The Tech Industry Bubble Is About To Burst

Euphoric reaction to superstar tech businesses is rampant — so much so that the tech industry is in denial about looming threats. The tech industry is in a bubble, and there are sufficient indicators for those willing to open their eyes. Rearing unicorns, however, is a distracting fascination.

The Perfect Storm

Raising funding for tech startups has never been so easy. Some of this flood of money has been because of mutual funds and hedge funds, including Fidelity, T. Rowe Price and Tiger Global Management. This is altering not only the funding landscape for tech startups, but also valuation expectations.

There are many concerns that valuations for businesses are confounding rationale. Entrepreneurs and their investors are deviating from more traditional valuation and performance metrics to more unconventional ones. Another cause cited for increasing valuations is the trend of protections for late investors that cause valuations to inflate further. The combination of a number of these factors has put the sector into a state of artificial valuations.

Meanwhile, the companies themselves are burning through cash like there is no tomorrow. Throwing money at marketing, overheads and, in particular, remuneration has become the accepted investment strategy for startup growth. All this does is perpetuate the vicious cycle of raising more money and spending more money. For the amounts that some of these businesses have raised, the jury is still out on actual profitability.

Unicorn Season

CB Insights publishes information on unicorns (companies with a valuation above $1 billion), which shows that access to the club has become increasingly less exclusive in the last couple of years. The chart below shows that the number of companies valued at $1 billion or above in 2014 exceeded previous years by quite some margin (47 unicorns joined the club in 2014 vs. 7 and 8 in 2012 and 2013, respectively). In addition, for the first 5 months of 2015, this trend shows no signs of abating (32 new unicorns as of June 1, 2015).

bubblechart

Different Experts, Same Conclusion

In the face of these trends, a small group of well-respected and influential individuals are voicing their concern. They are reflecting on what happened in the last dot-com bust and identifying fallacies in the current unsustainable modus operandi. These relatively lonely voices are difficult to ignore. They include established successful entrepreneurs, respected VC and hedge fund investors, economists and CEOs who are riding their very own unicorns.

Mark Cuban is scathing in his personal blog, arguing that this tech bubble is worse than that of 2000, because, he states, that unlike in 2000, this time the “bubble comes from private investors,” including angel investors and crowd funders. The problem for these investors is there is no liquidity in their investments, and we’re currently in a market with “no valuations and no liquidity.” He was one of the fortunate ones who exited his company, Broadcast.com, just before the 2000 boom, netting $5 billion. But he saw others around him not so lucky then, and fears the same this time around.

A number of high-profile investors have come out and said what their peers all secretly must know. Responding to concerns raised by Bill Gurley (Benchmark) and Fred Wilson (Union Square Ventures), Marc Andreessen of Andreessen Horowitz expressed his thoughts in an 18-tweet tirade. Andreessen agrees with Gurley and Wilson in that high cash burn in startups is the cause of spiralling valuations and underperformance; the availability of capital is hampering common sense.

The tech startup space at the moment resembles the story of the emperor with no clothes.

As Wilson emphasizes, “At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way.” Gurley, a stalwart investor, puts the discussion into context by saying “We’re in a risk bubble … we’re taking on … a level of risk that we’ve never taken on before in the history of Silicon Valley startups.”

The tech bubble has resulted in unconventional investors, such as hedge funds, in privately owned startups. David Einhorn of Greenlight Capital Inc. stated that although he is bullish on the tech sector, he believes he has identified a number of momentum technology stocks that have reached prices beyond any normal sense of valuation, and that they have shorted many of them in what they call the “bubble basket.”

Meanwhile, Noble Prize-winning economist Robert Shiller, who previously warned about both the dot-com and housing bubbles, suspects the recent equity valuation increases are more because of fear than exuberance. Shiller believes that “compared with history, US stocks are overvalued.” He says, “one way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio … defined as the real stock price (using the S&P Composite Stock Price Index deflated by CPI) divided by the ten-year average of real earnings per share.”

Shiller says this has been a “good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it is has been that high or higher were in 1929, 2000, and 2007 — all moments before market crashes.”

Perhaps the most surprising contributor to the debate on a looming tech bubble is Evan Spiegel, CEO of Snapchat. Founded in 2011, Spiegel’s company is a certified “unicorn,” with a valuation in excess of $15 billion. Spiegel believes that years of near-zero interest rates have created an asset bubble that has led people to make “riskier investments” than they otherwise would. He added that a correction was inevitable.

What Does A Bubble Look Like?

To shed light on how close we may be to the tech bubble bursting, it is worthwhile trying to understand what determines being in a bubble. Typically, this refers to a situation where the price of an asset exceeds by a large margin its fundamental value.

In his 1986 book Stabilizing an Unstable Economy, economist Hyman Minsky’s theory of financial instability attracted a great deal of attention, and gathered an increasing number of adherents following the crisis of 2008-09. Minsky identified five stages that culminate in a bubble, as described in this Forbes article: displacement, boom, euphoria, profit taking, and panic.

