CW 479 – Dr. David E. Goldberg – Zillow Evaluations in Realty Times & Genetic Algorithms with Author of ‘A Whole New Engineer’

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before and a new slant on investing fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is your host, Jason Hartman. And this is episode number 479. 479. Thank you so much for joining me today. It is Tuesday night, Fat Tuesday, as they call it. And that is where there are Mardi Gras celebrations all over the world. I'm here in San Diego. I've been at a conference all day today and I'm just overwhelmed. I should be out with all my friends celebrating Mardi Gras and having a good time, but I got too much to do. And one of those things I absolutely love to do and that is talk to you, my favorite, my favorite tribe, my listeners. Again, thanks for joining me. It is like 10:15 in the evening here. So what shall we talk about first? Well, how about who is our guest? We do have a guest today, and that is Dr. David Goldberg. We're going to talk about innovation and genetics and the amazing times in which we live. As you know, I always say it's an amazing time to be alive. It really is. There are just so many things that are just changing our lives so dramatically so quickly. And we are living in a time of exponential. You know that hockey stick concept, when you're looking at a graph, the hockey stick concept, where you reach this, like exponential pattern? Of course, Al Gore, the hypocrite Al Gore. I will say it because you know it's true.

The hypocrite Al Gore used that hockey stick graph and kind of made it famous in his movie In Inconvenient Truth. And I think there's a lot of things that are inconvenient about his truth. But anyway, that is not the topic of this episode, so we won't really go there. If you don't think that kind of stuff matters, by the way. Think again. In California right now, where I am, they are now weighing a whole new rash of legislation that it would make it more expensive for people to sell their homes. And what does that do to the price of real estate? Well, it all passes through, it all trickles through. You know, all of these things are pass through entities. So just always keep that in mind. One of the great things that we have nowadays that we didn't have in the past is valuation technologies. And of course this famously started with the company Zillow that you've heard of. And I'd like to talk to you about Zillow and Trulia really, because it's very similar. And there are other valuation sites out there that help us understand.

The real estate market. And you know, I remember back in the old days when I got into the real estate business and I started my first nine months in the business when I was all of 19 years old. I was going to college part time selling real estate part time. I purchased my first new car. It was a Volkswagen Jetta. And I actually was impressed that I financed it myself and took on those hundred and eighty nine dollar a month payments. I lived with my mom in our crummy little house in Santa An, Santa Ana, California. I remember I came home that night all happy about my new car. First new car I ever had. I had two used cars before that that I saved up my own money to buy because I was, I was a worker, you know, even if I wasn't always doing things right as a teenager, I always worked because I wanted to earn money and I didn't have that growing up. And I remember when I came home and mom got really mad at me for agreeing to one 89 doll month car payments because she was so debt averse. Well, you know, we talk a lot about that here on the show and about the value and the dangers of leverage. Of course, great value when it comes to real estate investing. But I am digressing again, tangent alert. You know, when I first got into the real estate business, it was a big deal. Like one of the biggest advertising gamuts that realtors would use is the free market evaluation. You look back on that and think it's so funny.

Like nowadays really would a consumer really.

Put any stock in that?

You know, there used to be these.

