Author Archives: Tor Martinsen

Driverless Cars will Disrupt Auto Industry Entirely

Thesis: Driverless cars will forever change the auto industry and create a more efficient system with less private ownership of automobiles.

Driverless cars are coming, and there is no stopping this massive new industry. The implications and potential impact of this new industry are so large that one could write a hundred blog posts. I will however, due to time, only focus on the personal ownership decreases that driverless cars will cause. This will disrupt the auto industry and completely eliminate some large automakers, unless they jump on board with this new technology, and fast.

As discussed by Chunka Mui in his Forbes article, “Personally owned cars are parked, on average, almost 95 percent of the time, so there is plenty of room to better utilize them through person-to-person car sharing or taxi-like car services.” This astonishing fact on the inefficiencies of current personal car ownership was astounding to me. It really opened my eyes as to the implications and how big this transition really can become. In the current day United States of America, it is almost a necessity to own a car, unless you live downtown in a large city. This is because public transportation is not widely available and easily accessible to all the little towns around. This could be changed by car sharing companies. I picture an app (much like, or possibly Uber) that allows an individual to schedule a car to come pick them up and drop them off at any time of the day. The costs that would be saved could be huge, since individuals won’t have to pay for auto insurance or make car payments every month. As mentioned later in Chunka’s article, “The same studies found that the cost of taxi service could be reduced by 50 to 80 percent by reducing labor cost and increasing operating efficiency through network coordination.” These cost savings will be enough to convince many people to not buy their own car, and instead rely entirely on car sharing services such as Uber.

While opponents to this argue that “The analysts write that “the average driver seems to like personal ownership over the alternatives, and the suburbs still dominate. 80% of people drive themselves to work alone. If people wanted more carpooling or mass transit, we could already make those choices, and we don’t.” This however could be overcome with car sharing. People may not choose carpooling or mass transit options currently because they like the solidarity and alone time of the commute to work. This will still be largely available to individuals to call their own car to take just them to work. A combination of Uber and driverless cars presents a whole new innovation that is ripe to disrupt the automobile industry entirely.

Former NFL Players Declare Bankruptcy at Alarming Rates

Thesis: The NFL should institute a league wide mandate requiring players to save money for retirement.

It has been widely documented the financial distress that former NFL players find themselves in after they stop playing. This can be attributed to many reasons, but so far has had no solution emerge. Leigh Steinberg writes that, “Sports Illustrated recently estimated that 80% of retired NFL players go broke in their first three years out of the League.” This seems like an anomaly since the average NFL salary is almost $2 million per year. However this number is much higher due to some superstars’ outrageous salaries. “The median income in the NFL is roughly $750,000 and the average career span is less than four years.” This is still a lot more money than most people will make in their entire lives.

A separate research paper released in the National Bureau of Economic Research “found that 15.7% of [NFL] players file for bankruptcy within 12 years of retiring from the league, with little difference based on career length or earnings.” The researchers were attempting to test the “theory of consumption smoothing, that people will save more when their income is high to help cover future expenses when their income will be lower. NFL players offer an extreme example of people with large but short-lived income spikes.” The results are different than what would be expected from current life-cycle model predictions, but that is not what I am here to discuss right now.

The NFL is in a prime position to try and help their current and future players better manage their money. They have started requiring NFL draft picks to attend rookie seminars trying to offer financial and career advice for these rookies, but it is up to the athletes to take the suggested actions. I propose that the NFL along with the NFLPA (National Football League Players Association) make a league wide mandate requiring NFL players to put 10% of their salary in savings.

This can be accomplished by implementing 401k’s among other plans to be offered by each team that each player must put at least 10% of their salary into. This will help reduce the amount of financial distress that former NFL players have, as well as cast a better image on Roger Goodell by showing that the NFL cares about and supports their players. While the NFL does already have a retirement pension plan in place for former athletes, and offers 2 for 1 matches up to $24,000, they do not require players to make contributions.