Uber is an enviable company for much of what it has achieved, and the team is to be commended for how they have grown this business, as well as their previous successes. However, it serves as a good example to illustrate the dynamics of the tech bubble.

Displacement:Investors’ excitement with a new paradigm, such as advances in technology or historically low interest rates. The explosion of the “sharing economy” has resulted in companies such as Uber, Lyft and Airbnb growing exponentially in recent years by taking advantage of this new mode of operation.

Boom:Prices rise slowly at first, but then gain momentum as more participants enter the market. Fear of missing out (FOMO) attracts even more participants. Consequently, publicity for the asset class in question increases. Reviewing investment rounds for Uber since 2010 when they completed their seed round shows a large variety of investors wanting a piece of the action, perhaps in part due to a fear of missing out on the golden goose. The introduction of hedge funds and investment banks funding the business can also be seen, which underlines the facelift happening in this sector.

Euphoria:Asset prices increase exponentially; there is little rationale evident in decision making. During this phase, new valuation measures and metrics are touted to justify the unrelenting rise of asset prices. Uber’s increased valuation between funding rounds symbolizes the euphoria around the business. The chart below shows the evolution of Uber’s pre-money valuation over the last number of funding rounds.

Source: CB Insights; data analyzed by Funding Your Tech Startup

 

Although the pace of revenue growth at Uber is astounding (doubling approximately every 12 months at the moment), profitability is less certain. Profitability margins should increase over time as recognition and saturation are achieved in newer markets, but it is difficult to ignore the regulatory burdens and lawsuits the business is facing, which could steer it off course.

Profit taking:The few that have identified what’s going on are making their profit by selling their positions. This is the right time to exit, but is not seen by the majority. This is the next indicator on the horizon that will underline that we are in a tech bubble, and that it is about to burst. The catalyst for profit taking could be regulatory strains or excessive cash consumption that isn’t reflected by profitability gains in startups. Savvy investors will take the opportunity to exit while valuations are still high. The exits may well be too late for investors who are further behind on the FOMO curve or new types of investors who don’t appreciate that the market has moved.

Panic:By now it’s too late and asset prices collapse as rapidly as they once increased. With everyone trying to cash in realizing the situation, supply outstrips demand and many face big losses. Watch this space for the unfortunately impending examples.

Conclusion

The fact that we are in a tech bubble is in no doubt. The fact that the bubble is about to burst, however, is not something the sector wants to wake up to. The good times the sector is enjoying are becoming increasingly artificial. The tech startup space at the moment resembles the story of the emperor with no clothes. It remains for a few established, reasoned voices to persist with their concerns so the majority will finally listen.

 

http://techcrunch.com/2015/06/26/the-tech-industry-is-in-denial-but-the-bubble-is-about-to-burst/?ncid=rss&cps=gravity_1462_-7218853287940442458

Why Apple’s response to Charleston is so stupid

Banning games isn’t the answer: 

When it comes to disowning the Confederate battle flag, there’s a right way and a wrong way. Apple chose the latter

Banning games isn't the answer: Why Apple's response to Charleston is so stupid
Tim Cook (Credit: AP/Richard Drew)

Earlier this week, in response to South Carolina Gov. Nikki Haley’s call for the Confederate battle flag to be removed from the state’s Capitol grounds, I wrote a post commending the governor for doing what was obviously right.

But I also expressed concern that she was doing the right thing for the wrong reasons, and that, by defending her move with the language of feelings, she risked perpetuating a misunderstanding of why so many find the Confederate battle flag objectionable. It’s not about politeness or manners, I argued; it’s about fighting white supremacy.

In the mere two days since that post went live, it has become clear that Haley’s break with the flag, that once-unimpeachable shibboleth of Southern politics, wasn’t an act of bravery so much as good professional instincts. Not only has Haley been followed by fellow Southern Republicans in the South Carolina legislature, as well as inMississippi and Alabama, but private sector behemoths like Walmart, Amazon, Sears and eBay have decided to ditch the flag, too. And now comes word that mighty Apple has hopped on the bandwagon, kicking multiple rebel-flagged games from its App Store.

Unfortunately, however, it appears that Haley was ahead of the curve in more ways than one. Because just as Apple has joined her in no longer wanting to legitimize the trademark of the Army of Northern Virginia, its seems to have also done so without actually understanding why. The company claims it’s only zapping apps that feature the flag “in offensive or mean-spirited ways.” But when you look at some of their targets, including many games about the Civil War itself, that doesn’t hold up. A different, stupider explanation — that the company is treating the flag as if it were no less dangerous than the eyes of Medusa — makes more sense.

