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Posted Wednesday, July 24, 2002 Vacation until August 1I'll be on vacation for a week. Posting will resume August 1st or shortly thereafter. . . . . . .
Posted Tuesday, July 23, 2002 The U.S. and JapanI think it is fair to raise the question of whether the aftermath of the U.S. stock market bubble will resemble the past dozen years in Japan.
If you had polled economists and business leaders a dozen years ago about Japan, not one of them would have predicted the long economic slump that transpired. As with any economic depression, explanations are very difficult. In his Richard Ely address, freshwater economist Edward C. Prescott argues that Japan's depression is characterized by massive inefficiency. (Freshwater economists, from universities near the Great Lakes, tend to view macroeconomics somewhat differently from saltwater economists, from universities near the Boston or San Francisco bays. Krugman and DeLong are saltwater economists. I come from the saltwater tradition myself.) Prescott says that if you are in a depression, it is either because your workers are under-employed (as in France), your capital stock is low (Mexico in the 1980's), or productivity is low (Japan today). Of Japan, he says,
I think that this is a fundamental difference between the U.S. and Japan. Our companies are not going to hang onto workers at the cost of efficiency. If we take a hit, it will be because new jobs fail to absorb laid off workers, so that employment falls off. However, I think that we can avoid a long period of high unemployment. The workers who are being laid off from WorldCom or Arthur Andersen have broadly-applicable skills and flexible opportunities. They are not members of the auto workers' union, who think of themselves as only being employed if they are assembling cars. I think that there are plenty of ways that the stock market crash will adversely affect spending in the economy--universities will have to slow their building boom, state and local governments will be strapped without capital gains tax collections, and so on. But I think that the economy will survive. . . . . . .
Posted Saturday, July 20, 2002 Post-Bubble FundamentalsThe press reports that the U.S. stock indexes are back where they were in 1998. However, the size of the economy, as measured by current-dollar GDP, is about 20 percent higher, so in a sense the stock indexes are 20 percent below 1998 levels. Relative to GDP, stock indexes are closer to where they were in early 1996. The bubble is over. Fundamentally, the good news about the economy includes this:
Overall, looking at the post-bubble fundamentals, I like the outlook for stocks. The market is not cheap, the way it was in 1981. But it is not overpriced anymore.
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Posted Friday, July 19, 2002 When Congress MeddlesAs Congress closes the barn door on the latest round of corporate scandals, Daniel Gross points out how the current non-transparent executive pay was stimulated by the barn-door closing of a decade ago.
Thanks to 'Mindles H. Dreck' for the pointer. . . . . . .
A Blog Format for CEO'sStop, Start, ContinueOn July 18, I went to the first event of Blogmeetup in my area. Not feeling young or single enough for the D.C. location, I went to Rockville, where Dave Gammel was the only other attendee. Dave had some fascinating tidbits about the boomlet in organizational blogs, and this led me to think about what will happen when CEO's start to blog. The challenge for CEO's will be to avoid on the one hand being too impersonal, bland, and corporate-speakish while on the other hand not being too aggressive and domineering. One compromise would be to strike the tone of Winston Churchill's messages to commanders ("pray do something about....pray find a way to..."). Another compromise would be to give specific, individual feedback in Stop, Start, Continue format. What follows is a sample of this sort of feedback, for a couple of my fellow bloggers. For Brad DeLongContinue to post frequently. Continue to provide timely review and comment on economic concepts, such as Okun's Law. Continue to link to interesting working papers by economists. Continue to spice your posts with wit and interesting charts. Continue to respond to comments. Stop quoting entire articles. Use links, instead--this is the Web,after all. And linking puts you at less risk for being accused of copyright infringement. For Megan McArdleContinue to explain economic reasoning, such as the case for abolishing the corporate income tax. Continue to offer a distinctive style that is sharp-witted but warm-hearted. Start to consider putting some of your longer essays in a separate format, or better yet, finding someone to pay to publish them. . . . . . .
Posted Thursday, July 18, 2002 It's Corporate Governance, II In addition to Brad on my left, Virginia on my right also views corporate governance as the key to reducing accounting fraud. She points out how Congressional barn-door-closing could make things worse. Then she suggests,
Her thinking is that current shareholders may benefit from inflated accounting, so they will not police the firm's accounting practices effectively. Therefore, the auditors need to be chosen by someone other than the firm. . . . . . .
Posted Wednesday, July 17, 2002 Don't Bet on Phone CompaniesI argue that Moore's Law is working against them. . . . . . .