This will cause players to learn to spend less money, as they will be receiving smaller paychecks, and also help these players build their retirement nest egg as they are required to save about $75,000 per year. For an average NFL player this will result in over $300,000 saved over their average four year careers. While this will certainly not eliminate ALL bankruptcies of former NFL players, it will help lower the number. This requirement along with educational sessions on budgeting and saving, should help these elite athletes better save their money and reduce the number of bankruptcies declared within a few years of retirement from the league.

Ignorance is not bliss

Thesis: Implementing a global knowledge certificate will help reduce the ignorance and raise overall awareness of global events.

Many people have misconstrued views of the world and the progress we have made towards equality. Hans Rosling demonstrated this extreme ignorance people have at a recent TED talk, where he started by asking his audience three multiple choice questions. I am going to recreate one question from his scenario for all of you reading it to see how well you would do.

In the last 20 years, how did the percentage of people in the world who live in extreme poverty change? (extreme poverty is not having enough food for the day)

  1. Almost double
  2. Remain about the same
  3. Decreased by half

He asked this question in the US and only ~5% got the correct answer that it has decreased by almost half. This demonstrates just how ignorant people are when it comes to global events. Only 5 out of 100 Americans would have gotten that answer correct. This is because “There must be preconceived ideas, you know. And many in the rich countries, they think that oh, we can never end extreme poverty. Of course they think so, because they don’t even know what has happened. The first thing to think about the future is to know about the present.” The results are so terrible that we know that this cannot be due to just chance. Monkeys would have guessed about 33% for each answer (assuming total randomness). This ignorance to what is actually happening in the world around people is shocking.

As Sanford Ungar points out in his essay, “Whether motivated by exceptionalism, isolationism, triumphalism or sheer indifference — probably some of each over time — the United States has somehow failed to equip a significant percentage of its citizenry with the basic information necessary to follow international events, let alone participate in formulating and executing the foreign policy that is an essential component of self-government in a healthy modern democracy.” This is exemplified by the proportion of Americans who learn a second language when compared to citizens of other countries. While English is rising as the international and academic language, the sheer lack of effort of Americans to familiarize themselves with foreign events or languages demonstrate the ignorance and complacency that Americans have developed.

To overcome this ignorance, Hans and Ola Rosling propose creating a global knowledge certificate that organizations and schools can use to certify themselves as globally knowledgeable. This will help differentiate the ignorant from the non-ignorant. This could be used to help raise awareness for global events and ensure that Americans, and the entire world do not fall victim to the belief that ignorance is bliss. To fully contribute to the world order and make a difference, we need citizens who understand the world problems and are aware of global events, which is why this global knowledge certificate is needed to help eradicate ignorance.

Revised Post #5: Cuba opening up boundaries best thing for them.

Thesis: Cuba is doing the right thing by opening up their country and internet and encouraging increased freedom.

With the recent announcement that the Cold War enemies have finally ended the détente in December, Cuba is ripe for new world technologies and innovations. Companies are waiting to move into Cuba and try to help their people move into the modern world that they have been shielded from for decades. This is an opportunity for companies to not only make a profit, but also to help the people of Cuba realize a better life.

One of the industries most ready for innovation is the internet and technology.   As the Wall Street Journal reported, “Going online at designated cyber centers and hotels is unreliable and slow. At around $5 an hour, it’s too costly for Cubans, who on average earn $20 a month, according to government statistics.” This is attempting to be solved by “The so-called Code for Cuba ‘hackathon,’ organized by Miami-based nonprofit groups Roots of Hope, aims to attract U.S. engineers, software developers and entrepreneurs to work on increasing access to information as the Caribbean country begins flirting with freer telecommunications.” This organization aims to bring the innovative, entrepreneurial environment of the United States, to Cuba which has been hidden in the dark of the internet for years.

