September 2018

Episode #211: Free-rider Friday - September 2018

free-rider3.jpg

Ron’s Topics

South China Morning Post, September 8, 2018, “Doctors said the coma patients would never wake. AI said they would—and they did.”

Thank you to our listener Geir for passing this along.

Surveillance State,” Kevin D. Williamson, September 13, 2018, National Review

When everyone is the last one out,” The Economist, August 4, 2018

Japanese work notoriously hard, 12 hour days are not uncommon, only 10 holidays per year, and it leads the world in paternity care, but only 5% men use it, and then for just a few days.

The Japanese have given the world the term karoshi—death by over work. They had employment for life post World War II, making it nearly impossible to fire, vestiges of which is holding them back: Japan has the lowest productivity of the G7 countries.

Companies tend to judge employees by input not output, and pay not on merit, but years served. The law should make it easier to hire and fire, allowing women more chances; fathers could bring up offspring, and it might even lead to more babies, suggest The Economist. The latter seems doubtful to me.

“Having a Cow,” Metro USA [from The Limbaugh Letter]

Fragile Millennials can now engage in “cow cuddling.”

For $300, stressed snowflakes can hug and “groom” a cow for 90 minutes at Mountain Horse Farm in upstate New York. We guess, don’t knock it until you tried it, but…

Cows will “pick up on what’s going on inside and sense if you are happy, sad, feel lost, anxious, or are excited, and they will respond to that without judgment, ego, or agenda.”

How udderly inspiring, as Rush says. No mention of barnyard odors.

What about consent? #MooToo?

States’ deregulatory push threatens CPA licensure,” Journal of Accountancy, September 7, 2018

Rory Sutherland, Spark.me, July 2017, “The Science of Knowing What Economists Are Wrong About,” in Montenegro

Another excellent video from Rory worth watching.

RoryS.jpeg

Donald Trump’s speech to the United Nations, September 25, 2018

Geir’s question

Wonder what you think of his speech and your view on the ideology "globalism"? I prefer the ideology of liberty.

Ed’s Topics

Scarcityist-in-Chief,” Donald Boudreaux, CafeHayek

See our show with Donald Bodreaux here.

XKCD.com, 66 Time, September 21

Episode #210: Interview with Ryan Lazanis of Xen Accounting

RyanLazanis.jpeg

Ryan’s Biography

Ryan Lazanis is a CPA by trade but doesn’t consider himself a normal accountant. He identifies more with being an entrepreneur and loves disruptive technologies and business models. His aim is to help modernize the old, boring, traditional accounting profession. After spending many years in public practice at a small, traditional CPA firm, he started Xen Accounting in 2013. The firm was one of the first of its kind in Canada: 100% online, totally paperless, and fully cloud-based. Xen is a firm of geeky CPA’s, bookkeepers and technologists. They looked at what millennials hated at traditional accounting firm and turned that on its head to offer a new service. Ryan also likes writing & speaking on the subject of technology (including blockchain & cryptocurrency!). He’s been a writer for Techvibes, and has spoken at events around the world. Prior to Xen Accounting he was an active DJ in Montreal but says that his biggest passion is traveling to remote destinations with his wife.

Ryan Lazanis has been operating Xen Accounting without timesheets for the past five years. Founder of Xen Accounting, an innovative firm in Canada, Ryan embraced by the idea of blowing up the old “We sell time” business model of traditional accounting firms. Join Ed and Ron and learn how Ryan’s done it, the lessons he’s learned, and what it’s really like to work in a firm where time is merely a constraint, not a measure of anyone’s worth.

Ed’s Questions

Have you ever been in a tertiary meeting?

Tell us a little bit more about yourself and Xen Accounting.

Why do you do what you do, Ryan? Why did you get involved in accounting in the first place?

When you formed Xen Accounting in 2013 did you form it with the intention of not doing timesheets from the very beginning?

NoTimesheets.png

When you brought your first couple of colleagues on, you didn’t have them do a timesheet?

You knew your costs in advance?

When you brought these folks on board, do they ask where the timesheets were?

What about customers? Did you find any resistance, did they ask you about the hours or your hourly rate?

Blockchain.jpg

Right on your website it says, “Bitcoin accepted here.” Has anyone ever paid you in Bitcoin?

Are you more high on blockchain, or Bitcoin?

How do you see blockchain unfolding, regarding its impact on bookkeepers, accountants and auditors?

Do you see a public blockchain where multiple companies will post transactions when they interact with one another?

There’s different schools of thought on this. One colleague at Sage thinks the blockchain will replace the subledgers (A/P, A/R, etc.) rather than the General Ledger. Any thoughts on that?

Other than Bitcoin, are there other cryptocurrencies you like? [Ripple is his favorite]

Any others, Ether, etc.?

Let’s talk about Artificial Intelligence. Where do you see AI impacting the accounting profession in the shorter-term, 12-18 months out?

What about any other technologies you’re excited about? Any particular application of AI you’re high on?

Ron’s Questions

Did you grow up in Montreal?

See Ryan’s Blog post, The firm I run, Xen Accounting, has been operating for 5 years…(gulp)…without a timesheet

You said you made this change because you wanted to create a better customer experience, which is exactly why I did it back in 1989. Just love that you did it for that reason, too.

This aspect gets lost around the whole debate around hourly billing, pricing theory, behavioral economics. It’s really about creating a better customer experience?

Customer.jpeg

How has this change affected your practice in terms of recruiting talent?

You said your customers were receptive to this change. I find it’s not the customers that need to be convinced, it’s our fellow professionals isn’t it?

When you get rid of timesheets, your focus becomes creating more value for customers, what has been the sense of creativity, innovation, and collaboration—has it increased in your firm because of this change?

How about after the price has been set, and now you’re doing the work and taking care of the customer relationship, is there more creativity and collaboration?

What inspired you to write this blog post? [See above]

What’s been the reaction from your colleagues to this blog post?