Little like coupon certificate looking things that Century 21 had for us that we could use in our marketing, pass out flyers, etc. And it would, it would be like something that you would clip out it would have, you know, those kind of like dotted lines around it and it would say, free market evaluation, $250. And I guess really my point in saying this is this is another example of the way technology vastly improves life, but also has a very deflationary effect. Because did a consumer, really, a homeowner, really think that a free market evaluation or a cma, which really stood for two different things. It stood for comparative market analysis, you know, based on the comps, because homes. One of the things I love about residential real estate is that, you know, there are three basic ways to value real estate. One is by comparison. That's the way residential real estate is valued. The other is by income, okay? And that is the way commercial real estate is valued by the income it produces. And one of the reasons I think there's so much more opportunity most of the time. But not always, of course, these things are complex and multi layered, and we've discussed them on past episodes before, because the comparison value of a residential property can change in your favor most of the time more quickly than you can increase the income. So on a commercial property, including apartment buildings, by the way, it is based on the income it produces. And the income is usually tied to the consumer price index, the cpi, which understates inflation. And so you usually can't increase the income as fast as comparison prices in a given neighborhood will increase, leaving a less perfect market in the market of single family homes or duplexes, fourplexes or triplexes for that matter. And that actually works for us as investors. So that's why, you know, as unsophisticated and low tech as it is, that good old single family home, I tell you, there's. It has a lot going for it. It really does. And historically, it appreciates better than really any other class of real estate. So, you know, before you get into one of these conversations that you're bound to have someday as a real estate investor, or maybe it's a conversation you're having it with yourself, okay? Which is known as self talk. And self talk is the most important conversation we will ever have. And that is the conversation we have all the time with ourselves in our own head. Some of us have these out loud. We walk around talking to ourselves. Some people think people that do that are kind of crazy. So I'll leave that up to you. But we certainly all do it in our own head, right? And so where was I going with that? Oh, yeah. So don't get into that conversation thinking that, you know, you're just too sophisticated for single family homes, because that good old single family home has a lot of really unique, awesome characteristics that make it a very swank investment. Okay. And swank is good. So, anyway, interesting article here. I came across just today, actually. I was, I was at my conference and of course, you know, there's that old thing about when someone is speaking. I can't remember the number, by the way. So, you know, but you probably remember this in school. I mean, I certainly remember it from school that when someone is speaking, they're talking at a rate of about, I don't know, just going to guess from memory here, 200 words per minute. If they're a fast talker, your brain has the ability to listen at like 6 or 800 words per minute. I want to say don't quote me on the number of words, but the equation goes something like that. You know, remember what I always say, what it's about is ratios. It's not about the number, it's about the ratio, the relative ratio. That's why rent to value ratios, that's what's important. Return on investment ratios of income, property versus whatever else. Right. That's the important ratio. It's not really how much you make with income property, it's how much you make compared to other things. It's the relativity that really matters. And so, you know, your mind wanders when you're listening to a speaker. Now, hopefully I'm so compelling and captivating and interesting that your mind is not wandering now. But my mind was wandering today. So I get on my iPhone and, you know, I started surfing the net right on my phone there while I was multitasking, kind of listening to the speaker halfway and doing this halfway. And I came across this article that I thought I would talk to you about tonight. And that is a Realty Times article entitled Starting with Zillow's Zestimate May not get you very far. And this was written by Bob Hunt and, gosh, it just came out today. You know, I'll just read you some of this and throw in a few comments because it's interesting. You know, our clients are always talking about, you know, what they find on the Internet and Zillow and Trulia and, you know, it's great, like I've said before, it's great that we have these tools, but like anything, you got to take it with a grain of salt, maybe several grains of salt, because it's it, you know, it's marginally accurate. It's