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Abundance: The Future is Better Than You Think

ISIS! Ebola!

Fear sells—it’s an evolutionary selection bias we all have and probably for good reason—better to be safe and all.

But the fact is that the world is safer and more prosperous today than it has ever been. Violence per capita is falling, income per capita is on the rise globally. In 10 years, it will be better; in 50, even better. There have been world wars and pandemics, to be sure, but if you step back and look at the trends, they all continue climbing up and to the right with only small dips for what we perceive to be large events. This will continue as we are more connected, more dependent, and hopefully, more empathetic.

Abundance, written by Peter Diamandis and Steven Kotler, outlines these biases and trends and gives us a peak into what our future may look like. Diamandis runs the X-Prize Foundation, which grants cash awards for scientific achievement, such as private space flight and cleaning up oil spills.

The book is the best summary of the not-too-distant technological future I’ve come across. It covers genetics, healthcare, robotics, driverless cars, and myriad other technologies that will be here sooner than we think. It’s an uplifting summary of our future, or better yet, the adjacent possible.

The book can be found here, and the website for Abundance here.

Acceleration — The World has a Wicked Second Derivative

A derivative is a mathematical tool to measure the rate of change. In physics, this takes the form of change in distance over time, or what we call speed. And if you take the derivative of the derivative, you get acceleration — the second derivative. We tend to think in straight lines, but the world is accelerating — i.e., it has a wicked second derivative.

Technology & Information

An analysis of the history of technology shows that technological change is exponential, contrary to the common-sense “intuitive linear” view. So we won’t experience 100 years of progress in the 21st century — it will be more like 20,000 years of progress (at today’s rate). —Ray Kurzweil, Law of Accelerating Returns

chart03

Moore’s Law is what is often cited in describing technological change (note the above graph is logarithmic, not linear), but what is astonishing is that it’s not just silicon chips. The exponential growth in the density of transistors, which drives storage and computation, has been accelerating for nearly a hundred years. The trend is not just about silicon; it’s a line that runs from the first electromechanical technologies through silicon and on next to biological and quantum computers.

This report is a snapshot of what the information revolution means to the average American on an average day, who consumes 34 gigabytes and 100,000 words of information. —University of California

The consequence of this, as Eric Schmidt has said, is that “every two days now we create as much information as we did from the dawn of civilization up until 2003. That’s something like five exabytes of data.” Think about that: every two days, we create more information than humanity did during its entire history. That’s the problem with exponential growth — you start with a couple of rabbits, and a year later there are hundreds running around.

Adoption Rates

And we’re adopting this technology even faster. The Internet was adopted faster than the mobile phone, which was faster than the computer, which was faster than VCRs.

History of Products and Their Adoption Rates

Think about the Nest thermostat — they created a $3 billion company in a couple years. Consumers adopted the product incredibly quickly, leading to rapid growth and creating immense value.

This is going to continue. Costs for gene sequencing are dropping faster than they did for computers. Biological and quantum computers are becoming a reality — we’ll compute in DNA and other universes. Solar installation is growing exponentially as well and driving an energy transition.

Consequences

There’s a cultural consequence to this as well — events happen faster and news spreads more quickly and widely before it is digested and discarded. There is no information arbitrage anymore — news and economic data circle the globe in milliseconds. There is no dampening effect, which leads to reactionary moves and quicker corrections — short-term shocks and retracements.

This affects businesses as well. A company like GroupOn can export its business model around the world in a matter of months. It’s how a company like Zara reacts to consumer demands by re-tooling, re-designing, and producing new designs in their stores in a matter of weeks, not seasons.

And there are consequences for governments that can’t react to this change. Regulation is design for last-generation technology, or worse yet, a couple generations ago. And it leads to such inanities as the banning of home genetics kits by the FDA.

This type of change isn’t a new phenomenon. Reuters started by sending pigeons to London to report on World War I, which greatly sped up the dissemination of news. What is different now is the pace of change — the acceleration — the second derivative.

Skills that Matter

I think this environment rewards two people — the long-term thinkers and the editors.

The long-term thinkers will excel because an abundance of change leads to overreaction. Those that can see the big picture, the long history, and who can navigate the short-term changes, will create a lot of value. Perspective is important in a world where we’re consuming 34 gigabytes of information a day.