We see more and more firms adopting this model. Do you think this business model is starting to diffuse and running towards a tipping point?

Zen.jpeg

On your website, you offer three options on your website: Simply Xen, Absolute Xen, and Supreme Xen. So many of our listeners are moving to this model, what are the percentages of customers’ selection for each option?

What do you think is the number one issue facing the accounting profession today?

What’s the biggest opportunity for firms in the profession right now?

What advice would you give to a young, aspiring CPA?

Would you advise I go work for a Big 4?

Do you find ex-Big 4 folks to be good talent for your firm?

Ryan, you’re obviously an entrepreneurial person, what is the best advice you’ve received in your career?

The other thing I noticed about your options, you have Fathom in your top option, and that is more of an advisory role. Do you find your firm, more and more, helping your customers make history rather than just report on it?

Do you see business advisory services growing?

Episode #209: Why Trade Deficits Don't Matter

trade_imbalance.jpg

What happens when one country’s imports consistently exceed its exports, creating a deficit in the international balance of trade? There is probably no greater misunderstanding about the real nature of wealth than when a discussion turns to the balance-of-trade question.

Justice Oliver Wendell Holmes: “We need to think things instead of words.” Nowhere is this more important than with international trade, so many misleading and emotional words used to describe and confuse things that aren’t very difficult to understand.

Henry Hazlitt, author of Economics in One Lesson explained this phenomenon when he wrote: “… the same people who can be clearheaded and sensible when the subject is one of domestic trade can be incredibly emotional and muddleheaded when it becomes one of foreign trade.”

Ron recently taught an economics course to a group of learned professionals, and this one topic was the most contentious. Most everyone seemed to have an inordinate fear of China, India, and other foreign nations accumulating more and more of America’s debt.

He asked the group a simple question: If China and India become wealthier, is that a threat to America? The general consensus seemed to be yes, illustrating how zero-sum thinking is endemic to this discussion. Adam Smith eloquently wrote about this in 1776 in his seminal book, The Wealth of Nations:

Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.

One of the reasons the United States of America is such a relatively wealthy country is that it maintains a free trade zone among its 50 states. The Constitution prohibits the states from interfering with trade among their respective citizens; there are no tariffs or import, export, or other restrictions within the 50 states. No individual state worries if it is running a deficit with another.

Economist Russell Roberts posed this challenging question in his delightful academic novel, The Choice: A Fable of Free Trade and Protectionism:

Shouldn’t Florida help out Minnesota by importing just as many oranges from Minnesota as Minnesota imports from Florida? Trade flows should be unequal. … if you pick any one state in the United States and look at its trade position with respect to other states, you’d see a lot of deficits and surpluses.

Trade deficits and surpluses are merely accounting conventions with no explanatory relationship to the underlying reality of an economy, which is why accountants and economists have different worldviews. If a free trade zone works internally for the United States, why would it not work internationally among the countries of the world?

 It helps to keep in mind that countries do not trade, people do. In any transaction, as Adam Smith pointed out, both parties must gain for it to take place at all—the antithesis to a zero-sum condition.

You buy a Lexus only because you perceive it as being of higher value than the price you are paying. The government, for all practical purposes, has nothing to do with it. Nor is it any of its business.

As individuals, we run trade surpluses and deficits all the time. I run a deficit with my local grocery store, importing more from them than I sell to them. You run a large surplus with your employer, who pays you more than you buy in products or services from them in return. So what? The resulting accounting deficits and surpluses simply do not reflect the economic reality behind these billions and billions of individual transactions around the world.

This is what Adam Smith meant when he wrote, “Nothing can be more absurd than this whole doctrine of the balance of trade.”

The gains from trade are what we import, not export. The purpose of production, in the final analysis, is consumption. The more imports we can acquire for fewer exports, the wealthier we are, either as individuals or as a country.

Other countries face the same realities, and we are no more likely to obtain the goods and services we desire by trading pieces of green paper with other nations than we are to send letters to the North Pole and get gifts from Santa Claus.

Being a creditor or debtor nation simply has no correlation with a country’s standard of living. Thomas Sowell exposes this fallacious concept in Basic Economics:

In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses. The United States was the biggest debtor nation in the world during its rise to industrial supremacy, became a creditor as a result of lending money to its European allies during the First World War, and has been both a debtor and a creditor at various times since. Through it all, the American standard of living has remained the highest in the world, unaffected by whether it was a creditor or a debtor nation.

No one revealed the specious reasoning behind balance-of-trade concerns better than the French economist, statesman, and author Frédéric Bastiat (1801–1850), whom the Austrian economist Joseph Schumpeter said was “the most brilliant economic journalist who ever lived.”

Bastiat used entertaining fables and carried the logic of the proponents of protectionism to their logical extreme, with biting wit. One of his most famous essays, “Petition of the Candlemakers,” was a parody letter from the manufacturers of “candles, tapers, lanterns … and generally of everything connected with lighting,” arguing against the unfair competition—since since its price was zero—of the sun.

Bastiat understood that exports were merely the price we pay for imports, and having to work harder to pay for those imports did not lead to wealth. Using impeccable logic, Bastiat wondered if exports are good and imports are bad, would the best outcome be for the ships carrying goods between countries to sink at sea, hence creating exports with no imports?

Stop worrying about the accounting fiction known as the trade deficit. It’s meaningless, and leads to harmful fallacies in public policy.

Kevin D. Williamson, in Understanding Trade Deficits, National Review, July 29, 2018, points out that a trade deficit is not the same as the budget deficit; it’s not a useful term (it’s a bookkeeping term).