Take the “Civil War” game series by HexWar Games, for example, which saw at least four of its editions banned by Apple. To state the obvious, there are war games; and they’re war games about the Civil War. When it comes to the mission of the Confederate army, I’ll agree with Ulysses S. Grant’s famous description of it as “one of the worst for which a people ever fought, and one for which there was the least excuse.” But that hardly makes the use of the flag in a game about the war “mean-spirited” or “offensive.” Apple says they won’t touch apps that “display the Confederate flag for educational or historical uses,” and though I doubt these war games are educational, they are historical, at least.

Now, if these games soon get their App Store privileges back and once again find themselves on Apple’s virtual shelves, I won’t be surprised. According to Kotaku, this isn’t the first time the people running the App Store have shown signs of being either confused or incompetent. And despite what the angry young men of #GamerGatemay argue in dozens upon dozens of ever-so-angry tweets, this is not exactly the greatest infringement on liberty the world has ever seen. Stipulating all of that, though, I still think Apple’s decision was ominous; and I still believe it should especially concern sincere anti-racists.
Because if we adopt a zero-tolerance policy regarding the Confederate flag, you can guess, looking at the present, where it’s likely to lead. The idea that white supremacy is a distinctly Southern affliction would likely be reinforced, even though it has always been a fantasy. The mistaken view of racism as an artifact of history would likely get strengthened, too. People would likely treat the flag like we treat the word “nigger,” hoping that if they ban it from their consciousness, they can make racism disappear. And the myth that we can wall ourselves off from the nasty parts of our heritage, which is one of American society’s more distinctive neuroses, would become even harder to shake.

A superior course, I’d argue, would be to deepen our understanding of our past, so that we can see the connections between the injustices of history of history and the iniquities of the present. Instead of exiling the flag from the culture as if it never existed, we’d acknowledge how the legacy of the Confederacy is still with us today. We’d recognize white supremacy as an inextricable part of the country’s founding, but not one we can’t defeat so long as we have purpose and conviction. And the cherry on top? Nobody would have to give up their video games.

Elias Isquith is a staff writer at Salon, focusing on politics. Follow him on Twitter at @eliasisquith.

LOpht’s warnings about the Internet drew notice but little action

NET OF INSECURITY

A disaster foretold — and ignored

Published on June 22, 2015

The seven young men sitting before some of Capitol Hill’s most powerful lawmakers weren’t graduate students or junior analysts from some think tank. No, Space Rogue, Kingpin, Mudge and the others were hackers who had come from the mysterious environs of cyberspace to deliver a terrifying warning to the world.

The making of a vulnerable Internet: This story is the third of a multi-part project on the Internet’s inherent vulnerabilities and why they may never be fixed.

Part 1: The story of how the Internet became so vulnerable
Part 2: The long life of a ‘quick fix’

Your computers, they told the panel of senators in May 1998, are not safe — not the software, not the hardware, not the networks that link them together. The companies that build these things don’t care, the hackers continued, and they have no reason to care because failure costs them nothing. And the federal government has neither the skill nor the will to do anything about it.

“If you’re looking for computer security, then the Internet is not the place to be,” said Mudge, then 27 and looking like a biblical prophet with long brown hair flowing past his shoulders. The Internet itself, he added, could be taken down “by any of the seven individuals seated before you” with 30 minutes of well-choreographed keystrokes.

The senators — a bipartisan group including John Glenn, Joseph I. Lieberman and Fred D. Thompson — nodded gravely, making clear that they understood the gravity of the situation. “We’re going to have to do something about it,” Thompson said.

What happened instead was a tragedy of missed opportunity, and 17 years later the world is still paying the price in rampant insecurity.

The testimony from L0pht, as the hacker group called itself, was among the most audacious of a rising chorus of warnings delivered in the 1990s as the Internet was exploding in popularity, well on its way to becoming a potent global force for communication, commerce and criminality.

Hackers and other computer experts sounded alarms as the World Wide Web brought the transformative power of computer networking to the masses. This created a universe of risks for users and the critical real-world systems, such as power plants, rapidly going online as well.

Officials in Washington and throughout the world failed to forcefully address these problems as trouble spread across cyberspace, a vast new frontier of opportunity and lawlessness. Even today, many serious online intrusions exploit flaws in software first built in that era, such as Adobe Flash, Oracle’s Java and Microsoft’s Internet Explorer.

“We have the same security problems,” said Space Rogue, whose real name is Cris Thomas. “There’s a lot more money involved. There’s a lot more awareness. But the same problems are still there.”

L0pht, born of the bustling hacker scene in the Boston area, rose to prominence as a flood of new software was introducing such wonders as sound, animation and interactive games to the Web. This software, which required access to the core functions of each user’s computer, also gave hackers new opportunities to manipulate machines from afar.

Breaking into networked computers became so easy that the Internet, long the realm of idealistic scientists and hobbyists, gradually grew infested with the most pragmatic of professionals: crooks, scam artists, spies and cyberwarriors. They exploited computer bugs for profit or other gain while continually looking for new vulnerabilities.

