Chrystia Freeland

Americans favor more income equality

Chrystia Freeland
Nov 30, 2010 22:52 UTC

Behavioral economist Dan Ariely of Duke University came into Reuters today to talk to Chrystia about his new book and some of his recent research on income inequality.

Ariely, along with Michael Norton of Harvard Business School, conducted a survey to determine what level of inequality Americans tolerate if their incomes were randomly assigned, an equilibrium that philosopher John Rawls called the “just society.” The duo asked nearly 6,000 Americans to guess what percent of wealth they thought was owned by each of the five quintiles of income levels in the United States and what their ideal level of income distribution would be. Then, Ariely and Norton presented the respondents with three unlabeled charts showing–unbeknownst to them–the distribution of income in a perfectly equal society, the United States, and Sweden, respectively, and asked which society they would choose to live in.

The results were quite shocking:

First, respondents vastly underestimated the actual level of wealth inequality in the United States, believing that the wealthiest quintile held about 59% of the wealth when the actual number is closer to 84%. More interesting, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution, reporting a desire for the top quintile to own just 32% of the wealth


The (unlabeled) United States distribution was far less desirable than both the (unlabeled) Sweden distribution and the equal distribution, with some 92% of Americans preferring the Sweden distribution to the United States.

He summarized his research findings for Chrystia in the following way:

I think what politicians often do is cover things with layers of words that in many ways obscure the topics. ‘What about taxes?  And what’s your opinion about abortion and social mobility?’ But when you look deep down, it turns out Americans really believe in much more equality than we currently have. And this kind of gives me hope that as long as we can get a discourse to be more about the beliefs, we might get something better.

‘We can’t say they didn’t warn us’

Chrystia Freeland
Nov 29, 2010 17:54 UTC

Chrystia wrote an essay for Foreign Policy’s Top 100 Global Thinkers Issue on the economists and financiers whose ideas survived the financial crisis:

In a letter to shareholders written just after the dot-com bust, Warren Buffett observed, “You only find out who is swimming naked when the tide goes out.” The 2008 financial crisis had a similar effect on our economic and financial gurus: It revealed whose thinking was based on whiggish, End-of-History assumptions about the essential triumph of Western democratic capitalism and whose mental framework admitted the possibility of radical disruption. The thinkers whose intellectual — and maybe even psychological — starting point was that Western market democracy is neither perfect nor eternal turned out to be much better at foreshadowing the financial crisis, and it is those thinkers whose ideas are the most relevant today, in the uncertain, post-crisis world.

These specialists in uncertainty are a broad church: They range from academic economists who saw the crisis coming, like New York University’s Nouriel Roubini and the University of Chicago’s Raghuram Rajan, to philosophers of finance like George Soros and Mohamed El-Erian, who have made huge market bets, as well as intellectual ones, on how bubbles are formed and how they burst. One striking similarity between many of them is that they have seen regime change up close.

America’s culture of no

Chrystia Freeland
Nov 26, 2010 14:49 UTC

Saying ‘yes’ is one of the dominant tropes of American life. America’s favorite politicians are the sunny optimists: think Ronald Reagan and “Morning in America.” In fact, the culture is so insistent on looking on the bright side that, as Barbara Ehrenreich complained in a recent book, injunction can be heard on the cancer ward. You might even say — and some historians have — that Americans themselves have been pre-selected for their optimism: you or your ancestors had to have a powerful faith in the New World and the opportunities here to make the trek over in the first place.

That’s why when I interviewed Nikesh Arora, Google’s head of sales, operations and business development at a media conference last week, one of his comments had particular resonance with the live midtown Manhattan audience and in the blogosphere shortly afterwards. Google, Arora said, works hard to create “a culture of yes.”

Arora described the Google approach as an “inversion” of the attitude in more traditional companies, where “everybody in management is trying to look at where the flaw is when somebody is presenting. Everybody is trying to figure out what’s wrong with their plan.” At the Googleplex, by contrast, “we’re going to say what’s right with it, let’s find a way to say yes.”

Where distressed investors should look

Chrystia Freeland
Nov 22, 2010 16:56 UTC

At last Friday’s Wharton Private Equity Partners Distressed Investing Symposium, Chrystia interviewed Mark Gallogly, co-founder and managing principal at Centerbridge Partners, a private equity and credit investment firm with $12 billion in assets under management. Gallogly said finding good opportunities in the distressed sector has become tougher as the “wall of maturities” (the point in time when debt must be refinanced) has been pushed further into the future, thanks to the booming market for corporate debt.

He notes, however, that the wall has been extended mainly for bank notes and senior debt; not for securities that are subordinate on the capital structure, like junior debt. So distressed investors should keep an eye out for situations in which a corporation’s junior debt matures much earlier than its senior debt:

Aside from buoyant bond markets, Gallogly said private equity also faces a challenge of dealing with an abundance of capital at a time when interest rates are reversing their long-term downward trend:

Google’s culture of yes

Chrystia Freeland
Nov 19, 2010 16:25 UTC

Nikesh Arora, Google’s President of Global Sales Operations and Business Development, spoke to Chrystia yesterday at a panel during the Paley Center for Media’s November International Council meeting. Arora explained how Google is able to keep its garage-workshop spirit of innovation even as the company swelled to 20,000 employees. The key, he said, was to establish a “culture of yes” where the default option is for management to approve employees’ new ideas andprojects rather than trying to nitpick and say no. Several of Google’s most recent initiatives, from driverless cars to a new offshore power grid to promote wind power, were the byproduct of this bottom-up process.

