THE global signs of a recovery in economic confidence seem puzzling.
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David G. Klein
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Times Topics: Credit Crisis — The Essentials | Recession
It is a large and diverse world, after all, so why should confidence have rebounded so quickly in so many places? Government stimulus and bailout packages have generally not been big enough to have such a profound effect.
What happened? Economic analysts often turn to indicators like employment, housing starts or retail sales as causes of a recovery, when in fact they are merely symptoms. For a fuller explanation, look beyond the traditional economic links and think of the world economy as driven by social epidemics, contagion of ideas and huge feedback loops that gradually change world views. These social epidemics can travel as swiftly as swine flu: both spread from person to person and can reach every corner of the world in short order.
As George Akerlof and I argue in our book, “Animal Spirits,” the business cycle is tied to feedback loops involving speculative price movements and other economic activity — and to the talk that these movements incite. A downward movement in stock prices, for example, generates chatter and media response, and reminds people of longstanding pessimistic stories and theories. These stories, newly prominent in their minds, incline them toward gloomy intuitive assessments. As a result, the downward spiral can continue: declining prices cause the stories to spread, causing still more price declines and further reinforcement of the stories.
At some point, of course, the process must end, as when the market falls so low that it becomes enticing, or when new stories emerge. Similarly, an upward movement in stock prices generates its own upward feedback.
At first, the feedback explanation may sound too simple, and may suggest that the stock market and its turning points are easy to predict. But because day-to-day noise shrouds these changes, and because the stories change in their retelling and as new evidence emerges, the process is actually very complex.
And even when feedback mechanisms are straightforward, they can produce very strange outcomes, not predictable very far into the future, as the modern mathematics of chaos theory can attest.
Still, when there is a change in the economy, it is worth seeking some sense of what actually happened. We should be able to look back at the recent swings and get some idea, after the fact, of what caused us to change our stories and mind-set.
On the downward path between the stock market peak of Oct. 9, 2007 (when the Dow reached 14,164.53), and its bottom (more than 50 percent lower) on March 9 this year, there was a proliferation of negative stories.
In news media accounts and in conversations worldwide, one theme was that something was fundamentally wrong with our economic system, and that it desperately needed to be fixed. The news media seemed full of stories of deceptive accounting and of crony boards of directors — not just because they were news, but also because they answered a public demand for culprits behind the price declines.
These stories led to popular anger, which led business people to become more cautious in their decisions, like those involving hiring and capital expenditures.
Talk of a “crisis of capitalism” was everywhere. In countries around the world, bad guys were found by the news media to personify this narrative. In the United States, the Bernie Madoff story, which broke in December, was a human-interest story that would have been a hit at any time, but it took on supernormal significance as a symbol of an increasingly negative economic perspective. It may be hard to remember now, but these views led to fears that the market might entirely collapse.
I have been collecting survey data since 1989 on public opinion about the stock market; since 2001, the surveys have been conducted under the auspices of the Yale School of Management. We compute a “Crash Confidence Index,” which measures people’s confidence that there will not be a stock market crash like that of Oct. 28, 1929, or Oct. 19, 1987. The index reached its all-time high in 2006, as the market was still soaring. It reached its low at the beginning of this year.
Recently, the Crash Confidence Index has been on an upswing again. Stories about market crashes are less frequent and are being crowded out by a wide variety of other, more normal narratives. The markets have repeatedly been shrugging off bad news because people have a different mind-set.
The popularity of the term “green shoots” shows the kind of social epidemic underlying our changing thinking. The phrase was propelled in Britain by Shriti Vadera, the business minister, in January, and mutated into a more contagious form after Ben Bernanke, the Federal Reserve chairman, used it on “60 Minutes” on March 15.
The news media didn’t need to change the term for different cultures around the world. With nothing more than a quick translation — brotes verdes, pousses vertes, grüne Sprösslinge, etc. — it is now recognized as a symbol of a revival coming soon.
