Nostradamus ain't got Jack on me

I've been having a Facebook discussion on what the future holds for the world.  I'm pretty optimistic, which is interesting because 11 years ago I said we would be in deep do-do in 10 years, and now I'm saying something else.  I think we are on the verge of something pretty earthshakingly good.  But on the other side I've got a entrepreneur, a mortgage broker and a newspaper publisher saying I'm crazy, which is what the same kind of people told me 10 years ago when I said we were heading into some serious trouble.  So I thought I'd lay out my predictions for the next decade that will actually begin in the last year of our current decade.

We have all been involved in some serious national and international navel gazing in trying to figure out how the world economy got to be the way it is today.  We want to blame governments, banks, Al Qaida, American consumers, Chinese industrialists, Donald Trump, Al Gore, etc.  In truth all of that and more are active participants, but none are specifically to blame for how we got to where we are.  And while I may not be able to find the ultimate culprit for what I believe to be a real team effort, I do know where it began.

It all began with a big bang.

No, not THE Big Bang at the center of the universe, but a big bang.  This one. .. 

The one over the city of Hiroshima in August 1945.  That was the beginning of how our economy got to be the way it is today in 2010.

No, you're not the only one who thinks I'm crazy, but let me take you on a historical journey and maybe you'll understand how I'm seeing yesterday, today and tomorrow.

The use of the atomic bomb was literally and figuratively earth shaking.  In the history of warfare, it was possible to consider devastating loss of life in a single day.  After all, Attilla the Hun organized the massacre of 1 million Muslims in Baghdad in a single day.  But to accomplish that required the the participation of hundreds of thousands of warriors and support troops.  This was different.  Less than a 1000 people were involved in the development, manufacture and delivery of the weapon that killed an entire city in the blink of an eye.  That scared the holy snot out of everyone, especially when it was discovered that Germany, Japan, The Soviet Union, and the United Kingdom were all working on the same technology simultaneously.

Images-1  Worldwide scientists began to work on four things: how to make better nuclear weapons, how to defend against nuclear weapons, how to make other weapons as effective and how to defend against them.  This was a good time for countries that had people like Albert Einstein, which we did and for the universities that provided them research space and got government money to do the research.  It was not a good time for countries that did not.  

Stuff started happening.  Technology espionage became big time and finding ways to protect Albert and his posse was absolutely critical.  Even more critical, as the Einstein crowd started dying off, was replacing, codifying and distributing their knowledge within a contained environment.  

Concurrently with the development of nuclear weapon were rapid advancements in computers, something invented in the 1600s and used selectively for centuries.  Making weapons of mass destruction required enhancement to human computing skills, so Turing machines became "computers" that were hooked together locally in a network.  That evolved into a nationwide network called ARPANET (Advanced Research Projects Agency Network) so scientists in multiple universities around the US could share and discuss their research.  ARPANET became DARPANET (the "D" is for Defense) and that became the Internet when it went worldwide.

All of this in the 1960s released massive amounts of government money to fund research projects in both universities and now corporations to make bigger and better weapons and to take those same technologies and apply them to civilian consumer products like microwave ovens and portable telephones.  This partnership between the military, academia, business and government was called the military-industrial complex that President Dwight Eisenhower warned us about in the 1950s.

The result of all this activity was that engineers started to become valuable members of society.  People actually cared what they thought about, what they did and how to keep them doing it.  So engineers started getting paid big bucks.

Because they got the big bucks, they could start buying things, like cars, television, microwave ovens, portable phones... and houses.  Nice houses in nice neighborhoods with nice schools and parks.  That in turn increased tax revenues for all levels of governments, which in turn poured money back into infrastructure... and funding research.

Pretty soon, engineers learned they were pretty important people.  They started thinking about things other than what they were working on.  They thought about the money they were making and the nice things they had not quite been able to afford yet and wanted to make more money.

So some guys that had gotten rich out of making weapons of mass destruction and the technology that made those weapons possible, decided to take the engineers out for a drink and ask, "So, what do you think?"  And the engineers started drawing stuff on paper napkins in bars in Mountain View, California.  And those things became microcomputer chips that made the Turing machines of the 1940s look like Lego sets.  And the chips went into more efficient weapons, and better airplanes, and personal computers and cell phones.  All of it financed not by the government but by the rich guys that became known as venture capitalists.  And the VCs became really rich and the engineers became really rich and some of them became venture capitalists.

And all this time as they became really rich, they started buying stuff.  Mostly new homes if really nice neighborhoods with really nice private schools.  

