Eroom's Law: How Federal Regulation Can Reverse Progress on Matters of Life and Death

Back in 2012, Nature took note of the stagnation of pharmaceutical innovation: "The number of new drugs approved per billion US dollars spent on R&D has halved roughly every 9 years since 1950, falling around 80-fold in inflation-adjusted terms."

The authors called this phenomenon "Eroom's Law," as an ironic gallows humor tribute to Moore's Law that applies to rapid, logarythmic tech evolution. 

They rightly put much of the onus on the Kefauver Amendment of 1962, which mandated that the Food and Drug Administration study "efficacy," as well as "safety" in its examination of new drugs. Safety is easy enough to test for, efficacy is not. Efficacy is an endless swamp of unknown unknowns.

If personalized medicine means anything, it means that a drug that might work for Smith might not work for Jones, and vice versa.  And yet these questions are beyond the ken of the FDA. As the above chart shows, there's been no improvement since 2012.  

The chart shows that from 1953 to 2023, the real GDP of he U.S. rose 707 percent..  And yet during that same seven-decade span, the number of new drug approvals by the FDA fell 87 percent. 

Reversing the FDA's dead hand through legislation is a supremely worthy goal.  However, the FDA has proven itself to be remarkably resilient, impervious, even, to reform.  

So perhaps the better path is to take the matter to the states, as far aways as physically and legally possible from FDA HQ.  To seek a Brandeisian answer, the states as "laboratories of democracy," as I have argued here. 

Every political action has an impact on people and their money, and thus on investments

 

Thanks to Liz Hoffman at Semafor. 

The Ultimate Solution to Candidate Security: Directional Investment Will Come to Force Fields

 

The July 13 shooting that could have killed Donald Trump has engendered considerable technical discussion of security protocols.  One result will be, hopefully, safer candidates.  Another result will be new investment opportunities.  That is, the direction of investment will ultimately push policy toward new technology--and that's exciting for investors, as well as for the safety-conscious. 

One hot topic, all of a sudden, is the policy on counter-snipers.  Specifically, at a political event, what should a counter-sniper do if he sees a shooting threat?  Should he wait till the shooter shoots?  Or shoot first?

The concept of counter-sniping emerged from the military, where the rules of engagement, in wartime, or near wartime, are understandably much different.  For instance, in a section entitled, “Combined Arms Operations in Urban Terrain,” the U.S Army Field Manual 3-06.11 takes up the issue of when to shoot—or, to use milspeak jargon, “engage”—first.  “He should be given clearance to fire, and then he and his team leader decide when to engage the target.”  The point being that in combat, or what could be combat, it’s often vital to shoot first.

But again, the U.S. homefront isn’t Iraq, or Afghanistan.

Here’s how Susan Crabtree of RealClearPolitics reported on the counter-sniper rules that were in place in Butler, PA last Saturday:

A source within the Secret Service community tells RealClearPolitics that the agency rules of engagement in this situation are to wait until the president is fired upon to return fire.

“You want to take a shot then find out the guy was holding a telescope?” the source suggested. “The Secret Service is by nature reactive…and you better be right when you do react or you’re f——d.”

The Secret Service protocol requires that a counter sniper aware of a potential shooter to radio directly to intelligence division team to respond and investigate. In this case, the investigation may have been cut short by the shooter firing his weapon, so the counter sniper then fired as quickly as possible in return.  [Emphasis added]

 

It’s a tough issue: Shoot first and you could kill an innocent person.  Shoot second and it could be too late.   It is a conundrum, perhaps akin to the trolley car problem, in which it's imagined that a trolley car could be steered so as to kill one passenger, or many passengers.  Either way, a horrible dilemma. 

Most likely, the reaction of the July 14 incident is going to be an increase in Secret Service and other security personnel and technology at events.  The Biden administration just granted USSS protection to Robert F. Kennedy, Jr., which is overdue, and it’s fair to foresee there will be a stronger presence everywhere.  That means more surveillance, more fencing, and so on.  And it’s even possible that the rules of engagement for counter-snipers will be adjusted.  These may, or may not, be sustainable options.  Horrible dilemmas could come. 

But there’s another way to think about these security concerns: Instead of accepting the remorseless logic of the trolley car, perhaps we can think our way to a better solution, just as Captain Kirk of Star Trek renown escaped from the Kobayashi Maru dilemma.  In that fictional universe, Kirk refused to accept the parameters, and so changed them, saving lives.

