artdiamondblog.com – Page 544 – Art Diamond's web log

Google Not Likely to Be “An Unstoppable Juggernaut”

Source of book image: online version of the WSJ review quoted and cited below.

(p. A25) But Messrs. Page and Brin, when they launched Google, had no idea how to make money from it. Two years into their venture, they developed a service that delivered small text ads based on the search terms that a user submitted. As Randall Stross notes in “Planet Google,” his even-handed and highly readable history of the company, the service proved to be a turning point in the history of advertising, offering ads tailored for “an audience of one at the one best moment, when a relevant topic was on the user’s mind.” It also proved to be a goldmine for Google. The company started serving up ads in 2000. In 2002, it had revenues of $400 million; in 2005, $6.1 billion; in 2007, $16.5 billion. Roughly 99% of its income stills springs from those modest text ads that appear at the top of Google’s results page.
. . .
Is Google an unstoppable juggernaut fated not only to “organize all information” — as the company has itself put its goal — but to control it as well? Mr. Stross poses the question but does not answer it. He notes that one of Google’s ambitions is to usher in an age of “cloud computing,” in which all the work we do on our personal computers would actually take place on servers that Google owns. The servers would hold the programs we use and store our data. That image — Google as Skynet from the “Terminator” movies — is a mite unsettling.

Yet the evidence in “Planet Google” suggests that this eventuality is less likely than Googlers might hope. Outside its core search and advertising business, Google has had few successes. Its home-grown products, such as Orkut, Knols and Google Checkout (knockoffs of Facebook, Wikipedia and PayPal, respectively), have largely been failures. Google’s biggest successes have come from acquisitions. Google bought YouTube only after its own attempt at video on the Web, Google Video, crashed and burned. And even the “successful” acquisitions that Google has made — Google Earth, Google Maps, Google Docs and Blogger were all purchases, too — have taken up resources without creating significant revenue.
. . .
Remember, people thought that Microsoft was fated to rule the world, too. Today, the once-feared operating-system giant is fighting to stay relevant. And the evolutionary parallels between Google and Microsoft are strikingly similar: Both hit upon a Big Idea at the perfect moment; both parlayed it into a mountain of cash; and both used the money to embark on a string of expansions that paid few dividends. The years have brought Microsoft back to Earth. They’ll probably do the same to Planet Google.

For the full review, see:
Last, Jonathan V. “BOOKS; Search for Tomorrow.” The Wall Street Journal (Weds., SEPTEMBER 17, 2008): A25.
(Note: ellipses added.)

he book under review is:
Stross, Randall E. Planet Google: One Company’s Audacious Plan to Organize Everything We Know. New York: Free Press, 2008.

High Progressive Income Taxes Result in “Demoralization of Entrepreneurs”

(p. 127) High progressive and unnegotiable gouges like those in Sweden and England drive people altogether out of the country into offshore tax havens, out of income-generating activities into perks and leisure pursuits, out of money and savings into collectibles and gold, and, most important, out of small business ventures into the cosseting arms of large established corporations and government bureaucracies. The result is the demoralization of entrepreneurs and the stultification of capital. The experimental knowledge that informs and refines the process of economic growth is stifled, and the metaphysical capital in the system collapses, even while all the indices of capital formation rise.

Source:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.

Steuben Saw “The Genius of this Nation”

“German soldier of fortune and American ally Baron von Steuben (1730-94)” Source of caption and photo: online version of the WSJ review quoted and cited below.