One of the first companies who have taken advantage of this opportunity in Cuba is Airbnb. They recently just opened up their services to be offered in Cuba as well. As reported in the US News, ““Licensed U.S. travelers will now be able to experience the unique culture and warm hospitality that makes the island so special through our new Cuban community,” Airbnb co-founder Nathan Blecharczyk said.” This will boost tourism to the country as “Demand for travel to Cuba is growing despite these obstacles, as Airbnb “saw a 70 percent spike in searches from U.S. users for listings in Cuba,” says Cristina Calzadilla of DKC Public Relations, which represents Airbnb.

This combination of increased tourism and travel to Cuba, with the increased freedom and innovation should help lift Cuba out of the economic turmoil they have been in since the Cold War. This offers good signs as “U.S. President Barack Obama and Cuban President Raúl Castro are expected to meet this weekend in Panama at the Summit of the Americas, Cuba’s first time attending the hemispheric gathering.” These all point to positive signs that Cuba is finally opening up their economy to the world. If Cuba is to reach its ambitious goals of having 60% of it’s 11 million inhabitants using the internet by 2020, they will need as much help as they can get, especially from the U.S.

Cuba is finally opening up to outside world

Thesis: In order to improve life in Cuba, they will have to open up their internet and remove some of the censorships.

With the recent announcement that the Cold War enemies have finally ended the détente in December, Cuba is ripe for new world technologies and innovations. Companies are waiting to move into Cuba and try to help their people move into the modern world that they have been shielded from for decades. This is an opportunity for companies to not only make a profit, but also to help the people of Cuba realize a better life.

One of the industries most ready for innovation is the internet and technology.   As the Wall Street Journal reported, “Going online at designated cyber centers and hotels is unreliable and slow. At around $5 an hour, it’s too costly for Cubans, who on average earn $20 a month, according to government statistics.” This is attempting to be solved by “The so-called Code for Cuba ‘hackathon,’ organized by Miami-based nonprofit groups Roots of Hope, aims to attract U.S. engineers, software developers and entrepreneurs to work on increasing access to information as the Caribbean country begins flirting with freer telecommunications.” This organization aims to bring the innovative, entrepreneurial environment of the United States, to Cuba which has been hidden in the dark of the internet for years.

One of the first companies who have taken advantage of this opportunity in Cuba is Airbnb. They recently just opened up their services to be offered in Cuba as well. As reported in the US News, ““Licensed U.S. travelers will now be able to experience the unique culture and warm hospitality that makes the island so special through our new Cuban community,” Airbnb co-founder Nathan Blecharczyk said.” This will boost tourism to the country as “Demand for travel to Cuba is growing despite these obstacles, as Airbnb “saw a 70 percent spike in searches from U.S. users for listings in Cuba,” says Cristina Calzadilla of DKC Public Relations, which represents Airbnb.”

This combination of increased tourism and travel to Cuba, with the increased freedom and innovation should help lift Cuba out of the economic turmoil they have been in since the Cold War. This offers good signs as “U.S. President Barack Obama and Cuban President Raúl Castro are expected to meet this weekend in Panama at the Summit of the Americas, Cuba’s first time attending the hemispheric gathering.” These all point to positive signs that Cuba is finally opening up their economy to the world. If Cuba is to reach its ambitious goals of having 60% of it’s 11 million inhabitants using the internet by 2020, they will need as much help as they can get, especially from the U.S.

Income Inequality Levels Rising

Thesis: Pay inequality is at exorbitant levels and something must be done to stop this rising inequality.

The income inequality in America has gotten a lot of attention and press for a few years now, so one would think that all of this negative publicity surrounding it would cause this inequality to go away. However a recently released Harvard Business School study proved that “Americans might think they know how bad inequality is, but it turns out they actually have no idea. [This study] found that Americans believe CEO’s make roughly thirty times what the average worker makes in the United States, when in actuality they are making more than 350 times the average worker.” This disparity in incomes is at historic highs, and truly sad how uninformed Americans truly are at just how high this income inequality levels have reached.