In response to Chrystia’s question about whether Facebook’s new e-mail service will steal users away from Google, Arora said the “internet is not a zero-sum game.” He predicted that in five to eight years, 80 to 90 percent of people’s time will be spent on internet-enabled devices, and in such a world, it would be impossible for any one company to dominate all online behavior.  Arora foresaw a future in which there are 15 to 20 players that provide the most popular online services, and that he would include Google and Facebook in that list.

Finally Arora shared his outlook for what areas Google is investing in most heavily.  He said the company’s focus on advertising, while sizable, is aimed only at the 10% of the $600 – $700 billion ad market that is online.  In five to eight years, he predicted 30 to 50 percent of the ad market will shift to online.  Google will be poised to take advantage of that shift, as well as the shift to personalization and interactivity in ads that will occur in the near term.

Can America summon the will to invest in the future?

Chrystia Freeland
Nov 19, 2010 14:30 UTC

Surf the web or watch TV and you will probably conclude that American politicians and American pundits don’t agree on much at the moment. But that polarized public discourse obscures the equally important fact that Americans are remarkably united when it comes to determining what the big issues facing the country are.

This isn’t a moment when the nation is divided between isolationists, who want to focus on domestic issues, and expansionists, who want to focus on the rest of the world; nor is this an era when the political debate is about whether social policy—those old standbys like abortion, gay rights and family values—or economic concerns—be they poverty reduction or business growth—should be pre-eminent.

Instead, everyone is pretty much agreed on the big challenges facing America: stimulating economic growth, balancing the budget and finding a place for the United States in the world economy. There is even consensus, at the broadest level, on what the country needs to do to achieve all three: save more and spend less; invest more in social and physical infrastructure and less in personal consumption.

The fetish of corporate social responsibility

Chrystia Freeland
Nov 17, 2010 22:54 UTC

Back in September Chrystia appeared on a panel for public-interest communications firm Fenton that addressed the state of corporate social responsibility in business today. She elaborated on her August op-ed in the Washington Post that argued that CSR is a “a fetish encouraged by the philanthropies that feed off it and funded by the corporate executives who have found that it serves their bottom line.” Check out the highlights.

You can watch the entire panel here.

Posted by Peter Rudegeair.

What’s good for the world is bad for the U.S. and China

Chrystia Freeland
Nov 12, 2010 15:12 UTC

This fall, much of the United States seemed to have settled on a narrative for the country’s struggle to adapt, after a debilitating financial crisis, to a post-industrial and post-unipolar global economy: China and its undervalued currency are largely to blame.

Proof that this was a nationally compelling storyline came during the acrimonious midterm election campaign. U.S. politics have rarely been more polarized, but complaining about China was something both parties could agree on.

John Boehner, the presumptive new Republican Speaker of the House, attacked the Democrats for “a stimulus that shipped jobs overseas to China instead of creating jobs here at home.” Harry Reid, the Nevada Democrat who hung on to his Senate seat and his job as Majority Leader, accused his Tea Party opponent Sharron Angle of being “a foreign worker’s best friend” for supporting corporate tax breaks that helped businesses outsource jobs to China and India.

Talking QE2 on PBS’ NewsHour

Chrystia Freeland
Nov 10, 2010 17:46 UTC

Chrystia discusses the Fed’s recent decision to launch a new round of quantitative easing on the PBS NewsHour:

You can read the transcript here.

Posted by Peter Rudegeair.

Forget left and right. The real divide is technocrats versus populists.

Chrystia Freeland
Nov 5, 2010 13:50 UTC

A favorite theme of American business and political elites at the moment is that authoritarian regimes—i.e., China—may be better at making hard, long-term economic decisions than are querulous democracies—i.e., the United States. There is plenty of academic research to suggest that, over the long term, this view is wrong. But in the shorter term—this week in fact—America itself offered a case study of this scary theory.

Consider: On Tuesday, Americans swung sharply to the right, giving their Democratic President a shellacking and handing control of the House of Representatives to the Republicans. The country’s most powerful elected Republican, John Boehner, who will be the new speaker, immediately declared it was a vote for “cutting spending” and “smaller, less costly government.” Most analysts, including happy ones on Wall Street, who are often most cheerful when the country’s elected officials are least active, decided it was a vote for gridlock, thanks to the Democrats’ continued control of both the Senate and the White House.

Then, on Wednesday, America’s most powerful unelected Republican, Ben Bernanke, the chairman of the Federal Reserve, swooped in with massive government action, announcing a plan to pump $600 billion dollars into the U.S. economy over the next two years. That is not much smaller than two of the big government interventions that earned the Democrats their shellacking—the $700 billion TARP program (never mind the pesky fact that it was actually a Republican Secretary of the Treasury who invented it) and the $787 billion stimulus.