Saturday, December 20, 2014

When Cable Dies, It Will Die Fast

As I said in the last post, I realized fifteen years ago that Internet TV will replace cable as the primary delivery mode.  It was a radical claim then,  but verging on obvious today.  However, I forgot to mention that its demise will be very rapid.  In fact, it could go into a dearth spiral at bay time.

The reason is the high fixed costs of cable.  It works like this.  Suppose a cable distributor has a service area of 200,000 homes of which 160,000 are cable customers.  It charges $45 per month for a total monthly revenue of $7,200,000.  This is comprised of $20 per month of variable costs, $1,000,000 of profit and $3,000,000 of fixed costs.

Now suppose that the cable distributor loses 20% of its customers.  Now, the $4,000,000 must be defrayed over 128,000 and the price must increased to $51.25 per month.  This increase in price causes another 20% to abandon cable and the price must be increased to $61.67.  This causes another 20% to leave which causes prices to increase again to$82.50.  This results in a death spiral of fewer subscribers and higher prices.

The distributors will realize that as people start relying on Internet TV, their basic 7 MBS Internet service will not stream multiple HD videos simultaneously and consequently they will upgrade to 25+ MBS service.  This is a net plus for them, so they won't fight the death spiral.

The losers will be the Networks who try to do Internet TV like cable TV.  The winners will be websites who can deliver a homogeneous market that will have a high density of visitors interested in a program.  Polymathica will be such a market.

The main message here is that Cable will die fast and will probably do so soon.  The corollary is that, with smaller audiences and crowd funding, it will provide many opportunities, especially in new markets like Polymathica.

Friday, November 28, 2014

Internet TV is Still Only Half Here

In 1999 I wrote an article explaining why Internet delivered TV would kill Cable and what the Industry would look like after the transition.  With Internet services, such as Netflix, the online presence of most networks, the episode and season purchase option through Amazon and others and now the subscription offering of CBS and HBO, there is little doubt that I was correct.

However, the transition is no more than half over.  Networks, for the most part, are still broadcast era artifacts that have simply replaced local cable distributors for the old local affiliate broadcasters.  Even the new networks, such as U.S.A., Fx, Syfy, etc., though never broadcast networks, still reflect that structure.

We need to take a step back and see that television has two relationships with its audience that are really quite different.  The first is the premium relationship that actually exists between the producer and the viewer.  For example, The Good Wife is really a relationship between Robert King, Ridley Scott, et alia and the viewers.  The second is the rerun library service, such as Netflix.  In both cases, the cable distributor is of no use and the Network now provides no more than marginal value added.

The first run producer has two basic needs.  First, save for those who are very established, funding for a new show is needed.  Networks no longer routinely provide funds directly.  Rather, funds are acquired to produce a pilot.  That pilot is then shopped to networks.  A network may purchase 13 or more episodes and that contract is used to acquire the remaining funds required to produce the show.  Ultimately, what the Network brings to the table is cheap and nearly universal access to viewers but, today, little more.

To put it simply, if you are a fan of Elementary, your allegiance is to the producers of the show, not CBS.  If CBS cancelled it and it started being distributed elsewhere you would have no thoughts of loyalty to CBS  You would go to wherever Elementary was being offered.  This is one of the strategic problems that networks have - almost zero brand value.

One of the problems with the network business model is that the budget available to the producers is determined by the number of viewers that the network can attract multiplied by the amount that advertisers are willing to pay in order to talk to a viewer.  The perceived value of the show by the viewer is irrelevant.

Internet delivery is different since it is the viewer who determines the value of an episode. If the show's budget needs to be $2.00 per episode, in the Network universe, the show is dead.  If viewers are willing to pay $2.00 per episode in the Internet universe the show may continue.  This ability for a highly committed subset of viewers to support a show will, over the next decade, completely transform the industry.

The beginning of the end for Networks will be when a show that they cancel, rather than going out of production, continues to be produced at a per episode fee and is marketed through Amazon, iTunes, Netflix and blogs and magazines with proper demographics.  If the marketers 'take' is less than that of the Networks, the 'producer to viewer' business model will grow and the network business model will die or more likely transform.

Today Netflix, Amazon and Hulu provide access to programming, mostly shows in syndication.  Netflix provides some limited original programming.  This business model needs to change as well.  The problem is that your subscription pays for programming that you don't want to watch.  As a customer, it is in your best interest to subscribe to a service whose subscription base is homogeneous and whose viewing preferences are most like your own.

Over the next five to ten years, the broadcast and cable networks, Netflix, Hulu, Amazon and some new entrants will converge on a business model that will offer a monthly subscription that will provide unlimited access to a library of syndicated shows and older movies along with episode or season pass purchase for new shows, video magazines, sporting and other events.  Right now, with Amazon Prime and Instant Access, Amazon is the closest.

Over time, because of the market pressures mentioned, these various Internet TV providers will each find their own niche.  As they do, they will collide with Internet sites that already serve the niche and will find it profitable to offer Internet TV.  An example is Huffington Post.  It already has a sophisticated web presence with over 100 million unique visitors and a strong urban, college educated, 'soft Left' profile.  'HuffTV' would be a relatively easy start up.

There will be some interesting transitional issues.  At market maturity there will be a number of enterprises each of which will have access to a specific demographic.  They will offer a first run and rerun library specifically tailored to its subscribers.  However, at present first run contracts and syndication ownership does not conform well to a market niche segmentation.

For example, the new subscription service offered by CBS, through its CBS Television Distribution, owns an impressive library of syndicated shows that will make it an instant contender in the streaming rerun market.  However, much of it doesn't match well with its current first run lineup that skews heavily to the more intellectual crime/investigation genre.  On the other hand, websites that have a strong market niche presence, such as Huffington Post, will need to acquire both a syndication and first run library.

While this will lead to a period of increased acquisition and divestiture, it has been the general pattern, albeit at a lower level, with syndicated shows in the past and doesn't cause much of a change from business as usual.  The significant change will be with first run shows.  Because networks have controlled the industry in the past, first run shows have traditionally been exclusive to one network.  As producers take control of the industry, they will see benefit in striking distribution deals with several distributors.

