processor inside their SSDs.
Update 3: Another theory: They’re using the IOP processor to do internal/transparent RAID 5 or 6 to increase reliability.

Idea 1: If you notice the spam that gets through your inbox it is often times intentionally misspelled (think V14GRA) to get past spam filters that check a list of banned words. My idea is to use a spell checker as well as a black list for words.

Edit: Case in point, this just showed up in my inbox.

excellent ny jh Woman n m uqi http://www.theew.domain fx zsney ekxx. jdzak f vl mdy m.
ujh r bs anmlq oq dv, gnkv xq nndjn pgo.

The default spam filter for Yahoo Mail generally misses oddly spelled variants of male enhancement supplements. But what if you also ran spell check on the the email titles? That would catch V14GRA as well as the actual spelling. If you’re just a terrible speller your email would be more likely to face the spam box but that’s just motivation to improve.

Idea 2: I have this belief that Capitalism wasn’t really able to function properly prior to the Internet (and web services) because it relies on accurate and timely information. The trade off is a growing wealth divide. I think the concept might apply to social networks as well.

This idea is that human interaction was previously hampered by the same lack of technology. Now we have email, Facebook, Myspace, cell phones. The consequence for capitalism is a growing wealth divide so what are the consequences, if any, for human interaction? What is the currency of interaction? Reputation? Can the concept of wealth be applied to friendship? Should it? Is the YMCA comprable to CompUSA and if so is it destined for failure?

What are the consequences of explicitly defining social networks so computers know how to deal with them. Are unwritten laws unwritten for a reason?

Idea 3: Relates to an unorthodox installation of a garbage disposal but it’s not fit for print on my name-emblazoned blog (though my friends think it’ll make me rich some day).

In other news, I’m working on an article for a local paper which may or may not get published. It argues that the future will differ in the ways we interact instead of emphasizing flying cars or super high definition TV. I’ll repost it here even if it doesn’t make the cut.

Image is “Golden Monkey” by FloridaPFE on flickr

Solid state drives (SSDs) are notoriously expensive beasts. Considering the recent price drops and growing realization that hard drives are now the last remaining bottleneck in everyday (non gaming) PC performance I set out to see if I could put together a Vista ready PC for under $1000 that will blow the doors off higher cost (non-gaming) systems. I’m looking for something that I can give to a parent who isn’t interested in Crysis timedemos, a parent who is more likely to complain about computer slowness during virus scans and web browsing than Adobe Premiere inadequacy. In short: 95% of the PC owning public.

Complaints about Solid State Drives mainly focus on the price. That’s still true but if you assume that the everyday user only needs 32GB things start to get interesting. Ignoring the disk subsystem, you can build a hugely capable system, even Vista ready, for a surprisingly low price.
The parts: The prices below link to NewEgg.

• Motherboard: $80 - AMD 780G based, includes Vista capable 3D and RAID support.
• Processor: $33.99 - AMD Sempron 64 2800+ Palermo
• Case: $55 - InWin with power supply. SSDs don’t put out much heat and the mobo has onboard video and a low watt CPU so cooling isn’t a huge concern.
• RAM: $36 - 2 Gigabytes of no frills Kingston
• SSDs: $395 each - 2×16GB Mtron MSD 6000 Solid State Drives.

So you can build a Vista ready machine, with no drives, for $205. Using two MTron 16GB SSDs in RAID 0 (see motherboard specs) to make one 32GB drive we arrive at a final price of $995. If you can avoid tax and get it delivered by a friendly mutant pigeon you’ll have a sub $1k SSD RAID box (software sold separately). You can get a cheaper case and add a DVD burner if you need it to keep it under $1000.

This machine will play basic 3D games (thanks to the 780G chipset) and should even handle BluRay decoding (again, thanks to the 780G) but the big difference in performance is the result of a ridiculous 200 megabytes per second flowing from the SSD RAID array. That compares to 81 from a WD Raptor and less for a typical desktop drive. The latency will also drop from 8.0 ms to 0.1 ms which is contributes the unusual speed jump when moving to SSDs. In one test Vista boot time dropped from 23.6 seconds with a WD Raptor to 10.1 with a single Mtron SSD.

Reliability:
RAID 0 scares people, and rightly so. If you lose any of your drives you lose all of your data. I have a server running a RAID 0 array in a garage in Pasadena because I needed performance on a budget. And though it’s backed up I get nervous on hot days, wondering if I’m going to have to put in a few hundred miles to get things running again. Solid state drives run cool and they don’t have moving parts so they tend to be more reliable than old style drives. I say tend because they haven’t been around long enough to determine long term reliability.