All of this suggests that a social epidemic is supporting renewed confidence. This confidence can keep growing by contagion, as a kind of self-fulfilling prophecy, and we may see the markets and the economy recover further.
But in an economy that is still unstable, the stories could also morph into different forms, the price feedback could turn downward and the dynamic could turn ugly again — just as it has in the past.
Saturday, August 29, 2009
Hey, PC, Who Taught You to Fight Back?
SEAN SILER would never be mistaken for a movie star. A former Navy officer who wears glasses and is a tad on the heavy side, Mr. Siler works at Microsoft, where he oversees the Windows division’s adoption of new Internet connectivity software called IPv6.
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Weekend Business Podcast, including Devin Leonard on the Apple-Microsoft ad wars:
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A Microsoft ad featured Lauren, who was shopping on a budget and decided not to spring for a $1,000 MacBook.
But there were audible gasps last summer when Mr. Siler, 39, auditioned for Microsoft’s new ad campaign for Windows, created by Crispin Porter & Bogusky, the Miami agency best known for its cheeky work for Mini Cooper and Burger King.
“I was like, ‘Are you kidding?’ ” recalls Rob Reilly, one of the agency’s executive creative directors. “It couldn’t have been more perfect.”
Everybody agreed that Mr. Siler looked exactly like PC, the character played by the comedian John Hodgman in Apple’s popular “Get a Mac” ads that lampoon Windows-based computers and those who love them. Two weeks later, Mr. Siler reported to a nearby television studio. The agency dressed him in PC’s dorky uniform — white shirt, baggy khakis, brown sport coat and matching brown tie — and handed him a script with the lines: “I’m a PC. And I’ve been made into a stereotype.”
Mr. Siler joined a parade of environmentalists, budget-conscious laptop shoppers, mixed martial arts fighters, mash-up DJs and remarkably tech-savvy preschoolers who appear in Microsoft’s new campaign, which is intended to show that real Windows users aren’t all clueless drones.
For Mr. Siler, the experience was almost like being a geeky incarnation of Brad Pitt. His e-mail address was on the screen, and he received 4,000 messages from viewers — some from grateful parents whose children had wanted expensive Macs over PCs and now had second thoughts.
Crispin put up a video on YouTube in which Mr. Siler discussed his role in the campaign; it was viewed more than 702,000 times. At work, he was constantly interrupted by his fellow Microsoft employees. “For a couple of weeks,” Mr. Siler recalls, “I had people coming by my office and saying: ‘Hey, you are the PC guy, aren’t you? That’s so cool!’ ”
His mother wasn’t so sure. “You look so horrible,” she told him. “You don’t look anything like that man. Why did they make you look so bad?”
Somebody better explain to Mr. Siler’s mother that this isn’t a beauty contest; it’s an ad war, one destined to go down in history with the cola wars of the 1980s and ’90s and the Hertz-Avis feud of the 1960s. According to TNS Media Intelligence, Apple spent $264 million on television ads last year, 71 percent more than Microsoft. In the first six months of 2009, however, Microsoft responded with $163 million worth of commercials, more than twice Apple’s spending.
Surprisingly, Microsoft, which has never been known for running cool ads, has landed some punches. Shortly after the Microsoft campaign started, Apple unleashed commercials that mocked its competitor as spending money on advertising when it should have been fixing Vista, its much-maligned operating system.
“It got Apple’s attention, didn’t it?” says Robert X. Cringely, host of PBS’s NerdTV.
FOR years, Microsoft was the stodgy market leader. It sold 90 percent of the world’s operating system software, and generally left the advertising to Dell, H.P. and other hardware makers who licensed Windows. The only time Microsoft hawked its most recognizable brand on television was when the latest version of the software hit the shelves. Then the company flooded the airwaves with commercials full of loud music and swirling imagery saying that the new version of Windows is out — and that it’s awesome!