Polymathica, though targeted at a much smaller market than Huff Post, still represents a wonderful opportunity to enable refined, erudite programming that in today's market simply couldn't get produced.  It will simultaneously enable several thousand Knowledge Class Polymathican careers.  Additionally, most shows will be financed through crowd funding which will provide high return potential to its small investors.

So, this impending development is significant on two levels as investment intelligence and as career opportunities. First, television is a growing and volatile industry that has been dominated by a handful of companies.  While cable television is going to die, the same companies typically provide Internet service.  As people transition to Internet TV, they will need to upgrade to higher bandwidth service.  While cable companies may see their revenue decrease, their operating income may actually increase.

The broadcast and cable networks will need to choose a market niche.  While that means that their viewership will almost surely decrease, their revenues may actually increase.  An ad supported show will typically generate about 60¢ per viewer, which must be shared with a cable, satellite or broadcast distributor.  A show that is distributed over the internet via a season pass will typically create $2.00 to $2.50 of revenue and the distribution costs decrease.

While the industry is in turmoil, it does not present much in the way of investment opportunities.  The existing mainstream players will lose viewers, but will increase its revenue and income per viewer.  When I wrote the 1999 article, I thought that AT&T was in the best strategic position.  Now, it appears with the acquisition of the NBC family of businesses, Comcast may be best positioned.

The real opportunities will reside in new, smaller market niches, such as Polymathica, whose viewers were disenfranchised in the cable TV era, but will be enabled in the Internet TV era.  PolymathicaTV will be joined by ZeitgeistTV, PolyamoryTV, ChristianTV, GothTV, AryanTV, AynrandianTV, SingularityTV, etc. that, in total, will likely capture about 15% of the market.

I estimate that PolymathicaTV will capture about 0.7% of the market, or about 15 million people.  PolymathicaRerun will, at this level, generate about 1.4 billion USD in revenues.  The majority of this revenue will accrue to the owners of content.   PolymathicaTV should be able to support about 100 shows at an average of 1,000,000 viewers.  This 4.5 billion USD of annual revenue will support about 2,500 FTE career opportunities.

It will also create impressive private equity opportunities as well.  Creators of a show will acquire enough funds to produce a pilot and some marketing funds, say 1.0 million USD in the anticipation that some viewers of the pilot will purchase a season pass which will generate sufficient funds to produce the show.  Most participants in the project, including the creators, will be paid scale or siilar, against a percent of revenue.  This allows low risk and potentially high returns for both investors and participants.

Skills needed for a successful team include:

  • Production
  • Writing
  • Directing
  • Acting
  • Casting
  • Sets
  • Wardrobe
  • Editing
  • Musical composition
  • Special effects
  • Sound
The principals will typically have mastery of several of these skills.  The deal structure will usually be gross margin = Revenue - non-equity expenses.  The Gross Margin will be broken into 10,000 shares and allocated to the equity participants.  

Crowd funders for most projects will have a 1,000 USD minimum investment requirement, with $500 increments above that. They will be pitched with a proforma statement.  For example, the show may anticipate one million viewers with an average season pass of 45 USD.  Distribution services takes 25% and non equity costs are 4 million USD for a gross margin of 29,750,000 USD or 2,975 USD.  A 1,000 USD investment, receiving two shares, will earn 5,950 USD per year for the run of the show.  If the show gains 1.5. Million viewers the 1,000 USD investor will receive 9,325 USD per year for the run of the show.

Because of the nearly immediate high return potential and the small amount risked, investors do not need to be risk averse.  An investor who invests in five projects in a year and hits on one will be cash flow positive the first year and have 100% return for the run of the show.  Because of this, a lot of pilots will be produced which can be laid off to the rerun service if they don't succeed thus reducing risk.

This is an exciting end game scenario that creates thousands of opportunities within Polymathica and tens of thousands of opportunities in other market niches.  Readers who are interested in polymathicaTV either as a participant or investor should subscribe to The Polymath.

Sunday, August 17, 2014

Microstate Design Group

Nearly half of the nations with the top twenty standards of living, according to the CIA Fact Book, are microstates.  Generally, a microstate has an area of less than 5,000 square miles and a population of under 1,000,000 and is generally either partially or completely autonomous from a sponsor state.  The classic example is Liechtenstein which is a sovereign nation but sponsored by Switzerland (the official currency is the Swiss Franc.)  It has the highest standard of living in the world.

All microstates of significance, Liechtenstein, Andorra, Monaco, San Marino, Jersey, Isle of Man, Bermuda, Bahamas, the Cayman Islands, appear to have collegial relationships with their sponsor nation and the community of nations, in general.  So, for the most part, microstates do not appear to be something that should be feared.  In fact, I am about to argue that the larger nations should all develop processes that allow disaffected groups to create microstates.  By doing so, the large nations will be legitimzing their claim to sovereignty and also will likely lower the cultural friction within their population.

The process should include the following:
  • The microstate will buy land that it will occupy from current owners.
  • It will compensate any current residents who do not want to be part of the new microstate.
  • The microstate and the sponsor state will negotiate an arrangement by which the sponsor state will provide certain services to the microstate at a negotiated price and will retain certain rights of sovereignty while relinquishing others.  
  • The microstate will likley need to enter into an ongoing payment to compensate the sponsor state for its loss of sovereignty and taxing authority.
  • A series of treaties will be executed, such as visa requirements, trade status, etc.
This process will lead to an orderly and more collegial establishment of the microstate.  It will generally assure the community of nations that the creation of microstates will not lead to the proliferation of rogue states.  

Most Political Philosophers today rely upon some form of Social Contract as justification for the right of nation states to hold authority over its citizens.  However, a contract is coercive if their are no practical alternatives.  By declaring no right to secession, today's nation states are on weak philosophical ground.  By having a practical mechanism for microstate alternatives, nation states, for as long as they are the dominant form of government, will stand on stronger philosophical ground.

The Internet is creating cultural fragmentation and polarization that makes the democratic processes more contentious, often leading to 'gridlock' and, in extreme cases to terrotist acts and/or insurrections.  This is being caused by a relatively small percent of the population with very strong ideological positions that are fundamentally irreconcilable with the mainstream population of the nation state.  Even a small number, say 5% of the population, establishing microstates can reduce political and cultural polarization sufficiently to return a degree of equanimity to the political process. 