Blame McKinseyMalcolm Gladwell has a long, fascinating article on the role played by McKinsey at Enron and in misguided corporate practices in general.
Because McKinsey hires so many people from business school, it never receives any critical examination from the business school community. Only an independent journalist can spotlight its flaws. I would add that I hold McKinsey partly responsible for the Internet Bubble. As I reported as early as August of 1998, McKinsey's core strategic advice, which is that market share matters more than profits, was the basis of most bubble companies. The ranks of dotcoms were strewn with ex-McKinsey personnel. Gladwell also discusses the problem of charismatic, narcissistic executives. This reminded me of a passage from a column by Hal Varian.
The processes by which large companies select CEO's and by which venture capitalists select entrepreneurs are skewed in favor of "self-regarding attribution bias," a trait that is hardly admirable. Fans of Apple's Steven Jobs used to speak admiringly of his "reality distortion field." If your criteria for a CEO is someone with a powerful "reality distortion field," you get what you ask for. The Narcissist Nineties have ended badly. The capitalists who hire CEO's need to view "self-regarding attribution bias" as a negative trait, not a positive one. And it's high time that McKinsey's role in some of the worst excesses is brought to light. . . . . . .
Posted Tuesday, July 16, 2002 It's Corporate Governance, StupidBrad DeLong has some good thoughts on the problem of corporate governance.
There are two ways that we can respond to recent corporate scandals. One is to assign Congress the role of closing the barn door after every horse that escapes. The other is to change corporate governance to include better oversight by shareholders. In my opinion, only the latter approach is constructive. . . . . . .
A Wireless Coalition Sure to FailWhen it comes to building a wireless network, this coalition is sure to fail. It includeds Verizon and Cingular, two companies that are most threatened by wireless. Here is the crucial point, which is buried in the story.
In other words, the idea is to build a wireless infrastructure only where it will not compete with existing business models for phone companies. Sorry, folks, that is not how the economy works. You need to design services to meet customer needs, not to protect legacy businesses. . . . . . .
Posted Monday, July 15, 2002 Go, Zimran!A couple of great recent posts on Winterspeak. On Palladium,
On musicians and money,
This is a point I made at more length in Equilibrium in the Market for Rock'n'Roll.
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Stock Options: Non-transparency as a FeatureA paper by Bebchuk, Fried, and Walker makes some key points about stock option compensation. They ask why more firms do not use indexed options, which reward executives for relative performance and take out the effects of general increases in stock prices for the market or for a sector. They point out that indexed options, unlike the options that are typical today, would have to be expensed under current accounting rules. Thus, managers choose non-indexed options because of
It is sometimes claimed that the cost of stock options is too difficult to calculate. However, indexed options are even more complicated to calculate, and FASB already treats these as expenses. I think that Bebchuk, et al, are spot on in their analysis of the role of executive stock options in established, public corporations. They are a tool by which executives extract wealth from shareholders, using non-transparent accounting as camouflage. The lack of transparency is a feature, not a bug, from the executives' point of view. With all that said, it is not clear to me that the government needs to get involved in the specifics of accounting treatment. Shareholders ought to be able to take care of themselves, by insisting on clear accounting. If they cannot do so, then this is a corporate governance problem, and the public policy issue is to improve the ability of shareholders to control corporations. . . . . . .
Posted Friday, July 12, 2002 The PocoMail solutionAfter reading my article asking Microsoft to build a usable email spam filter, a reader said that I should check out PocoMail. I paid for it ($25, you can try it for free first if you like), and it is even better than what I asked for. Here is what makes it usable, in my opinion. In Netscape, I manually set up a filter to classify as junk email anything that comes in without my email address in the "to" field (this is a sign of something being sent to a list). Well, that rule filtered out some email lists that I want to get, so I had to go back and program higher-priority rules to allow those lists. That kind of manual editing of filters is time-consuming, and it leads you not to use filters. PocoMail has its own rules for sorting stuff into junk mail, which work better than my rules. But it also started out by putting mail from lists that I want into the junk folder. But it was a one-click process to "unblock" a sender, just as it's a one-click process to block a spam sender. Because the filtering process is more usable, I feel like I have more control over spam with PocoMail than with other email programs. . . . . . .
Posted Thursday, July 11, 2002 The Case for Spectrum DeregulationFollowing a link from David Reed, I found this easy-to-understand argument by Timothy Shepard. He asks us to imagine that we asked thousands of electrical engineers to independently design walkie-talkie systems for thousands of people that would work in an area the size of a football stadium.
The point is that computing power can be used to get around what we used to call the problem of "interference" in radio signals.