better than nothing. And it could be high or it could be Low. I'm not saying it's one way or the other, but this website, Realty Times, is for real estate agents. And I haven't visited the website in a long time. For some reason today I just kind of thought I'd look there because I hadn't been there in several years actually, probably. And I found this article and I thought it was interesting, so I thought I'd share it with you. It says a couple of weeks ago, real estate columnist Kenneth Harney reignited a heated real estate conversation. See, real estate agents, especially the traditional ones, have big issues with these valuation sites because, of course, the struggle they constantly have. And listen, I did their job for, for many years, and I know it well. You know, the buyer always thinks the property is overpriced. The seller always thinks the property is underpriced and is worth way more than it really is, okay? Because their mind is, you know, up in the clouds usually, and they have this personal attachment because it's usually their own home. And so the job of that real estate agent is to create what's known technically and legally as meeting of the minds. A meeting of the minds where the buyer and the seller will actually agree and a deal can occur. And, you know, this is a reasonably valuable service, I would say, because without a meeting of the minds, and you know, another word we could have in just the marketplace, without the person, if we take the person out, is something I've talked about before. It's called price discovery. That's what economists call it, price discovery. And that came up a lot when we were in the financial crisis because as prices were dropping and the government was interfering with the market, the government was, was perverting the market and not letting price discovery occur. Now I'll throw in another phrase for you, market clearing. Okay? So it's meeting of the minds, price discovery and market clearing. Those are three phrases that are kind of valuable and interesting to think about when you're in the real estate market and how they impact economic decisions in every part of the economy. This applies especially in real estate, because it's a big ticket item, right? And it's not a widget. It doesn't come off an assembly line. You know, every house is different, every situation is different, every location is different. There are many varied, complex factors. Okay, so look again, I'm burning up a lot of time here, so let me get back to the article and stop with my silly commentary for a moment, okay? This is a heated debate for real estate agents, right? Suffice it to say, throughout the real estate community agents complain about these Zestimates. That's the Zillow estimate. Okay, Zestimate. They're a cute marketing name for it, which, despite Zillow's disclaimers, are often taken as gospel by both buyers and sellers. Typically, of course, the Zestimate is accorded such status when it happens to support the position position of the concerned principle buyers. Quote Zillow when the Zestimate is low, sellers when it is high. Agents around the country have weighed in on comment posts and in the blogosphere. Some say Zestimates are consistently too high, some say too low, and some say they're just often erroneous, giving both low and high valuations. In my experience, a decidedly unscientific sampling of recent closed sales and showed that Zestimates had tended to be on the high side, with a median error rate of 10%. But credit where it's due, some of the Zillow estimates were, as far as real estate valuations go, right on the money. One's estimate indicate a $480,437,000 value for a property that ultimately closed at $484,000. So, I mean, that's pretty amazing. That's only $4,000 apart on that $484,000 property. My comment, by the way, pretty impressive for a remotely located automated valuation system. The article says, and I would have to agree, Zillow makes its money on advertising purchased by real estate agents. Make sure you notice that. Okay, now, these agents are on both sides of the transaction, so I guess that would lead us to necessarily believe that Zillow had a conflict of interest. I hope you can tell where it's me commenting and not the article. Okay, that was me. I think you can kind of just tell by my voice. So I haven't had any complaints on that so far. I can't just read something I gotta throw in my snide comments. Anyway, so here we go. Advertising purchased by real estate agents who have supplied it with critical information listings in the first place. See, the real estate agents not only supply the advertising revenue for Zillow, but they also supply it with the information the listings and is sensitive to the problems that Zestimates can cause for agents. It's awkward to be an agent who appears to be endorsed by Zillow, and that's what happens when you advertise with them, when your CMA comparative or competitive market analysis, okay, indicates a value $50,000 lower than the Zestimate. To that end, Zillow recently made available to Its agent customers a document entitled Talking Points.

