Applied Cosmology: The Holographic Principle

The Holographic Principle says that a full description of a volume of space is encoded in the surface that bounds it. This arises from black hole thermodynamics, where the black hole entropy increases with its surface area, not its volume. Everything there is to know about the black hole’s internal content is on its boundary.

Software components have boundaries that are defined by interfaces, which encapsulate everything an outsider needs to know to use it. Everything about its interior is represented by its surface at the boundary. It can be treated like a black box.

Applied Cosmology: Self Similar Paradigm

Robert Oldershaw’s research on The Self Similar Cosmological Paradigm recognizes that nature is organized in stratified hierarchy, where every level is similar. The shape and motions of atoms is similar to stellar systems. Similarities extend from the stellar scale to the galactic scale, and beyond.

Managing complexity greatly influences software design. Stratified hierarchy is familiar to this discipline.

At the atomic level, we organize our code into units. Each unit is a module with a boundary, which exposes its interface that governs how clients interact with this unit. The unit’s implementation is hidden behind this boundary, enabling it to undergo change independently of other units, as much as possible.

We build upon units by reusing modules and integrating them together into larger units, which themselves are modular and reusable in the same way. Assembly of modules into integrated components is the bread and butter of object-oriented programming. This approach is able to scale up to the level of an application, which exhibits uniformity of platform technologies, programming language, design metaphors, conventions, and development resources (tools, processes, organizations).

The next level of stratification exists because of the need to violate the uniformity across applications. However, the similarity is unbroken. We remain true to the principles of modular reuse. We continue to define a boundary with interfaces that encapsulate the implementation. We continue to integrate applications as components into larger scale components that themselves can be assembled further.

Enterprises are attempting to enable even higher levels of stratification. They define how an organization functions and how it interfaces with other organizations. This is with respect to protocols for human interaction as well as information systems. Organizations are integrated into business units that are integrated into businesses at local, national, multi-national, and global scales. Warren Buffett’s Berkshire Hathaway has demonstrated how entire enterprises exhibit such modular assembly.

This same pattern manifests itself across enterprises and across industries. A company exposes its products and services through an interface (branding, pricing, customer experience) which encapsulates its internal implementation. Through these protocols, we integrate across industries to create supply chains that provide ever more complex products and services.

Applied Cosmology: Machian Dynamics

Julian Barbour wrote the book titled “The End of Time: The Next Revolution in Physics” [http://www.platonia.com/ideas.html]. He explains how our failure to unify General Relativity with Quantum Theory is because of our ill-conceived preoccupation with time as a necessary component of such a theory. According to Machian Dynamics, a proper description of reality is composed of the relationships between real things, not a description with respect to an imaginary background (space and time). Therefore, all you have is a configuration of things, which undergoes a change in arrangement. The path through this configuration-space is what we perceive as the flow of time.

We apply this very model of the universe in configuration management.

Software release management is a configuration management problem. The things in configuration-space are source files. A path through configuration space captures the versions of these source files relative to each other as releases of software are built. Our notion of time is with respect to these software releases.

Enterprise resource management in the communications industry involves many configuration management problems in various domains. We normally refer to such applications as Operations Support Systems.

In network resource management, the configuration-space includes devices and other resources in the network, their connectivity, and the metadata (what is normally called a “device configuration” which needs to be avoided in the context of this discussion for obvious reasons) associated with that connectivity arrangement.

In service resource management, the configuration-space includes services, their resource allocations, and the subscription metadata (what is normally called a “service configuration” which needs to be avoided in the context of this discussion for obvious reasons) or “design”.

Such applications have a notion of configuration-space, because such systems cannot operate in a world that is limited to its dependence on a background of space and time. We need to be able to travel backward and forward in time arbitrarily to see how the world looked in the past from the perspective of a particular transaction. These applications enable users to hypothesize many possible futures. Perhaps only one of which is brought into reality through a rigorous process of analysis, design, planning, procurement, construction, and project management. Reality is always from the perspective of the observer, and one’s frame of reference is always somewhere on the path in configuration-space.

Software engineering is applied cosmology

Engineering is applied science. Some people believe that software engineering is applied computer science. In a limited sense, it is. But software is not entirely separated from hardware. Applications are not entirely separated from processes. Systems are not entirely separated from enterprises. Corporations are not entirely separated from markets. For this reason, I believe what we do is not software engineering at all. It is not limited to applied computer science. Our engineering discipline is actually applied cosmology.