(p. W9) The essence of Steuben’s achievement was his modification of the brutal, robotic precision of the Prussian system to fit American conditions. He was able to do this because he was one of the first foreign observers, military or civilian, to grasp an essential strain of the American character. “The genius of this nation,” he wrote a European friend, “is not in the least to be compared with that of the Prussians, Austrians or French. You say to your soldier, ‘Do this,’ and he doeth it. I am obliged to say, ‘This is the reason why you ought to do that,’ and then he does it.”
. . .
While Mr. Lockhart tends to soft-pedal some of Steuben’s more dubious deeds — ignoring, for instance, his attempt to interest Prince Henry of Prussia, Frederick the Great’s younger brother, in becoming king of the independent colonies before the adoption of the Constitution — the author generally treats his subject with balance, understanding and great good humor, aptly concluding that, “although he blurred a few details of the past in order to seek preferment in the United States, somewhere between his arrival and the achievement of American independence, the Baron became something very much like the man he had pretended to be.”

For the full review, see:
ARAM BAKSHIAN JR. “BOOKS; Revolutionary Scamp.” The Wall Street Journal (Sat., NOVEMBER 8, 2008): W9.
The reference to the book under review is:
Lockhart, Paul. The Drillmaster of Valley Forge. New York: HarperCollins Publishers, 2008.

Source of book image: http://robertos-book-picks.blogspot.com/2008/11/drillmaster-of-valley-forge-baron-de.html

FDR’s 1935 Revival Prediction Proved False

(p. C1) Despite the reputation of the New Deal, deep government interventions are unpredictable and sometimes harmful, reminds Amity Shlaes, who wrote a popular history of the Depression, “The Forgotten Man.”

Ms. Shlaes points to the period of 1936 and 1937, when the Federal Reserve used New Deal laws to tighten reserve requirements on the nation’s banks. The goal was to make the banks stronger, but the result was that banks tightened still further. That cut off credit to the economy at a sensitive period. The Dow Jones Industrial Average fell by more than a third between August 1937 and January 1938. Unemployment surged. It was the “depression within the Depression.”
It wasn’t the revival that FDR had predicted back in 1935, when he boasted: “Never since my inauguration in March 1933, have I felt so unmistakably the atmosphere of recovery.”
. . .
“When you’re in the expert business, after a while you realize there are no experts,” says Richard Sylla, New York University’s Henry Kaufman Professor of The History of Financial Institutions and Markets.
The important thing to know, it seems, is how little we know.

For the full commentary, see:
DENNIS K. BERMAN. “THE GAME; Tomorrow’s Recession Recovery Is Today’s History Lesson.” Wall Street Journal (Tues., MARCH 3, 2009): C1.
(Note: ellipsis added.)

The reference to the excellent Shlaes book, is:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

Gilder Explored “The Spirit of Enterprise”

Source of book image:
http://g-ecx.images-amazon.com/images/G/01/ciu/64/17/bc94225b9da0b4326fb8b010.L.jpg

Gilder presents many case studies of entrepreneurs, with plenty of thought-provoking commentary and generalization.
I read the 1984 version because it is the version that is available in audio that can be listened to while walking the dachshund. I also own the 1992 updated version, and can say from a flip-through that this it is a major revision (not just a “revision” that consists of a new introduction, as is often done).
Gilder justly, and eloquently, takes economists to task for generally ignoring the role of the entrepreneur in improving our lives.

For the early edition, see:
Gilder, George. The Spirit of Enterprise. 1 ed. New York: Simon and Schuster, 1984.
For the revised version, see:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Source of the book image: http://www.icspress.com/images/recapturing.jpg

“Venturesome” Consumers May Help Save the Day

Bhidé makes thought-provoking comments about the role of the entrepreneurial or “venturesome” consumer in the process of innovation. The point is the mirror image on one made by Schumpeter in Capitalism, Socialism and Democracy when he emphasized that consumer resistance to innovation is one of the obstacles that entrepreneurs in earlier periods had to overcome. (The decline of such consumer resistance was one of the reasons that Schumpeter speculated that the entrepreneur might become obsolete.)
I would like to see Bhidé’s evidence on his claim that technology rapidly advanced during the Great Depression. The claim seems at odds with Amity Shlaes’ claim that New Deal policies often discouraged entrepreneurship.