Apple is the classic smaller insurgent. Its share for desktops and laptops in the United States is just over 8 percent. Every time Apple grabs another point of market share from Microsoft’s partners, its stock price climbs. And one way that Apple has tried to gain share is by running clever ads that ridicule everything Microsoft stands for.
There’s no better example than “Get a Mac,” unveiled three years ago by Apple’s longtime ad agency, TBWA/Chiat/Day. No technology company would choose Mr. Hodgman’s character, PC, to personify its brand. He reeks of the past. He boasts of using his desktop to make spreadsheets and ridicules his more youthful friend, Mac, played by the actor Justin Long, for using his desktop for “juvenile” pursuits like blogging and movie making — even through it’s clear that PC would like to be in on the fun. He just can’t get his Windows computer to do his bidding.
Skip to next paragraph
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Photo illustration by The New York Times
Multimedia
Fighting Apple on Its TurfGraphic
Fighting Apple on Its Turf
Weekend Business Podcast, including Devin Leonard on the Apple-Microsoft ad wars:
Related
Times Topics: Microsoft Corporation | Apple Inc.
Add to Portfolio
* Microsoft Corp
* Apple Inc
Go to your Portfolio »
Enlarge This Image
A Microsoft ad featured Lauren, who was shopping on a budget and decided not to spring for a $1,000 MacBook.
But there were audible gasps last summer when Mr. Siler, 39, auditioned for Microsoft’s new ad campaign for Windows, created by Crispin Porter & Bogusky, the Miami agency best known for its cheeky work for Mini Cooper and Burger King.
“I was like, ‘Are you kidding?’ ” recalls Rob Reilly, one of the agency’s executive creative directors. “It couldn’t have been more perfect.”
Everybody agreed that Mr. Siler looked exactly like PC, the character played by the comedian John Hodgman in Apple’s popular “Get a Mac” ads that lampoon Windows-based computers and those who love them. Two weeks later, Mr. Siler reported to a nearby television studio. The agency dressed him in PC’s dorky uniform — white shirt, baggy khakis, brown sport coat and matching brown tie — and handed him a script with the lines: “I’m a PC. And I’ve been made into a stereotype.”
Mr. Siler joined a parade of environmentalists, budget-conscious laptop shoppers, mixed martial arts fighters, mash-up DJs and remarkably tech-savvy preschoolers who appear in Microsoft’s new campaign, which is intended to show that real Windows users aren’t all clueless drones.
For Mr. Siler, the experience was almost like being a geeky incarnation of Brad Pitt. His e-mail address was on the screen, and he received 4,000 messages from viewers — some from grateful parents whose children had wanted expensive Macs over PCs and now had second thoughts.
Crispin put up a video on YouTube in which Mr. Siler discussed his role in the campaign; it was viewed more than 702,000 times. At work, he was constantly interrupted by his fellow Microsoft employees. “For a couple of weeks,” Mr. Siler recalls, “I had people coming by my office and saying: ‘Hey, you are the PC guy, aren’t you? That’s so cool!’ ”
His mother wasn’t so sure. “You look so horrible,” she told him. “You don’t look anything like that man. Why did they make you look so bad?”
Somebody better explain to Mr. Siler’s mother that this isn’t a beauty contest; it’s an ad war, one destined to go down in history with the cola wars of the 1980s and ’90s and the Hertz-Avis feud of the 1960s. According to TNS Media Intelligence, Apple spent $264 million on television ads last year, 71 percent more than Microsoft. In the first six months of 2009, however, Microsoft responded with $163 million worth of commercials, more than twice Apple’s spending.
Surprisingly, Microsoft, which has never been known for running cool ads, has landed some punches. Shortly after the Microsoft campaign started, Apple unleashed commercials that mocked its competitor as spending money on advertising when it should have been fixing Vista, its much-maligned operating system.