The future of air combat

The F-22 Raptor and the F-35 Lightning II will form the core of America’s future fleet of fighter aircraft for air combat.

The F-22 Raptor is America’s premier air dominance fighter. 187 F-22 aircraft will replace 254 F-15C/D Eagle ($30M) eventually, although 178 F-15s will remain in service beyond 2025. In 2012, the F-22 participated in the Red Flag Alaska training exercise, where the less expensive, more agile Eurofighter Typhoon proved to be equally matched in dogfighting. [http://abcnews.go.com/blogs/headlines/2012/07/f-22-fighter-loses-79-billion-advantage-in-dogfights-report/] The Raptor costs approximately $150M to manufacture per aircraft, while the Eurofighter costs €90M ($115M). In its air dominance role, the F-22 can carry six AIM-120 AMRAAM and 480 rounds of ammunition for its M61A2 Vulcan 20mm cannon.

To complement the F-22, the F-35 Lightning II will replace the F-16, A-10, F/A-18, and AV-8B. At over $150M per aircraft, approximately 1,200 F-35 fighters will replace thousands of F-16 Fighting Falcon ($18.8M), 345 A-10 Thunderbolt II ($12M), 647 F/A-18A/B/C/D Hornet ($57M), and 175 AV-8B Harrier II ($30M).

Apparently, America’s strategy is to concentrate air power in fewer, more advanced, very costly aircraft. At $150M each, built in such low numbers, losses would be devastating. The weakness in this strategy lies in the numbers.

In such limited numbers, the F-22 will be vulnerable to being overwhelmed by a much larger opposing force, even if every one of its six AMRAAMs finds its mark. Eventually, its weapons or its fuel will be exhausted, or its supporting tankers will be destroyed in a full scale conflict with an adversary whose strategy is based on large numbers of modern, inexpensive aircraft.

It has long been understood that human pilots cannot tolerate the most extreme forces that fighters are capable of experiencing. However, we must rely on humans for the good judgment needed to make critical decisions based on principles, values, and experience.

The solution is to deploy large numbers of inexpensive unmanned combat fighters that operate in close coordination with a human piloted fighter and his wingman. Let’s call these drones swarmers in reference to the small, agile, swarming fighters from the classic video game Defender. Swarmers should operate largely autonomously toward some overall set of goals that govern the squadron. The human pilots would set these goals in the course of the mission, such as which enemy aircraft to engage.

Each swarmer would rely entirely on its programming for maneuvering and tactics. The swarmers decide collectively amongst each other how to work as a team to accomplish their immediate goals. If an enemy air-to-air missile is inbound, the immediate priority is to protect the human piloted aircraft, sacrificing a swarmer if necessary. Offensively, some swarmers can serve as bait, maneuvering to lure the enemy into a position favorable to being targeted by its peers.

This approach puts inexpensive assets into the riskiest situations, while keeping human pilots and costly assets protected. Swarmers can carry missiles, ammunition, flares, and chaff in large numbers—-mutually reinforcing through computerized coordination. This enables a small fleet of advanced fighters with highly trained pilots to increase its lethality while also greatly improving survivability.

seventeenth amendment – US Constitution

The 17th amendment to the US Constitution establishes the direct election of United States Senators by popular vote. This amendment was ruinous, as it took away power from the States to appoint Senators to represent their own State’s interests. Instead, now Senators represent their national party’s interests.

I would repeal the 17th amendment.

I would amend the Constitution for the Senate to function primarily as the protector of the Constitution itself to limit the powers of the Federal government, and to preserve the power of the States and the People. This would be done by giving every State veto power, if both Senators from any State agree. This would force most legislation to be extremely narrow in scope. Virtually nothing could become law with any significant opposition from any part of the nation.

Furthermore, we need the process of repealing legislation and regulations to be far easier than the process for introducing them. Therefore, when both Senators from any State agree to repeal a law or regulation, it is done. This is equivalent to exercising a veto after a bill has become law. This makes perfect sense, because the real-world benefits, costs, and unintended consequences don’t become visible until a law has been in effect for some time.

second amendment – US Constitution

The Second Amendment to the US Constitution reads:

A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.

The wording of this particular amendment is obviously poor as evidenced by the conflicting interpretations as to its original intent and meaning. However, regardless of the original meaning, there is a principle that is fundamental to the Constitution’s purpose, which is to protect individual rights. All rights are derived from and in support of the individual right to life.

