Paradigm Shifts

In class we will be talking about paradigm shifts. These can be rather trivial things (replacing a stop light with a traffic circle) or something far more dramatic. In the last year or so, Jeremy Grantham, an investor who manages something more than $100 billion, has been making the case that the world in on the cusp of a huge paradigm change, and to him its not a good one. In a very long newsletter article, he makes the case that we have lived in a world where natural resources (oil, steel, fertilizer, almost any stuff) has been cheap and gets cheaper. He argues that this era is coming to an end, and that resources are going to get more expensive. He sees this happening for a number of reasons. Most basically, he would say that no compound growth rate is sustainable forever and our society has been predicated on growth. One example of this, is his chart of increase in agricultural yields:


His point here is that it is getting harder and harder to increase our agricultural yields to keep up with population growth.

With more and more people in the world (i.e. the aspiring middle class in India and China), able to live a life that uses something on the order of magnitude of the resources we use, resources will be under increasing pressure. One of his most striking statistics is China's share of various resources:


A couple of things to note about his argument. It is undeniably true that we in the US live in a world based on the paradigm of cheap resources/material. Look in your garbage can if you don't believe it. Grantham is an investor, and he believes that global warming (which he does not doubt exists) can only be addressed if it can be made an economic issue. Here is a further piece about Grantham.

The San Francisco Bay Bridge: Made in China

By now outsourcing is something we are all pretty familiar with. We are not surprised when we call a customer service center and end up speaking to someone in India. But in the ensuing years, we will being seeing how far globalization can go. What things can effectively be done overseas? What things can't? We may be surprised at what can be done overseas. One somewhat surprising thing that was recently done overseas was large components of the San Francisco Bay Bridge. It was fabricated in China in sections, and then has been shipped across the Pacific. This is surprising in two ways: first, the sheer size of the bridge, but perhaps more surprising is that a government public works project like this would be so readily given to foreign workers. It used to be that projects funded by tax dollars would be done in the US as a matter of course. It is a sign of the financial pressure that governments at all levels are under that they were willing to have this job done in China. The New York Times cited estimates that the state of California saved $400 million by doing so. An article in the London Telegraph noted that one advantage Chinese construction companies have in getting big projects is that they have access to funding through the government of China, and can help provide financing that other construction companies can't.

Globalization: Where Computers Go to Die

We think of globalization usually in terms of production--cars made in Japan or Korea, everything made in China. But there is a disposal side of globalization as well. The short useable life of electronics technology means that there are a lot of computers and other things that we are getting rid of all the time. (You can see this at the Wake County landfills.) We think of Silicon Valley USA as the exemplary place where electronics technology is developed; perhaps we should think of Agbogbloshie, Ghana as the worst-case example of how electronics are disposed of. Photographer Pieter Hugo has a series of photographs of this computer graveyard. He says that inhabitants of this area call this place Sodom and Gomorrah. Well meaning people from Europe and America donate old computers to Africa, thinking they will be used. But many of them end up in this graveyard, where people, working in unsafe conditions, strip them for their precious metals. Hugo provides some commentary on the situation, noting that the world generates 50 million tons of digital waste every year, only a quarter of which is properly disposed of.

Connecting New York and Chicago

One of the major themes in history over the last 500 years has been the increasing interconnection of the world. What has driven this? One thing certainly has been capitalism. This story describes how last year, Spread Networks, opened up a special fiber optic line connecting trading centers in New York and Chicago. There are already links between New York and Chicago, but what made this link special was that it was designed to follow the absolute shortest route between New York and Chicago. It was 100 miles shorter than the previous route. Why was this important? Because signals traveling on this route at the speed of light take 3 milliseconds less to get between New York and Chicago than signals traveling on the previous fiber optic cable. Why is this important? Because traders trying to take advantage of transient price differences between the New York and Chicago stock/commodity markets will be able to use this line to beat traders using conventional lines. While the investors didn't say how much they paid to build the line, some estimates were that it cost $300 million. In 1830 it took roughly three weeks to get a message from New York to Chicago. Now we are at a point where it takes 13.3 milliseconds to get a message from New York to Chicago and some people see an advantage of 3 milliseconds as a huge competitive advantage.