You can’t stop the onslaught, and thus your only hope is to contain it. To do this, we need to learn how to edit, to reduce, to find the most valuable streams. All this change has created a lot of noise — we need better filters. The people that learn to use the filters and the companies that build them will also create a lot of value. Editing may be the skill of the next century.

Lastly, we need to be open to change. We may yearn for nostalgia, but it’s dangerous not to evolve — evolution, by definition, kills those who don’t adapt.

Limits

These trajectories do have limits though. We live on a finite planet with finite resources. There is a physical upper limit that needs to be managed. The balance between our appetite and the limits of the planet is delicate.

We also have mental limits. Our bodies and our brains were not designed for a world that is changing faster than we can adapt to it. This causes stress as we are overwhelmed by choice and change.

The acceleration of technology can also lead us to imagine a techno-utopian view of the world, one where we don’t have to think about or solve the complicated problems as technology will solve them for us. But this technological change is just a change of tools; it’s not an ideal.

Harness the Force

Lastly, back to physics, if we take this acceleration and multiply it by mass, we get force: Force = Mass x Acceleration or F=MA, Newton’s second law of motion. This force can be good or bad — it could be a baseball that hits you in the head or it could be the a rocket engine that lifts us to other planets. Acceleration is important: it’s the variable that matters, it’s what creates force. Our job is to not get knocked over by the acceleration but to harness it and create a positive force.

Further Reading

The Age of the Infovore: Succeeding in the Information Economy
Present Shock: When Everything Happens Now
Law of Accelerating Returns

Increasing Density — Corn, Cities, Fuels and Circuits

Whether it’s the number of transistors on a microchip or the number of bushels of corn per acre, there is an undeniable trend toward increasing density. This creates efficiency and thus leads to an increase in productivity. In fact, one of the key components of successful technology is its ability to be miniaturized. The rate of change, governed by different parameters, is different for each industry, but the trend is clearly up and to the right everywhere you look.

Agriculture: Bushels of Corn per Acre (USDA)

Corn-Chart

Farming productivity has steadily increased. For example, from 1950 to 2000, the average yields of America’s three most important crops (corn, soybeans, and wheat) rose 3.5x, 1.7x, and 2.5x, respectively. (SMIL/USDA 2000) It was the continuous introduction of new technologies that enabled these gains, allowing us to meet the caloric needs of a rising population. The technology came first (before 1950, of course) in the form of draft animals and the use of manure for fertilization; then came synthetic fertilizer, pesticides, and combustion engines to drive harvesters and planters. From here, the transition to automated labor (think the Google car plus a combine) and more controlled environments like greenhouses and eventually vertical farms will inevitably lead to further gains.

Urbanization: From the Fields to the Cities (the Economist)

Urbanization-Chart

The number of Americans working on farms has steadily decreased, and by 2000, less than 5% of the US population were farmers. Gains in agricultural efficiency led to a mass migration of people from rural areas to cities, resulting in a large increase in the density of people per acre. This transition further led to gains in productivity as people lived closer, shared resources, and collaborated more. These advances in productivity mean that places like New York City can have the lowest energy emissions per capita. Cities are now cultural hotspots (see the rise of the Creative Class), not too different than biodiversity hotspots, and this urbanization will continue, mostly in Asia, as the rural become the urban around the world. Urbanization is in effect an increase in the density of people per unit of area, which leads to lower energy usage per capita and a host of other efficiencies.

Energy: US Major Fuel Transitions (EIA)

EIA-Chart

The US has undergone a number of energy transitions, from wood to coal to oil, throughout our history, and each of these was one of increasing density. Wood (16.2 MJ/kg) was replaced by coal (24 MJ/kg), a 1.5x increase in energy density. Coal was then replaced by oil, which was refined into gasoline (46 MJ/kg), leading to a 1.91x increase in density. Recently, methane (55.6 MJ/kg) or natural gas has passed coal. Methane is technically denser by mass than both coal and oil, but storing large amounts of gas in a confined space has its challenges (i.e., it requires extremely high pressures or cold temperatures).