Tech companies sometimes scrambled to fix problems — often after hackers or academic researchers revealed them publicly — but few companies were willing to undertake the costly overhauls necessary to make their systems significantly more secure against future attacks. Their profits depended on other factors, such as providing consumers new features, not warding off hackers.

“In the real world, people only invest money to solve real problems, as opposed to hypothetical ones,” said Dan S. Wallach, a Rice University computer science professor who has been studying online threats since the 1990s. “The thing that you’re selling is not security. The thing that you’re selling is something else.”

The result was a culture within the tech industry often derided as “patch and pray.” In other words, keep building, keep selling and send out fixes as necessary. If a system failed — causing lost data, stolen credit card numbers or time-consuming computer crashes — the burden fell not on giant, rich tech companies but on their customers.

The members of L0pht say they often experienced this cavalier attitude in their day jobs, where some toiled as humble programmers or salesmen at computer stores. When they reported bugs to software makers, company officials often asked: Does anybody else know about this?

CONTINUED:

http://www.washingtonpost.com/sf/business/2015/06/22/net-of-insecurity-part-3/

Technophrenia

It’s not the machines we’re really afraid of. So what are we afraid of?

 dj-frankie-wilde-with-dj-jimmy-bell-534f335b0bc743.48683665
umair haque on Jun 15
Quick — why do we have such a complicated relationship with tech? One that’s not easily summed up— but conflicted, torn, fraught, unsure? After all, we love it—while we loathe it. We mock people who use Ubers — but grudgingly call them ourselves. We don’t want to be reduced to objects, numbers, lines of code—perish the thought — but we’re happy if our friends, lovers, and colleagues are. We’re scared that the robots will take our jobs, that we worry that the algorithms will log our every keystroke, that we’re afraid that the machines will police our every carefully guarded thought. But who’s programming the algorithms, being served by the drones, and tapping the screens? We’re not just techno-anxious: we are also vertiginously tantalized, seduced, thrilled, and tempted by the very world of endless easy pleasure the code, the machinery, the mechanism promises.

There is more to our deeply conflicted, uneasy, fragile relationship with technology than fear. It’s not accurate to call it “technophobia”. In this little essay, I’m going to describe it as “technophrenia”. I think we’re not just afraid of what the machines might cost us — we’re also afraid of what they might not cost us. There is a paradox in what technology has become, does, and offers — and it is that paradox that leaves us uneasy, unsure, uncomfortable.

I’m going to advance a simple thesis: the definition of technology has been diluted, diminished, and lessened almost to the point of meaninglessness — and certainly to the point of triviality, pointlessness, and superficiality. And that paradox is what is truly underlies our schizophrenic, conflicted, ambiguous relationship with meta-modern machinery: that we love them as uncertainly as we loathe them. But what about us?

Allow me to explain.

Let me use the example of my glasses. They are the simplest piece of technology I own — and yet they are the most transformative. Why?

Techne, the Greek root of the word “technology”, means “skill”. Technology, the enlargement and extension of man’s skillfulness, is a miraculous, magical thing because it alone gives mankind the power to transfigure the very world. When I put on my glasses, something almost magical happens — just as every poorly-sighted child discovers in wonder. I’m able to see clearly. Techne. As a simple example, my glasses help me to see better. They enhance my skill, my techne. It is in that sense that they are “technological”.

The greatest breakthroughs of the twentieth century were in part technological. Once, technology meant stuff that went to the moon…cured fatal diseases…extended the human lifespan. Salk’s polio vaccine, the moon landings, antibiotics…all these were what technology once referred to. They were miraculous breakthroughs that altered lives, vast explosions of technethat enhanced human skillfulness.

Now, “tech” means something very different: apps that…hails taxis…summon butlers…automatically call dog walkers…gadgets that remind you have a meeting…turn on your thermostat for you…let you stream your favorite show…and so on.

It’s not that the latter is bad. But it is a fact that the latter is trivial. In no reasonable way is an app that calls a taxi or a butler or a thermostat comparable to a moon landing or a vaccine. Such devices may yield us small morsels of convenience, ease, and luxury — but they are not breakthroughs that alter lives and redraw the boundaries of human potential.

So how did technology get demeaned to “tech”? I’m going to draw a line between technology — the real thing — and “tech”: its modern-day imitation. In the same that we now eat “food-like products”, and watch “news-like programming”, so too we are presented with “technology-like” things: stuff that isn’t really technological, but merely pretends to be. This is what is popularly called “tech”. But tech is to technology what Doritos are to food: an empty, hollow simulation of the real thing.

Technology is transformative because it explodes the limits of techne — of human skill. Read that last sentence again. The little story of my glasses contains in it what is familiar to us all: the magical, enchanted power of technology.