Scripts for Explaining the Zestimate to Clients.

Now, interestingly, that is really interesting that they made this available just to agent customers, not the public. And by the way, I have not read that document, but I'm going to take a look at it and I'll try to discuss it on a future episode. Okay? Zillow spokespersons are fond of saying that Zestimates are not appraisals. Rather, they are a good starting point, or sometimes just a starting point. But what is that supposed to mean? Any number picked out of the air could be a good starting point. Especially if we don't even know if the Zestimate is liable to be high or low. How does it help us start? Presumably, the Zestimate is a starting point for a conversation that aims to get a reasonably accurate evaluation. But as a starting point, the Zestimate provides precious little help in that regard. Sure, if it is incorrect about some of the few public records characteristics, example age, number of bedrooms, square footage, adjustments can be made accordingly. There is a process for correcting such misinformation on Zillow, but outside of that, the Zestimates allegedly based on millions of data points, unquote. Now, my comment, how is that possible? Millions of data points? Are you freaking kidding me? Okay, millions of data points, what the heck does that mean? I mean, does it mean that because you had a listing that sold in Atlanta, Georgia, that data point is influencing the listing in Los Angeles, California? What does that mean? I mean, millions of data points, does it mean that it's taking the value from millions of transactions that happened in that price point, in that city, in that neighborhood, you know, over the last five years? I mean, what does that mean? That can't possibly be true. Okay? And by the way, always, if you have any comments for me, just go to jasonartman.com and use that little voicemail feature. Make a comment, okay? Because I'd love to hear your comments on any of this stuff that we talk about on the show. Or your questions, of course. And I know we've got some questions that have accumulated. Thank you for posting them there and I will get to them, I promise. Okay? So millions of data points back to the article provide no help as a so called starting point, that is because Zillow doesn't say what those data points were or how they were factored into the result. Very, very fair point, author Bob Hunt. Okay, very fair point, okay? If you have a disagreement with a CMA or even a full blown appraisal, you have something in hand that you can work with what comparable sales were used. See, on an appraisal, it shows the data points. On a cma, it shows the data points. My words. Okay, you know what they're getting it from and you can evaluate that in your mind. You know what might have been overlooked, right? How much value was attributed to this feature or that features are features of the comparables View street location adjusted for in an appropriate manner. A Zestimate doesn't allow for those questions to be asked. That is because you don't know what data the zestimate was based on, nor do you know how adjustments were made. So what help is that in a starting point, you just have a black box with a number on its output screen. Good luck with that conversation. Now, Bob Hunt, the author, is a director of the California association of Realtors. Okay. And author of the book Real Estate the Ethical Way. So, you know, I think he brings up some good points. And at the very least, as good as these valuation sites like Trulia, Zillow Flow and the rest of them are, considering that they're remote and they don't see the property, it really is pretty amazing that they can do what they do. But for us to evaluate something, they should disclose the data that is being used and they should disclose how it is factored in how it's weighted into that valuation. And that is an incredibly good point. So I couldn't agree more. So it's an amazing time to be alive. I always say that. Couple technology things. Ray Kurzweil, I'm really enjoying his book, the Singularity is Near. It's fascinating. And he talks about how in just five years, in 2020, a $1,000 computer, if I get this right, okay. Because he's made several kind of complex predictions, but basically, in five, $1,000 computer will almost be equal to the power of one human brain. That's only five years away. We'll see if that comes true. But he also talks about how in 10 and 15 years, the $1,000 computer, always the same price. I'm sure he's adjusting that for inflation, in his example, will be equal to an entire village of people's brains. So the exponential explosion in technology is going to benefit us all in so many ways. But it's not all good. Because one thing that really bothers me and concerns me are these drones, as cool as they are. And I'm not talking about military drones, which, by the way, another one of my predictions is coming true. Yes. That is the US is allowing the Sale of armed drones to other countries. Okay, now this, in my opinion, is not good news, okay? But remember, I predicted a long, long time ago the six ways the US would get out of the mess it's in. And the mess is referring to the debt. And one of the ways is to have a garage sale. You know, selling fighter jets to Libya years ago. I mean, insanity, of course. Okay, that was up. Selling the ports to Dubai, that was up for discussion with. Fortunately, that one didn't happen. Now, we are going to allow the sale of military drones to other countries. And I bet these countries will be not necessarily just our allies. See, I wouldn't mind if, you know, we sell them to Australia, New Zealand, England, Germany, you know, other European countries. But I bet you a lot of these countries will be marginal because this is a slippery slope. So. So we shall see where that goes. But that's part of that whole garage sale issue. But I wasn't talking about those kind of drones when I mentioned it. I'm talking about small commercial and recreational drones. You know, the ones you and I can buy. Right? There is a new website. You got to check this out. I just thought it was really ingenious. It's called noflyzone.org where you can put in your property address. They say participating drones and drone pilots will not fly over your property and invade your privacy. So, you know, this is obviously a huge double edged sword and we'll see where it goes. But you know, at least there's a website. It's kind of like the do not call list, which I think is do not call.gov or something like that. Right? You can be on the do not call list. That's interesting. Now granted, of course, the line of sight is so big that flying over your property may not even really matter because the drone could be over the property next door and its camera could see everything going on in your property. It doesn't have to be directly over your property. Right? So, you know, anyway, it's something, it's kind of interesting. And in other news, technology wise, you can up your game. You'll be happy to know if you take selfies, if you, if you like to take a selfie of yourself occasionally, you can now up your game because you can take a selfie. And there's a new program that will create a 3D statue of you from your selfie.

It's an amazing time to be alive. Okay, be sure to get the last few remaining copies of our physical Meet the Master's home study course. Go to jasonartman.com I bet you when I get back home we are going to be completely out of those. I'm going to have to ship them off with tender loving care and they're going to be gone. So for 197 bucks, deeply discounted. Remember, the digital product where you don't get a physical product is $500. This is only 197. Okay? It's never. This is bass ackwards. The physical product is never cheaper than the digital product, but it is because we just want to blow these out and get rid of the last remaining ones. So take advantage of that. I appreciate you reviewing the show, telling your friends about the show. Please make sure you're subscribing so you don't miss any episodes and we would totally appreciate your review. On iTunes, Stitcher Radio, SoundCloud, wherever you're listening, there's so much to talk about. I want to talk about private lending. I want to talk about some management stuff on upcoming episodes. I want to talk about fake podcasters. I got some interesting news there for you, which I think you'll want to know about. If you're listening to different podcasts and so forth. There's some great stuff coming up, but in the interest of time, we've got to get to our guest. So Dr. David Goldberg, let's listen in. Here he comes.