As the Information Age civilization emerges, with its Cultures of Affluence, the first principle of political philosophy will become, 'No person should be required to live under a body of laws, programs and policies that he or she considers to be fundamentally unjust.' Few people will assert the opposite, that people should be forced to live under a body of laws, programs and policies that they consider fundamentally unjust.  However, few people can imagine how the problem can practically be solved.  Now we see a way.

To date, microstates have been comprised of ethnic minorities within the sponsor states.  However, as new microstates form, they will be comprised of international populations with shared cultural, social, political and economic values.  The first of these are the planned Libertarian city-states in Honduras.  This will often create a practical benefit to sponsored microstates.  These microstates will be comprised of an International population who have achieved, 'live anywhere' Information Age incomes.  They will become a very lucrative, new trading partner.

New technologies in desalination and alternative energies, such as OTEC and EGS, are making coastal, arid land that historically has been uninhabitable or sparsely populated very attractive for microstates.  Public water use in the U.S. is between 200 and 250 cubic meters per year per capita.  Desalination costs about $0.30 per cubic meter more than groundwater or about $60 to $75 per year per capita.  For an Information Age community, that averages 600,000 USD per year household income that is not significant.

This suggests that Australia, Mexico, Chile, South Africa, Namibia, Saudi Arabia, et alia, are all very attractive locations for microstates.  Again, the new microstates are likely to be comprised of populations that have values very different from the prevailing values of Liberal Democracies.  These will include, but not be limited to Marxists, Libertarians, Gaians, Polyamorists, Polymathicans, Pagans, Eugenicists, Transhumanists, Zeitgeist, etc.

We are entering a period when a profound transformation from an Industrial Age civilization to an Information Age civilization will take place.  Microstates can be crucibles for social, political, economic and cultural experimentation.  They can try new combinations that would be too radical and risky a departure from current institutions.  However, they can be tested safely on smaller scales.

This is an exciting opportunity for thoughtful and intellectually disciplined people to engage in a mutual exploration of the possibilities of mirostates.  For those who wish to participate, we have created a closed Facebook group.  If you are interested in participating, please message me in Facebook or e-mail me at

Friday, August 15, 2014

How the Income Explosion Happens

I am encountering, with greater frequency, people who are confused over how people losing their jobs to robots and AI can lead to an income explosion.  So, here, I am going to lay it out, piece by piece and, in the process, hopefully, help people understand what we need to do in order to get through this transformation with a minimum of pain.

When a robot or AI salesperson visits the engineering or IT department with the latest gizmo, the potential customer has a form that they need to fill out and submit to the Financial Analysis department for approval.  The purpose of the form is to provide the Analyst with the information that he or she needs to determine the financial impact of the purchase and implementation.  The form usually quantifies expense savings, generally in labor, against the costs of the equipment or program.  If the purchase is found to increase shareholder return, it will be approved.  If not, it will be rejected.

So that is the first important point.  Automation lowers costs and increases profits or it isn't done.  What this almost invariably means as the first step is that someone loses their job and the shareholders earn more as a consequence.  So far, not good.  In fact, it plays right into the 1% narrative.  It is a transitional phase and the situation changes in a second step.

However, before we get to step two, we are going to pause and do a little Economics.  An economy has X hours of human input that results in Y output.  So, Y/X = productivity or the amount of production that can be done with a unit of labor input.  There is a labor constraint on the economy and through all of history, it has been so.  Output is limited to Y/X times the number of hours that are available for productive activity.  The number of hours can only be affected (given constant population) by changing the number of hours per worker or by changing the percent of the population that works.  Both of these are severely limited in their range.

For example, if there are 120 million people who are willing to work full time and productivity is $200,000 per worker, Gross Domestic Product is limited to $24 trillion.  However, economies do not function perfectly and there are always unutilized hours (unemployed or underemployed people).  However, there are two things that are clear.  One, the only way to sustain growth in standards of living is to increase productivity (X/Y) and that involves automation.  Two, as long as X/Y is not infinite, full employment is possible; it simply requires an increase in GDP.

In other words, suppose X/Y doubled to $400,000.  If GDP remained $24 trillion, 60 million people would lose their jobs.  However, if GDP grew to $48 trillion, there would still be 120 million jobs and, essentially, the standard of living would double.  This is always the case.  If X/Y = $1,000,000, without economic growth, there would only be 24 million jobs (80% unemployment).  However, if the GDP grew to $120 trillion, again, there would be 120 million jobs.

This is the explanation for why the Luddite fallacy is a fallacy, today, as it was in the 19th Century.  However, there is a potential fly in this particular ointment.  As we see, today we live in a labor constrained economy.  It is true that there is unemployment and there are people who would work if they could get a job.  However, if we completely solved those two problems and everyone who wanted a job could get a full time job, the economy would still be labor constrained at about 112% of today's GDP.

There is the possibility that with a sufficiently high X/Y the economy would become either resource or demand constrained before it became labor constrained.  In other words, there would be some permanent unemployment as is feared.  While this may be an issue at some time in the future, it is not in the near term.

First, the economy is becoming progressively less resource dominated which argues against a resource constraint.  In other words, as the economy grows, a smaller percentage of GDP is comprised of energy, steel, cement, etc. and more is comprised of design, knowledge, content, etc.  For example, a Rolls Royce costs ten times the cost of a Toyota.  However, it does not use ten times more steel.  Its design component comprises an enormous amount of the price difference.  As we become more affluent, the economy will continue to become more design and content laden.

Second, while small parts of the economy are already demand constrained, we are a long way from the majority of the economy being constrained in this way.  For example, lowering the cost of flash memory will not greatly increase demand.  In other words, very few people want more flash memory but don't buy it because it is too expensive.  Flash memory is essentially demand constrained.  However, housing, automobiles, services, the primary components of end product consumption are far from approaching demand constraints.  In other words, there is some point at which people will say, 'Enough house', but we are not even close to it.