So how to apply this to our real-world dilemma?  Instead of focusing on scanning the crowd or the environment, focus instead on hardening the target.  And I don’t mean body armor for the candidate, or perhaps a bullet-proof lectern or plastic shield--although those might be needed sometimes.  Yes, of course, it will always be important to monitor the crowd, but hopefully not to the extent that the monitoring becomes oppressive or erosive of the campaign.

Instead, let's think about a revolution in technological affairs, such that the old sci-fi dream of force fields finally comes into existence, used to protect lives.  If the tech could be made to work it could work not only for candidates, but for others in need of protection, including police officers, as well as, of course, soldiers. 

Indeed, right now, the world’s militaries are in a state of confusion, because the offensive capacity of drones and missiles has exceeded the defensive capacity of defense systems, such as the U.S. Patriots, as well as the Israeli Iron Dome and Iron Beam.  Those systems seem to work well enough, but not at the scale and tempo needed to bat back offensive rockets and drones.  That is, some intruders get through.  The Patriot missile, for example, traces back to the 1980s, when the threat was much different. The Patriot is 17 feet long; it’s designed to blast other big missiles; nothing stealthy, and not small-, or even nano, drones.

So in the Gaza war, and elsewhere on Israel’s embattled frontiers, enemy weapons are getting through.  And they can even kill Americans, as happened in Jordan earlier this year. 

In the meantime, in Ukraine, both sides in the fighting are coming to grips with this changing nature of war; they are developing emergency expedients, such as turtle tanks.  These tanks are a kind of hardened target—or if one prefers, the least stealthy stealth—and they’re a workable expedient, even if they’re hardly the optimum solution.  Ideally, tanks, have a low silhouette.  After all, the older kinds of antitank weapons, fired horizontally from point to point to point, haven't gone anywhere.  So lower is better.

Eventually, militaries will get smarter about defensive shields, including directed-energy shields, plasma shields, or that sci-fi standby, the ill-defined but always cool force field.  Such devices are probably possible under the laws of physics, although they are, of course, energy hogs.  So it could be that militaries will be bringing along big batteries, or even small nuclear power plants, as part of their logistical train.  An army runs on its stomach, it also runs on its energy. 

Similar forward thinking is needed at home.  After all, for all the discussion of snipers, and lines of sight, and direct fire, we haven't come to grips with indirect fire, coming from over the horizon, including drones, including whatever else attackers come up with.  Clearing away a sniper on a roof could be the old battle; the new battle could be stopping a drone flying in from five miles away. 

In other words, a significant escalation in tech is desperately needed, lest the American homefront start to resemble Israel, or Ukraine. 

There has, in fact, been considerable discussion about directed-energy machines to stop bullets, and the conversation, on sites such as Gizmodo,  Medium, Quora and Reddit, and ImpactLab (the source of the first picture above) has been mixed.  Not everyone is convinced that it’s a workable idea, even as everyone is convinced that it will be energy intensive.  

But there’s the bottom line: If it’s within the realm of the possible, if you have to make it work, you will.  Necessity mothers the invention. That's been the story of many tech crash projects, from antibiotics to synthetic rubber to the atomic bomb to the internet. All of which begat new investment opportunities, as well as military, social, and economic  victories. 

To be sure, there's never an ultimate, final, solution.  There's only the next iteration of improvements, the next higher plateau on the punctuated equilibrium of tech advance. 

Yet for now, the imperative of candidate safety, as well as other kinds of safety, will drive new next-gen tech in force fields, making it a great Directional Investment.  

The Grand Carbon BargAIn: Energy Abundance + AI + Carbon Capture = Economic Prosperity and National Security

Two news items in the last 24 hours underscore the interconnectedness of energy and artificial intelligence (AI).  We can’t have one without the other—and we need both. 

AI is an unstoppable force.  Writing in Axios this morning, the buzzy Mike Allen observes of the billions pouring into AI, “This kind of investment tidal wave has come once every 15 years or so in Silicon Valley since the arrival of personal computing around 1980.  These waves have their own booms and busts. But none of them has ever been stymied.”

That’s surely correct.  AI is coming.  In fact, it’s already here; it’s just coming bigger and bigger and bigger. 

Yet there’s a complicating factor: energy.  However, it’s a complicating factor that will, in fact, soon enough be simplified. 

How so: The power of AI is going to force a solution to AI’s energy needs.  And the solution will not be turning off the machine. 

AI is going to need a lot of new energy.  Rep. Cathy McMorris Rodgers, chair of the House Energy and Commerce Committee, outlined the dimensions of this need at a Congressional hearing yesterday:

In states across the country, utility planners and regulators are confronting the hard truth that they need more reliable power to meet the needs of their communities and the growing demands from our digital economy. Some are projecting a ten-fold increase in the growth rate of new power demand, compared with the past decade. 

