by Dana Blankenhorn
Volume VI, No. XII
For the Week of March 25, 2001

This Week's Clue: Not Without Us

Jim Cramer is a Big Fat Idiot. (OK, enough of the Al Franken imitations. He's just Clueless.)

Cramer, if you're from outside the U.S., got his 15 minutes of fame flogging over-priced tech stocks throughout the boom on CNBC and TheStreet.Com. (TheStreet.Com, which he founded, was one of those over-priced tech stocks.) He apologized after those who followed his advice lost their shirts. (Oh, that means it's OK, right?)

Now Cramer acts like a seer because he saw Enron's collapse before some others, and his 15 minutes have gone into overtime through a CNBC show called "America Now." But he's not an investment advisor. He's a stock trader turned TV blowhard. (This also goes for his co-host - Lawrence Kudlow is not an economist, he's an ideologue turned TV blowhard.)

Cramer thinks we can have a solid recovery with companies like Black & Decker. He thinks Intel is over-valued. The mindset is ignorant, but it's typical among the morons who make our economic policy today.

The plain fact is you can't have solid growth without the tech sector. Real growth comes from productivity, the work done for each unit of labor or capital. The growth (if not the stock market) of the 1990s was real. It was fueled by the Internet, by faster chips, by databases, by better software. What ended the growth was an over-supply of capital that fueled speculation, so the productivity of investors' dollars turned negative, and a lot of money went to money heaven.

The current "recovery" is a mirage. It's the product of 11 interest rate cuts, Big Government spending, and huge tax breaks for the investing classes. It's the predictable result of the most leftist, practically Bolshevik, economic policy ever engineered. Big Government in Washington has pumped literally trillions of dollars into the economy to re-inflate it.

But Washington is blowing up a leaky balloon. Investment in computers, software and networks is down, so growth in that area is fueled only by older investments, by companies (and the people inside them) getting smarter about using the Internet and related applications. Consumer demand is weak. Investors got Big Government's largesse but there's no one to buy what that investment creates (so a lot of that money sits on the sidelines). We're building houses our people can't afford. When all the huffing-and-puffing is over the leaks will still be in the balloon.

It's our tech policy that needs to change in order for real recovery to begin. That's the leak that must be patched.

Current tech policy is all about maintaining or expanding monopolies when it should be about fueling competition.

In the 1980s it made sense to become a Microsoft developer. IBM's was a closed shop, so companies like Lotus Development could make fortunes writing for DOS and Windows. Now Microsoft is the closed shop - if you write something really cool they'll take it away from you. The only way to change that reality is through competition, a new, more open operating environment that will create the next Bill Gates. Thus policy makers interested in growth should support open systems.

Instead, Washington is trying to legislate Microsoft's monopoly to serve the interests of Hollywood. Whatever else you think of it, Digital Rights Management (DRM) doesn't fuel productivity. Nor does it encourage competition. It merely demands more and more money for the same stale products. Consumers rightfully resist it. They won't buy the next generation of PCs that force DRM solutions down their throats.

Everyone agrees that mass adoption of broadband is the next big upgrade. Yet our tech policy seems designed to frustrate this. Instead of encouraging competition from Wi-Fi, and opening new spectrum markets to entrepreneurs, we're busy re-monopolizing communications on behalf of the Bells and cable guys, who insist broadband won't happen until after they stick $300 billion into our streets running new fiber cables to every home. Which they'll do in their own sweet time, and expect us to pay for over 30 years.

Software monopolies, copyright monopolies and broadband monopolies are the enemies of entrepreneurs, the enemies of competition and (most important) the enemies of productivity. An economic policy that focuses solely on the supply of capital doesn't create consumer demand - it just lowers capital's productivity, also known as return on investment.

The result is a phony recovery. There was a day, in the early 20th century, when the motors made by companies like Black & Decker were high-tech, and did fuel productivity. That's no longer the case. Today productivity comes from computers, from software, and from networks. Encouraging the competition that will make them better, and increasing consumer demand for what results, is the only way to a real recovery.

The recovery isn't real until we in the Internet economy feel it.

SSP (Shameless Self-Promotion)

Like everyone else in journalism I've been hit by hard times. ClickZ is just the latest publisher to admit that they can't afford me. My remaining paid gigs, at Boardwatch and BtoB, have cut their frequency in half and look shaky.

My response is to get busy. I've got a plan for a new journalism business model which is seeking $250,000 in angel capital. I'm planning on turning the best of these columns over the last five years into a book called "Boom, Bust & Beyond." I also have two other books lieing around here ready to go. We'll have a special "sale" page at a-clue.com ASAP. (But if you've got some writing work that needs doing, click here for reasonable rates.

Meanwhile, I've got a present for you. "43 Specific Ways to Make 2002 Your Best, Most Profitable Year Ever" is yours, free, and personally inscribed from a-clue.com. Just click here. As its title suggests, this e-book delivers 43 experts with 43 ideas you can implement right now to make more money right now. Get it today!