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Posted Wednesday, July 10, 2002 Trust This!John Udell wrote a popular column on how people would not need Microsoft's scary Palladium technology if they would use authenticated email. In my reply, called Consumer to Microsoft: Trust This!, I say that
But I do propose an alternative. UPDATE: Lincoln Stein's latest column describes the type of spam filtering I talk about. It's a very clear discussion, but I think he's too pessimistic. . . . . . .
Posted Tuesday, July 9, 2002 Newspapers Want to be BeggarsIn my latest TechCentralStation column, I question the long-term financial viability of newspapers.
I suggest that the ultimate destiny for newspapers that survive is to be supported by philanthropists. . . . . . .
Information Wants to be FreeThe case for keeping professors' research trapped inside expensive academic journals grows weaker every day. Thanks to the indispensable Brad DeLong, I found my way to this article about creating a 'super archive.'
Create the archives, and with bloggers like Brad sifting through for interesting material, and we do not need the journals at all. . . . . . .
Bush, Harken, WorldCom, etc.Blogger Tleeves writes to ask my opinion on the Bush 1990 Harken stock sale story. Well, to a first approximation, the economic consequences of Harken and Bush's sale of same are...nil Take WorldCom. They are on the verge of bankruptcy. Had they not committed accounting fraud, my best guess is that today they would be...on the verge of bankruptcy. In fact, I'll venture to speculate that if you add up all of the accounting problems in all of corporate America since MicroStrategy helped turn around the Internet Bubble Monitor in March of 2000, the restatements change the aggregate stock market price/earnings ratio by an amount that could be dismissed as rounding error. This chart is what has economic consequences. It vividly illustrates the spectacular, unsustainable increase in stock prices of the last decade. . . . . . .
Posted Thursday, July 4, 2002 Security and CensorshipJohn Gilmore coined the aphorism, "The Internet interprets censorship as damage and routes around it." Today, Hal Varian may have come up with a new one.
His column is about new products that have embedded chips that keep track of how the products are used. He raises a concern that user-driven innovation could be stifled by this sort of technology. . . . . . .
Posted Tuesday, July 2, 2002 Extreme Command-Line BigotDan Lyke speculates that the graphical user interface is the root of corporate scandals.
I liked the Tufte quote, and I Googled it to try to find an elaboration of his issues with PowerPoint. All I found was another aphorism, which is that paper is a high-resolution medium and PowerPoint is a low-resolution medium. That reinforces what I always felt, which is that reading a 2-page memo was more efficient than sitting through a half hour of a corporate presentation. If I were the CEO of a Dilbert-sector company, I would ban corporate presentations and encourge blogging instead. But I think that Dan is stretching things a bit to blame corporate scandals on the GUI. It is probably true that the corporate scandals would not have happened had the graphical user interface not been invented, limiting the use of computers to people who deal with command lines, but that means throwing out the baby of progress along with the bathwater of Enron. If you want to go that far, other phenomena that helped enable the corporate scandals would include the Internet, the emancipation of women, and flush toilets. . . . . . .
Posted Monday, July 1, 2002 PalladiumThanks to Doc Searls for a pointer to this interview about Microsoft Palladium with Microsoft's Mario Juarez. In the comment section that follows the interview, editor Phil Becker gets very passionate about his belief that somebody needs to build an infrastructure for identity on the Internet. Some of the readers get equally passionate that they do not want Microsoft to be the major player in that process. I feel as though I lack complete information on this topic, either because Palladium is vaporware or I lack technical know-how, or both. But as I understand it, Palladium is supposed to create conditions under which I can "trust" the information that comes to me from some other person or machine. The anti-Softies are worried that "trust" will be dependent on "uses Windows™." If it does, then they argue, correctly, that the Evil Empire will have a chokehold on the Internet. But what if it turns out that the use of Windows is only a sufficient condition, not a necessary condition, for gaining access to the network of trust or whatever you want to call it that Palladium fosters? I think that there are some Privacy Luddites out there who still would be against anything that undermines the anonymity of the Net. Also, I think that there are programmers out there who--although not openly--want to maintain an environment in which it is possible to break into computer systems. They feel instinctively that they will be more powerful in such a world than in a world in which break-ins become impossible. So, I think that there will be at least two camps opposed to Palladium. One camp wants security, but does not want Microsoft to be a dominant player in it. Another camp does not want to see anything at all happen that dramatically reduces the vulnerability of computer networks. . . . . . .
Copyright 2002-2003 Arnold Kling. All rights reserved. Terms of use |
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