The Second Amendment should have been focused on the right to self-defense and the defense of others, as well as the means upon which such defense relies. Because life cannot enjoy any liberty if its existence is threatened by force, the defense of life is necessarily a right. The means of marshalling a defense would include firearms, ammunition, and other things that are not sufficiently protected today, such as bullet-resistant vests, helmets, and armor. Even simunition (ammunition that is for paint marking of targets for training with realistic weapons) is restricted to law enforcement and military uses. A right to defense of life would properly protect such liberties from government bans and onerous regulation.

Perhaps something that reads more like:

Congress shall make no law abridging the right of self-defense or the defense of others; or the right of the people to pursue the means of achieving security from aggression and tyranny.

cabinet positions to eliminate

Here are the cabinet positions and what I would do with their departments.

Secretary of State – retain but eliminate all foreign aid.
Secretary of the Treasury – retain but eliminate all IRS agents associated with Obamacare tax enforcement.
Secretary of Defense – retain but close many foreign military bases.
Attorney General – retain but eliminate the Drug Enforcement Administration by shutting down the war on drugs. Pardon all prisoners who are incarcerated for nonviolent drug crimes.
Secretary of the Interior – eliminate and transfer ownership of federal lands to the states with private ownership being the ultimate goal.
Secretary of Agriculture – eliminate.
Secretary of Commerce – eliminate.
Secretary of Labor – eliminate.
Secretary of Health and Human Services – eliminate.
Secretary of Housing and Urban Development – eliminate.
Secretary of Transportation – eliminate.
Secretary of Energy – eliminate.
Secretary of Education – eliminate.
Secretary of Veterans’ Affairs – retain but transition all health care to private hospital systems.
Secretary of Homeland Security – eliminate.
Vice President of the United States – retain.
White House Chief of Staff – retain.
Director of the Office of Management and Budget – retain.
Administrator of the Environmental Protection Agency – eliminate.
Ambassador to the United Nations – eliminate and defund all UN activities aside from the security council.
Chair of the Council of Economic Advisors – eliminate.

A diverse set of strategies can be implemented to eliminate programs on a 1 to 8 year time line. This includes:

  • Transferring ownership of assets and transferring responsibility and funds for programs to the states.
  • Privatization of programs that should be run by the private sector through industry forums, joint ventures, or other forms of collaboration. Food, drug, and product safety fall under this category.
  • Immediate elimination of programs that engage in cronyism, protectionism, and other market distortions. This includes all agricultural and industrial subsidies. This includes housing, mortgages, and loans.
  • Gradual replacement of entitlement programs with state run and private programs.

mobile payments and loyalty

Communications Service Providers, mobile device vendors, and operating system vendors are all formulating their own strategies to capture the payment market. The introduction of Near Field Communications (NFC) technology broadly into mobile devices is the key enabler for users to execute payment transactions by touching devices together. These players all see an opportunity to grab a slice of the huge payments business that credit card companies now dominate. Mobile payments using NFC is potentially very disruptive to the status quo.

From a user perspective, mobile payment seems like a small improvement in convenience. Digital technology may provide improved security and fraud protection over the extremely vulnerable scheme of authenticating a credit card number on a physical card with a matching customer name, security code, expiration date, billing address, PIN, or signature. Improved security and fraud protection would be a compelling motivator for users to adopt this technology.

While users will use mobile payments to replace some of their credit card transactions, it is unlikely that credit cards will disappear any time soon. Mobile devices with NFC are still not common enough. Even the Apple iPhone 5 does not support NFC yet, although it would be extremely surprising if the next major iPhone release did not include NFC support.

Where NFC can provide an even greater convenience is to track loyalty points and rewards. Users carry around a huge stack of loyalty cards in their wallets and on their key chains today. Every vendor has their own loyalty card. It is not uncommon to carry dozens of these. We have cards for grocery stores, pharmacies, coffee shops, retailers of every kind, airlines, hotels, car rentals… the list is endless. What I would like to see is a popular app become the de facto standard in tracking loyalty points universally, so that users can finally shed themselves of all those physical loyalty cards.

A universal loyalty app makes many other side benefits possible. The most important is personalization. A patron of a restaurant can be identified when they check in with their mobile device. They will be credited points at the end of the meal. The customer’s identity can be used to retrieve their food and service preferences, so that without needing to ask the server already knows the customer’s dietary restrictions, allergies, and favorite foods and drinks. The overall experience would be improved for both the server and the customer as communications are streamlined.

