Opinion

Anatole Kaletsky

Bezos needs to reinvent a business model, not journalism

Anatole Kaletsky
Aug 15, 2013 15:21 UTC

It is now a week since Jeff Bezos, the founder of Amazon,  announced that he was buying the Washington Post, in what could be the most exciting case of convergence between the new media and the old since the merger of AOL with Time Warner. But how might Bezos re-launch this venerable flagship of U.S. journalism? And what could his ownership of the Post mean for news businesses around the world?

These may seem strange questions for a column devoted mostly to controversies in public policy and economics, but newspapers today are a declining industry comparable to the steel and shipbuilding industries in the 1980s, and employ even more people at higher wages. Newspapers are therefore of great economic significance, not to mention their importance to democracy. Yet public discussion often assumes that journalism is technologically doomed. The Internet, it seems, is ineluctably turning news and analysis from a thriving industry, gainfully employing millions on decent incomes, into an unpaid hobby for philanthropists or self-promoters who will earn their living by other means.

From an economic standpoint, this fatalism is unjustified. If quality news and analysis have significant value to customers, then the people providing these services will eventually find ways to get paid. It is often claimed that the news has become worthless because Internet distribution involves zero marginal cost, but this is poor economics. The true cost of news lies not in distribution, but in the research, composition, selection and editing required for high quality writing. These costs are as high as ever today.

The real challenge to newspapers, therefore, is not the idealistic Internet cliché that ”information wants to be free.” It is the failure of traditional media companies to devise business models that turn the new distribution technology to their advantage. Historically, such failure is not surprising. Just as the railroad companies failed to adapt to cars and competed themselves into bankruptcy, traditional media moguls have proved clueless in harnessing the Internet. This is why the news businesses must look for salvation to managers such as Bezos, who treat the Internet neither as a curse nor as a libertarian utopia, but rather as a very efficient mechanism for getting consumers to spend money.

So far, Bezos has said little about his plans for the Washington Post. The few hints he offered in an open letter to editorial staff had the familiar naivety of the tyro news proprietor who thinks he can reinvent journalism: “Our touchstone will be readers, understanding what they care about — government, local leaders, restaurant openings, scout troops, businesses, charities, governors, sports — and working backwards from there.” As if that were not what all newspapers have always done.

Mark Carney abandons Thatcher-era supply-side policy

Anatole Kaletsky
Aug 8, 2013 14:35 UTC

The era of laissez-faire monetarism is over, as the world moves by small but inexorable steps towards a new kind of Keynesian demand management. One after another, governments and central banks in the leading economies are accepting a responsibility for managing unemployment that they abandoned in the 1970s, during the monetarist counter-revolution against Keynesian economics. On Wednesday it was Britain’s turn, as Mark Carney, the new governor of the Bank of England, joined Ben Bernanke in making the reduction of unemployment his main monetary policy goal.

Carney was until recently Canada’s top central banker and was headhunted by the British government specifically to inaugurate a new era of “monetary activism.” On Wednesday, at his first official press conference, he lived up to this billing.

Instead of merely promising to keep British interest rates near zero for a predefined period of a year or two, as had widely been expected, Carney did something bolder and intellectually more controversial. By announcing that the BoE would not even consider any reduction in monetary stimulus until unemployment fell below 7 percent, Carney deliberately broke a taboo that has dominated British economic policy since Margaret Thatcher’s election in 1979.

The global return to pre-crisis growth strategies

Anatole Kaletsky
Jul 25, 2013 15:24 UTC

Margaret Thatcher used to say that “There is no alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall — you can stop banging your head against a brick wall. The G20 Finance Ministers’ meeting in Moscow last weekend may have marked such a moment of revelation, when governments around the world gave up on fiscal and financial austerity, and recognized that growth based on consumption, borrowing and rising house prices is better than no growth at all.

It is now nearly five years since the Lehman crisis and throughout this period politicians and economists have been obsessed with avoiding the mistakes that supposedly produced the crisis. They have been trying to reduce debts, both in the public and the private sectors; to make their banks behave more cautiously; and to “rebalance their economies” away from their over-dependence on consumption, services and finance in favor of supposedly more sustainable economic activities such as saving, exporting and manufacturing. The virtues of saving, exporting and manufacturing are so much taken for granted these days that it is easy to forget the novelty and implausibility of the rebalancing concept.

Until 2007 conventional wisdom among economists was that manufacturing nations like Germany and Japan should restructure their economies to resemble the U.S. and Britain. It was only after the Lehman debacle that economic fashion shifted decisively against Anglo-Saxon “bubble” economies, based on debt-fueled consumption, property speculation, financial engineering and other frivolous service activities like coffee shops and computer games. Instead every nation has tried to emulate the solid virtues of the Germanic economic model, powered by exports, investment and manufacturing. Angela Merkel’s slogan that “you cannot cure debt with debt” has become an international motto, despite the fact that central banks were printing money like there was no tomorrow, and governments have committed themselves to deleveraging by homeowners, banks and the public sector, all at the same time.

