G100 Network Notebook | March 2012

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A monthly memo of news and noteworthy reading for G100 members from Daniel Casse, President.

It’s Time to Clean House

Philip K. Howard, longtime enemy of America’s growing legal colossus, forcefully lays out the case why America has too many laws – and then offers four solutions:

Congress treats most laws as if they were the Ten Commandments – except they’re more like the 10 million commandments. Most legislative programs do not codify timeless principles of right and wrong. They are tools of social management. These laws allocate social resources – almost 70 percent of federal revenue in 2010 was consumed by three entitlement programs enacted a half century or more ago. Congress almost never goes back to rationalize these programs. Running government today is like trying to run a business using every idea every manager ever had.

Can Britain Afford the Olympics?

This week, the OECD reported that the British economy has fallen into recession.  Veteran Financial Times columnist John Kay makes an argument that will be echoed in the months ahead as the London Olympics approaches:  why is the government spending billions on the summer games when basic infrastructure is left crumbling?  Powerfully argued:

This month’s budget in Britain will provoke yet another round of debate on austerity versus stimulus. But the issue of how we spend what we have is more important than the issue of what we spend. We should shift our focus from aggregate totals and visionary projects to much smaller issues.

Is Bureaucracy Holding Back India’s Future?

Grim report from The Economist.  While India continues to grow, the dream that globalization would lift its masses out of poverty has not yet been realized.  Is government to blame?

Red tape and corruption, always present, seem to have got worse – in recent state elections so many banknotes were doled out that they help explain a liquidity problem in the banking system. Longstanding bottlenecks have not been tackled. Partly as a result, inflation is high and stubborn. Every one of these problems involves the state, still huge and crazy after all these years. Few ever thought it could be reformed easily. But the hope was that a wily private sector would allow India to sprint to prosperity regardless. That view now looks romantic.

Europe’s Real Crisis – Demographics

At our first G100 Europe meeting this week in London, the demographic problems facing the EU became a subject of intense discussion.  This article in The Atlantic makes plain the link between economics and demographics:

Italy’s population growth has been very slow. It will soon stall, and eventually go into reverse. And then, one by one, the rest of Europe’s nations will follow. Not one country on the Continent has a fertility rate high enough to replace its current population. Heavy debt and a shrinking population are a very bad combination.

 Ken Griffin on Money, Politics, Government, Business

G100 member and Citadel founder and CEO Ken Griffin gave an extensive interview to the Chicago Tribune about business and politics – and why the two are have become so intertwined:

I spend way too much of my time thinking about politics these days because government is way too involved in financial markets these days. QE2. Will there be QE3? The Volcker Rule. Dodd-Frank. Part of my sensitivity to these issues is that I now live in the middle of a hyper-regulated industry, where not only is government affecting how capital markets work, or how banks work, but (the government) is punishing savers.

 The Coming Debate About IPOs and Innovation

Reuter’s blogger Felix Salmon argues that IPOs are killing innovation:

Going public might be good for a company’s investors and employees, but it is usually bad for the company itself. It forces CEOs to focus on short-term stock fluctuations at the expense of long-term growth. It wrests control from the founders and gives it to thousands of faceless shareholders.

He’s wrong. In this rebuttal, Pascal-Emmanuel Gobry explains why the most innovative companies need IPOs:

Breakthrough technology startups are different from other kinds of businesses in that they either create a new market or violently disrupt an existing one. This means that they almost invariably require to spend lots of capital in order to stake out a defensible market position against their numerous competitors. In particular, many technology markets have winner-take-most or winner-take-all dynamics, either because of network effects or economies of scale.

 Wanted: More CEOs in Washington

 Should CEOs spend more time in Washington?   Apparently investors think so:

A new study by FTI Consulting concludes that institutional investors no longer accept the fact that chief executives may get involved in policy debates. They demand it. In fact, more than 85 percent of the investors surveyed said they want CEOs to engage more with policy makers to protect their company’s interests.

 Did the Stimulus Work?

This will be the big debate of the coming election season.  Earlier this month, former White House economic advisor Larry Summers and Stanford economist John Taylor engaged in a debate on this topic.  On his blog, Taylor has tried to capture the argument he made:

For the parts of the packages which include temporary tax rebates or temporary tax cuts I find no significant consumption effect …The evidence is striking: There was a big increase in personal disposable income at the time of the rebate, but no similar change in consumption…People largely saved the injection of cash. The same thing is true for the 2001 and 2009 stimulus packages. In the case of the 2009 stimulus package, there was also an attempt to increase significantly government purchases of goods and services. But the evidence is that this attempt largely failed. A special satellite account produced by the Bureau of Economic Analysis shows that federal infrastructure investment—at the peak quarter—increased by only .05 percent of GDP as a result of the stimulus and federal government consumption by only .14 percent.





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