Looking at trends this way can become a good filter. For example, ethanol at 25.65 MJ/liter compared to gasoline at 34.2 MJ/liter doesn’t look like such a great improvement. Hydrogen at 123 MJ/kg and uranium at 83,140,000 MJ/kg would be logical next steps, though. We are a long way from hydrogen-powered cars, and the development of nuclear power has been all but halted due to the recent accidents in Japan, however. Still, it’s interesting to note that each major transition over the last 200 years has been one to higher energy density.

Technology: Moore’s Law

Chips-Chart

Lastly, we come to the one everyone knows — Moore’s Law, which states that every two years, the number of transistors on an integrated circuit will double. This increase in density is what has given us the Internet, mobile phones, and even solar panels (as costs have dropped due to similar production techniques). What’s interesting about this trend is the magnitude of it — in the last 40 years, computers have become 500,000x more dense. There appears to be no end in sight as just when a physical limit appears to be reached, a new technology emerges again. Ultimately, we may find ourselves with quantum or DNA computers, both of which could lead to further increases in density.

Observations and Questions

1. Trends: What’s amazing to me looking at these charts is how smooth they are. Those lines represent the culmination of technology over decades, and yet they are clear, consistently escalating trends. These are trends that you can depend on, that are investible, and that you should be aware of. If you’re starting a business, you need to think about where you’re going to be when you go to market, not just today.

2. Transitions: There are times in each of these trends when there is a major technological shift or leap. And in fact, I think we’re in the midst of one right now with farming as we move towards more controlled indoor environments. These are step changes where there is opportunity and where wealth gets created, but investing alongside incremental changes is a tough business — the solar industry has seen one company after another go out of business as they pursue small incremental changes in panel efficiency.

3. Normal vs. Log: While the lines may look similar, the technology chart is logarithmic. Every unit is a 10x increase as opposed to a 1x increase for the corn chart. This is an enormous difference: in agriculture, a gain of 2-3x over 50 years is huge, yes, but in technology, the gain may be 500,000x over the same period. The physical world behaves differently — has different constraints — than the world of software.

4. Next: You would think there have to be limits to these trends, and we may in fact eventually witness some such barriers, but the trends in yield, the trends in urbanization, the transition to methane, and the trends in technology (chips, solar, sequencing) all seem intact for the foreseeable future. These are all good things — we’ll produce more food with fewer resources, we’ll live on less land, we’ll use more efficient fuels, and we’ll have even more powerful computers in our pockets.

Information vs. Real Assets—Linear vs Exponential Growth

I’ve been thinking about the difference between investing in information assets (computers, information) and investing in real assets (land, oil). There seems to be a fundamental difference between the two, and the effects are starting to manifest themselves in real ways.

The easiest way to understand the difference is to think about two investments. If I invested $2500 in a computer, I could get a really nice machine for that much today. I would have bought the ability to compute and share information. Fast forward 24 months, and that computer, according to Moore’s Law, would be worth half of what I paid for it (i.e., twice as powerful computers would be available). In essence, I bought a deflationary asset—that same $2500 would now buy me twice as much computing power. Compare this to what would happen if I bought $2500 of land, which is about an acre of pasture land in the US. At the end of 24 months, if history is any indicator, I would have modest appreciation (land has appreciated roughly 4% annually in the US). Thus investing in technology (as a store of value) is deflationary, and investing in real assets is inflationary (as a store of value). This is why Buffet won’t buy technology stocks—it’s a bad store of wealth over the long term.

What’s interesting is that the VC industry appears to be breaking along these two lines. Broadly speaking, looking at energy and technology, the venture industry is starting to break into two camps, as Paul Kedrosky recently showed. (Land in some ways is a good proxy for energy—it represents the ability to convert sunlight into calories—i.e., energy). What’s happened on the software side is that the cost of starting a software company has deflated so much that it’s virtually free, and thus the need for large capital investments in software has collapsed. In fact, if you need $10 million to start a software company right now, something is wrong—your scope is too big, or your architecture is bad. When the cost of starting a company is the same as a car, you don’t need venture capital, you need a couple of friends (preferably smart, strategic ones). So what we see is the emergence of “super angels,” or micro-VCs, and incubators that add a lot more value than capital. You take the investment from them because of their focus, their network, and their strategic value. Thus the future of the VC industry seems to be two camps—the Y-Combinators (boot camp and network) or IA Ventures (Big Data sector focus) versus the traditional large ($10-100 million investment) hard science investments.