It's my pleasure to welcome Dr. David E. Goldberg to the show. He is emeritus professor of engineering at the University of Illinois and he's the author of several books starting way back in, I believe, 1989. Just a couple titles here for you. One we're going to talk about is A Whole New Engineer, the Coming Revolution in Engineering Education, the Entrepreneurial Engineer and the Design of Innovation. Lessons from and for Competent Genetic Algorithms. This is interesting stuff, folks. So even if those titles don't sound super interesting or maybe they sound nerdy, stick with us because you're gonna like what Dave has to say.

Dave, welcome.

How are you?

I'm great, Jason. It's really good to be with you.

Well, the pleasure is all mine. And I had to say that for our non engineer listeners, of which I am one.

I guess I don't know what we should talk about first.

We've kind of got two broad topics I really want to cover in this interview. I really kind of want to talk first about your renowned research and expertise in the field of AI or artificial intelligence. So many people nowadays are talking about the singularity. Maybe for those who don't know, you can start off by Explaining what that is.

Yeah. So there's this idea that technology is accelerating so rapidly that we're going to come to a point where it overwhelms us and perhaps takes over from us, and that's this singularity. And whether or not we believe in that, it's pretty clear that technology is accelerating and becoming ever more important in our lives. And so people who know my recent work on engineering education reform may not know this background that you alluded to in doing artificial intelligence back in the.

I'm a trained civil engineer that migrated into computer science, and I got to the pleasure as part of my dissertation work to do some work on something called genetic algorithms or evolutionary computation. And you can give a.

A really simple cocktail party explanation of it. It's the idea of using Darwinian survival of the fittest on the one hand, and ideas from genetics, like the idea of having a chromosome and the idea of using mutations and crossover recombinant DNA, if you will. And you take those two things, throw them into a computer, and so instead of designing by hand a jet engine, you would create a chromosome that represents different jet engines. And mom jet engine, and dad jet engine would get together and have baby jet engine. And over time, you would evolve generations of better, more efficient jet engines. And this isn't science fiction. This is something that has been used by General Electric to evolve jet engines, or companies in Japan to evolve production schedules for steel plants. And even people have used genetic algorithms to evolve music and art. So it's very cool stuff.

That is fascinating. Fascinating. So is this considered, you know, the singularity? Is this bioengineering? I mean, I'm quite fascinated with the idea of 3D printing of kidneys and whatever else we might need.

Yeah, well, so you can use. So genetic algorithms can be separated from biological applications. But of course you can. So you're using the idea of genes to create an artificial genetics that helps you evolve the solution to whatever problem. But of course, you can turn that on biological problems and use genetic algorithms to evolve solutions to the design of all kinds of things. If you think about things like nanotechnology, for example, nanotechnology you've got. And biotechnology, for that matter, you've gotten perhaps thousands or tens of thousands or millions of decisions to make in designing.

An artificial kidney, to use the example that you're talking about, to do that by hand is impractical.

But nature's been doing this for three and a half, four billion years in this way. And so we use nature's algorithm of choice for evolving and Solving hard problems, and voila, you end up with pretty good solutions. And not in billions of years. We're doing this on computers. We're doing it real fast. We can do it efficiently.

Some of the work that I did was instrumental in helping us understand how quickly we can evolve solutions to how complex of a problem.

How much of this can we actually do now? I mean, we're growing ears and body parts in labs.

Right.

And when do you call this cloning and when do you call it engineering?

I don't know.

There's like this blurry line. I don't exactly understand what to call things anymore. Yeah, I guess that means we're approaching the singularity, right?

Well, I'm not sure about that, but. So I think you can.

So when you're a scientist or an engineer and you're involved in these kinds of projects, you.

When you're on the outside looking in, things look a bit magical and a bit mysterious. When you're on the inside using these algorithms, you know, they work for good reason. And.

These designs come out and you test them and they have. And if they function according to plan, you know, they're doing something good. So.