Trade deficits and surpluses are not caused by tariffs and other protectionist policies

  • USA/EU, on average, have same tariff rate: 1.7% USA, 2% EU

  • Significant variance by item

  • Germany has a 10% tariff on automobiles (US 2.5%)

  • One-half of Europe’s cars are exported to USA (600,000 German cars)

  • USA imposed a 25% tariff on light trucks, imposed by the Johnson administration in 1964 in retaliation for French and German tariffs on American chickens

  • China cut tariffs on autos July 1st from 25% to 15%, but could raise them back up to 40% to retaliate against president Trump

  • Manufacturers can get around tariffs by building factories in the US, such as done by BMW and Daimler. For an auto factory to be productive it needs to produce somewhere between 200,000 and 400,000 cars per year

  • 63% of Japanese branded autos sold in US were made in the US in 2006

  • Average tariffs have been cut in half since early 1990s

  • China cut tariffs on average by 90%, from 32.2% to 3.5%, since the 1990s

Trade deficits and surpluses are not driven mainly by consumer behavior, but rather several other factors

  • Macroeconomic factors, tax policies

  • Savings rates

  • Strength of the currency

  • Attractiveness to investors (Trump’s tax reform could increase our trade deficit)

  • Largest USA exporter? BMW, which produces SUVs in Spartanburg, SC, and employs 9,000 Americans; our trade deficit with Germany made that possible (100,000 BMWs alone are exported to China)

Trade deficits and surpluses are not an indicator of economic trouble or health

  • The last time the US ran a surplus was 1975, not a great economic era

  • The US ran surpluses all through the Great Depression of the 1930s, with both imports and exports lower than 1920s levels

  • Britain ran a trade deficit from Waterloo to the Great War, a century marking the apogee of its power, and it grew incredibly wealthy

  • Nigeria had years of surpluses, yet remains one of the poorest countries in world

  • US factories output doubled since 1990, and are much higher than in the 1950-60s, and employs fewer people

  • That, not trade deficits, is why manufacturing’s relative share of employment has declined

  • The US was officially a debtor nation for generations on end (it ran trade surpluses). During WW I it became a creditor nation (running trade deficits). Since then, we’ve been both. Accounting details are not determinants of American prosperity or problems.

Three types of gains from trade

  1. Absolute Advantage—We buy bananas grown in the Caribbean because of nature, geography, or skills (beer and pianos are overwhelmingly produced by Germany and Germans in other countries, even China’s most famous beer—Tsingtao) was created by Germans)

  2. Comparative Advantage—Being able to produce anything more cheaply is not the same as being able to produce everything more cheaply. We’d have to produce everything more efficiently than Canada by the same percentage for each product for there to be no gain from trade.

  3. Economies of Scale—200-400K autos per year, Australia shut down auto plants, can’t cover high costs, even though the number of OZ owned per capita is higher than US, there are 12x more Americans

Over 1,000 economists signed a letter to Senator Smoot, Congressman Hawley, and President Herbert Hoover to protest the Smoot-Hawley Tariff Act, and the last line read: “We cannot increase employment by restricting trade.”

Four measures of how US firms do in China

  1. China % of foreign sales of US firms: 15% (20% would be in line with China’s share of world GDP) = 1% American firm’s global sales

  2. American firm’s aggregate market share in China = 6%, almost double China’s in America

  3. Do US firms underperform other multinationals and local firms? Comp adv in tech, Apple, Intel, Qualcomm, top 50, sales increase 12% compound annual rate, local firms = 9%, European firms = 5%

  4. US firms shut out of some sectors. Yes. Alphabet, FB and Netflix are nowhere

Episode #208: Free-Rider Friday - August 2018

Ed’s Topics

Accounting Today’s Top 100 Most Influential People in Accounting

Ed and Ron both made the list, along with VeraSage Fellow Michelle Golden River, and from Sage, Jennifer Warawa, and friends of VeraSage, including:

Top110.jpeg
  • August Aquila

  • Gary Boomer

  • Jim Boomer

  • Jim Bourke

  • David Cieslak

  • Angie Grissom

  • Tom Hood

  • Allan Koltin

  • Mark Koziel

  • Gregory LaFollette

  • Taylor Macdonald

  • Stan Mork

  • Jody Padar

  • Hitendra Patil

  • Darren Root

  • Marc Rosenberg

  • Donny Shimamoto

  • Geni Whitehouse

  • Jennifer Wilson

  • Joe Woodard

Ron was also voted #6 among the Top 10 Most Influential, coming in one vote less than Donald Trump, possibly due to Russian collusion.

TopTop.jpg

Should Commuting Count as Work?

We noticed this post in LinkedIn and it was picked up absolutely everywhere. 

appsforcommute_primary-100160844-large.jpg

Our Patreon Site

Have you ever wanted to listen to the show commercial free? Just think, no Greg Kite commercials! Not only that, Ron and Ed record weekly bonus episodes and share their conversations during the commercials. All this can be yours for $7 per month.

Nudging: Should We Be Wary of the Latest Fad in Behavioral Economics?”, Donovan Choy, FEE, September 1, 2018

Check out our show from August 2014, Episode #8: Mr. Spock and Homer Simpson.

What’s wrong with “nudging”? Two problems:

  1. Policy makers suffer from the same biases that the rest of us do

  2. Political institutions are plagued by inefficiencies

Tucker Carlson Feeling the Bern Illustrates Conservatism’s Hostility to Free Markets,” FEE, August 31, 2018, Tom Mullen

Tucker thinks Amazon, Uber, and Wal-Mart start paying their people more so the taxpayers don’t have to subsidize these workers. We this he is way wrong on this one!

Ron’s Topics

 “The Son Kingdom,” The Economist, May 12, 2018

0.png

Masayoshi Son, founder SoftBank, Japanese telecoms/Internet

  • The Vision Fund = $100 billion venture capital fund

  • Alliance with Muhammed bin Salman, Saudi Arabia’s crown prince, $45B + $5B Apple

  • Exceeds $64B all VC funds raised globally in 2016

Masayoshi’s bet on Alibaba paid off, but in the dot.com crash of 2001, he lost 99% of SoftBank’s market value.