So why this line between software and energy? And why can’t we take what we’ve learned and apply it to energy (information vs. real assets)? As Bill Gates has said, we’ve been fooled by the rapid success in IT:

But, as Gates put it last week, we’ve been fooled by the rapid success of IT, and “there are things that just don’t move forward.” The pace of chips and IT innovation “is rare,” said Gates. Unfortunately, some of those “things that don’t move forward” are fundamental platforms for the energy industry. For example, as Gates pointed out: batteries. “Batteries have not improved hardly at all. There are deep physical limits,” to this technology, he said.

There seem to be two reasons for this: miniaturization (potentially solvable) and physics (not so much). As Kurzweil outlined in Law of Accelerating Returns, one of the prerequisites for acceleration is the ability to miniaturize the technology. As both Vaclav Smil and Gregor Macdonald have written, all of our energy transitions to date have been one of increasing energy density—wood to coal to oil were all movements to more dense fuels. None of the current transitions and technologies are movements to a denser energy source. Maybe through better nuclear or sparked by open source biology we’ll have thousands of hackers attacking these problems, but anyway you cut it, rapid miniaturization seems unlikely. From Gregor Macdonald:

And here we find the largest hurdle of all. For, in humanity’s last two transitions, from wood to coal and then coal to oil, the trajectory each time was to a higher power density energy source. Energy transition is disruptive enough, but much less so when you are gaining energy density. And how do you suppose transition will be this time, going in the opposite direction, to lower density sources?

The second reason comes from the first law of thermodynamics—energy cannot be created or destroyed, only transformed. We can produce more information, we can only transform energy sources (we do have a nice stream from the sun each day though). From an interview with Vaclav Smil in the FT:

I have named this delusion Moore’s curse because (unlike the crowding of transistors on a microchip) it is fundamentally (that is thermodynamically) impossible for the machines and processes that now constitute the complex infrastructure of global energy extraction, conversion, transportation and transmission to double their capacity or performance, microchip-like, every 18-24 months. It’s a zero sum game… (can not be created or destroyed unlike information) – In other words, you can’t create energy, you simply move it around (fossil fuels, for example, simply release energy that has been stored and concentrated over millions of years); you can’t avoid wasting some energy when you move it around; and you can’t stop using energy altogether.

So let’s look at two technologies that are often talked about: the smart grid and algae. In the case of the smart grid, we’re talking about moving energy around more efficiently—there will be gains in robustness and availability, but it doesn’t create any energy. What’s more applicable is Metcalf’s Law (i.e., the strength of a network is proportional to the number of nodes), so we’ll have a better network and may save energy, but it won’t lead to magnitudes more energy.

Algae gets a bit more interesting because we can apply information technology to the engineering of the cells now through biotech. So we can leverage information technology to sequence, test, and even write the DNA for new cells that can produce fuel. The issue will be one of scale—when you cross the threshold from a cell to scaling it in any size, you are constrained by all the messy real world laws of thermodynamics. It seems cellulosic technologies, algae, and various other technologies all break down when it comes to scale because of this. The challenge for all these technologies seems to be crossing from an informational asset to a real asset.

Investing in real assets—land and energy projects—then is fundamentally different than investing in software. One seems to inflate while the other deflates, one is constrained by physics while the other seems to be unbounded but full of outliers. This isn’t to say one is a better investment than the other, just that they are fundamentally different, and it appears that the venture industry is breaking along these lines. Technology certainly isn’t a bad investment, but when you make such an investment, you better run and run fast because it deflates. The corollary is don’t expect a Google in energy anytime soon—it’s not going to scale like information technology. To put it another way, technology investments have fat tails, but it’s unlikely that energy will.

This isn’t bad at all—as a consequence of the deflation in information technology (or flattening), we’re seeing a shift in focus. On the software side, networks have basically deflated to the physical floor of the speed of light, and each of us has more computation power then we’ll probably ever need just on our desktops, and thus start-ups are attacking the problems of visualizing and processing this massive data set. If the venture industry turns back to more traditional researched-based hard science—biotech and energy—this seems like a good thing. This is where the big challenges and opportunities are, but they are fundamentally different problems.

Maybe a more accurate way then to describe the world is that it is informationally flat and physically lumpy.