Consequently, we can safely conclude that incomes can increase without meaningful constraints, but that it will go to the owners of enterprises, not to the employees.  That is not an untrue statement and is a component of why workers' wages have stagnated over the past two decades.  However, this is not the end of the process.

To this point, companies have fewer employees and higher profits.  However, to the extent that free enterprise works, the lower costs will translate into lower prices as companies either attempt to increase their market share or defend their current market share.  This price competition is a major reason why predominantly unregulated economies have historically outperformed centrally planned and heavily regulated economies.

Companies will continue to drop their prices until the incremental decrease in price does not pay for itself through higher market share or economies of scale. Lower prices, of course, benefit all people who buy products and services.  So, on the surface, lower prices look like a good thing.  However, to Economists, comprehensively lower prices, called deflation, is a bad thing and they will take measures to 'fix it'.

Because the Central Banks are full of Economists who believe that the best state of affairs is inflation in the 2% to 3% range and that deflation is bad, when automation causes deflationary pressure, they will make it go away by printing more money.  Historically, this has usually been done by lowering interest rates.  However, as deflationary pressures have continued, interest rates have fallen to close to zero and they can't use that method anymore.  So, they have started buying debt, usually either government or mortgage debt.

Here is the really cool part.  Usually, as is the case in the U.S., the Central Bank is granted a modest return and, beyond that, all the proceeds from printing money goes back to the government.  Lately, that amount has been around $80 billion per year in the U.S.  There is essentially no down side to this.  It is a process by which a portion of the increase in GDP ends up in the Treasury without anyone being taxed.

Something similar happens when the Central Bank buys mortgage bonds, but rather than the government benefiting, home owners benefit through lower mortgage rates.  The U.S. Federal Reserve did this and right now mortgage rates are historically quite low.  In all likelihood, they will return to Treasury Bonds in a QE-IV.

Here is the counterintuitive part.  The Central Bank can never sell the bonds and when they mature, they must replace them.  They bought them to increase money supply and eliminate deflation.  Selling them or allowing them to mature will undo that.  It, then, would be deflationary because it would take money out of circulation and would need to be fixed just like the original purchase.

What that means is that when the Central Bank buys government bonds, the interest paid becomes income to the Central Bank and from there it goes back to the government for a net zero interest expense.  The Central Bank can never accept payment on the principle or it will undo the deflation fix.  So, when the Central Bank buys government bonds, they functionally disappear.  They never have to pay back the principle and the interest they pay is refunded to them.

When the government spends tax dollars, it does not stimulate the Economy.  The government spends it instead of the taxpayer, but there is no increase in total spending.  But when the government spends the money that it receives by selling bonds to the Central Bank, the taxpayer keeps their money and is free to spend it AND the government spends the money without ever having to pay it back.  This is very stimulative and GDP grows.

So, in the final step, the people who lost their jobs at the beginning of the process get jobs back because X/Y and GDP have increased such that, in the end, jobs remain constant.  However, the process takes time.  In a way, that is good, because the people who lost their jobs lost them to robots and AI and that loss is permanent.  They need to retrain for jobs that have not been automated.  And, of course, two or three years of unemployment while being retrained is a severe hardship for mid career workers.

Many Economists, accustomed to productivity gains that fall comfortably within traditional economic growth rates have difficulty imagining substantial technological unemployment.  Yet, it is and always has been the case that economic growth and technological unemployment balance each other.  In the long term, through the mechanisms described above, that is correct.  However, if technological unemployment is very high, there is a lag and the net unemployment can, temporarily, get very high.

Suppose that structural unemployment is 4% and over ten years GDP is going to increase 10X.  Productivity must grow 10X which is the equivalent of 90% of jobs being replaced by robots and AI.  Further, let's suppose the process described above takes 3 years, on average, from the loss of jobs to automation to the eventual re-employment.  If the Transformation takes 18 years, unemployment will need to be 90%/6+4%= 19% during that time.  If it takes 24 years, unemployment will average 90%/8+4%=15.25%.  On the other hand, if it takes 12 years, unemployment will average 90%/4+4%=26.5%.

If we slow down the Transformation, the unemployment peak will be less. However, the  total pain will not be less.  The total number of unemployment years is the same.  The benefit will be in an increased ability of the economy to ameliorate the pain since it will be less in any given year.  The problem is that we have mechanisms that allow us to delay the onset of the Transformation and, not surprisingly, it appears that government and industry are availing themselves of them, but we don't really have good mechanisms for delaying full implementation.

For example, some governments have asked Google to delay the introduction of their driverless vehicle technology and Google seems to be agreeable.  On the other hand, once they introduce it, it is not clear how we slow full implementation.  In other words, our behavior seems to be shortening the Transformation and, in the process, increasing the average and peak unemployment rate.

If we can shorten the cycle, say, from three years to two years, we then can make some significant strides to lessening the trauma of the Transformation.  For example, in the 18 year example, rather than an average unemployment of 19%, it will average 90%/9 + 4% = 14%. We also can lessen the pain by using our 'deflation fix windfall' to increase unemployment benefits to two years and to fund retraining expenses.

We also see on the horizon some spectacularly disruptive individual events that are imbedded in the 90% job loss.  What happens if SAP and Oracle get together and eliminate the tasks currently done by AR, AP, Payroll clerks and staff Accountants?  This is within current technological capabilities and primarily require the various accounting software packages to be able to talk to each other directly.  It will tend to happen all at once, because, for the most part, only two companies need to upgrade their software and it is over.   What happens when three million clerks and accountants hit the unemployment line as almost the same time?

It appears that once over the road drivers start getting replaced by robot drivers, competition will drive this to be a one year event.  A typical 18 wheeler may cost $0.75 per mile to operate of which about $0.50 is for the driver.  If a robotic driver cuts the driver cost in half, suddenly there will be trucks that are charging $0.50 per mile.  The unconverted trucks have a choice of losing money or converting.  If it is a profitable implementation for one company, it will be profitable for all and the conversion of the national fleet will happen very rapidly.

Also, if the promise of drastrically reduced accident rates holds up, it is likely that the companies that insure the 18 wheelers will demand that the change out takes place as quickly as possible.