A universal loyalty app can also become the means by which coupons and promotional offerings are distributed by vendors and carried by users. This would be far more convenient than carrying around paper coupons. The app can perform important functions like reminding the user to use a valuable coupon before it expires. It benefits users to redeem more savings, and it benefits vendors by promoting more business.

A universal loyalty app can also become the means by which users may track purchases (keeping a copy of every bill) and their associated warranties and protection plans. An app could easily record purchase dates and vendor information, so that users no longer need to keep paper warranty agreements in a physical filing system.

Having loyalty points, coupons, and purchases tracked by a single app will also enable other innovations, such as dynamically calculated coupon values or promotional pricing to reward users proportional to the value of their past purchases. It also enables vendors with cross-selling opportunities to target users based on recent purchasing decisions. It opens up many avenues for innovation that we cannot even think of today.

Taxmageddon – effects of tax increases

In this article, I am going to attempt a praxeological (science of human action) explanation of the economic effects of the tax increases on high earners. I am doing this as an exercise to apply what I have been learning in my self-directed studies of the Austrian school of economics. I hope, as a baby Austrian, I do not embarrass myself too badly in this amateur attempt.

Obama is demanding that Bush era tax cuts end for high earners. This will raise the top tax rate from 35% to 39.6%. Dividend tax rates will go from 15% to 39.6%; actually to 43.4% to include the Medicare contribution tax added by Obamacare. Capital gains taxes go from 15% to 20% (actually 23.8% including Medicare contribution tax) or from 15% to 18% (actually 21.8%) if held for 5 years or more.

The immediate effect will be massive stock sales during the remainder of 2012 to take advantage of the significantly lower capital gains rate. Expect investors to favor holding their stocks and avoid profit-taking over the next 4 years in anticipation of a future reversal in tax policy.

Low (15%) capital gains tax rates and bad memories from the bursting of the dot com bubble resulted in corporate mergers and acquisitions being conducted in cash instead of stock. With high capital gains tax rates, expect that trend to reverse, as a conversion of stock does not incur any tax immediately. All of these responses mean that tax revenues from capital gains will fall significantly, as investors apply these tax avoidance strategies.

Low (15%) dividend tax rates resulted in corporations distributing profits to shareholders increasingly through dividends. Many corporations that never distributed dividends before began doing so to satisfy investor preferences due to this favorable tax treatment. With a return to high dividend tax rates, expect a return to much lower or zero dividend yields, as corporations respond to investor preferences to favor keeping retained earnings (already taxed at the corporate tax rate of 35% which is among the highest in the world) in the corporations’ coffers to hold those earnings as capital gains, which do not incur any taxes until shares are sold. Those who rely on high yielding stocks for income will shift to bonds or other forms of fixed income. In addition to Fed Quantitative Easing, which lowers interest rates while raising inflation rates, higher dividend tax rates will further hammer those who rely on fixed incomes like retirees. These responses mean that tax revenues from dividends will significantly decrease, returning to the historical trend prior to the 15% era.

Finally, there is the increase in tax rates on ordinary income in the upper bracket(s). Those who earn at these levels include business owners, corporate executives, and professionals like doctors and lawyers. Many of these high earners have some degree of control to adjust their compensation packages. Expect a greater proportion of compensation to be in the form of incentive stock options, so that tax on that income is deferred until the stock is sold. The modest marginal tax rate increase will have little effect. Those who have less control over their compensation will pay more, while those with greater control will pay less. This may end up being a wash or even a net reduction in tax revenues, if small business owners and professions work less and forego expansion due to reduced incentive. Reduction in the growth of businesses will result in a long period of economic stagnation and lack of new employment opportunities for workers.

Taking all of these effects together, it is pretty obvious that tax revenues from higher tax rates will significantly decrease. Investors avoid taxes by deferring stock sales. Investors avoid dividend taxes by influencing corporations to reduce dividends. High earners adjust compensation to defer taxes until they choose to sell stocks. Business owners and professionals forego growing due to reduced incentives. The economy will surely experience a 4 year period of slow or stagnant growth and persistently high unemployment.

Furthermore, continuing Fed QE and trillion dollar annual federal deficits funded >60% by Fed bond buying will stoke higher inflation. This adds insult to injury as real rates of return will be reduced, but capital gains taxes will be paid on fake gains from inflation. Inflated gains are fake because of the loss in purchasing power due to generally higher prices throughout the economy.

Fun times ahead.

Insights into innovation