Less than 5% of companies that pitch receive funding, slightly more generous than most VC firms. He gives them 4-5x more than they ask for! Startups perish more from indigestion than starvation. Wants to create an ecosystem and take them into Asia, etc.

The fund invests in 3 areas:

  1. Frontier: singularity, IOT, AI, computational biology, genomics

  2. Bring new tech to old industries (ride-sharing, WAG! Dog walking uber)

  3. Technology, media, and telecoms

If Steve Jobs brought to Apple an understanding of technology and art, Son’s formula is technology plus finance.

The bigger the VC fund, the harder to make high returns

Even if he loses, the fund will shape technology in future, frontier technologies. It will offer startups an alternative to cashing out to giants (FB, Google, etc.)

Bartleby: “Taking minutes, wasting hours,” The Economist, June 30, 2018

In 1957, C. Northcote Parkinson came up with the Law of Triviality: “The time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.”

Bartleby’s Law: 80% of the time of 80% of the people in meetings is wasted.

Corollary: After at least 80% of meetings, any decisions taken will be in line with the HIPPO, or highest-paid person’s opinion.

Start with the most contentious item first, and make sure everyone understands what was actually decided.

I jumpstarted my productivity in 15 minutes—and you can, too!” AICPA guest blogger, July 13, 2018, Brock Gaucette, Manager, Corporate Communications, AICPA

How a firm got more productive by reading more books, through: increased focus, confidence in communicating, improved memory, and a new, improved addiction—reading.

Elizabeth Warren’s Batty Plan to Nationalize…Everything,” Kevin D. Williamson, National Review, August 16, 2018 and “Elizabeth Warren Looks to Make Cronyism Great Again,” Daniel J. Mitchell, FEE, August 25, 2018

The Accountable Capitalism Act: Business with more than $1B in revenue would need permission from federal government (the act establishes within the Commerce Department an Office of US Corporations to review & grant charters). The act would also regulate:

  • Dictate composition of boards

  • Internal corporate governance

  • Compensation practices

  • Personnel policies

This act is unconstitutional (takings clause), unethical, immoral, irresponsible and utterly bonkers, according to Kevin Williamson of National Review.

Companies are already accountable for everyone they exchange with: customers, employees, suppliers, govt, etc.

This is simply Elizabeth Warren staking out the most radical corner for her 2020 presidential run.

AP_18023599960762_c0-274-4614-2964_s885x516.jpg

Apple’s shareholders are, collectively, the largest taxpayer in the world. Should we seize those earnings? Isn’t that covetousness and envy?

Businesses don’t have to put up with this? Nearly 50% of the S&P’s companies revenue is from overseas. The USA is home to 64% of the world’s billion-dollar privately held companies, and a plurality of billion-dollar startups.

Economist William Nordhaus estimates that innovators keep just 2% of the social value of their innovations.

“The thaw,” The Economist, June 30, 2018

A new show, “The White Crow,” currently in production, Rudolf Nureyev, a Russian ballet dancer who defected in 1961.

Also in production, a six-part adaptation of John le Carre’s “The Spy Who Came in from the Cold,” a British spy’s assignments in East Germany, also in production

Simon Cornwell, le Carre’s son, got into the Stasi archives, just like The Americans, creator Joe Weisberg (a former CIA officer), got into the Russian archives.

Episode #207: Interview with George Gilder

In lieu of show note, we have opted to post the transcript of our interview with George Gilder about his book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy

If you would like more on this or want to listen commercial free, please consider subscribing to our premium service at Patreon.

Ronald Reagan:             Like a chrysalis, we're emerging from the economy of the industrial revolution, an economy confined to and limited by the earth's physical resources, into the economy in mind, in which there are no bounds on human imagination, and the freedom to create is the most precious natural resource.

Ron Baker:                    Welcome to the Soul of Enterprise: Business and the Knowledge Economy, sponsored by Sage, energizing business builders around the world through the imagination of our people and the power of technology. I'm Ron Baker, along with my good friend and VeraSage Institute colleague Ed Kless, and on today's show folks, we are talking about life after Google, with the one and only George Gilder, my mentor for 37 years. George, welcome back to the Soul of Enterprise, and thank you so much.

George Gilder:             Oh, it's great to be on.

Ron Baker:                    I have to thank you on behalf of me and Ed for sending us your book a week before it was published [July 17], which we devoured, and just because we know you don't like the free model, we've gone out and bought multiple copies, so I just want-

George Gilder:             Oh, thank you so much. I've been quoting you. I don't know how many of my books quotes you, but a couple anyway.

Ron Baker:                    Well, you've been my 37-year mentor, George.

George Gilder:             Okay.

Ron Baker:                    So, getting quoted in your book Knowledge and Power was one of the highlights of my life. I'm even going to dispense with reading your biography. I'm just going to direct people back to show number 60, which we did with you on September 11, 2015, and you've taken us from the Microcosm to the Telecosm, and now the Cryptocosm, and all the while, you love to cite Carver Mead, who says, "Listen to the technology and find out what it's telling us." George, what's the technology telling you about Google?

George Gilder:             It's telling us ... It's expressing Bell's Law, and Bell's Law is that every 10 years or so, the accumulation of Moore's Law doubling its computer power every couple of years leads to a hundred fold or more rise of computing power, which entails and mandates an entirely new computer architecture. Back in 2006, in Wired Magazine, I wrote a tribute to the Google's launch of the era of cloud computing and machine learning and data warehouses. It's now 10 years, 12 years have passed, and Bell's Law is tolling for Google today, because Google has all these big white elephants, bureaucratic data centers all around the globe, and they're becoming obsolete.

Ron Baker:                    You talk about Google having a materialist, and I love this, neo-Marxist, Burning Man ideology that we humans are nothing but an algorithm, and you reject this, and I just love how you bring in the whole William F. Buckley, "Don't let them immanentize the Eschaton." Can you kind of explain that?