An ameliorating factor is that the faster the transformation the faster will be the deflation which leads to larger amounts of government funds that can be used to increase unemployment benefits and retraining grants.  This is a theme that will come to dominate the political dialogue over the next 10 to 15 years.

So, to summarize

  1. Companies buy productivity enhancing robotics and AI.  They lay off workers and profits increase.
  2. Companies 'spend' their increased profits to gain or defend market share.  Prices fall.
  3. Falling prices, when nearly universal, creates economically destructive deflation.
  4. Central Banks respond by creating money by buying government bonds.
  5. 'Deficit spending' findanced by debt that carries no net interest expense and doesn't need to be paid back is economically stimulative and creates jobs.  Unemployment decreases, X/Y is higher and standards of living are increasd.

An enlightened government response would lead to the Income Explosion dominating the minds of people over the technological unemployment.  There is also a significant advantage to people switching to Information Age careers now and the government should encourage it.  The 'Jumpstart Our Business Startup' legislation, commonly referred to as 'crowd funding' is a step in that direction.  There are several benefits to this.  As people move to Enterprise Networks and Knowledge Class jobs, the number of people chasing a decreasing supply of Industrial Age jobs will decrease and, through supply and demand, the wage stagnation will be reduced.  Second, as jobs disappear, it will lead to smaller layoffs.  Much of the job loss will be handled through attrition.

It is unlikely that governments will respond in an enlightened way.  However, the more we talk about it, the more we 'spread the Transformation meme', the more likely it will be.  It would be wonderful if this article went viral.  However, because it contains no kitties, I'm pretty sure it won't.

Monday, May 19, 2014

Why The Polymath Will Succeed

The Polymath is designed to present news, analysis and commentary at a higher intellectual level than other outlets.  We know that there is a market there because of research undertaken by Leta Hollingworth in the 1930's and D.K. Simonton in the 1980's.  Both found that there is a limit to the IQ difference that allows for meaningful communication and persuasiveness.

Simonton put the finest point on it when he stated, 'Individuals who are very smart may be less comprehensible to other group members, and this might have a negative impact on their ability to influence those around them. Even if the exceptionally bright individuals are able to target their use of language to the needs of their audience, the complexity of their ideas may be less accessible to listeners with IQs more than one standard deviation lower than their own.  He found, specifically, that persuasiveness peaks at about a 1.2 standard deviation differential.

Leta Hollingworth studied children with R16IQs of more than 180.  She stated, 'Observation shows that there is a direct ratio between the intelligence of the leader and that of the led. To be a leader of his contemporaries a child must be more intelligent but not too much more intelligent than those to be led... But generally speaking, a leadership pattern will not form--or it will break up--when a discrepancy of more than about 30 points of IQ comes to exist between leader and led.'  This has been taken to be the upper limit on the IQ differential that still allows for meaningful communication.  However, she implied in other work that this for leadership might be somewhat less than for communication, which may be as high as 50 R16IQ points.

The above research sets interesting structural constraints on the industry of news, analysis and commentary.  In Western democracies, we consume news.  In other words, we sample several outlets and settle on ones that are the most persuasive for us.  So, we can say, for example that high school graduates, who have a mean D15IQ of about 104 will be most persuaded by news outlets that are presented at about a 122 D15IQ.  College Graduates, who have a mean of about 113 will be most persuaded by news outlets presented at about 131.  That is about the limit of what is currently available.

That means that while people with D15IQs over 125 consume news, analysis and commentary in large quantities, they are not particularly happy with it nor are they generally very persuaded by the presentations.  In other words, they are easy pickings for any news outlet that wants to present at a higher level.  The Economist and a few others have been working on elevating their game.  However, one cannot present at a higher IQ level than you possess and the current experienced participants will have IQs in the 113 to 131 range.

What that means, and this is the crux of this, 'The people who will succeed in providing news, analysis and commentary to an audience with IQs over 125 would fail in the current market because, as D.K. Simonton put it, 'the complexity of their ideas may be less accessible to listeners.'   That means that we cannot access the current market of news reporters and commentators.  We will need to find people who are substantially smarter.  While we will require no IQ test, rather controlling based upon quality of submitted work, the mean IQ of our successful candidates will likely be 155 with a standard deviation of about 5 points.

The market of English speakers on the Internet with IQs above 125 is about 60,000,000.  Our goal is to reach about 4,000,000 of them in the short term.  However, we will likely achieve 15,000,000 with time.  The reason that we will acquire only a minority of the market has to do with ideology.  The lower half of our market is generally very engaged intellectually and are voracious consumers of news, analysis and commentary.  However, many of them, perhaps half, are also very ideological which makes them hostile toward objective news sources.

As the Internet news market solidifies, liberal news outlets such as PBS and Huffington Post will likely field other news media that appeal to the over 125IQ audience.  More conservative outlets such as The Wall Street Journal and Blaze will do the some for their audience.  However, as we move up the IQ scale the percent of the population with strong ideologies decreases and the market for objective news coverage increases.  This is why our writers will likely average close to 155 D15IQ because our audience will be skewed upward with a median IQ around 135.

The Polymath can be thought of as a collaborative effort between, perhaps, 100 of the most ellectually rigorous and erudite writers in the world.  We will have editors who will assist us in talking persuasively to the 135 IQ audience and will take care of the details of publication.  We will have monetizers who will turn our work into money.  We all will make very good income, indeed, from our efforts.

We will average about one 5 - 8 page article per month.  At 4,000,000 readers and $5 cpm advertisements per page, we will average $35,000 per month income.  However, that is just for the articles.  Most of us will do other work.  For example, if you write a book and hotlink your articles to it, you might sell 100,000 e-books per year for another $70,000 per month.  This is Information Age income and should not be taken as implausible.  Rather, it is proportional when the Income Explosion increases prevailing income 10X.

The secrets to our success are two-fold.  First, is creating the organization.  That means writers, editors, monetizers and administrators.  The second is our content.  It must be something more than 'same-old, same-old' only expressed with a larger vocabulary.  We need to apply our superior intellect to providing a more rigorously supportable and objective product.  For example, anyone can present the argument for and against the 'end of Moore's Law.'  We need to provide superior analysis.  How likely is it?  How will it change things? 