Transformation is why technology is so magical, so miraculous. Through it, man can ascend beyond his natural birthright, and give himself rebirth — from a stinking, starving, cunning beast, to a civilized, enlightened, powerful being. All that is contained in the magic of techne. Techne, skill, endows man with the shining opportunity, to face his greatest necessity: to become his best. Not merely a slave, a predator, or a king. But something smaller still, and infinitely greater: fully himself. A being who lives a life seared, brimming over, overwhelmed, with meaning, happiness, purpose. And if you think about it for a moment, all that is what glasses give me, and countless others.

And so the question we must ask is this: does the stuff of the “tech” industry enhance skill…at anything…especially anything worthy? In what sense does it transform not just merely our stuff — but ourselves? I may be able to summon a butler or a taxi or a private jet or a dog-walker with unimaginable ease. But the simple face is that my skill at anything truly meaningful has not increased one bit. If anything, it has probably declined — for I am something like a king without an empire.

“Tech” is a paradox. For tech itself has demeaned, denigrated, and diluted the very idea of technology — from miracles of skill that alter human destiny, to trivialities that trap us in self-indulgence. But that is not skill — it is merely gratification and vanity. Apps that limit people full of limitless potential…to be…walking apps, libraries of selfies, carefully performed “lifestyle choices”. All those are “tech” — but they’re not techne. They do not expand or enlarge human skilfullness in any way. You may be laden down with all the latest “tech”. But will it help you become that great novelist..doctor…musician…artist…programmer…anything?

Technology, techne, is transformative, fundamental, magical — because it is the sudden joyous explosion of skill at mastering one’s best self. “Tech”, on the other hand, seems to be mastering us.

That, I think, is why so many are so afraid of “tech” — but embrace technology. Tech threatens us with a kind of split, between who one could be — and who one is reduced to. Not merely because it might take their jobs, or their careers, or their time. But because it might, with efficiency’s kind smile, erase their dreams and their destinies. And imprison their truest, best selves, in irresistible, glittering cages made of indolence, vanity, and convenience. Cages of which they themselves are the most enthusiastic jailers.

Nope. There’s no Matrix, no confederation of the robots, no Skynet. There doesn’t need to be. It’s not the machines that we truly fear. But what the machines might turn us into. Something even less than machines. People who can’t be ourselves without them.

The true fear, I think, in technopanic, is this. Not merely that we will become servants of machines. But masters of machines — who, imprisoned in glowing kingdoms of pleasure, as helpless as children, can never cross the desert, climb the mountain, ford the river — and discover their true destiny. Beings who never discover that freedom is not merely supremacy; for the ruler still depends on the ruled. It means independence. Sovereignty. The right to choose to suffer, struggle, dream, imagine, rebel, defy, love, wonder, dare. For the true self cannot be born otherwise.

ARE YOU A TECHNOCOCK?

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by umair haque

They’re the new villains of pop culture. Mocked, reviled, scorned. And for good reason, too. Not to put too fine a point on it, but the tech industry today is producing is a very specific, very identifiable kind of very terrible person.

The TechnoCock.

I know, I know. I shouldn’t judge them. But the fact is. They exist. And you might just be one. Here’s how to tell.

1. You’re making an app.

2. The market for your app is the rich, the super rich, or the ultra rich. Globally, not just locally.

3. It makes their lives easier, but only by making everyone else’s life harder.

4. Your app provides the already comfortable even greater luxuries, instead of doing anything that actually matters.

5. The luxuries your app provides are trivial, disposable, and totally unnecessary. They don’t make even the people consuming them better in any meaningful way. Think pet spas and on demand butlers.

6. The luxuries your app provides turn people into lotus eaters, servants, zombies, vampires, or morons. Your app leads people away from being decent, functioning, living, breathing humans.

7. Your primary goals in life are getting rich, getting hotter dates, and being powerful. Meanwhile, you can’t hold a decent conversation and can’t remember the last time you read a book.

8. Your heroes are billionaires and/or superheroes. But you can’t name a single writer, intellectual, or artist that inspires you.

9. You think a lot about your personal brand. But you have no idea why you were really put here. You think an identity is a set of checkboxes and a relationship stuff that’s stored in a server.

10. You think the world doesn’t need libraries, bookstores, schools, hospitals, or parks. At least not nearly as much as you think the world needs cyborg friends.

11. Your primary goals in life aren’t giving back, making a difference, and shaking things up. And you don’t see how these could possibly lead to a life rich in meaning and purpose.

12. You don’t care how much real value your app creates for anyone. Your strategy is to sell it to GoogleAppleAmazonBook before they discover it’s the equivalent of a subprime loan.

13. Nobody with a working soul would really care if your app disappeared tomorrow.

14. You wanted to change the world once. But somewhere along the way, you can’t quite say how, you threw in the towel. And now all you want is to beat the world into submission.

