Was the US Central Bank right to delay a planned rise in interest rates? The increase was anticipated to beat down inflation before it got out of hand. Instead, Chairwoman Yellen and her team “wimped out.” Let’s provide some context first. Following the banking crisis that resulted in the 2008 recession, The US Federal Reserve engaged in unprecedented monetary stimulus through buying bonds, driving real and nominal interest rates to historic lows. Most GOP commentators forecasted high inflation because all else equal that much monetary stimulus should have driven inflation into the double digits. Many business leaders accepted these projections as fact. The fear still hangs over us. Those inflation projections were flat out wrong. Why? Because the “all else equal” condition did not hold true. Banks used extra reserves to build up capital rather than lend, preventing the Fed’s bond-buying action from…
Apple’s winning business model keeps winning
“Apple is finally getting serious about pushing into our living rooms,” according to New York Times reporters Kate Benner and Brian X. Chen. Apple’s already in our bedroom, bathroom, subway ride, vacations and, if we’re not diligent, meals with family. Why not the living room? What else is left? Apple might not be in everyone’s living room, but it’s already in mine. It’s a box that sits next to my cable box that transforms my TV screen into something equivalent to my iPad screen, full of apps such as Public Radio podcasts, movies, TV shows, the HBO channel, etc. (Amazon and Roku are competitors.) Because Netflix streaming has very few of our favored old movies, my husband and I opted for Apple TV as our streaming solution. I will also use Apple for my music once I take the time to download my…
Building, shifting, and destroying value
Economist Joseph Schumpeter called waves of industry change “creative destruction.” He argued disruption of the current industry structures and companies built a nation’s wealth. Most economists agree, viewing creative destruction as a necessary ingredient for economic growth. But Schumpeter was writing in 1942. Is creative destruction still a positive force in today’s world? Or are the benefits of creative destruction more nuanced and the costs far greater than Schumpeter argued? As I reflect on this question, I observe three types of disruptions to markets: new-to-market capabilities, reshaping of the industry value chain, and consolidation. While all three create winners and losers, the net benefits to society differ. New-to-market capabilities disruptions include examples like the steam engine, the telephone, the electric bulb, genetic profiling, and personal computers, creating industries that allow us to do things previously impossible. When an entrepreneur brings new-to-market capabilities to…