George Gilder:             Well, a lot of people don't understand that [Karl] Marx's real error wasn't the celebration of violence or class war or whatever. It was to imagine that the industrial revolution of the 19th century, all those steam engines and railroads and electric turbines and dark, satanic mills were the ultimate achievement of human productivity, and that in the future, the challenge would not be the creation of wealth, but rather the distribution of wealth, and that was the original Marxism. The new Marxism of Google is to say that artificial intelligence, the machine learning, the robotics, the algorithmic biology, all these ... the search engines, all these capabilities are kind of the ultimate human achievement. Eschaton and Bill Buckley's words, or [Eric] Voegelin’s words, a final thing, and that in the future, we can all retire to beaches and receive the guaranteed annual income while Larry Page and Sergey Brin get on a rocket and go out to some remote planet with Elon Musk in a winner-take-all universe. That's sort of the new Eschaton, the new Marxism, the Google Marxism.

Ron Baker:                    You talk about the priesthood of AI [Artificial Intelligence] and supposedly how it's going to take over the world, destroy all of our jobs, and yet Silicon Valley can't figure out passwords. I love the rant in one of the early chapters in your book where you talk about passwords and asking you for your mother's maiden name and what street you used to live on as a kid. What is the problem here?

George Gilder:             I keep forgetting, really ... I discover that my answers change as I grow older. What I really like is when they pop up, give me your ... one of those little boxes, scantily clad boxes pop up in the middle of your screen saying please insert your password, as if you only have one password rather than hundreds of passwords, many of which a combinatorial explosion can paralyze your whole life. An epidemic of passwords, and they want one. It's like you have extrasensory perception or maybe artificial intelligence to identify precisely the password that's relevant in any particular situation. Every webpage imagines that it's the apple of your eye.

Ron Baker:                    You talk about how security is not an app, it's really an architecture, or at least should be, it's one of the laws or the overriding laws of the cryptocosm, do you think that Silicon Valley has just given up on this issue?

George Gilder:             I think that, yes, they regard security as sort of a retro fix or a patch or a video game, to be conducted by SWAT teams of brilliant pony tailed nerds who crack down on hackers. It's a really infantile view of security. Security is an architecture. It's the way you organize the network with a ground state of factuality and substance. If you don't have a ground state, you really don't have a network. You become dependent on all these Leviathan companies at the top.

Ron Baker:                    Right.

George Gilder:             Like Google-

Ron Baker:                    One of the things that just really struck me about reading the book was when you talked about Kurt Gödel, and the halting problem, but his basic premise was how every logical system depends on propositions that cannot be proved within the system itself, that computers require Oracles to give them instructions. He refuted the whole premise of AI, didn't he, back in, what was it, the '30s?

George Gilder:             1931, and he's the one who persuaded von Neumann, John von Neumann, who was the greatest figure in computer science of the 20th century. It was Gödel who persuaded [John] von Neumann back in 1931 to abandon mathematical physics, essentially, and proceed to computer science. The computer science that Gödel launched, he essentially used a software program to prove that all logical systems are necessarily dependent on axioms that cannot be proved within the system. Alan Turing, who conceived the Turing Machine as the ultimate computer, proved the same point for computers by saying that they're necessarily dependent on oracles, and that's why [Larry] Ellison named Oracle Computer after Turing's Oracle, that the oracles have to be us. They have to be human minds that program the computers. The computers cannot run off and program themselves. They're necessarily dependent on informative, creative, imaginative minds.

Ron Baker:                    Right. If that's been proven, why is it that really smart people, and I know you address this in the book, like [Elon] Musk and [Sergey] Brin, and [Larry] Page and all that, why don't they see this?

George Gilder:             I think they're captivated by their immediate technologies, and they never really address the deeper implications. It's amazing to read these people. My favorite is Ray Kurzweil, who's a friend of mine, and a genius, and he wrote a book called How To Create a Mind, and it's a brilliant book. It brilliantly explains how to create a speech recognizing, pattern recognizing, correlating machine of the computer, but he kind of explains away consciousness. But if you don't understand consciousness, you don't understand mind at all. They imagine that consciousness is a side effect of all these machine learning programs that they understand, but the consciousness is the source of thought. It's not an epiphenomenon or side effect of thought. It is the origin of thought. If they don't understand consciousness or believe that consciousness is something that's going to emerge magically from their machines, it shows they aren't even trying to understand true intellect.

Ron Baker:                    You say that consciousness depends on faith, the ability to act without full knowledge and the ability to be surprised, and to surprise, and I just ... This is kind of an out there question, but how much of this is just due to secularism or atheism?

George Gilder:             Well, it's hard to say, but G.K. Chesterton made what I regard to be a wonderful observation among many wonderful observations when he said that people who don't believe in God don't believe in nothing, they believe in anything. They grope, and that's what Silicon Valley is doing in its current nervous breakdown. It's groping for explanations of the world that correlate with their own desiccated secular vision of multiple parallel universes, infinite numbers of universes they have to postulate, in order to explain our one unique singular universe. Many people in Silicon Valley will earnestly tell you that in all likelihood we're just part of some alien race's, some advanced alien race's simulation, 3-D simulation. They actually believe in the material of superstition, that human beings are nothing but ... and nothingbutery is another concept of Chesterton, I believe, that we're nothing but material, we're nothing but chemistry and physics. It's what I call the flat universe theory.

Ron Baker:                    Well, George, this is great, and I know Ed wants to pick up on the consciousness question with you, but unfortunately, we're up against our first break, and folks, I'd like to remind you, check out www.thesoulofenterprise.com. We will post our full interview with George Gilder along with books and links to where you can find more of his work, and now we want to hear from our sponsor, Leading Results.