The Average annual compensation for CEO’s is by far the highest in the United States.  Supporters of this pay gap may justify this by saying that they need these levels of compensation to remain the number one innovator and country and to attract and retain the most talented and successful CEO’s and businesses. But if this argument were to hold, then the bosses of Wall Street, long considered an area where some of the most successful and smartest people go, should have some of the highest disparities between the top bosses and the average low level employee. However as the Wall Street Journal reported, “The gap between what bank CEOs and their staffs take home in pay has narrowed significantly since the financial crisis, driven mostly by a drop in compensation for the leaders of the five biggest Wall Street firms, according to a Wall Street Journal review of bank regulatory filings.” This is a good sign as the average pay for worker at the top Wall Street Banks rose to new highs, the pay of the CEO’s remained well below their 2006 pre-recession highs.

As explained later in the article, “Wall Street CEO pay “just doesn’t have the leverage that it used to because in many cases the businesses themselves don’t have the leverage,” said Todd Sirras, a managing director at Semler Brossy Consulting Group LLC.” Another possible reason for the lower ratios of CEO to average worker pay for Wall Street is that everyone on Wall Street “even middle-tier finance workers are generally well paid.” While in comparison an analysis from last year, “estimated that it takes the typical worker at both McDonald’s and Starbucks more than six months to earn what each company’s CEO makes in a single hour.”

The income inequality is still high all over America, and must start to dissipate in order to not enrage all American workers. This can be done in many ways, raising the minimum wage paid to low level employees, or lowering the pay of top CEO’s. Either way, something must be done about the widening gap between America’s ellite and the average worker.

Tesla Might Not Reach Lofty Goals

Thesis: Tesla lofty growth expectations may be unrealistic.

Tesla founder, Elon Musk, recently tweeted about when Tesla is going to reveal a new product line which instantly caused shares to gain a few percentage points. This got me thinking about how Tesla is valued and it’s market capitalization. Tesla has a $24 billion in market capitalization, which compares to General Motor’s $58.8 billion and Ford’s $63.4 billion.

Ford has been around since 1903 while GM was founded in 1908, so both have survived the Great Depression as well as the Great Recession. These are old reliable companies that have proven their stability over the years. Tesla, on the other hand was only founded in 2003. As noted in the Wall Street Journal, “In 2014, Tesla delivered 31,655 vehicles.” Ford and GM on the other hand, sold 220,671 & 274,483 vehicles in just one month (December 2014). If you look at the market capitalization per each car sold in a year, Ford and GM are about $25.5 thousand, while Tesla is trading at almost $760 thousand. This is because of the fast potential for sales growth that Tesla offers. However these goals might be a bit too lofty to be reasonable. Elon Musk “has set a target of 55,000 deliveries in 2015, and 500,000 by 2020. If met, these targets would transform the Palo Alto, Calif., auto maker’s profile in the cutthroat car business. While its sales are a fraction of what is sold annually by most auto makers, the targets are audacious goals for a company that started mass-producing automobiles less than three years ago.” While the 55,000 deliveries in 2015 is a realistic goal, scaling this business all the way to 500,000 by 2020 seems almost too lofty of a goal.

A big question concerning Tesla’s growth is if the demand will be there for that many electric cars. This demand will have to grow exponentially to make Tesla’s valuation justified.  A big concern that could halt this fast demand growth would be if Ford or GM (or anyone else) keeps increasing the fuel efficiency of their automobiles with advances in MPG. If they do, as I suspect they will raise the MPG to well above 50 for almost all vehicles, then the demand for these electric cars might not come about in such great numbers. The potential savings of these electric cars would be much lower if the fuel efficiency increases at a reasonable rate. These are all reasons that I think Tesla’s stock valuation, based on these lofty estimates for exponential growth may be too lofty to be reached.

Developing Countries Care More about Environment

Thesis: Developing countries are more environmentally conscience than the developed world.

While this might come off as a bit backwards because surely the developed world with much more disposable income have the ability and the desire to be more environmentally friendly than their developing country neighbors, but I am going to prove this argument is wrong.