When we speak of objective, we do not mean a lock step world view.  Our writers will disagree.  However, misstating evidence or engaging on logical fallacy is not the source nor the product of the disagreement.  Objective analysis allows for a margin of error and an aggregation of margins of error can result in different conclusions.  One does not create an ideologically comfortable conclusion by weaving an argument of three sigma deviations. 

We need to explode on to the scene.  That means we will need to place several editors, monetizers, crowdfunders and writers on the starting line, with a backlog of articles in hand who are ready to take off when the gun goes off.  In order to facilitate this, I will be setting up a number of private venues, on Facebook and Blogger to get ourselves organized.  I will set up 'authors' in a blog with Editors, Monetizers, crowdfunders, etc. as authorized readers.  I will set up the same people in a private Facebook group for informal discussions.

Again, if you want to become involved, please e-mail me at or message me on Facebook.


Saturday, May 17, 2014

The Polymath

The Polymath will be a weekly .pdf magazine of news, analysis and commentary for an erudite readership.  It will contain feature articles on world affairs, economics, business, investing, science, technology and the arts.

We will do a crowdfunding, probably for $1,000,000 with the proceeds used primarily to build readership. I know from years of experience that with complete awareness we will be about 4.5 million subscribers.  The crowfunding will be sufficient to build a 1.5 million subscribers and should be sufficient to create organic growth. 

The key to success for The Polymath is to appeal to the upper 5% of the population in intellectual sophistication that, per research by D.K. Simonton, is currently substantially underserved.  In other words, our articles need to be well researched, well considered and say something unlike what is flooding the press.  If it is the same thing, just said differently, we shouldn't publish it.

For example, with regard to the Crimea situation, I said,

"In 1238 Crimea was taken from the Rus' and Byzantium by the Golden Horde. Crimeans were not asked if they wanted to be part of the Mongol Empire; they were told.

In 1475, Crimea became part of the Ottoman Empire. They were not asked; they were told.

In 1783, Crimea became part of the Russian Empire. Again, they were not asked; they were told.

In 1954, Crimea was made part of Ukraine. They were not asked; they were told.

Finally in 2014, they were asked. They decided that they want to be part of Russia. NO, NO, NO!! protests U.S. and EU. It is illegal. Yet one more time, they insist, the people of Crimea must be told."

This is the kind of material we need in The Polymath.  It is correct, it is cogent and it is different.  It raises a question that will surface again and again over the next few years.  Should the community of nations make laws without the consent of national minorities that prohibit that national minority from enjoying self determination?  Are the interests of Russia, the E.U. and the U.S. of greater merit than the interests of the people who actually live in the affected territory?

According to D.K. Simonton, The Polymath superstar authors will have IQs around 150 (+/- 10).  We won't be asking for an IQ test result; the quality of the work is the driving factor.  However, clearly, it will take some work to find our article and column writers.  So, we will be looking for five or so 'Editors' whose job is to go out and find such authors, help them meet the editorial standards of The Polymath and keep them working.

The Polymath will be ad supported.  In other words, people will get a 128 page weekly magazine in their inbox at no cost and will also be able to access archived articles.  That is a lot of advertising.  Our objective is to have all the advertisers be Members of the Polymathica Enterprise Network with adverstising placed on an affiliate basis.  That is another project I will be posting on soon.  We will need 'Monetizers' to go out and find appropriate advertising.  They will also be expected to place the advertising properly so that the right readers are seeing the correct ads.

This is a shared enterprise.  What that means is that everyone gets a piece of the revenue and is responsible for their own budget, keeping the excess as their profits.  Authors will receive 35%, Editors will receive 10%, Monetizers will receive 10% and 15% will be retained for Administration.  The Polymathic Institute will have 80% of the 30% profit or 24% and the crowdfunders will have 20% of the 30% or 6%.  The Polymathic Institute will use its proceeds to promote polymathic research, education, careers and lifestyles.  At the outset, the majority will probably be used to crowdfund enterprises in the Polymathica Enterprise Network.

Total Revenue is forecast at 1.5 million subscribers X 128 pages per week X 52 issues per week X ½¢ per page = $49,920,000.  At this level, authors will receive $2,500 per page while Editors and Monetizers will receive $750 per page each.  A five page article will provide authors with $12,500, Editors and Monetizers with $3,750.  Clearly, Editors and Monetizers will have a reasonable opportunity to earn mid six figure USD annual income placing just three articles per week.  Of course, this is only about 1/3 of what I anticipate to be our mature distribution.

We will have a tab in for The Polymath which will archive all articles.  Revenue from affiliate ads there will be shared in the same proportion as the .pdf magazine.  The articles will have the facebook, Google+, Twitter, etc. 'share' buttons as well as a 'subscribe' box.  Of course, we will work to achieve SEO.  Because the articles, in order to be accepted for publication, must bring a new and intellectually rigorous perspective to the issue, the should be highly shareable within our market.

We absolutely need this to hit fast, which means crowdfunding, editors, authors and monetizers must grow and succeed quickly.  If you want to be an Editor, go get an article.  If you want to be an Author, write a feature article.  If you want to be a monetizer, go find advertising (affiliate preferred), that is appropriate for a refined and erudite audience.  We need someone who will spearhead crowdfunding.  We also need an Editor-in-Chief, a layout artist and a tech-type to maintain our subscriber list and e-mail functionality.  You each will receive a portion of the 15% administrative share.

Contact me at if you are interested in becoming involved.


Thursday, April 17, 2014

Update on Before the Flood

The 'Before the Flood' hypothesis primarily explores two puzzling aspects of the current Archaeological and Anthropological paradigm.  First, why did anatomically modern humans experience a profound adaptive event ~200kya when no relevant selective pressures are apparent but did not show adaptations when the profound changes in environment occurred with the emergence of agriculture and large permanent settlements?  It is as if humans pre-adapted to civilization.

Second, why, after not inventing agriculture and civilization for 100,000 years, did it emerge almost simultaneously in three or more, isolated occurrences in the Near East, the Far East and the Americas?  The explanation has traditionally been that the end of the Ice Age changed climates made agriculture either possible or advantageous.  While we see these patterns in the Near East, the Far East and the Americas, the question is, were there really no similar conditions anywhere in the H. sapiens' range in the preceding 90+ ky?