15. The closest intimate relationship you’ve ever had is with your smartphone.

How many points does it take to make a TechnoCock? I don’t know. You decide. My point isn’t points. But the point. Of you.

You can think of this as a quiz. Or as a set of criteria. For living a life empty of meaning, happiness, or purpose. Because the truth is that no one their death bed is ever going to say: “I never fell in love, climbed that mountain, or changed the world…but goddamit, I gave every dog on Park Avenue their own personal butler!!”. And if they do, you know and I know: they never got the point of the tiny, improbable, uncertain miracle of existence at all. And though such a person might have earned a fortune, their life will have felt a great, unwanted misfortune.

Don’t be that guy. The one who ended up sharing their few scarce moments of truth, mystery, awe, grace, joy with…a smartphone. Be the person you were put here to be. Who’s that? I don’t know. You don’t know. But there’s only one way to find out. By journeying across the Rubicon of destiny, rebelling against certitude, giving thanks for the winds of adversity, finding strength in elevating every fellow traveller you’re privileged to meet. Because that is how you find something greater and truer than success. That is how you find you.

https://medium.com/on-life-and-leadership/the-technodouche-quiz-e493dea14dbf

 

Despite surplus, California governor releases austerity budget

transportation201201jerry-brown

By Dan Conway
23 May 2015

California Governor Jerry Brown released the so-called May Budgetary Revision on May 15, outlining proposed state spending for the 2015-2016 fiscal year. The measures included in the May Revision are typically adopted in the enacted state budget.

The May Revision incorporates larger than expected state income and capital gains tax revenue. It uses the expanded revenue not to restore past cuts but to create new school privatization schemes, expand the state’s rainy day budget stabilization fund and to otherwise insure continued hardship for the working class.

California is the most populous state in the country and also the poorest. According to the official federal poverty measure, which is based on an annual income threshold of three times the cost of basic nutritional requirements, the state’s poverty rate is 16 percent meaning 6.1 million residents are poor. Nearly 2.5 million of these have incomes less than half of the official poverty line and half of both these groups are children.

Using the US Census Bureau’s Supplemental Poverty Measure, however, which also factors in the price of other basic necessities such as shelter, clothing and utilities, California is the most impoverished state in the country with nearly a quarter of the state’s 38 million residents, or 8.9 million people in poverty.

The administration of Governor Jerry Brown has mercilessly used state budgets to impose austerity on the working class. Said Brown upon assuming office after a nearly 30 year absence, “If you’re looking for frugality, I’m your man.”

Brown has enacted massive cuts to the CalWorks Welfare to Work program, SSI recipients, funding for AIDs education and research and numerous other critical programs for the most vulnerable sections of the population.

The new budget does not restore a single dime to CalWorks despite the fact that 1.2 million impoverished Californians already use the program. 900,000 of those dependents are children. To qualify for the CalWorks Grant, recipients must receive an annual income of less than 50 percent of the federal poverty line and thanks to cuts imposed by Brown and Governor Schwarzenegger before him, CalWorks recipients receive $180 per month less, adjusted for inflation, than they did in 2008.

Funding will also not be restored to cuts made to the state’s Supplemental Security Income/State Supplementary Payment (SSI/SSP) program that provides payments to the disabled. The program has been cut to the legal minimum of $156 per month per recipient and cost of living adjustments or COLA, typically tied to the rise in the state’s Consumer Price Index, have not been restored.

The budget also maintains a ten percent cut to Medi-Cal, the state-subsidized health insurance program. The cut was enacted at the same time that the income threshold for Medi-Cal eligibility had been raised as part of the state’s implementation of the Affordable Care Act or Obamacare. This was meant to insure that more workers would be forced to move onto the Medi-Cal rolls in a time of diminishing benefits. Under Brown, the Medi-Cal program no longer offers dental and vision services.

The only areas in the state budget that will see a significant increase in funding are in public education and in the state’s rainy day fund, which itself is meant to capture increased revenues and insure that they are not used to restore prior cuts to social programs.

Passed by state voters in 2014, Proposition 2 sets aside 1.5 percent of general fund revenues to the rainy day or state budget stabilization account. It also requires an additional transfer of capital gains tax revenues exceeding eight percent of general fund revenues to the account.

Half of the existing rainy day fund balance may be used to pay down outstanding state debt, while the remaining balance may only be used in cases of emergency if the state is running a budget deficit.

Because of the release of a portion of the existing rainy day account in the May Revision, there is now a $6.1 billion increase in funding for Public Education compared with the 2013-2014 school year, provided that these provisions in the Revision are included in the enacted budget.

As made explicitly clear in the terms of the Revision, the majority of the overall education spending will be directed towards the newly-created Local Control Funding Formula (LCFF). Under the terms of the LCFF, local school districts receive a certain amount of funding per student with those districts with a higher percentage of disabled, minority or immigrant students receiving higher funding.