Overall Performance:
I’ve come to believe that it is the duty of wealthy nerds to benchmark systems for the good of the rest of us. Progressive testation if you will. For that reason I’m going to hold off on building this thing for now. My thesis though is that people are putting far to much emphasis on processor speed considering the bottlenecks created by years of stagnant progress in the hard drive market. I want a disk subsystem so fast that the CPU is pegged at 100% most of the time because it’s not waiting for that noisy relic of a storage device to rotate around to the right location.

Conclusion:
Pros:

• Blazing disk performance due to SSDs in RAID 0 which is important for bootup, virus scanning, web browsing, and overall system snappiness.
• Low power use thanks to SSDs and less beefy processor
• Noise free drives
• No need to defrag - performance not affected by fragmentation due to lack of moving parts

Cons:

• 32Gigabytes is a bit of a stretch for Vista ultimate.
• Lower end components used to keep it sub $1000
• Not a great media/gaming PC though it’ll do basic games and Blu-Ray decoding if you spring for a drive

Image by gek_at2000 - click here for info and yes, I’m aware that it’s not a SSD.

Well, it looks like the speed wobbles got to Bear Stearns, which sold for $2 a share Sunday after peaking at $171 late last year. Jim Cramer of Mad Money fame made an historically awful prediction about the solvency of Bear last Tuesday.

And here is the epic backpedal.

His argument makes a little bit of sense in that those who had money in an account (not stocks) are covered but he should have made that clear considering his audience.

But then why the admission that he can’t be honest because he doesn’t want to cause bank runs? That mentality would explain the near permanent bullish sentiment on CNBC. These hosts would face serious consequences if they level with their audience. It seems like it’s becoming harder to get away with bad predictions with this whole Internet thing to remind us of what was said.

In other news, someone replied to my post about Noam Chomsky’s low tech take on capitalism. Noam’s point, I think, is that a lack of capitalism does not necessarily lead to dictatorship as implied by Hayek’s “The Road to Serfdom”. My economic views are a blend of the Austrian School, Schumpeter (creative destruction), and Andy Grove (accelerating change) so a criticism of the Austrian School wasn’t really a rebuttal of my point.

The Economy: I don’t see how this can possibly be the bottom when you look at what has to happen to housing prices to get them back to normal. As far as how low it will go? I don’t have a take on that. I think I know what housing will do in relation to income levels but who knows what income levels are going to do.

Commodities are falling, which makes sense, but gold is a bit trickier to get a read on. Oil will get you to your job in a car but gold can function as a currency. The deleveraging seems to be affecting both. My guess is that gold won’t get hit as hard as commodities in the short run but as inflation fears ease and the Fed runs out of tools (rates can’t go below zero) people might start to buy into the deflation argument.

So far the Elliot Wave theorists and Austrians are looking pretty smart but they might call the bottom too early if they’re not also looking at demographics, automation, and global wage arbitrage. That said, I’m going to be hugely bullish on this economy once this leverage and speculation is finally unwound.

Just another recession? Bear Stearns is almost dead, stocks are off because of it. Bear is one of the ten biggest securities firms.

The people in charge aren’t saying that this is the worst financial crisis since the great depression. They prefer “since WWII”. I don’t like to write about depressing news because not many people like to read about it, but this is fascinating and terrifying at the same time. I’m just glad I can write about this now without sounding like a permabear.

For some reason, when I read news articles weird analogous cartoons appear in my head. In this case I’m picturing a bunch of crusty old bankers, crammed into a shopping cart, headed down a perfectly smooth slope, picking up speed. The average person on the street knows we’re in a recession. But if you watch Bloomberg (live feed - much better than CNBC but not as good as some blogs) and read the best finance blogs you know that what is happening right now is basically a 100 year financial storm. It’s really really bad.

Why doesn’t the guy on the street know what’s going on? Because if Ben Bernanke said what some know there would be panic. Bernanke keeps referring to this as a sub prime problem. That’s not the whole story. These loans are going bad because of one simple reason: Home prices were too high. Homes bought with subprime loans were too expensive and homes bought with prime loans were too expensive. The loans were a means to an over priced end. Bernanke is shooting the messenger because the messenger is expendable. Now he’s just about out of messengers to shoot and things are still falling apart. His credibility is the only thing holding things together at this point which might explain why people are applauding during his live speech in DC right now. It’s a bit like a laugh track.