And the people who worked in the companies owned by these really rich people started making more money and buying nice things and wanting to buy nice homes in nice neighborhoods, but there was a problem with that last bit.

All the real estate in the areas near the jobs started to get real expensive, so only the people that started the companies or financed the companies could really afford to live near the companies.  If you wanted to live in the same area, you had to go deep into debt to get those homes.

The good news was that the banks that lent people money to buy those homes knew that the value of the property was going to keep rising as long as those really rich guys kept making new technology.  In fact, in no longer mattered if the technology had a particular use because someone would buy it just in case it did.  

So home value just kept rising and people would refinance so they had cash to buy the new technology.  And everyone was getting richer and richer.  Some people found they could get nice homes in nice neighborhoods even though they would have to drive two to four hours a day to get from the home  to the job, so home prices in really cheap communities started going up rapidly too.

Then people who could not afford any of this stuff started feeling bad about themselves and started complaining.  Some politicians realized they could get these people to vote for them if they could arrange for them to get a home in a nice neighborhood, even though they could not afford it.  So they passed laws that forced the banks to give loans to people they knew could never pay them back.  The bankers weren't stupid so they put in contingencies that would make sure they still stayed profitable even though they were giving out bad loans.

So we lived in a nation where everyone could have a home regardless of their ability to pay for it.  We had an entire industry of infomercials telling people how to get rich by flipping homes.  We had entire industries dedicated to building computing technology that didn't work all that well because we weren't sure what it was for, so we played games on them built by an entirely different industry.

Then something bad happened.  The industry that made the chips that were the foundation of this economic juggernaut found that they were not making as much money as they used to because it was becoming harder to make bigger and better chips that worked faster to do the stuff we weren't sure we needed to do.  They needed to find a way to make the chips cheaper, but still sell them profitably.

So they started contracting with engineers in other countries to do the design work.  That made it possible for those engineers to live in better huts than their neighbors and made it possible for the companies here to lay off the engineers that were living two hours away.  Those engineers could no longer afford their homes.  They started selling those homes at less than what they paid for them or letting them go into foreclosure.  Then something really bad happened on September 11, 2001. We stopped worrying about how much money were were spending and started worrying about our personal safety.  There was a mild blip of an upturn in the technology world but not enough to correct what happened to the economy of the first decade of the 21st century.DownloadedFile  Then the workers in the other countries started wanting more money to buy stuff.  Not as much as the people here wanted, but still it added to the bottom line, so people who worked for the companies but stayed near where they worked started losing their homes.

That's how we got to where we are today.  Now before I get into where we might be going, I want to take a look at what is going on right now.

Netbooks, smart phones, airline security, explosive detection, alternative energy, electric engines.  All of these are technologies exploding demand and need for complex electronic systems and chips.  So where we are today is similar to where we were in the 1950s.  We are in a state of fear, caused by what was almost a single catastrophic day, at the hands of a small group of people, creating an economic and life-threatening set of conditions.  That has created a need for technological breakthroughs and demand for new technology that forms the basis of new communities.   

That's where we are, folks. That's what we all know.  What is not as well known are new technologies in the wings that will reduce the cost of  designing and producing these chips by as much as 50 percent returning significant profitability to the semiconductor industry.  A startup out of Singpore is working on a semiconductor test technology that can take a hard 10 percent of the cost of manufacturing.  One in Alamo, California is developing IP protection that will save billions of dollars in sales lost to copyright infringement for both software and hardware products.  European entrepreneurs in France, the UK and the Czech Republic are introducing IP development tools that will take design costs of a standard ASIC processor  from $50 million to $2 million.  That is just a handful of what I know is in the works.

Where we are headed is a new technological shift that will, in itself, drive the creation of wealth.  Many like to believe that it was the real estate bubble that created this mess, but the increase in real estate value on fueled the continued growth of the technology bubble that had actually run out of steam, in the mid 1990s.  The demand for all the technological advances of the past 20 years was not based on need but on desire for status.  As we enter into the second decade of the 21st Century, we are looking for technology to connect us to each other and protect us from each other, just as we did in the 1950s.

We have come full circle.  It's not about the stock market, the price of real estate, the level of government involvement or the banks' willingness to loan money.  All of that stuff are following indicators (that means they don't kick in until someone starts making money.)  What is is really all about fear and need in the real market and we got loads of that.  Everything else is peripheral.  Someone is about to get very rich for a couple of decades. Focus on what happened over the past 10 years and it won't be you.  Step back and learn from history.