Those districts can spend the money as they see fit provided that they implement “reforms” tied to standardized testing, Common Core Evaluation standards and show significant improvement in performance on those tests and other key areas each year. An example of measurable improvement would be a one percent increase in high school graduation rates each year for eight years.

To the extent that such measures cannot be realized, districts so affected would not only lose LCFF funding but would potentially fall victim to pro-charter school conversion measures such as the so-called Parent Trigger law. Under this reactionary law, a “failing” public school can be converted into a private charter operation if a majority of parents support it.

The open backing by state government of private charter schools is also made abundantly clear in the May Revision’s lack of funding for traditional public schools. Despite the overall Proposition 98 funding increase, funding for traditional public schools is decreased by $224 million in the Revision.

Also, while Cost of Living Adjustments remain in place for LCFF programs, traditional public schools will see a COLA decrease from 1.58 percent to 1.02 percent or $22.1 million.

The California Community College System (CCC) will also see a significant reduction in traditional funding as a result of the governor’s May Budget Revision. Traditional Proposition 98 funding to the CCC will be reduced by $156.1 million and COLAs are likewise to be reduced from 1.58 percent to 1.02 percent. Energy efficiency projects at CCC in the midst of one of the largest droughts in state history are also to be reduced by $825,000.

In addition to a meager $75 million expenditure to increase full time faculty, the May Revision provides $626 million to repay outstanding state debt and also to implement plans for curricula redesign and start up costs to expand the career and technical education programs and reorient the community college’s overall educational missions accordingly.

$30 million is also designated towards creating “student success outcome” plans at CCC. These are designed to provide funds to underrepresented student groups to maintain “equity,” the current political buzzword employed as a smokescreen to distract attention from overall diminishing funding levels for education.

The CCC is the largest network of state community colleges in the country, with more than 2.3 million students enrolled.

The Brown administration also reached a well-publicized agreement with the University of California (UC) Board of Regents, freezing state tuition for the next two years in exchange for reducing course loads and the amount of time it takes for students to complete their degrees. Out of state tuition will continue to increase by as much as eight percent per year.

UC enrollment rates are at their lowest levels ever as more students apply for the same number of slots available. Enrollment rates at the UC are half of what they were in the mid-1990s even though the number of academically qualified students has not declined accordingly.

As a result, Brown, together with UC Board Regent and former Department of Homeland Security head Janet Napolitano are blaming the lack of UC access on unmotivated students who are taking too long to finish their degrees and are simply taking advantage of too many opportunities to educate themselves. As such, course credit requirements will be reduced and entire classes eliminated to push through UC students more quickly.

Similar measures would also be implemented at the larger California State University system (CSU) under the terms of the May Revision.

As the state faces a $72 billion liability for retiree health care, a major overhaul in how public pensioner health benefits is also now underway. This would involve state workers pre-funding their benefits, changing from a pay-as-you-go method towards paying into a prefunded, interest-accruing trust fund. The cost of this fund would largely be borne by state workers themselves.

Workers would not only have to rely on a static, inadequate funding source to pay for increasing medical costs when they retire, the minimum amount of time these workers must have on the job to even be eligible for the program is a full thirty years.

Perhaps the most significant portion of the May Revision is what it portends for future state budgets.

The introduction to the May Revision reads, “Despite stronger revenues, the budget remains precariously balanced and faces the prospect of deficits in succeeding years. The state has hundreds of billion of dollars in existing liabilities, such as deferred maintenance on its roads and other infrastructure and its unfunded liability for future retiree health care benefits for state employees and various pension benefits.”

There can be no doubt that future budgets will include further measures to address these “liabilities” at the expense of the working class. In this, the trade unions, including the SEIU and California Teachers Association will be willing partners.

While the most vulnerable sections of the population are being squeezed California is now home to 131 billionaires, nearly a quarter of all US billionaires and more than any other nation except for the US as a whole and China. This small collection of individuals has a combined wealth of $560.1 billion, more than the GDP of 49 countries including Argentina, Poland and Taiwan.

 

http://www.wsws.org/en/articles/2015/05/23/cali-m23.html

Bad Apple: 5 Ways the Computer Giant is Plundering America

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No amount of clever branding can hide these harsh truths.

An emotional response to any criticism of the Apple Corporation might be anticipated from the users of the company’s powerful, practical, popular, and entertaining devices. Accolades to the company and a healthy profit are certainly well-deserved. But much-despised should be the theft from taxpayers and the exploitation of workers and customers, all cloaked within the image of an organization that seems to work magic on our behalf.

1. Apple Took Years of Public Research, Integrated the Results, and Packaged it As Their Own

Apple’s stock market value of over $700 billion is about twice the value of any other company. It is generally regarded as innovative, trendy, and sensitive to the needs of phone and computer users all around the world. Many of us have become addicted to the beautifully designed iPhone. But the design goes back to the time before Apple existed.

