Daily Archives: March 27, 2011

The Austerity Delusion

Posted on by

Krugman on The Austerity Delusion.

But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.

But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

Buffett cautions social-networking investors

Posted on by

Warren Buffett is warning investors to be careful about which social networks they friend with their investment dollars.

Buffett, the chief executive of the Berkshire Hathaway investment empire, warned investors Friday at a conference in New Dehli to be wary of social networks such as Facebook and Twitter–a sector that has recently generated great interest and anticipation on Wall Street.

“Most of them will be overpriced," Buffett said, according to a Bloomberg report. "It's extremely difficult to value social- networking-site companies.”

“Some will be huge winners, which will make up for the rest,” he said, without specifying which companies he expects to be winners and which will be losers.

This is news?????

[Source.]

Google booked by judge

Posted on by

This morning’s Observer column.

Last week, a US judge in Manhattan made a landmark decision. As to what it means, opinions vary. Some see it as arresting the cultural progress that began with the Enlightenment; others are celebrating Judge Denny Chin’s ruling as the blocking of a predatory move by a giant corporation to control access to the world’s cultural heritage. The truth, as always, lies somewhere in between…

LATER: Interesting comment by Tim O’Reilly:

I think that when we look back at the history of the e-book market one of the classic business school cases is going to be how stupid it was for publishers to sue Google. Here you have a powerful, monopolistic company, and then you have another company that comes in really as a white knight, and the publishers sued the white knight. And the thing that was wrong about this was that the publishers’ settlement basically made Google into an ineffective competitor to Amazon. It took away all of Google’s strength. It made their model like Amazon’s, in which it had no advantages.

There were some really interesting things that Google could have done like algorithmic pricing. They were talking about taking a much smaller cut of the transaction, building the marketplace in a very different way. They were talking about open standards. Google ideally should have been building a book search engine that searched all e-books where they were and not just on Google’s site. They made mistakes. If the settlement had pushed them in that way it would have been really, really interesting. But it made Google a book retailer, which they aren’t, and now we have one dominant player, and the publishers are going to really come to regret that. Apple may end up being a big player, but it’s hard to tell.

Thanks to Lorcan Dempsey for the link.