In total, the story simply cannot be correct without there being a very large missing piece.  Recent research is suggesting that the problems with the current paradigm are even greater than discussed above.

Over the last decade, the populating of Asia by modern humans has become better understood. Apparently, a supervolcano in Indonesia commonly referred to as Mt. Toba erupted around 70 kya and the ash and ensuing 'volcanic winter' severely stressed, and perhaps completely eliminated, the archaic human populations in South Asia.  In the subsequent 10,000 years anatomically modern humans expanded all the way to SE Asia, with recent finds in Laos dated to 60 kya.  It is believed that the human migration hugged the coast with northern incursions taking place much later.  While there is still significant controversy, the preceding is becoming the very well supported most widely accepted scenario.

Simultaneously the paleoclimate of Southern Asia is becoming better understood.  The glacial period was apparently more climatologically variable than previously thought and alternating cold and warm periods were common.  However in Southern Asia this resulted in fluctuations between tropical rainforests and deciduous forests.  There should not have been many, if any, civilization destroying climatic events and, while agriculture would need to adapt to these cycles, it certainly should have been possible and, arguably, expected.  The conditions for the emergence of agriculture were at least as favorable as what prevailed during the times when it was invented in the Far East and the Americas.

This leaves us with a significant puzzle.  Apparently, modern humans occupied Southern Asia, in commodious environs, for 40,000 years without inventing agriculture or civilization.  Yet the indigenes did invent agriculture and build a civilization more or less simultaneously with Sumeria, Egypt and China during the Holocene.  Why?  What changed?  Or, perhaps more on point, what are we missing?

It is possible that the human genome underwent changes that were not visible in skeletal remains but without which civilization was very unlikely or even impossible.  If so, these modifications would need to emerge prior to the Holocene.  Whatever these changes were, they needed to emerge, be reinforced and, through gene migration, find their way into every human population including those of Northeast Asia before they migrated into the New World about 15 kya.  Otherwise, agriculture and civilization would have been a strictly Old World phenomenon.

This genetic event, therefore, would need to have dated to some time prior to 20 kya.  Keep in mind that the 'flood' was a 100 meter rise in ocean levels that took place between 15 kya and about 10 kya as the glaciers of the Ice Age melted and the meltwater found its way to the oceans.  It was accompanied by a series of dramatic climatic changes, notably the Oldest, Older and Younger Dryas that undoubtedly would be very disruptive to any attempts to retain, much less develop, agriculture and civilization.

Recent research analyzing mtDNA has allowed us to estimate human populations by region from about 50 kya to the present.  The most significant pattern seen are three population explosions in South Asia, then China and finally Europe.  The South Asia population explosion began around 40 kya and as a result during that critical period from 40 kya to 20 kya, over 60% of the human population lived in South Asia.  It wasn't until the Holocene (~10 kya), that population exploded in China and Europe.

This is critical because in both of the cases of China and Europe, the explosion in population corresponded with the invention of agriculture and about 7 ky later the emergence of bronze age civilization.  If we translate the pattern of population growth and the invention of agriculture from China and Europe onto South Asia, we would conclude that agriculture was invented in South Asia about 35 kya.  In fact it is not at all clear that a hunting/gathering population could be supported in the Indian subcontinent at the suggested levels.  Indeed, the South Asian population explosion may turn out to be a 'smoking gun' for antediluvian agriculture and civilization.

This begs another critical question.  If agriculture was invented 35 kya in South Asia, why did not a Bronze Age civilization emerge 28 kya with advanced civilization emerging 23 kya, as it did in the more modern cases?  That would be significantly before the climatic disruption of the 'flood', so climate change is not a plausible reason.  While a Bronze Age civilization, as we will see, could have existed without leaving obvious evidence, an Industrial Age civilization could not.

So, we find ourselves in a bit of a logical bind.  It appears that agriculture should have been invented 35 kya, the calculated population suggests that it was, but, if so, it didn't lead to the advanced civilization of today, even though there appears to have been ample time.  The reconciliation, I believe, lies in the genetic event of which I spoke earlier.  Essentially, I suggest that the genome of a hunting/gathering society must change before agriculture can result in civilization.  Since it was happening for the first time, it took more time for the genome to have the traits it needed for civilization to emerge.  In other words, Egypt, Sumeria, China, et alia could move from agriculture to civilization much faster, because the proper alleles were already in the population and they only needed an increase in allelic frequency.

Twenty years ago, on a beautiful summer afternoon in Minnesota, I was sitting on my balcony with a dear friend and fellow intellectual.  I suddenly had a realization and I said, 'You know, if the mean IQ was 100, but the standard deviation was 10 rather than 15, humans would still be living in caves!'  He agreed, 'You're right.  There would be no Einsteins.'  He was correct.  Einstein would be a six sigma deviant rather than a four sigma deviant.  That is the difference one in 30,000 and one in a billion.  There might be a few geniuses, but not at the Einstein level.

That, however, was not what I was thinking.  I was thinking about doctors, engineers and farmers.  The 130 IQ doctor, rather than being one in fifty would be one in one thousand.  The doctors and engineers would need to have 120 IQs instead and society would collapse under the weight of its own incompetence.  While modern farmers are highly educated technologists and business people, the farmers who fed Egypt and Sumeria dug in the dirt, pulled weeds, toted water; they did nothing that couldn't be taught to a five year old.  If the population had a standard deviation of 10, farmers, on average, would be too smart.  They would get bored and become cranky.  They may become sufficiently frustrated with their situation to foment insurrection.  Essentially, the agricultural age society needed its stupid people just as much as it needed its smart people.  The hunting/gathering standard deviation would not be workable.

Conversely, the hunting/gathering life track actually requires a relatively high IQ by comparison. Stupid hunters quickly become dead hunters.  Gathering, while not as dangerous, still requires more intelligence than subsistence farming.  While a hunting gathering society does need a few smart people, they don't need many.  One would expect a hunting gathering society to have a lower standard deviation.  While it has often been observed that hunting/gathering is actually intellectually demanding, there has been no study of standard deviation.