“It got Apple’s attention, didn’t it?” says Robert X. Cringely, host of PBS’s NerdTV.
FOR years, Microsoft was the stodgy market leader. It sold 90 percent of the world’s operating system software, and generally left the advertising to Dell, H.P. and other hardware makers who licensed Windows. The only time Microsoft hawked its most recognizable brand on television was when the latest version of the software hit the shelves. Then the company flooded the airwaves with commercials full of loud music and swirling imagery saying that the new version of Windows is out — and that it’s awesome!
Apple is the classic smaller insurgent. Its share for desktops and laptops in the United States is just over 8 percent. Every time Apple grabs another point of market share from Microsoft’s partners, its stock price climbs. And one way that Apple has tried to gain share is by running clever ads that ridicule everything Microsoft stands for.
There’s no better example than “Get a Mac,” unveiled three years ago by Apple’s longtime ad agency, TBWA/Chiat/Day. No technology company would choose Mr. Hodgman’s character, PC, to personify its brand. He reeks of the past. He boasts of using his desktop to make spreadsheets and ridicules his more youthful friend, Mac, played by the actor Justin Long, for using his desktop for “juvenile” pursuits like blogging and movie making — even through it’s clear that PC would like to be in on the fun. He just can’t get his Windows computer to do his bidding.
Singh Opens Oil Field as India Moves to Cut Reliance on Imports
(Bloomberg) -- Cairn India Ltd. today started production at its biggest oil field in Rajasthan state, as Prime Minister Manmohan Singh inaugurated a project that will help cut the nation’s dependence on energy imports.
The Mangala field, operated by the unit of U.K.-based explorer Cairn Energy Plc, will have an estimated peak output of 175,000 barrels a day by 2011, equivalent to 20 percent of the country’s current oil production, and be the country’s second- biggest producer after Oil & Natural Gas Corp.’s Mumbai High.
India, Asia’s third-biggest energy consumer, will earn 460 billion rupees ($9.4 billion) in revenue from the field, Oil Minister Murli Deora said at the opening ceremony today.
“This will go a long way to meeting the country’s energy needs,” said Maitali Ramkumar, a New Delhi-based analyst with Asian Markets Securities Pvt. “We think crude prices will rise and that will only benefit Cairn.”
Output from Cairn’s field, as well as the beginning of gas production off India’s east coast by Reliance Industries Ltd. earlier this year, will help India cut imports that supply more than 75 percent of its total energy requirements.
Cairn will double investment in the Rajasthan oil field to 200 billion rupees, Deora said, and its output will cut the country’s oil import bill by 7 percent.
The Mangala field will dwarf Cairn’s current output, which averaged 12,801 barrels of oil equivalent a day last year, according to the company’s annual report. Cairn produces crude oil from two other fields in India, one each off the west coast and east coast.
Discount Sales
Oil from Mangala may be sold 10 percent to 15 percent cheaper than the average price Brent crude fetched during the six months ended June 30, Cairn India said July 29. It has completed negotiations on pricing and commercial terms of crude sales from the field with Mangalore Refinery & Petrochemicals Ltd. and Indian Oil Corp., the government’s nominated buyers of the crude, the company said.
The company can sell crude at market prices, unlike state- run Oil & Natural Gas Corp. which must give discounts to state refiners on the oil it produces.
Cairn planned to complete a pipeline to transport crude from Mangala to the west coast in Gujarat state within this year. The target for completing the pipeline looks “increasingly challenging,” Cairn India Chairman Bill Gammell said Aug. 25.
Any delay to the export pipeline, as well as a second processing train, will be a “matter of weeks, not months,” Gammell said on a conference call with reporters. The timetable could be revised by weather-related events such as monsoons, he said.
Cairn shares have advanced 51 percent this year compared with a 65 percent increase in the benchmark Sensitive Index of the Bombay Stock Exchange. Ramkumar of Asian Markets Securities maintains a “hold” recommendation on Cairn India’s stock.
