Tuesday, February 12, 2008

Remembering Julian Simon

Julian Simon passed away just over ten years ago. In my view, he should have received the Nobel in economics as well as the Nobel Peace Prize. Nevertheless, he probably understood the power and reach of his ideas. And he did win the well publicized bet with Paul Ehrlich.

Peter Huber is one of the smart people who works and writes in the Simon tradition. His piece on "Techno-Optimism" (below) in this week's Forbes is on target.

Don't panic about subprime lending or rogue traders. This is a
time to be optimistic. Prosperity and profit still depend, above all, on human
ingenuity. Wetware is still the main asset you're holding in any
well-diversified stock portfolio. No serious student of science technology can
be anything but bullish about the long-term prospects for profit and growth in
the ingenuity-driven economy.

Information technology. IT translates human ingenuity into
binary code, imprints it on molecular-scale substrates and mass-produces it more
cheaply than newsprint. The quantity of processing power or storage capacity you
get per device and per dollar still doubles every few years. Because they
materialize our own intelligence, these technologies can streamline, improve and
automate anything. Nothing will stop them from continuing to boost labor
productivity in every sector of the economy. The highly automated factory, to
pick only one example, can out-compete any assembly line in the world that runs
the old-fashioned way, even if its workers are plugging in widgets and
tightening bolts for 30 cents an hour.

High-speed communication. Wired and wireless technologies are
still improving, and faster than ever before. So the cost of trade continues to
fall, and that lowers the effective cost of everything that's traded: raw
materials, labor, durable assets, consumer goods, capital, commodities and money
itself. In every market--and at every step from suppliers of raw materials to
consumers of finished goods--faster, cheaper communication lowers the cost of
producing and consuming.

Digital power. Electrical drive trains are displacing
mechanical ones in factories, ships, hybrid cars and all the other heavy-lifting
sectors of the economy. They're made possible by semiconductor chips that can
handle megawatts of power, rather than the microwatts that move the bits through
a laptop. Moving power this way is far lighter, faster, more precise and more
efficient than moving it mechanically through shafts and gears. Sibling
semiconductors are used in light-emitting diodes, solid-state lasers and other
technologies that generate heat and light far more precisely and efficiently
than conventional welders, torches, ovens and bulbs. Solar cells use similar
materials to do the same in reverse. And as everywhere else in the semiconductor
industry, performance doubles and redoubles, and prices keep

Biotech. Yet another hockey stick, and this one is right at
the bend, at about the point where silicon was two decades ago. Gene sequencers
can now read all the code that makes life tick. Biochemists can cut, splice and
reassemble it. Scientists now have the tools readily at hand to copy anything
that life can build, and beat it at its own game. They will soon bioengineer
bacteria to melt oil out of tar sands, turn grass into diesel fuel and scavenge
natural resources of every kind out of low-grade, thinly dispersed deposits.
They can design drugs to replace, boost or suppress anything in nature. While
the designing isn't cheap, pharmacology is much cheaper and vastly more
effective than hands-on medicine. The real cost of health care is falling and
will fall faster as these technologies continue to improve.

Nanotech. The tools of the semiconductor industry are now
being harnessed to mass-produce microsensors that let microprocessors see, hear
and feel what's going on all around. Chip-scale sensors already tell an SUV's
master computer when the vehicle is about to roll over and the Wii game
controller when the live player wants to swing the virtual bat. Within a decade
or two sensors will allow microprocessors to see, hear and feel far better than
we can. Microengineered materials are simultaneously transforming the
manufacture of clothes, cars, jets--just about everything people make--because
they're far stronger, lighter and more functional than metals, plastics and
natural fibers.

Can bad government policies impoverish us all, nevertheless?
Not easily. Ingenuity is too compact, powerful and portable to be defeated by
inept public policy that's implemented only here or there. Know-how is as
portable as capital; it can go where it's welcome and walk away from incompetent
central bankers, kleptocrats, tax collectors and economically irrational
regulators of every stripe. Lower prices, higher wages, better health insurance
and a clean environment can attract enterprise, capital and skilled labor from
places that lack them. No individual government runs the show

So sell everything and buy gold if you think that terrorists,
despots or feudal theocracies might soon pull off something big enough to stifle
global trade. Otherwise, buy and hold.