There are most likely social and behavioral differences that are essential for a functioning civilization.  After all, hunting/gathering populations spend most of their time in very small groups and almost never encounter even 1,000 people.  Bronze Age cities often had populations of 20,000 to 50,000 and civilizations could number into the millions.  While hunters/gatherers are generalists, urban dwellers are usually specialists.  Civilizations require complex, codified rules of behavior.  Simply put, hunting/gathering societies need hunting/gathering attitudes, abilities and behaviors while civilization requires civilized attitudes, abilities and behaviors.

Consequently, it is probably the case that the human genome for a hunting/gathering society could not be transformed into an agricultural society genome simply by changing a few allelic frequencies and relying on different learned behaviors.  It probably would require new alleles through mutation to emerge and be reinforced.  So, even with nearly 20,000 years, instead of getting jets and computers, they may not have been able to get much further than a Bronze Age civilization.  However, they may, indeed, have gotten that far.

We have not found irrefutable evidence of an antediluvian Bronze Age civilization.  Should we expect to?  On one hand, Egypt and MesoAmerica had its pyramids and Sumeria its ziggurats.  We didn't miss the pyramids or the ziggurats and, if antediluvian India has something similar, we could wonder why we have not found it. However China never built anything so grand.  So, it would not be unprecedented that there are no monumental remains, but we would expect them.  One would expect evidence of rock quarries and copper and tin mines, as well.  Yet there appear to be none.

The key is the rapid dispersal model and the flood.  The migration apparently took place along the coast and the shoreline was 120 meters lower then than it is now.  Most remains would now be under water.  For example, if the Pyramids had been built at their current elevation but prior to the Holocene, the would now be standing in 20 meters of seawater.  Whether that would erode them past recognition over a period of 20,000 years is not clear.  But it shows just how significant that ocean rise was.  Recently an earlier version of Dwarka, India (according to legend Dwarka was built seven times with the first six becoming submerged from rising ocean levels) may have been found, though there is much controversy and very little Archaeology.  Even if it is Lord Krishna's Dawarka, it would be from during the flood.  Antediluvian ruins would be in very deep water and covered with 15,000 years of silt.  In other words, the absence of obvious evidence is not that surprising.

Egyptian and Sumerian mythologies imply that civilization began (assuming lunar calendar) about 20,000 years before the flood.  Since the flood is dated to 15 kya, this would result in a beginning of civilization about 35 kya which matches our expectations.  In other words, the mythological beginning of civilization may be a more or less accurate mythologized history.  It, of course, would be transferred history, as much of the Old Testament actually took place in Sumerian and is duplicated in Sumerian mythologies.

Most population centers are less than 120 meters above sea level, so we would expect the antediluvian civilization to be mostly submerged.  However, some are at a higher level and we might expect to find them only with great effort.  Also, in archeology, one rarely finds that for which one does not search.  And one rarely looks for what one does not expect to find.  This why an initial discovery often leads to many more discoveries.  It is possible, if a breakthrough discovery is made that establishes an antediluvian civilization in Southern Asia, that a flurry of additional archaeological evidence will be found.

None of this is a proof of an antediluvian South Asian civilization.  However, the current explanation forwarded for the 35 kya population explosion in South Asia is that the population introduced a new spear tip and that is far from convincing given the scope of the population explosion.  Other parts of the world are suspected of causing mass extinctions through over-hunting and they had substantially smaller populations.  Furthermore, it is difficult to understand how a large population of modern humans, given 20,000+ years to do so, failed to invent agriculture and civilization, but their descendants, just 5,000 years later, did so at every opportunity.  In fact, the story is implausible on its face.

So, while the 'Before the Flood' hypothesis is still a hypothesis, it is a strong one and becoming stronger as we learn more.

Saturday, March 8, 2014

Crimea and the Transformation

One of my statements in my writing about the Transformation is that 'America is headed for a divorce and Europe is not far behind'.  Future historians are likely to identify the events unfolding in Crimea as one of the important hallmarks in this process.

The first principle of Information Age political Philosophy is that 'no person should be required to live under a body of laws, policies and programs that they consider to be fundamentally unjust'.  In the U.S. this is playing out as a values crisis.  In Europe it is currently playing out more as ethnic tensions.  However, in both cases it is calling into question the fundamental assumptions about the right to rule.

As I have discussed this with groups and individuals, there has only been one person who has positively asserted that people should be required to live under laws that they consider unjust.  Most people agree in theory but cannot imagine a system that could practically allow it.

These issues are about to play out in Ukraine and more specifically Crimea.  On March 16, Crimea by  referendum will probably declare itself independent of Ukraine and will petition to be annexed by Russia.  Ukraine, of course, will not recognize the referendum, however, neither will USEU (United States and European Union) and, out of courtesy, more than conviction, most of the rest of the developed world.

The Crimeans are essentially being told this.  Sixty years ago, a man who was not Crimean, undemocratically 'gave' the Crimea to Ukraine.  Now, people for whom they would never vote and who, also, are not Crimean, are telling them that they must remain part of Ukraine despite their democratically established desire to sever their political ties to Kiev.

What we are going to learn from this is that, at their core, nation states are coercive.  The majority almost invariably subjugates minorities and then makes it unconstitutional for them to sever their ties of that tyranny.  In USEU, the tyranny is soft and elsewhere more severe.  However, the contrivance that, win or lose, one cannot quit the game is tyrannical by its nature, no matter how it is used.

What is being totally lost in the public discourse, both in the press and in the community of nations, is that this should be about the empowerment of Crimeans, not the machinations in D.C., Brussels, Kiev or Moscow.  There does not appear to be any controversy over what Crimeans want.   Given the political realities, they don't want to be politically affiliated with Kiev.

It is not difficult to see how this would go down without 'Russian interference'.  The vote would go against Kiev and they would deploy forces to assert their claim to sovereignty over Crimea.  Quite possibly 'UN peacekeepers' would be deployed to discourage informal objections to yoke of Kiev.

However, Russian interference is probably going to force the world to accept, at least de facto, the referendum results.  It will be argued whether this is more a victory for Russia or a defeat of USEU interests.  In truth, it will be a victory for Crimea and future self-identified groups who wish to assert self-determination.