The new long-term bull market ahead

Anatole Kaletsky
Jul 18, 2013 15:06 UTC

The bull market in global equities that started in the dark days of early 2009 passed a historic milestone this week. When the Standard & Poor’s 500 Index closed on Monday at 1682.5, this did not just represent a new record high and a full recovery from the swoon that Wall Street suffered after Ben Bernanke’s “tapering” comments in late May. More importantly, Monday’s record close marked the first time this key Wall Street index exceeded by more than 10 percent its peak at the climax of the last great bull market in March 2000.

Why is this important? Because a breakout this large from a trading range that has confined the stock market’s movements for many years is historically a rare event. In fact, there have only been three occasions in the past 100 years when prices have risen 10 percent above previous long-term peaks (which I define as peaks that have remained unbroken for at least five years). Each of these major breaks —  in July 1925, December 1954 and October 1980 — has confirmed a structural bull market and been followed by very large gains for long-term equity investors: 189 percent from 1925 to 1929, 245 percent from 1954 to 1973 and more than 1,000 percent from 1981 to 2000. Of course, past performance is not necessarily a guide to future results and three events are insufficient to draw statistically reliable conclusions. Nevertheless, the shattering of Wall Street records this week seems significant in several ways.

The S&P 500 is by far the most important stock market index and tends to set the direction for all other markets around the world — and history reveals that large breakthroughs, like the one that occurred this week, are very different from marginal new highs, which have been much more common and have often given false signals. There have been dozens of cases where long-standing records were broken by 2 or 3 percent and several of these were followed by large losses instead of further gains. This happened most recently in 2007, when the S&P 500 squeaked through to a new high just 2.5 percent above the 2000 record and then promptly collapsed during the Lehman crisis.  By contrast, large breakouts of 10 percent or more have consistently produced large gains.

Were Bernanke’s comments a fire drill or a false alarm?

Anatole Kaletsky
Jul 11, 2013 14:14 UTC

Whenever Alan Greenspan was praised for delivering a clear message on U.S. monetary policy, he liked to reply something along the lines of: “If you think that, you have misunderstood what I said.” Ben Bernanke prefers the opposite approach. On May 22, he triggered one of biggest financial panics since 2008 by raising the possibility of reducing the Fed’s record-breaking monetary stimulus, while admitting that he had no idea when to start this process. He spent the subsequent six weeks trying to clear up the mess that he had created by explaining in painstaking detail the precise timing and conditions under which “tapering” might or might not take place. In the process he created even greater confusion and financial volatility. It now appears that he would have done much better for the world economy — and for his own reputation — by saving his breath and imitating Greenspan’s obfuscation.

The Fed minutes published on Wednesday revealed so many divergent opinions on the conditions, timing and even direction of any change in monetary policy, that all the recent speeches and press conferences on tapering could reasonably be described as white noise. Which raises the question of why investors reacted so strongly to all this confusion. Recent market behavior around the world suggests an explanation: while Fed tapering was not in itself a very important issue, Bernanke’s comments acted as a financial alarm bell, drawing attention to risks in the world economy that were forgotten or ignored. When we hear a fire alarm we naturally ask ourselves three questions: Is it a false alarm? Is it a fire drill? Or is it a real fire — and if so, where?

Similar questions may shed some light on the tapering scare. For the U.S. stock market, Bernanke’s May comments were clearly a false alarm, since the Fed was nowhere near a decision to tighten monetary policy, as we now know officially from the minutes. It is not surprising, therefore, that U.S. equity prices have rebounded to their pre-Bernanke record highs. But looking beyond the U.S. stock market, tapering speculation seems more like a fire drill than a false alarm.

Who will get credit for Britain’s economic turnaround?

Anatole Kaletsky
Jul 5, 2013 17:38 UTC

Mark Carney, the former head of the Bank of Canada who has just taken over as governor of the Bank of England, presided Thursday over his first monthly meeting of Britain’s Monetary Policy Committee (MPC). The meeting produced no change in monetary policy, yet Carney is already being hailed as Britain’s economic savior. The BBC even paid him the greatest compliment that any middle-aged white male could wish for, when it compared his appearance and hairstyle to George Clooney’s. Carney may continue basking in this adulation because he is lucky enough to be in the right place at the right time.

He has arrived at the BoE at the precise moment when the economic figures have started to suggest that the British economy is pulling out of its longest and deepest recession on record. One of the main reasons for this turnaround has been a sudden pickup in housing prices and mortgage lending, the traditional driving forces of the British economy. This improvement, in turn, has reflected a bold new government-backed borrowing program, whereby the British Treasury is guaranteeing up to £600,000 of new mortgage debt for anyone who can put up 5 percent of equity into buying a home. While this audacious policy attracted surprisingly little attention in the media when George Osborne announced it in his March budget, British homeowners and bankers were quick to catch on. As a result, house prices are rising rapidly across Britain, mortgage lending has rebounded to its highest level since the Lehman crisis and homebuilders’ shares have almost doubled. And all this is before the government incentives are expanded from newly-built houses to secondhand properties and remortgages in January 2014. For the moment, house prices are being bid up by cash-rich buyers who are front-running the government subsidies, in the confident expectation that a full-scale property boom will begin in 2014.