My take is that this housing correction, by itself, would cause a pretty nasty recession. But we’re adding on super leveraged derivatives, unregulated hedge funds, over extended consumers, inflation, and the death of dollar hegemony as BRIC emerges and competes for jobs and resources. My tech brain tells me that IT automation(onshore outsourcing) is probably a bigger concern for balanced wage growth than China or India.

In other words, housing is the trigger that’s allowing all of these other painful inevitabilities to unravel at the same time. Housing never would have been allowed to get so out of hand by the Fed if they weren’t trying to delay the inevitable. A look at the home price to income/rent ratios back in ‘04 was enough to know that we were in a classic bubble and the Fed had to know this. The fact that they did nothing lends credence to the notion that they were aware of the systemic problems now rearing their heads.

My guess is that rates go to zero and the Fed loses a tool to “stimulate” the economy. Odds of a 1% rate cut are at 50% right now so we’re not far off from ZIRP (zero interest rate policy). Japan ran into the same problem almost 20 years ago and couldn’t stop deflation.

So the only question remaining, assuming things continue to deteriorate (which looks likely): Will US ZIRP lead to inflation or deflation? If we see deflation the Austrians win. From Mises’ Human Action:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. (p. 572)

Mises was probably a bigger contributor to the Austrian School than Hayek but he never won a Nobel Prize.

Photo by DarthLen

From the Union Tribune comes an article titled “Experts’ forecast sees no recession” which is peppered with quotes like:

Don’t worry, be happy,” said Edward Leamer, director of the forecast, the state’s best-known economic report.

and

Leamer jokingly defined “recession depression” as a “psychological disorder” in which people are unjustifiably depressed about the threat of recession.

And now some thoughts from the comments section at Calculated Risk. It’s the best housing/econ blog in the land not simply because of the article content. The comments that accompany the articles are often written by anonymous bankers and some are convinced that there are former fed employees making the rounds due to their unusual insight.

The Fed has decided to force-feed Treasuries into the system instead of cash. Probably because every time they force-feed cash, the banks run out and buy Treasuries :-). I think ndk is right: The objective is to reduce the spreads, especially those between MBS and Treasuries, by increasing the supply of the latter. More supply = lower price = higher yield.

This appears to be an non-inflationary approach to lowering the spreads that has everybody panicked. Give them points for creativity…
By making Treasuries less attractive, it drives money into other lending markets… Which may help get those markets un-stuck.

Tim, they’re trying a bunch of new and innovative things during one of the most stressed and unique moments the financial markets have seen. Each action they’ve undertaken has been cleverly aimed at bringing stability to specific areas of chaos. Each time, chaos has spread to a new market and caused greater problems. This is Krugman’s chain crises and the face slap theories.

This is another face slap. Judging by this morning’s action in commodities and currencies, the market was hoping for a rate cut face slap instead. Treasuries are selling off as would be expected.

There are two primary risks to this creativity that I can see. The law of unintended consequences is the most obvious. The other is that by resisting market adjustments and implicating more and more of the world in the disaster, they’re making price discovery even more difficult and confusing. This could prevent needed adjustment, or spread Ebola elsewhere.

Essentially, they’re repeatedly telling the market it’s acting irrationally and wrong. If the Fed is correct, huzzah, and they did a brilliant thing. If they’re wrong, we’re not all that much worse off for it. Probably.

That is an admittedly wonkish discussion but the wonk-free summarizations in newspapers tend to oversimplify and are also typically (coincidentally?) over optimistic, and distorted world views can be problematic if you’re trying to invest.

Click for info on baby eating cash photo.

Some interesting points from P.J. O’Rourke on the Daily Show about what Capitalism is and what it is not. He’s a bit nervous at first but things pick up a bit after two minutes.

Some interesting quotes:
About Adam Smith’s role in free markets. “He dug the basement, for the house… that we’re about to be foreclosed on.”
“He believed that it was better for us all to be bad than to have one bad person in charge of us all.”
“A free market vibrates between fear and greed. And we’re headed towards fear.”

I guess, in a sense, you could look at Capitalism as the only economic system that works given dysfunctional mammals as inputs. Communism looked great on paper but assumed that we were inherently selfless creatures. I guess that begs the question: If, in the future, we’re all endowed with brilliant robotic therapists, unleashing our inner potential for charity, would Communism then be a good idea? I have a feeling that nobody would starve in that case but the selection of robots at Wal*Mart would be diminished.