David Cheesewright, chief executive of Wal-Mart’s international business recently sat down and discussed this topic with the Wall Street Journal and said, “Surprisingly, it’s the developing markets that tend to be more passionate about green products. They do it from a very different dimension.” As can be witnessed by the graph below, areas that have a majority of developing countries are willing to pay extra money for products and services committed to making a positive social and environmental impact.

Green Energy Graph

This is exactly the opposite of the intuitive argument that the developed countries have a much higher disposable income and therefore should be more willing to sacrifice a bit more of this for a product that is environmentally safe. However as Mr. Cheesewright later went on to explain, “In developed markets, you tend to find it’s a much more aspirational purchasing decision. Whereas, in developing markets, it’s much more pragmatic. It’s about the realities of life. If you have to carry your water from a pump a mile away from your home, you love products like shampoos that don’t require water, or detergents that are very efficient. That’s why I think they’re more prepared to look for those sort of products.” People in developing countries do not have the luxuries us developed countries have, and so sometimes environmentally safe products just make more sense.

 

Opponents of this will argue that developed countries are reducing the amount of coal generated electricity they have, while developing countries are relying on this cheap electricity for much of their populations, and they would be right. However, these countries do not have the economic capabilities in place yet to utilize these much more expensive forms of renewable power. While we want/need to make some changes to help reduce the impact humans are having on the earth’s environment, we also want to help people in developing countries rise out of poverty and to an adequate standard of living. This may mean that these developing countries use more harmful sources of power for longer, hopefully the price of renewable energy keeps declining so that it will become more of an economically viable option for these developing countries to implement. As the WSJ reported, “The price reduction of renewables has been nothing short of dramatic, 80% in the last five years. The wholesale price into bid markets for these technologies comes close to zero. I think the coal companies are going to have to pay attention to these technology trends.” This reduction in price, as well as more initatives from developed countries and international organizations should help these developing countries implement more and more renewable energy sources into their power grids. The citizens of these countries will certainly appreciate it more!

Revised Post #4: The Hyperloop is Coming

Thesis: The Hyperloop will have long-term economic effects as it disrupts many industries, the first being the container shipping industry.

Elon Musk’s vision for the hyperloop is finally coming to fruitation. This innovation will disrupt the transportation industry as soon as it is implemented, and help clear up traffic immediately.

The Hyperloop is described as:

That far-out idea billionaire industrialist Elon Musk proposed in a 58-page white paper in August 2013 for a vacuum-tube transport network that could hurtle passengers from San Francisco to Los Angeles at 760 miles an hour. Laughed off as science fiction, it is as of today an actual industry with three legitimate groups pushing it forward, including Hyperloop Technologies, the team in Harry Reid’s office. They emerge from “stealth” mode with this article, armed with an $8.5 million war chest and plans for a $80 million round later this year. “We have the team, the tools and the technology,” says Bam Brogan. “We can do this.” The 21st-century space race is on.

This vacuum tube has been compared to sci-fi fantasies, but it is finally becoming a reality, “Fortunately for futurists and people who enjoy picking apart complicated plans, an El Segundo, California-based startup has taken Musk up on his challenge to develop and build the Hyperloop.” This innovation will immediately change the dynamics of transportation. As the channels to utilize this form of transportation expand between major hubs, it will allow cargo to be shipped at high speeds throughout these hubs. This will allow a car made in Detroit to be shipped to its buyer in Los Angeles in a matter of just a few hours. This will also clear up some of the hated traffic on highways. Companies will be able to utilize the hyperloop for long distance shipping, for much faster delivery.

One potential problem I see with implementing this technology (assuming first that some firm develops the technological and economic capabilities to build the hyperloop) is that truck drivers will oppose this with ferocity, but it could actually be good for them. Due to the large expensive infrastructure necessary for the hyperloop, it will only be installed between major cities initially, meaning there will still be a need for truck drivers to then make the delivery from these transportation hubs to their final destination.

