February 12, 2008 9:56
The myth of the frequently posting blogger
I know, I know, I promised to make no more mention of The Myth of the Rational Market until I had finished the manuscript. But my failure to finish things up over the past few weeks has motivated me to take the rest of this week off to work on it. So apart from maybe a photo or two, or any cool discoveries I make while delving through the notes for my book, I won't be posting much this week. And then I'm going skiing next week. I may still try to line up a guest blogger (what are you up to, Gimein?), but no guarantees.
I do guarantee that, once the book is in, I'm going to think a bit harder than I've been doing about how to make this here blog an entertaining and useful place for readers. So if you've got any suggestions, leave them in the comments or email me: capitalist at timemagazine.com.
February 11, 2008 7:35
Capital One offers five horrendous ideas for spending borrowed money
This was part of a mailing full of blank checks that I got from credit card purveyor Capital One on Saturday. By my reckoning, only one of these proposed uses of credit ("Build a deck") is a genuine capital expenditure. Four more ("Have your house repainted," "Buy a new TV," "Join a gym," and maybe "Update your wardrobe") have some lasting value and thus aren't crazy. The rest are things that are entirely inappropriate to go into debt for: "Put some extra cash in your pocket," "Host a party," "Put a down payment on that convertible you've been eyeing," "Get courtside seats," "Take a vacation (you deserve it!)"
What Capital One is doing here is equivalent to Anheuser-Busch sending out mailings encouraging customers to drink till they puke. Funny thing, though: Anheuser-Busch doesn't send out mailings (or run ads) like that! If they did, they'd get into all sorts of trouble, both legally and in the court of public opinion.
Which makes me wonder. Why exactly is it that we don't subject financial advertising to the same level of scrutiny we give to ads for alcoholic beverages? It's not like the product is any less dangerous.
Update: In the comments and on his blog, Mike Moffatt makes the good point that the ads for state-sponsored lotteries are if anything even worse in this regard. Also, economists are beginning to look closely at what works and what doesn't in our regulation of alcoholic beverages. Duke's Phil Cook (co-author of the definitive economic examination of state lotteries) has a new book on the subject, Paying the Tab: The Costs and Benefits of Alcohol Control, an excerpt from which can be read in the January 2008 issue of the Milken Institute Review (sign-in required). There might be lessons there for how we ought to deal with overeager debt salesmen.
February 8, 2008 4:02
Craig Newmark has a bright future in advertising, and Spotme is still cool
Craig Newmark is a big fan of Dove's Campaign for Real Beauty, which aims to fight the insanity of the beauty-industrial complex while selling lots of cleansing products. Such a big fan that he says he's offered some advice to the people at Unilever/Dove and its ad agency, Ogilvy and Mather:
Take an ad in a fashion magazine, like Vogue, and say, "This Magazine is a Lie."
Ogilvy global managing director Mike Hemingway didn't appear ready to get quite that genuine. He and Craigslist Craig were on a panel this morning at the Brite (for branding, innovation, and technology) conference at Columbia. I only stayed for the first panel, but somebody named Amanda Mooney is Twittering the whole event for the world's untold millions of marketing-conference addicts, in case you're interested.
Hemingway said lots of Cluetrain Manifesto-ey things about how the Internet was bringing genuineness back to marketing. "Creativity is back, humility is back, respect is back," he intoned at one point. I liked Newmark's version better. He mentioned Full Frontal Scrutiny, the new Consumer's Union/Center for Media and Democracy effort to expose "astroturf" corporate front groups, and said, "It's gonna be harder to be phony."
I wasn't actually at the conference to hear Newmark or Hemingway, though. I was there to see Bänz Ledin and play with the latest generation of his Spotme handheld devices. They're designed especially for conferences, and allow you to look up everybody else who is at the conference, see what they look like, check if they're sitting next to you, and even set things up to alert you when somebody you want to meet comes near. They're a remarkable mix of online social networking and actual physical social networking.