The Mangala field, operated by the unit of U.K.-based explorer Cairn Energy Plc, will have an estimated peak output of 175,000 barrels a day by 2011, equivalent to 20 percent of the country’s current oil production, and be the country’s second- biggest producer after Oil & Natural Gas Corp.’s Mumbai High.
India, Asia’s third-biggest energy consumer, will earn 460 billion rupees ($9.4 billion) in revenue from the field, Oil Minister Murli Deora said at the opening ceremony today.
“This will go a long way to meeting the country’s energy needs,” said Maitali Ramkumar, a New Delhi-based analyst with Asian Markets Securities Pvt. “We think crude prices will rise and that will only benefit Cairn.”
Output from Cairn’s field, as well as the beginning of gas production off India’s east coast by Reliance Industries Ltd. earlier this year, will help India cut imports that supply more than 75 percent of its total energy requirements.
Cairn will double investment in the Rajasthan oil field to 200 billion rupees, Deora said, and its output will cut the country’s oil import bill by 7 percent.
The Mangala field will dwarf Cairn’s current output, which averaged 12,801 barrels of oil equivalent a day last year, according to the company’s annual report. Cairn produces crude oil from two other fields in India, one each off the west coast and east coast.
Discount Sales
Oil from Mangala may be sold 10 percent to 15 percent cheaper than the average price Brent crude fetched during the six months ended June 30, Cairn India said July 29. It has completed negotiations on pricing and commercial terms of crude sales from the field with Mangalore Refinery & Petrochemicals Ltd. and Indian Oil Corp., the government’s nominated buyers of the crude, the company said.
The company can sell crude at market prices, unlike state- run Oil & Natural Gas Corp. which must give discounts to state refiners on the oil it produces.
Cairn planned to complete a pipeline to transport crude from Mangala to the west coast in Gujarat state within this year. The target for completing the pipeline looks “increasingly challenging,” Cairn India Chairman Bill Gammell said Aug. 25.
Any delay to the export pipeline, as well as a second processing train, will be a “matter of weeks, not months,” Gammell said on a conference call with reporters. The timetable could be revised by weather-related events such as monsoons, he said.
Cairn shares have advanced 51 percent this year compared with a 65 percent increase in the benchmark Sensitive Index of the Bombay Stock Exchange. Ramkumar of Asian Markets Securities maintains a “hold” recommendation on Cairn India’s stock.
Karzai extends Afghan vote lead
Hamid Karzai, Afghanistan’s president, extended his lead over his main challenger in the nation’s presidential election on Saturday as Gordon Brown made a surprise visit to UK troops deployed in the south of the country.
The latest batch of results from last week’s election gave Mr Karzai 46.2 per cent of the vote compared to 31.4 per cent for Abdullah Abdullah, his former foreign minister, based on results from 35 per cent of polling stations.
EDITOR’S CHOICE
Afghan rift with US clouds Obama strategy - Aug-28
US envoy confronts Karzai over poll - Aug-28
In depth: Afghan elections - Aug-25
Karzai and rival neck and neck - Aug-25
Video: Polls leave Afghanistan in political limbo - Aug-20
The tally put Mr Karzai closer to obtaining the 50 per cent needed to avoid a run-off with Mr Abdullah, although the count could still change significantly as the rest of the votes are tallied. Final official results are not due to be released until late next month, after a commission to set up to investigate allegations of fraud has processed hundreds of complaints.
Mr Abdullah has accused the government of presiding over “massive state-engineered” rigging in the vote, marred by an extremely low turnout in the south and allegations of ballot-stuffing and intimidation. Mr Abdullah’s sympathisers have also been accused of electoral abuses.
Facing mounting criticism at home over his conduct of the war, the British prime minister visited a military base in Helmand Province, where growing casualties among UK troops have helped make this the deadliest year for international forces in Afghanistan. The death toll for British soldiers killed in Afghanistan stands at 207.