Ed Kless:                       And Ed Kless here on The Soul of Enterprise, and we are with George Gilder, author of the fantastic book Life After Google. George, I want to just pick up where Ron left off, and from a quote from the book, it says, "The blind spot of AI is that consciousness does not emerge from thought. It is the source of it." Are you aware of the work of a guy by the name of ... I think he's done a TED Talk, Donald Hoffman, who has posited-

George Gilder:             No.

Ed Kless:                       ... in proof that-

George Gilder:             Well, is Donald Hoffman ... Who is he? I may have heard of Donald Hoffman.

Ed Kless:                       Yeah. He did a TED Talk about three or four years ago, and his book has been anticipated since 2017. It hasn't come out yet, but his position is basically ... He goes through this mathematically, that it's consciousness that creates the reality that we see, and he's got a really-

George Gilder:             Yeah.

Ed Kless:                       It's an interesting position.

George Gilder:             Yeah. Well, I think it's an interesting position if it understands that our consciousness is a reflection of the greater cosmic consciousness that we call God. The idea that somehow our consciousness is kind of an artificial construct doesn't appeal to me, but I do believe we are in a hierarchical universe, and our consciousness reflects a larger consciousness of our creator in some sense. This is not some religious affirmation, essentially. It's a scientific observation that corresponds to all the evidence we experience, which is that consciousness is a fundamental property of life, and infuses the universe with life, and that human beings in some sense are created in the image of their creator.

Ed Kless:                       Yeah. He, at least in the interviews that I've seen, kind of takes an agnostic approach to that, but I suspect, just in seeing him, that he would agree that it's a greater consciousness that has started all of this. So, it's pretty interesting.

George Gilder:             It all depends what kind of thinking you're doing. Human beings only live for awhile, and we only have a limited perspective. So, if we're going to make any serious decisions or choose any particular path of behavior, we got to have faith, and we have to act in the faith of incomplete knowledge. That's just the predicament of the human being. So, I think ... So, to say that you're agnostic, of course we're agnostic, we can't really know of the mind of God in a profound way, at least short of some ecstatic revelation, but at the same time, we have to act in the darkness of time, and in order to act in the darkness of time, we have to have what's called faith, and faith precedes knowledge. Faith precedes action. Faith precedes meaning.

George Gilder:             This is really what Gödel discovered. He discovered you can't have any logical, rational systems without faith. You've got to have some actions outside the system that can't be proven within the system. And then, in case Gödel wasn't enough and von Neumann wasn't enough, two of the great minds of the 20th century, Alan Turing went and proved it again, and then Gregory Chaitin went and proved it [with] algorithmic information theory, and Claude Shannon essentially proved it again. They all have shown that this dream of a hermetically sealed package of complete knowledge imparted through some mathematical set of algorithms is delusional, and people who believe in it are victims of Chestertonian delusion.

Ed Kless:                       It's interesting. When I've been discussing your book with, well, basically everybody I run into for the last month or so, and one of the things that does come up on more than one occasion is somebody said, "Well, what about IBM's Watson and its ability to create a recipe? Wasn't that creative?" As I was thinking about it, I said, well, I guess it was creative, but at some point somewhere in the code, in the innards of Watson somewhere, there was an if/then statement coded by some human being that said if cilantro seems to be a good ingredient, include it. That's how I kind of meant it to understand. There has to have been a decision that was pre-made that ultimately manifested itself in what the decision that Watson makes.

George Gilder:             Well, they had to choose a bounded area of deterministic behavior, and of course, the computer can run through a set of algorithms that covers some defined set of degrees of freedom. It's a deterministic domain. Chess, for example, or Go, or one of these games that computers can play, and are functioning in a deterministic domain, where there's one answer in essence. Of course they can explore a deterministic regime, but creativity, by definition, comes as a surprise to us. It's the unexpected bits that constitute information, and Claude Shannon's information theory that's the foundation of computer science and the internet. This is ... It's unexpected bits, surprisal, and if a machine starts surprising you, it's breaking down…surprise is bad news in a machine.

Ed Kless:                       Yes.

George Gilder:             The Google philosophy, the way they think they compensate for determinism of their programs, is to insert randomness, but randomness subtracts information. It doesn't add information. It doesn't provide imagination. It doesn't endow creation. So, it just ... wherever they go, they end up in the Gödel trap, and when they're in the Gödel trap, they fantasize infinite multiple universes and simulations of aliens and other bizarre illusions.

Ed Kless:                       I love that. I wanted to ask you, we've got about three minutes until our next break, and picking up on the non-deterministic piece, you talk about this in the book, that applying it to self-driving cars, that this technology would ultimately fail without new sensory and human guidance. You talk about so many technologies in the book, but you don't really address this. Do you think that we will have fully autonomous vehicles in relatively short order, or is that not something that's ever going to come, or is driving deterministic enough, I guess is the question?

George Gilder:             We can certainly ... if we create a bounded arena for these cars to function within, we can obviously have self-driving vehicles. We already have self-driving vehicles in lots of private kinds of parks and home residential neighborhoods. If you have essentially a controlled environment, you can have self-driving cars. As the self-driving technology improves, and the point I make in Life After Google is the improvement will not just be in machine learning. It's not just that the cars learn how to drive. It's also that the technologies of Lidar have to improve as well, and that's a major challenge. One of the companies I describe, Luminar, which is started by a [Peter]Thiel fellow, lured out of college by a $100,000 Thiel Fellowship, a guy named Austin Russel, launched the company called Luminar, which is improving the effectiveness of Lidar by a factor of 50 or something, which gives the car as much as seven seconds to respond to unexpected events. It takes that kind of improvement in hardware in order to make it possible for these software programs to arrive at coherent solutions.

Ed Kless:                       Yeah. It's like-

George Gilder:             It's not something that's going to happen all at once. It's something that will incrementally occur as cars gain increasing capabilities, but it doesn't usurp human minds. It's not a singularity that this displaces human beings. It's just, as technology improves, human productivity increases, and human beings become more employable, not less employable. This is the whole history of technology. It's as if these people have amnesia of some kind and can't understand the manifest experience of hundreds of years of human creativity and progress.