Just across the river in Northern Virginia, power demand is projected to increase from 2,500 megawatts in 2020 to over 8,000 megawatts by 2028. 

In Georgia, utility companies had to quickly update their plans to reflect a jump from 400 megawatts of future demand to 6,600 megawatts. 

To put that in perspective, Georgia would need about five more new Vogtle nuclear power plants to meet that level of demand. 

Driving this demand, in many cases, are the industries that process digital information, the data centers that process cloud services, AI, and the digital transactions that are increasingly essential to modern life. 

These services are critical to advancing our nation’s prosperity and will need more, not less, reliable baseload power—the kind of power that can be generated 24 hours a day, seven days a week, 365 days a year.” 

So there you have it: AI needs lots of energy.  McMorris added, it’s this tandem, AI and abundant energy, that we need to compete with China. 

Where will it get this energy?  Most likely, from the “all of the above” approach favored, loudly, by most Republican, and favored, more quietly, by many Democrats.  That is, energy from everything, from solar to nuclear. 

Yet predominantly, we’re going to be burning a lot of carbon fuels.  It’s where the energy is most easily found and distributed, because the infrastructure is in place; it’s been powering the world’s industrial economy for the past two centuries. 

But are we running out of what are often called fossil fuels?  No. Decidedly not.  In the recent words of mining engineer John Lee Pettimore,

In the U.S., the number of technically recoverable oil resources was estimated to be around 143.5 billion barrels of oil at the end of 1990, according to the EIA. That number has more than doubled despite rising production. So are we running out of oil? No we are not.

And he sources his assertion to the U.S. Department of Energy's Energy Information Administration, which tells us that as of 2020, oil resources in the U.S. totaled 373.1 billion barrels. By the way, if we were to assume an oil price of $80 a barrel, these are assets totaling nearly $30 trillion.  (Other estimates of oil resources, such as from the Institute for Energy Research, are much higher.)  

We can immediately note that this is just oil.  Natural gas, coal, and other carbon products are in addition. 

We might further note Pettimore undercuts the idea that carbon fuels are fossil fuels, which helps explain why we keep finding more carbon fuel.  He cites the work of Robin Menotti, who is among the many (going back, in fact, to the 16th century metallurgist Agricola) who argue that the earth is, in fact, making more carbon energy. That is, through volcanic action, originating in the earth’s molten core.   So carbon fuels are not fossil fuels at all—they could be called, in a way, geothermal fuels.  But why not keep it simple and just call them carbon fuels? 

Pettimore writes, “The truth is oil is actually the second most prevalent liquid on earth next to water, and regenerates within the earth faster than it can be depleted.” 

Okay, so even if we have a never-ending supply of carbon fuels, what about carbon dioxide in the atmosphere?  What about climate change?

Well, there’s an answer to that: If there’s too much CO2 in the atmosphere, take it out.  The science of carbon capture is zooming, although the pioneering work was accomplished eons ago, by the humble tree. 

But every day bring news items of new processes for carbon capture, often involving cheap and abundance raw materials.  So it’s easy to see a national and international strategy for reducing CO2, as I have been writing about since 2017.  And we can point to myriad other ideas in carbon capture; for instance, Aramco is finding new ways to capture capture in cement.  In fact, it's obvious that buildings and construction materials could serve as permanent carbon sinks.  

This is the Grand Carbon BargAIn, synthesizing energy production, consumption, and carbon capture into a pleasing green circularity.  And it means we'll have all the energy we need for AI. 

Directional Investment Is Coming to K-12 Public Education

Big money is moving around in K-12 education, and that means big investment opportunity.  Yet most media commentary is still looking at this flow of funds through a political lens.  For instance, this June 4 Washington Post article, headlined, “Billions in taxpayer dollars now go to religious schools via vouchers.”  The subhead reads, “The rapid expansion of state voucher programs follows court decisions that have eroded the separation between church and state.”   That’s the angle the MSM is fixated on.  

As the article details, vouchers of up to $16,000 are now available in some places.  From the Post: 

In just five states with expansive programs, more than 700,000 students benefited from vouchers this school year. (Those same states had a total of about 935,000 private school students in 2021, the most recent year for which data are available.) An additional 200,000 were subsidized in the rest of the country, according to tracking by EdChoice, a voucher advocacy group. That suggests a substantial share of about 4.7 million students attending private school nationwide are benefiting from vouchers—a number that is expected to grow.

More: 

The programs, popular with conservatives, are rapidly growing in GOP-run states, with a total of 29 states plus D.C. operating some sort of voucher system. Eight states created or expanded voucher programs last year, and this year, Alabama, Georgia and Missouri have approved or expanded voucher-type programs. Some recently enacted plans are just starting to take effect or will be phased in over the next few years.