So when you're in the middle of it, you can assign causality or, you know, why things are working for the most part. So it's not.

You know, some of the hype around not knowing is maybe a bit overblown.

Yeah.

Really, this is just incredibly fascinating stuff. You know, can you speak at all? This is probably not your area, but I just thought I'd ask.

Sure.

You know, about what this stuff means.

To us, what it means to the.

Economy, what it means to society as a whole. And then I, of course, want to ask you about the education side, which is fascinating too.

Yeah. So it's.

I think you started off right by saying it's not my area.

And when we look back on prognostication in eras that were much more slower moving than ours, those were almost. That kind of prediction was almost always wrong.

In profound kinds of ways. So it's, you know, that's one of the things that's so interesting about human creativity.

And now with these kinds of tools and the kinds of leverage that we have, it's perhaps even more difficult to predict.

What these things.

What these things mean to us. But it seems to me that these innovations get.

Baked into systems in ways that we're not even aware to a certain extent. Some of these advances in machine learning and artificial intelligence are already being baked into it systems that we use on a daily basis. And more of that, more of that's coming. And as you say, there are these.

Nano bio kinds of technological designs that are intractable without using tools like this. So things like this are either here or on the way. And I think.

They will continue to provide opportunity. And there's also a negative side and there's the potential for doing harm.

And so there are ethical questions.

In the degree to which we use these technologies and we know what they're producing and the side effects of the things that we're producing and the extent to which those are predictable or not. So they're very real questions about sustainability and growth and the ethics of using these kinds of, of technologies. And there are no simple answers. There are no answers like.

Putting your hand up against history and saying stop, that doesn't work very well.

And then on the other hand, fully laissez faire and unregulated trials of say, various kinds of genetic outputs could be very dangerous to us. So that's in many ways the reasons why we need to broaden the education of scientists and engineers in this century.

Yeah, absolutely. One of the areas where I think this has just fascinating wide ranging impact is in the field that is, it just seems like it's booming right now. And that's the area of longevity sciences. You know, the fact that we may be, I don't want to say the fact, but the very real possibility that we may be on the verge of crash, lacking the immortality code. And I don't mean immortality in its purest sense. That might be, you know, maybe, well, maybe it might never happen. But you know, certainly some major, major advances in the field of longevity are seemingly pretty close. You know, I, I study this stuff and I find it fascinating and think.

About what that means to the economy.

Think about what the, what that means to the Social Security system, the retirement age, the sustainability. I mean, you know, I always like to give environmentalists a hard time when they're telling everybody else what they should do. The fact is that everybody alive and the fact that they are alive, they are consuming resources. You know, that Malthusian idea that people are just not a resource, they're just a cost only.

But you know, people solve a lot.

Of these problems that they do create. We'll see where that balance goes. But just in the area of longevity alone.

Wow.

Yeah. So I agree and I share. I mean, there is a sense sometimes, if you listen to people who are speaking strictly from an environmental or sustainability perspective, that.

Everything'S a cost and everything's a resource and it tends to ignore the innovative capability of human beings. And I think I agree with you that it's a mistake. It's a huge mistake. And it's one of the ways in which, which predictions are wrong. Predictions can either overshoot and undershoot and there's oftentimes.

A tendency to over predict harm. I mean, so when was the last time you saw an optimistic science fiction movie where the future looked more interesting and bright than the future that we have? And yet.

In many ways.

If you look back into the 40s or 50s and project forward, that's the lives, those are the lives that we're living right now. And they are in many ways are brighter.

And things are more optimistic than people projected back then.

Yeah, yeah, they certainly are. Very interesting. Well, what's going on in the field of engineering education? You know, I have, with the exception of, you know, the many stars of engineering, mostly in Silicon Valley, I guess that you hear about the people that got into startup and made it big and so forth.

You know, it doesn't seem like engineers.

Are really very well paid on the whole. And I think that's kind of unfair because everything we look, we look around, everything we use all day, it's the result of some brilliant engineer. And there was this funny commercial, I.

Wish I could remember what it was for.

You probably know what I'm gonna refer to here. You know, it had these rock stars and all the women were tearing their shirts off. And then it had Indian engineer guy that invented USB and it's flipped the world around. They should be tearing his shirts off. That's something we use every day.

Right.