Ed Kless:                       Yeah. No, absolutely.

George Gilder:             Jobs get better, and more productive, and safer, and more creative, and more interesting, all the time.

Ed Kless:                       No, absolutely. Great stuff. Well, we're up against our break at the bottom of the hour. We want to remind you that you can contact Ron or me by sending an email to asktsoe@verasage.com. The website, www.thesoulofenterprise.com, with show notes and also preview shows, as well as the one that we did with George Gilder back on September 11th of 2015 I think it was, but now a word from our sponsor.

Ron Baker:                    All right. Well, welcome back, everybody. We're here with the author of Life After Google, George Gilder, and George, you do a really good job in the book of taking down the whole free model of Google. Not only does it give them an incentive not to worry about security, because who wants to steal free stuff, but it's not free, because we're not paying in money, but we're paying with our time. It's kind of like a barter system that we've left behind in the Stone Age, as you point out. It's a real problem, isn't it? Not to have customers.

George Gilder:             Yeah. Well, I think it's a problem for Google. It's a problem for Google that they don't have prices. It's a problem for Google that they don't have lessons that a real market imparts to companies and guides their investment and their future. It's a problem for Google that they don't have real customers, that ... to whom they have obligations and incur liabilities. It's a problem for Google that they don't have the whole process ... They talk about machine learning all the time, but the fact is that machines can't learn, but humans can, that in order for humans to learn, they’ve got to have experiments that can go wrong. They can't have a guaranteed world where everything's free and no learning experiences really can arise.

George Gilder:             My whole theory, the information theory of capitalism, is that wealth is knowledge, and we know that because the conservation law says that all matter that ever existed, existed in the Stone Age. The difference between our age and the Stone Age is entirely the growth in knowledge, and if knowledge is wealth, then economic growth is learning, and that's what it is. So, if you prohibit learning by not having any prices for your goods or any real relationships with your customers, or you restrict your customers to a few big corporate offices that buy your advertising or even hundreds of thousands of small businesses who purchase your advertising, you restrict your market and you restrict your learning process, and that is what will ultimately bring Google down, because there are all these companies out there that are confronting real markets and getting real price signals and conducting real Popperian experiments [named after Karl Popper], which yield new knowledge.

Ron Baker:                    Right. No, your equation there is brilliant, wealth is knowledge, growth is learning. So, okay, Google's doomed. Its business model is doomed because of this new layer of the internet that we're going to get because of the cryptocosm, and I love how you profile some of the 1517 fund entrepreneurs and the Thiel Fellows, and you talk about all this new technology that's coming out that I guess will be the new architecture of the blockchain economy. Can you kind of unpack that? You say the clouds are going to disburse across the sky and everything's going to move down to the decentralized blockchain. Is that the essence of the cryptocosm?

George Gilder:             Yep. The key point is that in order for capitalism to really to work, you have to maximize the creativity of individual human minds, and individual human minds are disbursed, and we're distributed, we're separate. We function largely peer to peer. Internet architecture that corresponds to the disbursal of human intelligence, of humans' minds, is the blockchain and all the other technologies that have erupted around the blockchain and some of them even obviate specific blockchain structures, they have other similar structures, but they all are identifiable by their disbursal of information and intelligence. They don't try to create a porous internet stack, where all the knowledge and money rise to the top. Instead, you have a block stack, you have a system at the bottom that retains personal data, personal content, personal creativity, on the foundation. This is the foundation of security that the blockchain offers for a new internet that correlates with the very nature of the human mind, and its disbursal around the planet.

Ron Baker:                    And George, when you look at all these entrepreneurs that you profile, they're all really young. Some are college dropouts, Thiel Fellowship winners. They all seem to be in their 20s. I know we've talked about Charles Murray's book, Human Accomplishment. One of the striking things in that book is all of these great leaps forward in learning take place from people below the age of 40. Is there something to that still, that innovation is really a young person's game?

George Gilder:             It is, because anybody's capabilities are limited, and you gain your power over the environment by focusing, and by developing specific modes of behavior, habits and disciplines. The new generations stand on the shoulders of the old generations, but it's hard to stand on your own shoulders. So, it is true that Thiel, Peter Thiel, had a brilliant insight when he decided to lure the best entrepreneurs out of college before they graduated, because these colleges were becoming sclerotic and bureaucratic and sort of houses of political correctness, chambers of diversity, politics ... It's just no longer serving the future, sort of clamping down on new generations, stultifying new generations.

George Gilder:             One of the first Thiel Fellows was Vitalik Buterin, who created a new blockchain, imitating the Bitcoin blockchain with a number of improvements that allowed it to be extended into a new global computer platform that could use a new software language called Solidity to create smart contracts that could function with a new currency called Ether, which in turn fed on a new value metric called Gas and this Ethereum blockchain has already accumulated some $20 billion of new ICOs, initial coin offerings, and people keep stressing that 46% of them have already gone bust and a number of them are frauds, and yeah, there's a lot of chaos and a lot of mischief in the blockchain world, but there's also an efflorescence of creativity that closely resembles the initial efflorescence of creativity around the internet itself. It really constitutes a new architecture for the internet based on a new concept of security, which is derived from distributing information everywhere rather than concentrating it at the top in a few giant data centers.

Ron Baker:                    George, is it safe to say that you have more faith in virtual reality than artificial intelligence, because VR tends to augment the human?

George Gilder:             Yeah. The virtual reality challenge is trying to accommodate human consciousness and allow us to see the universe in new ways. Photons ... Virtual reality is essentially manipulating photons and Jules Urbach, who as the founder of OTOY Corporation with me and Alissa Grainger and Ari Emanuel and a bunch of people, but Jules is really the genius. He points out that the big bang was an explosion of photons and what virtual reality has to do is simulate little bangs of photonic explosions that impinge on human consciousness and give us a new perspective on reality. That's a great challenge. It doesn't try to usurp human minds. It tries to serve human minds.