Reports that turnout was very low in areas secured at the cost of British soldiers’ lives has fuelled a wider debate in the UK over the conduct of the war.
Mr Brown’s government has faced months of allegations that it has failed to provide enough troops or equipment to support forces engaged in heavy fighting with Taliban insurgents.
Scenes of the bodies of British troops returning in flag-draped coffins shown repeatedly on British television in recent weeks have pushed Afghanistan higher up the political agenda ahead of general elections, which must be held by June next year and which Mr Brown is widely expected to lose.
Mr Brown said UK forces were being supplied with equipment to protect them from deadly roadside bombs and called for faster efforts to train Afghan security services to allow them to play a bigger role in pushing back the Taliban.
”I’ve talked to Mr Karzai and Mr Abdullah and I’ve made it absolutely clear to them that we expect over the next year that they will train – and we will work with them to do so – around 50,000 more Afghan forces,” Reuters quoted Brown as telling reporters at Camp Bastion, Britain’s main military base in Afghanistan. He did not comment on the election.
With four months of 2009 still left to go, this year has already become the deadliest yet for international forces deployed in Afghanistan since the Taliban government was toppled in 2001. Total fatalities among all forces in the Nato mission have already crept above the total of 294 who lost their lives in the whole of 2008.
The latest batch of results from last week’s election gave Mr Karzai 46.2 per cent of the vote compared to 31.4 per cent for Abdullah Abdullah, his former foreign minister, based on results from 35 per cent of polling stations.
EDITOR’S CHOICE
Afghan rift with US clouds Obama strategy - Aug-28
US envoy confronts Karzai over poll - Aug-28
In depth: Afghan elections - Aug-25
Karzai and rival neck and neck - Aug-25
Video: Polls leave Afghanistan in political limbo - Aug-20
The tally put Mr Karzai closer to obtaining the 50 per cent needed to avoid a run-off with Mr Abdullah, although the count could still change significantly as the rest of the votes are tallied. Final official results are not due to be released until late next month, after a commission to set up to investigate allegations of fraud has processed hundreds of complaints.
Mr Abdullah has accused the government of presiding over “massive state-engineered” rigging in the vote, marred by an extremely low turnout in the south and allegations of ballot-stuffing and intimidation. Mr Abdullah’s sympathisers have also been accused of electoral abuses.
Facing mounting criticism at home over his conduct of the war, the British prime minister visited a military base in Helmand Province, where growing casualties among UK troops have helped make this the deadliest year for international forces in Afghanistan. The death toll for British soldiers killed in Afghanistan stands at 207.
Reports that turnout was very low in areas secured at the cost of British soldiers’ lives has fuelled a wider debate in the UK over the conduct of the war.
Mr Brown’s government has faced months of allegations that it has failed to provide enough troops or equipment to support forces engaged in heavy fighting with Taliban insurgents.
Scenes of the bodies of British troops returning in flag-draped coffins shown repeatedly on British television in recent weeks have pushed Afghanistan higher up the political agenda ahead of general elections, which must be held by June next year and which Mr Brown is widely expected to lose.
Mr Brown said UK forces were being supplied with equipment to protect them from deadly roadside bombs and called for faster efforts to train Afghan security services to allow them to play a bigger role in pushing back the Taliban.
”I’ve talked to Mr Karzai and Mr Abdullah and I’ve made it absolutely clear to them that we expect over the next year that they will train – and we will work with them to do so – around 50,000 more Afghan forces,” Reuters quoted Brown as telling reporters at Camp Bastion, Britain’s main military base in Afghanistan. He did not comment on the election.
With four months of 2009 still left to go, this year has already become the deadliest yet for international forces deployed in Afghanistan since the Taliban government was toppled in 2001. Total fatalities among all forces in the Nato mission have already crept above the total of 294 who lost their lives in the whole of 2008.
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