Tuesday, December 20, 2011

Innovation Takes Center Stage, Living Standards Will Rise

There was a bet made in 1980 over the future prices of  copper, chromium, nickel, tin, and tungsten. Julian Ehrlich bet that prices would increase, because population growth would outstrip supply. Julian Simon disagreed, claiming that prices would actually decrease. Even though between 1980 and 1990, the world's population rose by 800 million people, the price of each metal fell. Tin, sold for $8.72 a pound in 1980, was going for $3.88 in 1990.

Why did the prices drop? As the price of a resource rises, people find ways to either stretch the resource further or abandon it entirely for a substitute. As demand for plumbing and telecommunications networks grew during the said decade, better and cheaper alternatives to copper were used more often. Fiber optics became a major part of communication networks and plastics were used more widely in plumbing.

When, broadly speaking, people are faced with constraints, they innovate to make things work. That is what we're going to see that over the next five years.

The resource constraints that are upon us will be met by innovative technologies that will keep our standard of living, on average, in a state of improvement.

A perfect example of this today would be Square, the credit card reader a vender can plug into his phone's headphone jack. A small business owner can now accept credit card payments with no hardware costs. He just pays a credit card fee, like the big boys do.

Square is a brilliant way to lower the barrier to entry to the retail and restaurant markets. I live in Austin, Texas, and we now have a thriving community of food trailers. The people of Austin benefit because of the wide selection of food. The people in the food trailers benefit because they are earning an income.

We will see many more technologies meeting constraints that are becoming increasingly palpable.

Thursday, December 15, 2011

The Deadly Semantics of Austerity

Many world leaders are calling for a period of "austerity." A workable definition of austerity is "severe or strict in manner; having no comforts or luxuries." Austerity is an absolute. There's no room for hope. It's a word that says, "Give up."

Angela Merkel of Germany, Enda Kenny of Ireland, and David Cameron of Britain have all declared that they are going to enter a period of austerity to pay for their excessive borrowing in the past. This is a noble gesture, I think, that can also be incredibly painful, depending on how healthy you were when you started. Life is very difficult in Ireland right now. 40,000 people have fled the country in 2011 in search of a better life elsewhere.   

When governments cut spending there is going to be pain, but I contend that instead of telling people they will have no comforts or luxuries for the next five to ten years, simply state,

"The public sector is going to be fiscally responsible. Let's make this work."

That simple change in language invites innovation and possibilities. The challenges remain the same, but we are no longer at the affect of the economy. The economy is what it is, now what? What are we going to do about it?

Are you aware of the language you use on a day-to-day basis in your professional life? Small changes can have dramatic effects. Always leave the door open for innovation.