The reason that high-speed travel like this has not been previously invented is simply because of the problems related to air. A simple example of this problem is “At walking speed, air is ephemeral stuff. But, as any child who has stuck his hand out of a car window at speed knows, the faster you go the more obvious its effects become. In fact, the grunt needed to counteract air resistance rises with the cube of speed.” Elon Musk proposes to counteract this problem air causes by keeping the tunnels at a much lower atmospheric pressure than sea level cutting the air resistance dramatically. The next problem then becomes that “Hyperloop capsules are designed to sit snugly within their tubes. At high speeds, they would act like a plunger in a syringe, compressing the air ahead of them. That would require large amounts of power to overcome, undoing many of the advantages of a vac-train in the first place. Mr Musk’s proposed solution is to fit each pod with a fan designed to blow what little air is present through a pipe in the capsule and out of the back—essentially drilling a hole in the plunger.” This proposal has all the theoretical support to make it work and sounds like a plausible solution, however it remains to be seen whether this proposal can be turned into a reality, and a financially viable one at that!

0210_hyperloop-diagram_1200

The hyperloop will change entirely the container shipping industry immediately by increasing the speed at which goods can be delivered to their final destination. It also has large-scale implications for human travel one day too, as Bruce Upbin wrote in his article, “The hyperloop, which Musk dubs “the fifth mode,” would be as fast as a plane, cheaper than a train and continuously available in any weather while emitting no carbon from the tailpipe. If people could get from Los Angeles to Las Vegas in 20 minutes, or New York to Philly in 10, cities become metro stops and borders evaporate, along with housing price imbalances and overcrowding.” While this may be a long ways in the future, it at least now has the chance to become a reality, rather than just a dream of some sci-fi author.

Rising College Costs Hurting Economy

Thesis: The rising costs of college are directly (and negatively) impacting the economy as a whole.

People have been debating and questioning if college education is worth the rising prices students have to pay for it. Especially now a days when the costs of college have been growing at exorbitant rates (as seen below). Students have been required to take out more student loans as a result of this and as Andrew Rossi reported,

fredgraph

“Another important caveat is the fact that the average repayment period on student loans has increased from 7.4 years in 1992 to 13.4 years today. So while monthly payments may be similar to what they were twenty years ago, they now last for almost double the time. This is where the meme of “student debt slavery” enters the conversation. It used to be the case that student loan debt could be paid off by the time one might decide to start a family and buy a home. But now, there is a sense that student loan debt will haunt borrowers deep into adulthood, negatively affecting their ability to make life choices that are part of a healthy future and a key to the health of our economy.”

The amount of time it takes students to repay these loans has almost doubled in 20 years. This is preposterous, and is causing a huge impact on young adults credit ratings and therefore impacting many markets including new home purchases. Home ownership rates have been decreasing steadily since their 2004 peak (as seen below), in no small part because of the rising student debt of recent graduates.

Home Ownership Rates

The need for higher education has never been more prevalent however. As the Economist article recently pointed out, “Student numbers are growing faster than global GDP. So hungry is the world for higher education that enrollment is growing faster than purchases of that ultimate consumer good, the car.” It has now become an absolute necessity to go to college and get a degree in order to ensure a well paying job and a ticket to the middle class.

The future of education rests in advances in technology that “offer the promise of making education both cheaper and more effective, but universities resist adopting it.” And why would universities when they are charging higher prices than ever, and yet still have more and more applicants trying to attend these colleges. Until there is widespread adoption of cost cutting technologies from these universities, perhaps by government mandates, or by one university taking the first step, causing others to follow, the price of college is going to keep increasing until student debt overtakes home mortgages as the leading debt of Americans. This will have the effect of further reducing the amount of home mortgages as recent graduates will not be able to purchase new homes. While I certainly am not suggesting people not attend college, as it is becoming more and more of a necessity for good employment opportunities. I am suggesting that the excessive prices colleges are charging students are an immediate hindrance to the global economy as they directly impact the amount of home purchases. Unless something is done to contain these rising prices, we might have to get used to a slower growing economy.