The Print on Demand version of "Living on the Internet" is available for purchase at BookSurge.Com, for $29.99. And you can get the PDF version for just $7.99 (such a deal). The March update to the book is coming, and it's easy to get on the list via e-mail.

Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

Psst. Want something free and valuable? The AdMarketing list has released the Email Products Guide. It's only 26 pages, but it's free. And you can learn something from it.

Now after you read it, know this. A list is only worth the permission it's based upon. Auditing and aging your list are the only ways to know you really have permission to pitch - the first step on the road to getting them to sign on the line which is dotted. That signature is your bottom line. Everything else is just cost.

Take the first step toward making your lists truly valuable with help from my friends at Whitehat Interactive - click here to begin. They've got a Clue.

Takes on the News

Cheaper Broadband?

The argument made by cable and telephone companies demanding (and getting) re-monopolization of the broadband Internet is that it will cost upwards of $300 billion to upgrade their networks in order to deliver fiber to the home.

Personally I think the Bush Administration is moving toward monopolies for a wholly different and more Clueless reason. The idea is that if there are only a dozen-or-so ISPs then Internet users will be easier to control. Anyone who has spent time in a large business organization knows that's the last place you want to be in order to get something done.

But back to cases. What about that $300 billion figure? It's based on 5-year old assumptions about the nature of fiber and the cost of introducing it. (I remember using it in some 1997 reports delivered specifically for the cable industry.) The figure may indeed be obsolete.

The Optical Fiber Communication 2002 show in Anaheim last week showcased a host of money-saving solutions to the fiber-to-the-home problem. (Moore's Law works on the electronics connecting fiber cables just as it does everywhere else silicon roams.) One such solution came directly to my inbox, in the form of a press release from an Israeli outfit called Broadlight.

Broadlight makes (among other things) optical transceivers. Its latest offering is the XN232. It supports a range of data rates to 1.25 Gbps downstream and 155 Mbps upstream. Essentially it turns any line it touches into a digital cable delivery system with broadband Internet capability thrown in for nothing. It will be delivered in the next quarter and cost just $35, in quantity.

I'm not endorsing this solution, but I am saying this. This is one company, under enemy fire no less, capable of producing low-cost solutions to the fiber-to-the-home problem. The XN232 isn't the whole set-up - you still have to run the fiber. But this $300 billion cost estimate is ridiculous. As is every other "argument" made by the monopolists.

Your Clue is simple and basic. Broadband arguments aren't about money. They're about power. When they say it's about money it's usually about power, just as when they say it's about power it's usually about money.

Google's Transparency Problem

Google's biggest problem as it tries to grow to Yahoo-size is its own information policy.

Here's the dilemma. If Google lets people know how it does what it does, thieves will use that knowledge to skew results in their favor. On the other hand if it fails to disclose it's creating bigger problems.

Since hiring Cindy McCaffrey as vice president of corporate marketing (and especially since hiring Eric Schmidt from his failed turnaround effort at Novell last summer) Google has begun erring on the side of stonewalling.

This has begun having an impact. Reporters are less willing to trust the company, and now produce embarrassing stories without consulting it. Worse, its opaque efforts to protect its integrity have meant that some legitimate sites have disappeared from Google's index and their owners have been left at a loss as to what to do.

There is one word above all others that should be the goal of policymakers everywhere - in politics, in business, and in society as a whole. That word is transparency. There is risk to transparency - someone on the outside may find something about what's going on inside you before you do. That's also its reward - it prevents cover-ups. Especially needless and useless ones.

Moore and Moore and Moore to Come

Here's an item that you probably missed, but which is very important nonetheless. Moore's Law seems safe for another 25 years.

This means that through 2028, when most of us (speak for yourself) will be well retired, chip speeds will keep doubling every 18 months, and chip prices will keep falling. Deflation, in other words, is forever.

The implications for policymakers are huge, all kinds of policymakers. The high-end products of supercomputer research are going to be within the computing power of 10-year olds. Movies aren't going to be the issue in the broadband wars - full-on 3-D simulations will be easily downloadable. Complex medical diagnostics will be possible in the home, and holographic doctors' visits will be easy.

The wealth effect of the 1990s "Internet revolution" is going to be repeated again-and-again. I guarantee that even this wealth won't go beyond the dreams of avarice, but if our wealthy can be convinced - through transparent political and economic systems endorsed worldwide - that their position is not threatened by technology's advance, it's possible that anyone will be able to join an ever-growing middle class with an ever-rising standard of living. And all the problems that now bedevil the planet - environmental, cultural, political, and technological - are soluble.

We can only screw it up...

Clued-in, Clueless

Clued-in this week is the court decision in Rosetta Books vs. Random House. The court basically used the rationale in last year's Tasini case, saying that unless electronic rights are specifically confirmed they're available. This means electronic rights to all old books are available. Publishers must either pony-up to authors (and families) to win them back or let them go to revenue-sharing arrangements like those of Rosetta. Sweet.

Clueless (as ever) is Business Week, for yet-another story denying the obvious social mobility of business. This time it claims that today's Internet leaders will be there forever. Save yourself some money and cancel your subscription - these boys don't know a damn thing.

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