Steve Jobs once admitted: “We have always been shameless about stealing great ideas.” And reaping most of the benefits. As economist William Lazonick put it, “The iPhone didn’t just magically appear out of the Apple campus in Cupertino. Whenever a company produces a technology product, it benefits from an accumulation of knowledge created by huge numbers of people outside the company, many of whom have worked in government-funded projects over the previous decades.”

In her revealing book, The Entrepreneurial StateMariana Mazzucato explains that “Apple concentrates its ingenuity not on developing new technologies and components, but on integrating them into an innovative architecture.” She goes on to describe 12 major technologies that have their roots in government research, including memory and hard disks, displays, cellular technology, GPS, and all the Internet protocols. Much of it came from the Department of Defense, the Department of Energy, NASA, the Air Force, and other U.S. agencies. The biggest expense in the iPhone is the touchscreen, which was developed at the CERN laboratories in Europe.

The “stealing of ideas” has not been accompanied by a reciprocal contribution to research. Apple spends much less than Microsoft and Google on R&D as a percentage of revenue.

It gets worse. Apple effectively takes all the credit for much of our public R&D by invoking the 1980 Bayh-Dole Act, which allowed publicly-funded work to be patented by companies. In 2011, for the first time, Apple spent more on patent purchases and lawsuits than on R&D. And worst of all, patents can make it extremely difficult for other researchers to continue work on the ideas behind newly developed products.

2. Even After Taking Our Research, Apple Does Everything in its Power to Avoid Taxes

In 2013 Apple CEO Tim Cook proclaimed, “We pay all the taxes we owe – every single dollar.” Delusion teams with denial. When questioned about the “Double Irish” scheme that allowed Apple’s Irish subsidiary to pay ZERO taxes from 2009 to 2012, Apple executive Tony King said he had “no idea” what the questioner was talking about.

Apple recently announced that its overseas, untaxed cash hoard, currently about $157 billion, is expected to reach $200 billion by 2017. But rather than pay taxes, Apple, along with other tech companies, has been part of a “fierce attack” on plans to crack down on tax avoidance, lobbying instead for a repatriation tax holiday to allow the billions of overseas dollars to come home at a greatly reduced tax rate.

3. Overcharging Customers 

The manufacturing cost of a 16 GB iPhone 6 is about $200, and with marketing it comes to about $288. But without an expensive phone contract with Verizon, AT&T, or one of the other wireless carriers, the cost to the customer is at least $650.

4. Underpaying and Mistreating Employees 

In response to criticisms of Apple, Rand Paul advised us to “apologize to Apple and compliment them for the job creation they’re doing.” The company claims to have “created or supported” over a million jobs in the United States. But in reality it has 66,000 employees in the U.S., about half of them retail store workers.

Apple has an efficient way of undermining workers, earning nearly $600,000 profit per employee while paying their full-time retail “specialists” less than $30,000 per year. Thus each store worker gets about $1 for every $20 in profits that he or she helps to generate. As for higher-level employees, Apple is alleged to have conspired with Google and other Silicon Valley each firms to hold down the salaries of engineers and analysts.

Regarding laborers at notorious Chinese factories like Foxconn, Apple CEO Tim Cook said in 2012: “We care about every worker in our worldwide supply chain.” The sentiment went deeper three years later in 2015, when Apple VP Jeff Williams assured us that “We care deeply about every worker in Apple’s global supply chain.” But investigations have revealed little change, with a continuation of low wages, forced overtime, safety hazards, employee abuse, increased production quotas, and manipulation of student interns. Before the launch of the iPhone 6 in late 2014, workers put in 15 hours a day for 10 weeks without a day off.

5. Apple Has Figured Out How to Spend Most of its Untaxed Money on Itself 

Much of Apple’s ‘offshore’ money is reportedly held in the U.S., in the form of U.S government securities, earning interest from U.S. taxpayers. When the company needs cash, it simply borrows the money at a near-zero interest rate, often using that cash to pay off shareholders with stock buybacks, which use potential research and development money to pump up the stock prices for shareholders.

After spending $90 billion on stock buybacks last year, Apple has now proudly announced a 2015 “share repurchase authorization” of $140 billion, almost the entire amount of its currently hoarded cash. Buybacks benefit company executives and investors. Beyond that, Apple’s ever-growing $.7 trillion stock market value is spread among relatively few Americans. The richest 10% own 91 percentof U.S. stocks.

Apple’s View 

The tax-avoiding, research-appropriating, cost-escalating, wage-minimizing, self-enriching Apple Corporation has, according to CEO Tim Cook, a very strong moral compass.

Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites UsAgainstGreed.org,PayUpNow.org and RappingHistory.org, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached atpaul@UsAgainstGreed.org.

http://www.alternet.org/bad-apple-5-ways-computer-giant-plunder-america?akid=13111.265072.ZtiMvx&rd=1&src=newsletter1036499&t=7