I was present at the very first conference where Spotme was used, in Switzerland in 2001. I wrote about it for my bloglike fortune.com column London Calling, which in its infinite internetty wisdom Time Inc. has long since erased from the Web. (I've been able to find references to it on the Wayback Machine, but never an actual London Calling page.) I do still have most of the actual texts on my computer, so whether you want it or not, here it is again:
I can't decide whether this was really cool or just weird. So I'll describe it: I'm sitting on a bench at the University of St. Gallen in Switzerland last Friday, checking out who's around me. There's a guy from the American Stock Exchange, a couple American students, a St. Gallen student, a Swiss banker. I know all this without even looking up--the information on the screen of a little device called spotme that made its debut at St. Gallen's annual big event, something called the International Students' Committee Symposium.The spotme tells me who's within range of its "radar"--dividing them into those one to three meters away from me, three to seven, and seven to 20--and lets me look up their photos, job titles, and addresses. I can also put it on the lookout for someone I want to find, and the device will start shaking when they get close.
None of this technology works perfectly yet: You usually have to click on "radar" a couple times before you get an accurate reading, and the shaking-when-it's-found-somebody function is less than reliable. And, of course, everybody around you has to be carrying a spotme for it to work at all.
But still, for a 10-employee company from Lausanne (it's called Shockfish, www.shockfish.com) that I doubt spent much more than a million dollars developing the thing, it's pretty impressive. Especially since my one experience with anything remotely similar was down the road in Davos in January, where Compaq, Microsoft, and Accenture equipped the movers and shakers at the World Economic Forum with iPAQ handheld computers with wireless connections over which you could send messages, check your personalized conference schedule, and even, of you knew how to hack past the conference software, browse the Web.
The iPAQs clearly did a lot more than spotme (although Shockfish is hoping to add messaging and personalized schedules before long). But they were also a loss leader. The companies involved spent millions of dollars (2,000 iPaqs at a $500 each adds up to $1 million right there, and that doesn't count the servers, wireless transmitters, and brigades of guys and gals standing ready to help when yours crashed) in an effort to make the world's top executives familiar with the possibilities of a new product, one that they were allowed to take home with them after the conference.
Shockfish's business plan, on the other hand, is to rent its devices out to conference organizers (and maybe cruise-ship operators) and make enough money doing that to pay the bills. I know that because I sat through an remarkable session at the ISC Symposium where the company's co-founder and chief operating officer, Bendicht Ledin, sat next to one of its angel investors, Heinz Winzeler (who runs a private equity firm called M2 Capital Partners, but has invested his own money, not his clients', in Shockfish) and the two of them talked about their plans and hopes.
Ledin spoke pretty eloquently of the company's philosophy of keeping its product as cheap and simple as possible, and of how for the moment it's avoiding standards like Bluetooth and the Palm OS because he and his colleagues simply want to focus at first on creating a product that people will use, and adhering to such standards would only slow that process down. Then Winzeler told how he'd been impressed by Ledin and his colleagues because they didn't overpromise--and so far they've delivered.
A skeptical questioner from the audience (an old friend of Winzeler, it turned out) pretty quickly hit on an obvious conflict. Renting out spotmes at conferences might be good little business, but it was never going to be a huge one, which meant it would be hard to take the company public. And wasn't taking a company public the goal of all self-respecting venture capitalists and even angel investors? Winzeler's initial response was a bit defensive--he said he assumes Shockfish will eventually come up with more products, then reminisced wistfully about the IPO market of 18 months ago. Then he admitted that, yeah, this was an issue. But so far Shockfish's management team has met every target it set a when it got funded a year ago, Winzeler said, adding that before too long the company's founders might be able to afford to just buy their investors out.
I asked a bunch of questions during the session, and when a couple hours later I ran into Shockfish COO Ledin in a hallway, he seemed very eager to talk to me. At first I figured that was because I'm a business journalist and he wanted publicity. That's what all tech startups want, right? But no; I'd let slip that I'd used one of those iPAQs at Davos, and Ledin wanted to know, in great detail, how the thing stacked up against his spotme.
Let me get this straight: A tech company of very modest ambition, with an angel investor who's not expecting a big score and a top executive who seems obsessed with finding out what customers actually want. Now I don't know if all this is a post-crash thing, or a Swiss thing, or a Heinz Winzeler and Bendicht Ledin thing, but I have to say I like it.
