Trump's Most Baffling Policy (Or, yet another chapter in Trump's on-going battle with the future)

We beat the Nazis because we had better manufacturing and research capacity. We invented the atom bomb before they did. We made tanks and planes faster than they could.

Near the end of the war, FDR asked Vannevar Bush to explore how wartime research efforts could be transformed into peace time efforts to create new technologies and jobs and to increase life expectancy. Out of Bush's recommendations, captured in Science, the Endless Frontier, came the National Science Foundation which has steadily grown since, providing funding for the basic research that is life-changing over generations.

Bush had great insight into the importance of research and how it is best conducted. Speaking of basic research that doesn't immediately translate into a new product, he wrote about how medical research could be supported within medical schools and universities.

Apart from teaching, however, the primary obligation of the medical schools and universities is to continue the traditional function of such institutions, namely, to provide the individual worker with an opportunity for free, untrammeled study of nature, in the directions and by the methods suggested by his interests, curiosity, and imagination. The history of medical science teaches clearly the supreme importance of affording the prepared mind complete freedom for the exercise of initiative. 

As the United States acted on recommendations such as Bush's, our country clearly took the lead in the creation of new technology, industries and companies. The National Science Foundation is both reality and symbol of our on-going support for research. Bush saw in research the basis for our economic progress as well: 

Where will these new products come from? How will we find ways to make better products at lower cost? The answer is clear. There must be a stream of new scientific knowledge to turn the wheels of private and public enterprise. There must be plenty of men and women trained in science and technology for upon them depend both the creation of new knowledge and its application to practical purposes.

As it turns out, support for research is non-partisan. Since its creation, leaders of both parties have steadily increased the amounts they've asked for to fund the National Science Foundation. Until now.

Trump is the first president to cut average funding from his predecessor. (Or more precisely, request that the average be lowered during his administration. Presidents make a request and Congress makes the appropriation.) Add to his list of leadership qualities, "Not a fan of scientific progress. Facts? I don't need research for that. I can make those up."

Among the institutions he's trying to erode is this most basic tool for progress. His desire to cut even research funding might be the most baffling of his attempts to retreat from the modern world.

Basic research matters. We rightfully pay attention to the Fed's policy when it comes to setting interest rates because that can change investment and spending. The National Science Foundation doesn't just affect investment but actually is an investment in intellectual capital, which is the basis for new technologies, industries, companies, jobs, and wealth. Research takes longer to work than interest rates, but has a bigger effect. I would argue that a slowdown in research funding results in a slowdown in productivity and wage growth. But of course something with a 20-year lag struggles to get much attention in this world of 20-second attention spans.

The amount we fund the National Science Foundation seems paltry to me. Even at its peak, it never even hit even one-tenth of one percent of GDP and it has averaged 4/100th of one percent of GDP in its lifetime. It seems to me that we could hardly err by making it larger each year. Much larger. But alas, the man who looks at our economy and concludes that the rich are not rich enough and the poor are not poor enough has also decided that we know quite enough already. That hardly seems the case to me. 

Virtual Production - Turning Consumers into Designers

One of the big problems with car companies is that it takes so much time and money to change models in response to changes in taste. Car companies make bets on design and technology up to a decade before the products reflecting those choices debut on the market. Markets change but the car companies hardly turn on a dime in response. They are more like those movie car chase scenes in which cars miss turns and run over lawns, onto sidewalks, and through parks and run over small cabanas, driving straight while the road turns.

Modern technology might make it a little easier for car companies to move with market demand.
It'd be interesting to develop simple-to-use car design software and make it publicly available on the Internet. Users - everyday customers - could make their own designs and people could vote on these - or even tweak them to win more votes.

Coincident with this, at a particular stage you could have people "bet" on the designs by making deposits, putting earnest money down on a car before GM or Ford or Toyota even begins to make production plans. Money "bet" on designs would fund next steps of development. Designs that made it progressively through various stages of development to actually make it to market would then offer payback to investors in this early stage. Betting on the right design at the onset might yield, say, a 100 to 1 return, whereas getting the "bet" wrong would result in a loss of the investment. Investors would be able to bet more precisely than just buying GM or Ford stock, steering the company towards specific models and designs.

Further, if your design was one that moved into production, you might win $1 million or even more. You might get a portion of the profits. (And yes - this could even attract the attention of car designers from inside your company. So what? Why shouldn't employees who help save you from billions in losses get an extra million or more?) So the car companies would turn their production capacity into a tool to reflect demand by rewarding both design and trend spotters who invest.

It would seem that if car companies could make as much of their at-risk design work less risky, they’d be less likely to put billions into creating cars that no one wanted. Let the designs fail when they are still virtual rather than, five years later, when those designs are sitting on show room floors.

$25 Billion for These Guys?

"Leadership is not the same as reaction. Even a cat will jump off of a hot stove. Leadership involves prediction."
[loosely quoting] W. Edwards Deming

The big three auto companies are clarifying their request for $25 billion to bail them out.

GM"s CEO will drive to DC in a hybrid car.
Ford's CEO will work for $1 if the auto industry gets $25 billion. (Which, oddly enough, suggests that if his company has less money he'll ask for more pay.)

These two were sharply criticized for flying to DC on private jets, asking the American taxpayer for money. And Ford's CEO, Mulally, said that he thought his $21.7 million compensation package was okay, even when the company he was leading needed to be bailed out.

I guess this shows that these CEOs can be shamed into changing their behavior. But it also seems to affirm that they are merely lurching from one reactionary move to another. And in an industry where developing a new model car can take 3 to 8 years, leadership by reaction is far more of a liabilty than high gas prices or tight credit markets.

It seems doubtful that these CEOs have a bold vision of the future or have any real connection to the average consumer. Given that, it is not obvious how they'd be able to put $25 billion to good use. I say invest the money into mass transit instead.

Time for Automakers to Learn from Tech Industry

Last quarter, GM lost about $39 billion. It wouldn't take too many quarters like that before I was forced to borrow money from friends. Ford, too, is struggling, having narrowed their losses for the most recent quarter to just $380 million - beating analysts' expectations. While that might be only 1% of GM's loss, it still seems like a big number to me.

One reason that oil is difficult to replace is that if it were suddenly rendered obsolete, about $7 trillion in wealth - as yet untapped oil reserves - would suddenly be worthless. The folks who sit atop this vast wealth aren't particularly inclined to see that happen.

So, what vested interests have an interest in rendering oil obsolete? Why not auto makers?

One of the ways that Intel and Microsoft and Seagate (and others) have fed each other's success is by co-evolving. More storage or computing power allows for more sophisticated software (bloatware, to its critics). More sophisticated software requires more storage space and computing power. If you have a ten year old car, you can go pretty much wherever a brand new car can go. If you have a ten year old computer, you find large swaths of computer land are off limits for you. Whether it is planned or simply serendipitous, this rapid evolution of technology has helped computer sales. Today, even our phones rapidly become obsolete.

TV manufacturers have learned a lesson from this. In February of 2009, all analog broadcasting will stop and viewers will be forced to upgrade to High Definition - an act sure to stimulate hardware sales.

It seems to me that auto makers would want to take a similar approach with their cars. Imagine if they were to design cars that depended on something other than oil. Something that polluted less, or ran on cheaper fuel, or needed fueling less often - all of these options could help to stimulate sales. We so often talk and write about how positive might be the effects on our environment and our continued funding of extremism if we broke our oil addiction. But just imagine what this could mean for the auto industry.