gates

Recently, Bill Gates went to Harvard for an interesting Q&A:

History always kind of oversimplifies. There were people who did things that completely failed but were very suggestive of the right answer.

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technological progress

A brilliant example of technological progress, found on Greg Mankiw’s blog:

When we first started in business [a few decades ago] we could do about five to ten pounds of potato chips in an hour.

Today, with all the equipment and technology we make between five and six tons of potato chips every hour.

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five years back

Every once in a while newspapers write about something that happened five, ten, twenty, or fifty years ago. It is a common practice and it helps to understand history and development if you think in those long-term periods.

The other day I read about something that happened exactly five years ago: the launch of the first Apple iPhone.

So I went on the internet and found this video of the presentation of the first iPhone in January of 2007. Former CEO of Apple, Steve Jobs presents it and talks about a revolutionary product. And you notice the amazing development private enterprises have achieved when you consider that those things that were outstanding in 2007 are now either common standard or completely outdated. Just compare the audience’s reactions and what you can do with an ordinary cell phone everyday in 2012:

It’s funny how everyone was so amazed when he scrolled down! (16:10 min)

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lesson of kodak

Last week, the 131-year-old company Eastman Kodak was said to seek bankruptcy protection. This happened after Kodak had been the leading photographic company in the world for more than a hundred years. The company put photography on the map for millions of people and invented, for instance, the digital camera in 1975 – but never managed to capitalize on the new technology.

Why is that big news for an economics blog?

Because it can teach you a lesson about structural change, as Thomas Sowell explains in the Jewish World Review:

Thomas Sowell – Kodak and the Post Office

Great names of companies in other fields have likewise vanished as new technology brought new rivals to the forefront, or else made the whole product obsolete […]. That is what happens in a market economy and we all benefit from it as consumers.

Unfortunately, that is not what happens in government.

 

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apple and the market economy

So this is 2012, the year when Apple might lose its formerly large margin with its best-selling mobile phone. When first introduced in June 2007, the iPhone was – by any account – way better than any other cell phone on the market. Despite all civil disputes, Apple was extremely innovative and launched a product that satisfied millions of consumers. In a market economy, that innovation was rewarded by unprecedented revenues and profits. Apple has been the most admired company in the world for four straight years (2008-2011) and was able to attract many of the brightest university graduates.

But in a market economy, other companies will try their best to get a piece of the pie. That is why Samsung for instance developed the Galaxy S cell phone which is currently sold in its second generation. Already, Samsung has technically caught up with Apple’s iPhone. Again, let aside all legal disputes, Samsung has shown how innovations that turn out to be very useful spread around across companies and products.

Now, we are in 2012 and this year might mark a turning point. While Apple disappointed investors and consumers with the iPhone 4S in fall 2011 and is not expected to launch the new iPhone 5 before summer, Samsung might unveil its new Galaxy S3 as early as February. Technically, both phones will be more or less neck and neck.

From a economic policy perspective the challenge remains to create incentives for companies to be innovative. That is largely done by having a free market economy and some sort of patent system. The latter, however, must balance protection of the innovation (thus the incentive to be innovative) and protection from competition. As for the case of cell phones, everything has worked quite well: within just five years, consumers have seen an enormous improvement in the mobile devices they use.

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driving obsession

Yesterday, CNBC broadcasted a pretty interesting documentary about the world’s most admired company: BMW

Some critics have dismissed BMW as over-engineered, over-hyped, and over-priced. But what about the legions of imitators and buyers?

On its website, CNBC has also prepared some further information:

BMW: A Driving Obsession 

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what to do about inequality

Adding to my prior posting on rising inequality, you would probably like to raise the question what to do about it.

With reference to Kenneth Rogoff, professor of economics at Harvard University, we should first ask whether there is anything to do at all. For Project Syndicate, Rogoff recently wrote an interesting article on inequality. His main hypothesis is that in a free market system, most inequalities would naturally balance out. The reason is simply that if some people earn a very high income, companies will try to economize on their high-paid services. Moreover, inventions usually target on those products and services that are very expensive.

In his article Technology and Inequality, Kenneth Rogoff concludes:

Given the remarkable flexibility of market forces, it would be foolish, if not dangerous, to infer rising inequality in relative incomes in the coming decades by extrapolating from recent trends.

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instapaper

If you happen to be one of people that frequently see interesting articles on the web, but usually don’t have time to read them immediately, check out Instapaper:

The website just asks you to provide any of your email addresses with a password. So, there’s no real registration and everything is for free. Second step is to add a new bookmark to your browser. Instapaper provides you with a simple description how to handle this.

Afterwards, whenever you see an interesting online article, just hit the bookmark icon and Instapaper will save a plain-text version of the article. You can access all your saved articles via the website from any computer. Or, preferably, you have the respective iPhone-/iPad-/iPod-App and enjoy reading with them.

Another great feature of Instapaper is that you can assort your saved articles and share them easily with your friends. Thus, if you like a certain article, your friends will see this in their Instapaper account.

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