Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Claire Berlinski is very pleased with the response to the GoFundMe page in support of her new book ($9700 as of this writing) as well as the strong interest in the crowdfunding investment possibility.
A conversation between Claire and her brother Mischa suggests some grounds for cautious optimism about the future of this country:
I’ve previously written about the failure of the “Advanced Automation System,” an FAA/IBM effort to create a new-generation system for air traffic control: the story of a software failure. (The post excerpts the thoughts of Robert Britcher, who was deeply involved in the effort and is an excellent writer–very much worth reading.) The AAS project has been called “the greatest debacle in the history of organized work”–there are a lot of contenders for that honor, though, and here’s another one…
I have been considering “disruption”, including what is hype and what is real. Here is one on the cab industry where it occurred, in the electric and gas utility industry which has proven resilient in its current business model, and retail which is in the process of being disrupted.
My theory under these posts is that increasing supply (broadly defined) has been the key to whether or not “disruption” is truly real or not occurring. I don’t know if it will play out that way or not in the end but this is a starting point.
I have been interested in the airline industry for decades… in high school for my statistics class I built a model which correlated the profits of United Airlines with the price of oil. As an auditor and consultant I spent hours every week on a plane crossing the country serving utilities. And ever since I have traveled at least ten times a year for business or pleasure. So perhaps I would not consider myself an expert on the airline industry but certainly an interested observer.
The airline industry famously de-regulated in 1978. From 1978 to 2010 the airline industry added myriad new entrants and saw them fail along with much of the old guard. Wikipedia summarized this era here. In recent years, through bankruptcy and mergers, the US airline industry consolidated into four major carriers – American, United, Delta and Southwest. These four carriers control the vast majority of gates at major cities and effectively operate as an oligopoly. Now these four carriers are in rude health, as you can see in the stock chart below. Their stock prices have increased between 135% to 355% over the last 5 years. As an investor I bought Southwest after 9/11 and held on to it for years as the price languished; unfortunately I exited the stock before they became today’s oligopoly.
Another contributor to these gains is the collapse in oil prices. During the “peak oil” era, the airlines profits were strangled by the high cost of fuel – today they benefit immensely from today’s commodity price crash. This article describes how lower fuel costs saved them $4.3B in the third quarter 2015 alone and these lower costs have generally not come through to end users as price decreases – the airlines have banked the money or used them for dividends and capital improvements.
D-Wave Systems, located in British Columbia, is a builder of commercial quantum computers. It stores bits as magnetic directions in one of three states: clockwise, counterclockwise, and both directions simultaneously. The math and physics are far beyond me, but they claim to solve certain sets of optimization problems up to 100,000,000 times faster than classical computers. Customers for their computers, which cost $10 million apiece, include Lockheed Martin, an unnamed intelligence agency (NSA?), Google, JPL and NASA Ames Research.
Applications appear to be computationally intensive problems with lots of variables, and the solution involves a process called quantum annealing, where an optimal approach is found by exploring millions of solutions simultaneously to find the most efficient solution path. I’m reminded of a discussion on the famous double slit experiment, a classic physics experiment that demonstrates photons displaying behaviors of both waves and particles, known as wave-particle duality. Most interesting is that quantum probabilistic behaviors are also observed, in that the experiment functions differently when the particle paths are observed and when they are not. When the photons in the experiment are observed, the probability function collapses and the photons behave like a particles. If they are not observed, the photons take many paths through the slits and create a dispersed pattern on the target. That behavior has been described as “spooky”, because the particles seem to know when they are being observed. Weird, I know. It’s been said that anyone who claims to understand quantum mechanics is lying. But that doesn’t mean we can’t describe its behavior. Richard Feynman explained that at the quantum level, every possible path a photon can take is considered, and the path chosen is a probability function, like a bell curve. As photons are emitted from a source, the most likely path is taken most often, but some photons will take slightly less probable paths, still other even less probable paths, and so on. Quantum annealing seems to be a form of that, where many paths are simultaneously considered until a most probable path emerges, then it is chosen.
Today marks the 80th anniversary of the first flight of the Spitfire fighter prototype.
See also my post from last year: the Battle of Britain + 75