(p. A15) Consumers get no respect — we value thrift and deplore the spending that supposedly undermines the investment necessary for our long-run prosperity. In fact, the venturesomeness of consumers has nourished unimaginable advances in our standard of living and created invaluable human capital that is often ignored.
Economists regard the innovations that sustain long-run prosperity as a gift to consumers. Stanford University and Hoover Institution economist Paul Romer wrote in the “Concise Encyclopedia of Economics” in 2007: “In 1985, I paid a thousand dollars per million transistors for memory in my computer. In 2005, I paid less than ten dollars per million, and yet I did nothing to deserve or help pay for this windfall.”
In fact, Mr. Romer and innumerable consumers of transistor-based products such as personal computers have played a critical, “venturesome” role in generating their windfalls.
. . .
History suggests that Americans don’t shirk from venturesome consumption in hard times. The personal computer took off in the dark days of the early 1980s. I paid more than a fourth of my annual income to buy an IBM XT then — as did millions of others. Similarly, in spite of the Great Depression, the rapid increase in the use of new technologies made the 1930s a period of exceptional productivity growth. Today, sales of Apple’s iPhone continue to expand at double-digit rates. Low-income groups (in the $25,000 to $49,999 income segment) are showing the most rapid growth, with resourceful buyers using the latest models as their primary device for accessing the Internet.
Recessions will come and go, but unless we completely mess things up, we can count on our venturesome consumers to keep prosperity on its long, upward arc.

For the full commentary, see:
Amar Bhidé. “Consumers Can Still Spot Value in a Crisis.” Wall Street Journal (Thurs., MARCH 11, 2009): A15.
(Note: ellipsis added.)

The Values of the Belgian Diamond Market

“Orthodox Jews have been at the center of Antwerp’s diamond trade since the late 19th century, when they fled Eastern Europe.” Source of the caption and photo: online version of the NYT article quoted and cited below.

Markets will work better when a critical mass of participants hold certain core values, including those of tolerance and honesty.

(p. A11) ANTWERP, Belgium — Teetering on their bicycles or strolling amiably while chattering into cellphones in Yiddish, Dutch, French, Hebrew or English, the Orthodox Jews of this Belgian port city have set the tone of its lively diamond market for more than a century.

Hoveniersstraat, or Gardener’s Street, is the backbone of the market, where four-fifths of the world’s uncut diamonds are traded. It winds past the L & A Jewelry Factory and the office of Brinks, the armored car company, and on to the World Diamond Center just opposite the little Sephardic synagogue. On any given day but Friday, it is sprinkled liberally with Orthodox Jewish diamond traders, many of them Hasidim.
. . .
Ari Epstein, 33, is the son of a diamond trader, whose father emigrated from a village in Romania in the 1960s. “It’s a typical shtetl environment,” he said, wearing the yarmulke with a business suit. “It’s live and let live. Most important is to do business together and to be honorable.”

For the full story, see:
JOHN TAGLIABUE. “Antwerp Journal; Belgian Market’s Luster Dims, but Legacy Stays.” The New York Times (Tues., January 6, 2009): A11.
(Note: ellipsis added.)

“The market employs about 7,000 and creates work indirectly for another 26,000.” Source of the caption and photo: online version of the NYT article quoted and cited above.

Pro-Obama Economist Krugman Predicts Higher Taxes on Middle Class

(p. A23) . . . even if fundamental health care reform brings costs under control, I at least find it hard to see how the federal government can meet its long-term obligations without some tax increases on the middle class. Whatever politicians may say now, there’s probably a value-added tax in our future.

For the full commentary, see:
PAUL KRUGMAN. “Climate of Change.” The New York Times (Fri., February 27, 2009): A23.

Globalization Helps U.S. During Financial Crisis

Source of the graphic: screen capture from the online version of the WSJ article quoted and cited below.

(p. A1) Much of the world may be struggling with the economic downturn, but life has been getting better in Columbus, Ind., Kingsport, Tenn., and Waterloo, Iowa.