And you know, it's just kind of funny how our culture doesn't seem to allocate the recognition and maybe not the pay correctly. Your thoughts?

Well, so there's an ebb and flow in history to how engineers are viewed. And so if you dial that, you go back in the time machine to the 1800s, there's this period where engineers were rock stars. And I mean we talk about electrical engineers and computer scientists now, but think about the late 1800s. Maxwell's equations have just come out. So people are predict and some of the first results on magnetics and electromagnetics are outradio just come out. And so there were all kinds of companies started and engineers were really stars.

And not just electrical engineers. Civil engineers built bridges and buildings and ships were built of enormous, unprecedented size. So there was this sense of the emergence of large scale technology and the emergence of large scale business, which engineers were at the center of.

There's a terrific history of large scale business in the United States.

The Visible Hand by Alfred Chandler. And he talks about, well, who invented modern business enterprise? And it was the civil engineers who started the railroads because they were the first people to work across vast distances and they needed a different kind of organizational structure. And so they made up modern, modern business enterprise. So there's a sense of excitement back then, which then got squelched in World War I and II. And there's this phrase that philosopher Stephen Goldman uses. He says engineers became socially captive in World War I and II. And I think that's a good description. And so engineers, so these large, very large, vertically integrated, return to scale kinds of companies were built and engineers were worker bees in those companies. And that continued and was really sort of reached its apex just Post World War II and the Cold War.

So what you're alluding to in Silicon Valley is a phenomenon between the end of World War II and what has happened now. And, and if you, I call them the three missed revolutions. We had the quality revolution where statistical quality control went to Japan, came back, and the Japanese beat us around the ears with it.

The entrepreneurial revolution of various garages in Silicon Valley and the IT revolution.

From the microchip to the personal computer to the Internet. Internet. And so here we are in the opening moments of the 21st century, and we live in this really different place.

Where once after World War II, we wanted obedient engineers to shut up and sit down and do what they were told. And now we want the next Steve Jobs who wasn't an engineer, but we want our engineers to be that guy or that gal who starts the next, next great tech company. And many of our young people, many of the students going into engineering, have those aspirations because they see these role models out there.

Okay, so why is engineering education, why is it so important to our economy?

Well, I mean, so again, if you, you know, so There are roughly 2 million or so people in the US who call themselves engineers, or about 4 million or so who are in mathematical and computer science. So, I mean, it's a pretty big part of the workforce. But if you stand back from it and say, look, we're on this planet, we got 7 billion people on this planet and more coming, and you just do a fundamental analysis of the situation and say, all right, well, what would happen if we did like some people would have us do and turned off the technology? Where would we be? Well, it's hard to know exactly, but, but if you dial back to the days when there was Only crude technology like agriculture. If you go back before crude agriculture, say, dial back 6, 7, 8,000 years or so, what do you got? You got about 100 million people on the planet. So roughly speaking, 6.9 billion of us owe our existence to the technology that's been developed since agriculture. So turning off technology isn't an option. Keeping it going and having it function well and better.

And serve us better as human beings is even more important than ever. And so in that very fundamental sense, having the next generation of great engineers be chosen from amongst our best and brightest is really important.

Yeah, it certainly is. I have always thought that engineering was a very, very important career choice. I appreciate engineers like crazy. You know, you look at it compared to the. How they're getting sucked away into the game of Wall street. And what was that movie called? Margin, or now, I can't remember the name of the movie, but it was.

A couple years ago.

The founder of this huge brokerage firm depicted in the movies, probably Lehman Brothers. They were depicting, I'm not sure, comes in at midnight, asks this young kid, you know, who was at Quant, who just figured out this. This whole situation they had that nobody else saw in the company managing the risk. The billionaire head of the company says, so, you know, what's your background, kid? And he says, oh, well, you know, I have a PhD and blah, blah, blah. And he says, you know, basically what that means is I'm a rocket scientist. And he says, well, what are you doing here? And he says, well, you know, Wall street pays a lot better than engineering.

And I think that's a sad commentary.

I really do well, and it's interesting. And if you talk to kids today, the students today, the motivations aren't entirely financial, but.