The Post then runs through the familiar liberal critique of vouchers: that they unconstitutionally aid religion, and that they enable racial segregation.  Both of these critiques are debatable, and maybe even wrong-headed, and yet they are energetically rehashed by the Post readership in more than 11,000 comments.  

However, there’s another way to think about this flux, this disruption, in education.  According to Skillademia, “The landscape of U.S. Public Education Spending Statistics is shifting dramatically. In 2021, the spending per student surged by 6.3%, marking the largest year-to-year increase in over a decade.” 

In fact, total expenditures for public elementary and secondary schools in that year totaled $870 billion.  In the meantime, as this map from the Post suggests, voucherization is spreading.  

Notably, Texas is not highlighted.  But that could well change in the wake of the recent Republican primary elections, in which pro-school-choice Governor Greg Abbott purged many anti-school Republicans from the state legislature.  So it’s likely that the Lone Star State, the second largest in the country, will soon join the pro-voucher roster. 

One of the central arguments of my new book, The Secret of Directional Investing: Making Money Amidst the Red-Blue Rumble, is that the Republican-Democrat divide means that just about every policy issue will be cleaved into two: a red approach and a blue approach.  In public K-12 education, the red approach is choice or vouchers, while the blue approach is the status quo, including, of course, a heavy dose of DEI and transgenderism.  This blue policy mix is actually rather popular in blue states, so there’s no reason to expect education in those places to change much. 

However, as we have seen, the red states are in motion. Most Republicans look forward to abolishing DEI, and quite possibly also the teachers’ unions and the associated administrative state.   That further energizes voucher supporters—the thought of disempowering the institutional left and its favored party, the Democratic Party.

So that will be the split on education: roughly half the states, blue or purple, will likely stand pat, while the other half forge into new realms.  It’s the Brandeisian “laboratories of democracy” point.  So out of that $870 billion in K-12 spending, the red-state allotment is very much in play. 

And it’s also, potentially, laboratories of prosperity, because when money moves, there’s money to be made in the inflection points and new trends. 

Meanwhile, in the background, private investment and private equity.   There have been plenty of efforts at for-profit investment in K-12 schools, everything from the Edison Schools (now Edison Learning) to Amplify.  Some of these have been successful, carving out some share of the education pie.  Yet on the whole, their impact has been small.  

However, the full voucherization of K-12 really opens the door to a flood of investment and innovation. 

Perhaps most obviously, there’s AI.   We’ve had distance- and video learning for a long time, and we had the massive experiment in Zoom education during Covid, and once again, these experiments, always controversial, have not been all that successful.  Yet the technology keeps getting better, and investors and visionaries never stop thinking.  

So the destiny is disclosed, and the light of investment shines the path ahead.  

Win-Win Investing: When the Irresistible Force Meets the Immovable Object—They Can Both Earn Returns

The headline in May 12 Wall Street Journal highlights an important direction in the energy economy: “There’s Not Enough Power for America’s High-Tech Ambitions.”  The article notes, the hunger for electricity has disrupted visions of a green energy transition: “One major source of disruption is data centers. The facilities are ballooning in size as people spend more of their waking hours online and companies digitize everything from factory processes to fast-food drive-throughs.”  

Focusing on fast-growing Peach State, the article continues, “Georgia’s main utility, Georgia Power, has boosted its demand projections sixteen-fold and is pushing ahead on a hotly contested plan to burn more natural gas.”

This is how the conflict between growth and the environment is often framed: The irresistible force(s) of tech growth and energy hunger, colliding with the immovable object of concern about climate change.  But maybe there needn’t be a collision.  Maybe the force and the object can actually be harmonized, for the mutual benefit of both.   This is what Directional Investing is all about: observing trends that can be made into friends.  

The Journal emphasizes that the energy surge is not just local, but national:

U.S. power usage is projected to expand by 4.7% over the next five years, according to a review of federal fillings by the consulting firm Grid Strategies. That is up from a previous estimate of 2.6%.

The projections come after efficiency gains kept electricity demand roughly flat over the past 15 years, allowing the power sector to limit emissions in large part through coal-plant closures.

So what will happen to energy production?  Some will say, of course, that we need “de-growth.”  That’s a fashionable thought in some academic and activist circles, but it’s not an acceptable answer for the nation—not many Americans want the U.S. wants to be Germany, let alone the Shire of Tolkien’s telling.  The cinematic Hobbits were cute, to be sure, but in real life, they would be desperately poor.  

