"Kee" Points with Jim Kee, Ph.D.

Markets in the U.S. (S&P 500) moved back to all-time highs last week, erasing the near 6 percent pullback that began in May. China's second quarter GDP number, released last night, came in at 7.5 percent, a bit below expectations and fueling speculation of a stimulus response from Chinese officials. We'll be covering all of this in our upcoming quarterly webcast, so keep an eye out for the email notification!

 

Oil: An article on the Texas “oil revival” in last week's Financial Times highlighted the impact of the Permian Basin and Eagle Ford areas on U.S. oil production. It was typical of the barrage of similar articles on the fracking revolution that is occurring around the world. Prior to the 2007-09 crash, when oil was near $150 a barrel, there was a huge interest in “peak oil," M. King Hubbert's brilliant and apparently accurate 1956 prediction that U.S. oil production would peak between 1965 and 1971. But by many accounts, U.S. oil production could exceed the all-time high of the early 1970s in five or ten years.

 

Speaking of technology, in my opinion the most disruptive (game changing) technology of my lifetime so far has been the iPhone. The success of this has been rightfully chalked up to the wizardry of Steve Jobs and the engineers at Apple, with a lot of emphasis on things like design theory and out-of-the box thinking. But from an economist’s perspective, the best way to think about technology is that it is most successful when it minimizes the required knowledge to do something. For example, a hundred years ago (or in the 1970s, for that matter) you had to have a lot of mechanical knowledge just to keep a car on the road. Today, technology has minimized the required knowledge needed to drive hundreds of thousands of miles. You just turn a key or push a button -the tires even check themselves! The same is true of houses. You used to have to know a lot about electricity and gas infrastructure - pilot lights, fuse boxes, etc. - just to keep your house functioning. Today most new homeowners are blissfully ignorant of that stuff. And so it is with computers and smartphones. Any 12-year old can figure out how to make calls, access the internet for school reports, post updates with networks of friends, use a calculator, find directions using global satellites, etc. That was the genius of the iPhone- it minimized the required knowledge to do all of those things. And that's the way economists think about technology.

 

It is also the right way to think about technology in companies. Any restaurant franchise owner, for example, will tell you that the equipment in their kitchens is constantly being built to require less and less knowledge to run (they say it is "dumbed down"). Just hit this flashing green light when you hear that buzzer. This requires much less learning and knowledge on the worker's part, so it increases the pool of potential workers. Anyway, thinking of technology as minimizing the required knowledge to do something has helped me understand the world a little better, and it has helped me understand why some technology companies and their products are successful while others are not.