View of the World

Death of Moore's law?

2009-06-16T21:51:00.000-07:00

After 44 years and surviving several prediction of its demise, is Moore's law really dying? Pundits are saying that there is a limit to innovation & this time, Moore's law has met its nemesis. Unfortunately, its not the laws of Physics. Its the "Green Backs", money? At a certain point, the cost of producing smaller chips will cross the line of being economical.
So what is Moore's law - its a prediction or a trend that every two years the number of transistors will double on an economical Integrated Circuit. Pundits are saying that the limit is 18nm feature size, the smallest feature that can be made on a chip. We will get there by 2014 or 50 years from the day Moore's law was established by Intel's Gordon Moore.
Over four decades, technological innovation and insatiable demand for chips delivered on the Moore's law predictions. While the cost of setting up a chip manufacturing plant, Fab has sky-rocketed to over $4B, the chip demand has kept pace, providing the economies of scale. Today, chips are ubiquitous. Every time we felt an imminent inflection point, a new usage of chips came through - PCs and Cell phones in last 2 decades.
The survival of the Moore's law depends upon finding new usage? Is it smart phones, network PCs, electronics book, or something entirely different? Perhaps, a different kind of solar cell or energy storage device or nano devices in healthcare. Its the unpredictable nature of the innovation that has made Moore's law so predictable.

Leveraged Economies

2009-06-12T21:49:00.000-07:00

In the past few decades, most of the emerging economies have found their way to salvation through export. Leveraging their comparative advantage, these economies have been able to attain extremely fast growth. With strong government support, the export oriented companies have thrived and created wealth and value for the country and the shareholders. Asian tigers in 90s were clearly an extreme example of public and private partnership.

While its great to utilize export as path to improve standard of living, it is also a treacherous path. The export oriented economies tend to be extremely volatile through the cycles. They also tend to be focused on particular sector causing lopsided impact. For example, Taiwan's dependence on electronics industry caused its economy to decline by 8.6% and 10.2% in last two quarters. Similarly, Korea, Singapore and Japan have been affected severely too. In Europe, Germany has suffered similar plight. Its unprecedented to see double-digit decline in GDP. The economies lost 5 to 10 years of growth. Incredible!

On the other hand, China and India have been able to weather the storm much better. The reasons are not exactly same i.e., China announced their $586B stimulus package last year. Yet, these economies have big domestic market. In other words, these economies have their own demand. The economies such as Japan, Singapore, Germany, Korea, etc. have leveraged demand i.e., global demand. They do get impacted severely by problems of other countries.

I do think trade is extremely valuable part of the economy. However, government policies focused solely on export may not build solid foundation for emerging world. A vibrant domestic market builds the cushion and strong foundation.

Are we going to have leveraged economies in the future? Sure. As long as economies develop specialization through comparative advantage, we will see leveraged economies. Is it a good policy for a country?

Is the economy coming back?

2009-06-08T22:18:00.000-07:00

We are all tired and perhaps, resigned to the new normalcy. The job loss numbers are good because they are not as big. Is is sign of capitulation? Are we becoming thick skinned economist?
Somebody told me that about 90% of the people are still employed. 9.5% unemployment is fine. Is it? The impact of one job loss has ripple effect through the social network. The colleagues, friends, and family suddenly become extra careful with their savings. The result is economic malaise. So why are stocks up? Is stock market really a precursor? It did not predict the downturn!
I believe that the economy is definitely recovering. Its natural. At some point, we will need to replace our PCs and laptop. It has a life of 3 to 4 years. We will start replacing cars; it becomes more costly to maintain an old one than the monthly payments for a new one. We will need new cell phones. We will need new clothes. Its the replacement cycle. The question is - what is the speed and shape of the recovery. Will it stop at replacement cycle? The answer lies in the shape of the new economy. Are we going to be frugal consumers forever? Probably, we will be for a short period. We will save more for rainy days. Perhaps, one day we will forget about it. The economy will heat up again & we will learn more about ourselves.