Given the powerful response to the government’s mortgage subsidies, the additional quantitative easing that was widely expected from Mark Carney’s “monetary activism” may no longer be required. It may be enough for the BoE to provide commercial banks with liquidity to finance the government’s planned credit expansion and to keep short-term rates near zero. Instead of trying to persuade the hawks on the MPC who repeatedly thwarted his predecessor Mervyn King’s requests for more QE, Carney may succeed in reviving the British economy simply by making a few speeches — the “forward guidance” he used in Canada to convince investors that interest rates would stay near zero for several years ahead.

Are markets making another blunder?

Anatole Kaletsky
Jun 20, 2013 14:50 UTC

In the four weeks since Ben Bernanke first mentioned that the Federal Reserve Board might start to taper its program of quantitative easing (QE) later this year, more than $2 trillion was wiped off the value of global stock markets — and probably far more from the value of global bonds, which is harder to estimate.

On Wednesday Bernanke spent almost an hour answering press questions to try to clarify the Fed’s policy on interest rates and QE. The result was a further steep fall in equity and bond prices around the world. Does this mean that Bernanke did not really want to signal to, and pacify, financial markets and was trying, instead, to prepare investors for higher interest rates and tougher times ahead? Or is it possible that the market has simply misunderstood his comments, both at Wednesday’s press conference and in his statement on May 22?

I have argued repeatedly in this column for the last interpretation — that tapering would not begin before the end of this year and that financial markets have misinterpreted the Fed’s intentions, partly for reasons connected with the vested interests of analysts and traders, whose livelihoods depend on convincing the world that economic policy is highly volatile and uncertain. If monetary policy were predictable and stable, which is essentially what Bernanke has promised, then the status and salaries of Fed-watchers in Washington would be hard to justify and the profits of short-term macroeconomic speculators would disappear. But maybe this view was simply wrong.

When illogical policy seems to work

Anatole Kaletsky
Jun 13, 2013 15:23 UTC

It’s cynical, manipulative and hypocritical – and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy?  Not often enough.

The media and a surprisingly high proportion of business leaders, financiers and economic analysts seem to believe that policies which are dishonest, intellectually inconsistent or obviously self-interested in their motivation are ipso facto doomed to fail or to damage the public interest. But this is manifestly untrue. The effectiveness of public policies and their ultimate desirability is in practice judged not by their motivations, but by their results.

Which brings me to the real subject of this column: the improving outlook for the world economy and why many economists and financiers cannot bring themselves to acknowledge it. Let me begin with a striking example anticipated in this column back in March: the boom in house prices and debt-financed consumption that the British government is pumping up in preparation for the general election in May 2015.

What’s behind the spooked stock market?

Anatole Kaletsky
May 30, 2013 16:14 UTC

Strange things have been happening in the world economy and financial markets this week. While that sentence could be written almost any time in the past five years, since the outbreak of the global financial crisis, the strangeness this week has taken a particular form that reveals more than it confuses.

Almost all the economic news recently has been favorable, or at least better than expected. U.S. home values have risen more than at any time since 2006, job losses are down and consumer confidence has been restored to pre-crisis levels. Japan has enjoyed its fastest growth in years, with evidence mounting of stronger consumption and rising wages. Even in Europe, the outlook appears to be improving as policy shifts away from austerity and toward growth, with the European Commission no longer pressing governments to hit their deficit targets. Meanwhile, the European Central Bank hints at the possibility of negative interest rates and other extraordinary stimulus measures. But financial markets have reacted to all this good news by becoming more volatile – panicky, even – than at any time this year.

Although the U.S. stock market briefly hit a record high on Tuesday, prices quickly slumped. Meanwhile, Japanese shares have suffered their steepest fall since the 2011 tsunami. Most importantly, bond markets have collapsed the world over, pushing long-term interest rates in the United States, Japan and much of Europe to their highest levels in more than a year.

The many interpretations of Ben Bernanke

Anatole Kaletsky
May 23, 2013 16:05 UTC

Federal Reserve Board Chairman Ben Bernanke testifies before Congress in Washington, May 22, 2013. REUTERS/Gary Camero

On Wednesday in Washington, Federal Reserve Chairman Ben Bernanke presented congressional testimony that repeated, virtually word for word, statements about U.S. monetary policy he has been making since last September.

The Federal Reserve, Bernanke said, would continue buying $85 billion of bonds monthly until it was confident of reducing unemployment to 6.5 percent. The scale of these purchases might be increased or diminished – but only if and when such shifts were warranted by economic statistics. Now, he said, there is no case for a change in either direction.

  •