If you factor in the fact that engineering is itself fairly uninviting and there's this possibility of a larger paycheck, it's hard to fault people. And it's not just an American problem. One of the interesting things we found out in, in researching the book is I had the pleasure of spending time working on engineering education change in Singapore. And so we often think of Asia as our. Okay, if we don't generate enough engineers in America, well, at least we can always turn to China and India and they'll give us the millions of engineers that we need. But even in Singapore, Singapore is the canary in the Asian coal mine for engineers. I was working at the National University of Singapore, and one of the things the engineering dean told me was that it used to be that engineering was the number One choice of young people going and accepted at nus, that's where you went. And many of the people in government were engineers. Many of the people in the top jobs were engineers. Engineering was respected. But they too have fallen on this kind of sense that.

Almost anything but an engineer.

And it seems as though when countries become sufficiently affluent, kids want to do something other than become engineers. And so one of the things that.

We needed, the distinction is, though, with that Wall street example I gave, is that the financial engineers and the financial innovators on Wall street are really just leeches on the economy. Economy in almost every case, in my humble opinion. Disagree with me if you like, but all they're doing is finding ways to move things around and relabel things and, you know, cut things up and make derivatives out of them. They don't actually create anything anymore.

Okay.

You know, granted, companies need capital to grow and thrive and so forth. So conceptually, I don't have a disagreement.

With the idea of, you know, capital formation in the stock market, of course.

But it's just become such a corrupt, you know, as I always say, the modern version of organized crime.

Well, I would agree that there are excesses. I guess I would disagree to the extent that all of that activity. So the efficiency and capital is important. And I personally know hedge fund managers and.

People who work with businesses to help restructure them and make them more efficient.

Yeah, I get it. I have investment banker friends too, and hedge fund friends too. But I don't know, it just like the real value creation is when you create something new out of thin air and it changes everybody's life.

That's like actual value.

Of course, you need capital to do that many times. So I get it. There's a middle ground.

Well, and I think of, you know, so I think if you go back. So again, go back in our time machine to the invention of securities, back with the Dutch example. And I think it's the early trading companies. And so the whole capitalism is actually a fairly early invention. And remarkably, it's actually remarkable how little we teach about capitalism and its history. And. And many of the objections to capitalism are objections that were held back in the 15 and 1600s when it was first emerging. And we seem to be in the same argument over the course of centuries.

But.

I am a complete capitalist, don't worry about that.

But those things, the idea of the invention of shares and selling shares and having markets and the efficiency that that brought to capital and the way that it allowed business to scale.

Was the kind of invention that you were talking about.

Got it. Got it.

Yeah. Okay. Well, we don't need to debate that one, but.

I get it.

I want you to give out your.

Website and then just ask you for some closing thoughts.

Sure. So.

The website for.

For our work on changing engineering education is www.bigbeacon.org. and.

There'S a movement to transform, to transform engineering education to help bring about engineers that can face that. We've been talking about the ways in which our times have changed and.

How do we.

We educate, really, how do we unleash the courageous engineers that we need for this century, is what the big beacon is all about. And the book is called A Whole New Engineering.

Yeah. And I hope that has an impact on things and we see a lot more people getting into the field because as I mentioned, I think it's just incredibly important. So.

Yeah, good stuff. Good stuff.

Any closing thoughts? Anything? I didn't ask you. You didn't happen to say just to wrap it all up for our audience.

Yeah. So I think in terms of the kinds of.

The key and one of the big surprises in what we found in working on education today was the sense of empowerment that we give students. And it really comes from three things. Trusted students. When students are trusted by faculty or other students, students, they end up finding the courage to take initiative, which leads to real learning. And that's the emotional equation that leads to the kind of learning that we need in this century. And I think that's a message that doesn't just apply to engineers. It applies to all kinds of entrepreneurial thinking. It applies to the kinds of opportunities that we face in this century. So that equation from, from trust to courage to initiative seems to be the kind of unleashing reaction that we're missing in education generally and that we need to get into it.

Yeah. Good.

Good stuff. Well, Dave, thank you so much for joining us today and talking about some of these issues. As I always say, it is an amazing time to be alive. I think the next five, certainly the next 10 years are going to blow our minds, quite literally. It's. We're going to have some amazing stuff coming down the pike. So it's really exciting. It really is.

And I couldn't agree more. Thanks, Jason, for having me on the show, everybody.

That's David E. Goldberg, emeritus professor of engineering at the University of Illinois and the author of the several books that we mentioned.

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