February 8, 2008 12:38
New column: Do presidents matter to the economy?
I have a column in the new Time with Hillary C. and Barry O. on the cover and online here. It begins:
For decades, scholars have been churning out studies on the impact the economy has on presidential elections. The not-very-surprising message of most of them: economic trouble is bad news for the party that occupies the White House.The seemingly far more important question of what impact Presidents have on the economy has been studied less, with far less conclusive results. See, it's not just journalists who obsess over campaign horse races and neglect issues. It's economists and political scientists too.
The reason is that separating cause and effect on Presidents and the economy is hard. Yes, over the past half-century, Democratic administrations have seen faster economic growth--and better stock-market performance--than Republican ones. But the sample size is so small that you really can't rule out luck.
A perhaps more solid result, because it jibes with the parties' priorities, is Princeton political scientist Larry Bartels' finding that income inequality increases more under Republicans than under Democrats. But a case can also be made that it doesn't matter who's in charge. A study of political leadership and economic growth around the world by economists Ben Jones of Northwestern University and Ben Olken of Harvard found that changes at the top made a big difference--but only in dictatorships. Read more.
The Larry Bartels study can be downloaded here and the Jones-Olken study here. The best-known studies of the impact of the economy on presidential elections are those of Yale's Ray Fair, which you can read all about here. Fair even has a calculator that lets you type in your guesses about inflation and GDP growth leading up to the November election and generate your very own election forecast.
As for my contention that "over the past half-century, Democratic administrations have seen faster economic growth--and better stock-market performance--than Republican ones," it was actually supposed to be changed to "since World War II," but that got lost in the shuffle. I'm pretty sure it's true over both time periods, though. The evidence for the former comes from the book Political Cycles and the Macroeconomy by Alberto Alesina, Nouriel Roubini and Gerald Cohen. There's also a review of the matter in this paper by Allan Drazen. On stock market performance, there's "The Presidential Puzzle: Political Cycles and the Stock Market," by Pedro Santa-Clara and Rossen Valkanov. Another recent paper by Erik Snowberg, Justin Wolfers, and Eric Zitzewitz finds that the stock market's immediate reaction to Republican election victories is strongly positive, but they don't know if that's because investors are deluded or because they know something about future Republican vs. Democratic policies that no economist can quantify.
On economic growth, I'm willing to buy that, up through the 1970s, there might have been a clear cause-and-effect relationship, given that Republican administrations were more likely to push for balanced budgets and other austerity measures that would slow growth in the short term. But the GOP discovered the joys of deficit spending in the early 1980s, and I really think the dramatic economic outperformance by the one Democratic administration since then was more a matter of lucky timing than anything else. I do think the Clintonistas did a good job of adapting their policies to the economic environment, which hasn't been so much the case for Bush 2. But that environment wasn't Bill Clinton's creation.
February 7, 2008 1:16
Americans aren't the only people who've been running up debt
The WSJ has a story today about how the global credit crunch is pounding the UK economy. One passage caught my eye:
According to the most recent data from Paris-based Organization for Economic Cooperation and Development, total consumer debt in the U.K. stood at 164% of annual disposable income at the end of 2006, by far the highest level of any developed country. In the U.S., that number was 138%.
That sent me to the OECD's website to see where other countries stood. I couldn't find figure out how to get the 2006 numbers (and the folks in Paris have surely headed home for the night), but I did find a report (pdf!) with 2005 (and in a couple cases 2004) numbers:
Household debt as a percentage of disposable income
Denmark 260%
Netherlands 246%
New Zealand 181%
Australia 173%
United Kingdom 159%
Ireland 141%
United States 135%
Sweden 134%
Japan 132%
Canada 126%
Germany 107%
Spain 107%
Finland 89%
France 89%
Italy 59%
So the U.S. is just middle-of-the-road among wealthy nations as far as consumer indebtedness goes. I'm not sure whether I find that reassuring or disturbing.
About The Curious Capitalist
Justin Fox is TIME's business and economics columnist. This is his blog. About the Author
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