Others will say greater efficiencies are possible, and that’s no doubt true.  However, efficiencies have a way of running up against Jevon’s Paradox—the more efficient things become, the more they consume.  

As for new energy sources, we’ll no doubt continue to dabble in wind and solar, but again, the German bad example is cautionary.  And nuclear power is making a comeback—including, as the Journal reports, in Georgia, where Plant Vogtle in Waynesboro has just been expanded.  (And the voraciousness for energy has gone international; they're even thinking about powering data centers in a volcano in El Salvador.) 

Yet the most obvious source of power is right in front of us: carbon fuels.  According to current thinking in the U.S., carbon fuel is mostly limited to oil and natural gas—coal is regarded as too dirty, and so American production has been limited, even as the world’s coal consumption is rising.  

However, if we were to apply ourselves to the challenge of cleaning coal, we could do so.  And that, in turn, would unleash the abundant power and wealth of coal—the U.S. possesses some 470 billion tons of usable reserves.  As the U.S. Department of Energy observed in 2022, the energy potential of that much coal (measured in British Thermal Units) exceeds that of American oil and gas. 

So it would really pay if we could figure out how to clean that coal; not only to get the energy but also to harvest the metals and other elements resources that make coal “dirty.”  We could discover, in fact, that “dirt” can be a resource.  For instance, coal oftentimes contains the element molybdenum, which in the larger environment can be a pollutant.  However, scientists at Northwestern University have just figured out how to use molybdenum to capture carbon.  Thus we can see the potential: The molybdenum in coal could potentially be used to pull out carbon from the atmosphere.  So a twofer: clean the coal, clean the atmosphere. 

In fact, properly thought through, every component of coal is valuable.  What’s said of animals in farms and stockyards—“use everything but the squeal”-- applies just as much to natural resources. 

Such circular-economy thinking is now being applied to carbon capture. 

For instance, on May 6, the Journal took note of an Illinois-based company, LanzaTech, that uses microbes to capture carbon.  We can step back and see that such organic carbon capture has the potential for near-infinite spinoffs into anything organic: food, fiber, fertilizer, and fuels, just for starters. 

On May 8, CNN reported on the opening of a direct air capture (DAC) plant in Iceland.  Interestingly, the plant, dubbed “Mammoth,” is powered by Iceland’s plentiful geothermal energy (another good “all of the above” energy source).  The new facility will capture the carbon and insert it into the earth, where it will soon bind into rock   When fully operational, the Icelandic plant looks forward to capturing 36,000 tons of carbon a year; to be sure, that’s a tiny fraction of the approximately 10 billion, and  tons of carbon emitted into the atmosphere each year, and so if the DAC vision is scaled up, we would need many such plants, even if each plant grows more carbon-consuming. Such carbon-consuming, we can add, brings with it the prospect of captured carbon being repurposed into building materials, and, over time, just about anything else. 

To some, that will seem a daunting prospect, and yet the proliferation of DAC sites could prove popular, as a tool for rural economic development (as I argued here, back in 2019), and of course, among investors. 

Because there’s so much energy, and wealth, involved that it’s impossible to see that we will obey the greens and leave it in the ground.  According to the Institute for Energy Research, total resources of oil in the U.S. amount to 2.8 trillion barrels.  (We can pause to note that resources is the total in the ground, or under the sea, as opposed to reserves, which is the amount that’s recoverable under current prices and conditions.)  By the broader measure of resources, at the current price of around $80 a barrel, that’s a total value of oil in the U.S. of $224 trillion.  As for natural gas and coal, the numbers are similarly astronomical. The truth is, the total ultimate value of carbon fuels in the U.S.—including methane hydrates offshore—is properly measured in the quadrillions of dollars.  To put that another way, that’s millions of dollars, per American.  Repeat: millions of dollars.   If it’s a shame to not use it, chances are there won’t be anything to be ashamed about. 

These mega numbers suggest that for all the talk about the energy “transition,” we’re not likely to transition away from carbon fuels—instead, we are transitioning our understanding of them, and how they can fit into an enlightened understanding of the circular, renewable, economy.  Carbon fuels burned  become carbon captured becomes carbon repurposed. 

The concept of the circular economy is another way of expressing this idea.  Indeed, once we establish circularity, the specifics of the climate-change debate matter less, because circularity means efficiency, and efficiency is a virtue beyond any externality.  

To put this another way, carbon capturing and repurposing offers a positive feedback loop of positive returns for investors—they can make money at every bend in the wheel.   With apologies to Simon & Garfunkel and their famous song, “Hello carbon my old friend/ I’ve come to talk with you you again.” 

The Directional Investor is happy to hum along.