Ron Baker:                    Right, right. My last question, George, and then Ed will take us out, but Google is full of really smart people, so I have a two-part question for you. One, have they invited you internally to speak to them about this book?

George Gilder:             No, they haven't. I've sent messages. I think they'll get around to it. I really believe that the word of this book and ... It's been the number one book in digital currencies and the number one book in computer science theory or whatever on Amazon for much of the last month, and I don't think it's entirely a coincidence that Google has been yacking about their concern with security increasingly as the days pass. We'll see. I expect to speak at Google at some point. I don't think that they're that intimidated that they think they can't learn from me, but maybe ... We'll see. It'll be interesting. I respect them tremendously. I think they're the dominant company of this era. They've made a huge contribution. They just have exaggerated the significance of their contribution. They've tried to inflate it into an Eschaton, a final thing, and it isn't. It isn't. Artificial intelligence does not eclipse human intelligence at all. It has nothing to do with human intelligence, really. It's an extended function.

Ron Baker:                    Right, right. Well, that's a great note for me to leave it on, George, as we enter our next break, and folks, like to remind you if you want to send Ed or myself an email, send it to asktsoe@verasage.com, and now we want to hear from our sponsor, Sage.

Ed Kless:                       And we are back with The Soul of Enterprise. Unfortunately, we have lost George Gilder. Ron.

Ron Baker:                    Yes. Oh, he's back.

Ed Kless:                       Oh, he's back. He's back. Okay. Hi, George, you back?

George Gilder:             Yeah, I'm back. I don't know what happened.

Ed Kless:                       All right, awesome. No, clearly Google does not want this interview to continue. That's what it is. In all seriousness, I'm going to take you through to the last segment. We've got about six minutes left.

George Gilder:             Okay.

Ed Kless:                       A couple things you and Ron were talking about got me to thinking. What are your thoughts on what Apple is doing from a security standpoint? They at least seem to be attempting to shift it down to the device, to make it a little bit more personal, a little bit more human. Do you think that's going to be an assistance in the future, or do you think that that's going to be blown up with the whole new security realm itself?

George Gilder:             Well, the first place, I think Apple and Amazon are both different from Google in that they spurn the free temptation. They are brilliant at collecting money from real customers. I think they're not part of this Google system of the world in the same way. That said, I think Apple is deteriorating, to some degree. Their constant passwords, their PINs, their constant harassment of their users, their increasing closure of their systems, where you can't repair them. The right to a repair is an important phenomenon, and to try to create a closed, essentially, company store where their customers can't be creative anymore, I think Apple is deteriorating since the times of Steve Jobs. I think they need ... Their leadership has to open up a bit. I don't think they've solved the security problem at all. They're just compounding it with more security busy work, more pettifoggery that really chiefly stops their customers from using their own devices.

George Gilder:             If you make a slight mistake with your Apple drive, they can't retrieve it for you. If you forget your special password for your Apple drive, you got to wipe it clean before you can proceed, and you lose everything you haven't stored at the Apple Cloud. This whole security model that these companies are pursuing where they try to create their own little secure walled garden, while leaving all the intersections between the various separate walled gardens open to hackers to play, is futile and quixotic and will have to end.

Ed Kless:                       Agreed. We have about two minutes left, George. What I do want to ask you, first of all, thank you for the recommendation on the Brave browser. I've actually started playing with it myself, and I think I see where it's going, probably not as clearly as you, but it's pretty fascinating technology. What I wanted to ask is, do you think that the blockchain or some variant form of it might be a potential answer for the challenges that we see with voter fraud?

George Gilder:             Yeah. I think voter fraud ... to the extent that we really can't solve voter fraud with the existing technologies, I don't think we've got an awful lot of voter fraud in the United States. Maybe I'm wrong about that. But blockchain is a complex technology that's being developed along many different tracks at the moment, and one of the applications is voting, and it’s being used in Estonia and several other countries, and Singapore wants to use it. There are lots of experiments going on using blockchains in politics, and we'll see how they turn out.

Ed Kless:                       Yeah, no, well, and then the other side of that question is as security becomes more personal, and we've got about one minute left, do you think that disrupts the NSA from their "spying" on us as well?

George Gilder:             Yeah. I don't mind NSA doing metadata churning or metadata through their computers. Does not threaten me. FBI agents pounding on my front door or breaking into my garage, threaten me. I think computer intrusions are sort of benign and necessary in an age where nuclear weapons can be potentially put in small boxes and deployed. They're just real terrorist threats that the NSA has to address, and I think this paranoia about privacy with the NSA is misconceived.

Ed Kless:                       Interesting. Well, thank you, George Gilder.

Ed Kless:                       No, that's okay. Sorry, we just have to wrap up. We've got about 30 seconds left, and Ron's got to read the outro. Want to really appreciate you being on the show once again. You're a fabulous guest, and thanks for handling all my rapid fire subject changes at the end there. Hopefully you're willing to appear again next time.

George Gilder:             Oh, I certainly will. Thank you so much.

Ron Baker:                    Thank you, George.

George Gilder:             Love your show.

Ron Baker:                    Thank you.

Ed Kless:                       Thanks.

Ron Baker:                    Ed, what's on store for next week?

Ed Kless:                       Next week we're on Free-rider Friday.

Ron Baker:                    All right. See you in 167 hours.

Ron Baker:                    This has been The Soul of Enterprise: Business in the Knowledge Economy, sponsored by Sage, energizing business builders around the world through the imagination of our people and the power of technology. Join us next week folks on Friday at 1 p.m. Pacific. In the meantime, check out thesoulofenterprise.com. We'll post full show notes with our interview with George Gilder. Also, you can contact Ed or myself at asktsoe@verasage.com. Thanks for listening, folks. Have a great weekend.

 

 

Amazon’s George Gilder Author Page