G100 Network Notebook | June 2012

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The Collapse in Trust

Over the last few years, Economist Tyler Cowen has emerged as one of the most astute observers of business and economic life.  In his most recent New York Times column, he makes the case that distrust in government has become the prevailing force in American economic policy:

Various policies that are being put on the table, including forms of fiscal and monetary stimulus, try to accelerate this repair process. They would all be likely to underperform, partly because the public, rightly or wrongly, doesn’t see them as ways to rebuild confidence. We have become skeptical of our own macroeconomic authorities and abilities, and that, in turn, makes successful policy harder to pull off.

Learning from Start-Ups:  Why Business Failure is Normal

NPR interviews leaders from Silicon Valley to understand why failure is both common and celebrated in the tech world.  Featured is Paul Graham, founder of Y-Combinator, the most influential “boot camp” for start-ups.  Graham believes all start-ups are potential failures:

You might wonder why ships have bilge pumps to remove water from below the deck. …Why don’t they just make one that’s waterproof, right?  And the fact is, one way or another, all ships take on water … and one way or another, practically all startups internally are disasters. And they just hide this from the outside world.

Should Germany Leave the Euro?

Citadel CEO Ken Griffin makes this “inconceivable” case in the New York Times that Germany ought to return to the Deutschmark:

Like Britain, Germany can be part of the European Union without being part of the euro.  What is essential is the preservation of the European Union’s greatest accomplishment:  the free movement of labor, goods and services.  Germany alone has the ability to end a dysfunctional monetary union and to bring prosperity back to Europe.

Celebrating Buffett – and Doubting Him

Someone has distilled hundreds of pages of Warren Buffett’s annual letter into an 81-page book of principles, lessons, and quotes.   Buffett himself says that the book “sums up what Charlie and I have been saying over the years in annual reports and at annual meetings.”

Nowadays, not every Berkshire investor is still happy with the Oracle of Omaha.  In an overview of “the world’s most respected companies,” Barron’s reports on one dissatisfied investor:

Says Adrian Day, president of Adrian Day Asset Management in Annapolis, Md.:  “Buffett’s pseudo-folksiness is just a little too much. Also, I can’t respect a company whose head wants to raise my taxes.”

Work Doesn’t Happen at Work 

An amusing but deeply serious TED talk from a few years ago that remains relevant:

why it has become so hard to get work done while “at work.”  Understanding how companies are increasingly productive through collaboration and technology will be one of the key topics for today’s talent leaders.

Why Bipartisanship is Not the Solution

One of the best contrarian arguments of this political season:  veteran blogger (and political centrist) Mickey Kaus makes a powerful case that the country’s toughest problems cannot be solved by compromise and bipartisan bonhomie.   It requires one side to win the argument and the other side to be defeated:

The anti-polarizers’ fallacy is that progress is always achieved in the center. Sometimes that’s true (e.g., the 1983 Social Security fix). But equally often progress comes when one side convinces voters and defeats the other side.  Sweeping Democratic victories in 1932 produced the New Deal. A lopsided Dem majority (plus reaction to the JFK assassination) gave us civil rights laws, Medicare, and the Great Society. None of those were compromises.  They made some people really angry!

The $100 Billion Shale Surplus

A new academic paper from the Yale Graduates in Energy Study Group called “The Arithmetic of Shale Gas,” is a devastating rebuttal of the New York Times’ recent editorial that argued that the costs of extracting natural gas may outweigh the benefits for some states.  The paper demonstrates just the opposite:

Using the economic tools of traditional cost benefit analysis, we demonstrate that for one given year, 2010, the consumer surplus from shale gas is in excess of $100 billion to the US economy. The benefit to the US economy of replacing 1.0 million bbls per day of oil consumption with the BTU equivalent of natural gas is in excess of $25 billion.

Digital Technology as a Driver of Growth

Under CEO Angela Ahrendts, Burberry has doubled sales since 2007 and seen its stock rise 300 percent.  This profile in Fortune ascribes the success to a deliberate decision to move the once-stodgy luxury brand into the digital world:

The approach makes Burberry a standout in the luxury business, which has historically shied away from technology for fear of eroding its aura of exclusivity. “What they’ve done, that no other organization in the fashion industry has done, is put a relentless focus on digital innovation.”

Technology is both disrupting businesses and creating huge opportunities.

Summer Reading

Three books to read over the July 4th holiday and through the summer:

Judgment Calls:  Tom Davenport (who spoke to us about data analytics) and his co-author, Brook Manville, look at a dozen cases where organizations had to make big decisions.  The book doesn’t just examine the outcome.  It analyzes how teams reached final decisions and what influenced them.

The Founders of Finance:  A long overdue history of the origins of the American capitalist system.  Looks at how Alexander Hamilton and Albert Gallatin (and others) created the first market system for banking, loans, currency, and credit.   Author Thomas McCraw argues that that because immigrants like Alexander and Gallatin weren’t raised in a slave society, they could develop a more far-reaching vision of how a modern economic system should work.

A Capitalism for the People:  University of Chicago economist Luigi Zingales argues that the roots of American capitalism – competitiveness, populism, mobility, and trust in markets – are being replaced by a more corrupt European version.  Part economic history, part philosophy, part clarion call.



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