These out-of-the-way places have become trade hot spots as U.S. exports, fueled by the dollar’s fall, continue to provide a rare spark in an otherwise gloomy economy.
While many economists expect a recent snapback in the value of the dollar and a spreading global slowdown to soften that growth, exports have become a key to greater local prosperity more than at any time in decades.
. . .
(p. A16) Export-driven growth marks a dramatic shift in an economy that has relied heavily on consumer spending. That has slowed in recent months as Americans, nervous about job losses, teetering banks, falling home values, and rising gasoline and food prices, have tightened spending. Against that background, exports have emerged as a powerful motor.
Over the past year, real-goods exports have risen $115 billion, or 12%, and are up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II. Critics often grumble that the U.S. exports masses of scrap steel and other waste materials to recyclers in China and elsewhere, which is true, but exports of manufactured goods, commodities and services are also growing. Consumer products, from sporting goods to art supplies, have risen 12%, and even autos, which are languishing on showroom floors in the U.S., saw a 4% bump up in exports.
Service exports — which include media, entertainment, financial services, computer software and foreign tourism in the U.S. — have grown strongly right along with the larger goods side of the trade ledger. Through the second quarter of 2008, real-service exports are up nearly 10% over the past year.
It’s a badly needed tonic for the beleaguered U.S. economy.

For the full story, see:
TIMOTHY AEPPEL. “Exports Bolster Local Economies.” The Wall Street Journal (Thurs., SEPTEMBER 11, 2008): A1 & A16.
(Note: the title of the article on the web is: “Exports Prop Up Local Economies.”)
(Note: ellipsis added.)

Entrepreneurs Are Key to Ending Economic Crisis

(p. A15) The passage of the $787 billion stimulus bill has so far failed to stimulate anything but greater market pessimism. This suggests to us that the strategy behind the American Reinvestment and Recovery Act is wrong — and worse, that the weapons it is using to fight the recession are obsolete.

Just as generals are notorious for fighting the last war, Congress and the White House seem intent on fixing an economy of hidebound and obsolete companies and industries, while ignoring the innovative ones rising before us and those waiting to be born.

Missing from this legislation is anything more than token support for the long-proven source of most new jobs and new growth in America: entrepreneurs. These are the people who gave us everything — from Wal-Mart to iPhones, from microprocessors to Twitter — that is still strong in our economy. Without entrepreneurs, we will never get out of our current predicament.

For the full commentary, see:
TOM HAYES and MICHAEL S. MALONE. “Entrepreneurs Can Lead Us Out of the Crisis What Are the Odds of a Depression?” Wall Street Journal (Tues., FEBRUARY 24, 2009): A15.
(Note: ellipses added.)

Pay and Profits at Finance Firms Became “Divorced from Actual Economic Activity”

Source of graphs: online version of the NYT article quoted and cited below.

(p. 3) Nonetheless, a significant portion of the finance boom also seems to have been unrelated to economic performance and thus unsustainable. Benjamin M. Friedman, author of “The Moral Consequences of Economic Growth,” recalled that when he worked at Morgan Stanley in the early 1970s, the firm’s annual reports were filled with photographs of factories and other tangible businesses. More recently, Wall Street’s annual reports tend to highlight not the businesses that firms were advising so much as finance for the sake of finance, showing upward-sloping graphs and photographs of traders.

“I have the sense that in many of these firms,” Mr. Friedman said, “the activity has become further and further divorced from actual economic activity.”
Which might serve as a summary of how the current crisis came to pass. Wall Street traders began to believe that the values they had assigned to all sorts of assets were rational because, well, they had assigned them.

For the full story, see:
PETER S. GOODMAN. “Debt Sweat; Printing Money and Its Price.” The New York Times, Week in Review Section (Sun., December 28, 2008): 1 & 4.
(Note: ellipsis added.)

Benjamin Friedman’s book is:
Friedman, Benjamin M. The Moral Consequences of Economic Growth. New York: Knopf, 2005.