But then the U.S. launched a 20-year rampage of GDP growth and soaring stock markets.  Our trading partners got tired of inhaling dust and smoke from the powerful locomotive.  During the 1980s-1990s, the U.S. created about 38 million net new jobs.  Europe created about 39.  Not 39 million, but closer to 39.   

In response, the Reagan Revolution took root in foreign soils.  In the 1990s Sweden watered down socialism to avoid going belly up like a dead mackerel.  The government cut taxes and slapped a ceiling on expenditures.  So today the 35% corporate rate in the U.S. looks punitive compared to the Baltics’.   Sweden’s rate comes in at 22%, which Denmark will reach in 2016.  Meanwhile, Finland is targeting 20% and Norway has just sliced its rate to 27%.  And just next door sits tiny Estonia with a tiny tax rate of 21%.

ABBA’s song “Money, Money, Money” reached the top of the charts in 1976.  A few years earlier Citibank chief Walter Wriston proclaimed his “law” of money:  “Capital goes where it’s welcome and stays where it is well-treated.” 

American politicians must ask themselves, “Are we laying down a welcome mat for new investors, or erecting a barbed wire fence?”  Politicians can’t be for jobs and against job-makers.  You can’t be for the “people” and against the people who do the hiring.

The “Heavenly Bed” provides, not just a good night’s sleep, but a textbook case of successful branding strategy and brand extension. You may have noticed recent advertisements by Delta Airlines promising “Heavenly” duvets and pillows in first and business-class cabins.

How did this happen? After receiving Sternlicht’s memo, the Westin management team, led by Sue Brush, rolled around on a lot of mattresses, finally settling on a Simmons design that tucks 900 coils under the surface. But it wasn’t just the mattress that counted. The team also threw goose-down pillows at each other and stroked duvets and 300-thread-count Egyptian cotton sheets to get the right look and feel. Then they splashed the sheets and covers with all sorts of stains, including red nail polish.

How did guests respond to the chosen ensemble, a snow-white, 13-piece collection of pillows, blanket, duvet, etc.? First, the guests snoozed well. Second, the customers started giving Westin hotels higher marks for overall cleanliness. The all-white, stain-resistant bedding led guests to feel that the entire room was cleaner. Then the requests started coming in: “Can I take this bed home with me?” At first, Westin concierges were flummoxed. After all, it’s hard to stuff a mattress into the overhead compartment of a Boeing 737. Before long, though, Westin set up an online store and signed a deal with Nordstrom to carry the Heavenly Beds and bedding, which cost about $3,000. Westin has sold tens of thousands of these beds to customers all over the world.

But wait, there’s more. Westin then developed the “Heavenly Bath,” including a showerhead with adjustable jets and spray options, from light mist to massaging needles. Then there’s the velour bathrobes, the cushy slippers, and the fragrance selections. Finally, just so you don’t feel selfishly overindulged, you can buy the Westin Heavenly pet bed for your dog, or for your misbehaving spouse.

And, now, of course, Westin has been so successful branding and marketing the Heavenly theme that Delta buys ads promising a Heavenly snooze at 30,000 feet.

How amazing that it took so long for a hotel company to realize that a comfortable, clean bed matters a great deal to travelers! It’s a far cry from Motel 6’s promise, “We’ll leave the light on for you,” which pretty much warns that it could be a dangerous walk down the corridor to your room. The only danger in the Heavenly Bed is sleeping so soundly you could ignore your alarm ringing.

What do we make of this spectacle?  And just who is Mike Tyson? Here’s his resume: orphaned Brooklyn hoodlum grows up to become champion gladiator who scares the hell out of bigger men, and then ends up chomping on another man’s ear.  And don’t forget the 1992 rape conviction and the $400,000,000 in earnings that was either snorted up his nose or spilled into the black-hole pockets of Don King. 

In a follow-up post, I’ll share my thoughts on the show but first, let’s ask:  “What does this have to do with political economy and business, the usual topics for this website?”  The answer is “stigma.”  In just a few years, Tyson went from persona non grata to the cover of People.   In the “old days” of sports or Hollywood, any of Tyson’s scandals would have instantly destroyed his persona.  Baseball great Shoeless Joe Jackson was hounded by “Say it ain’t so” till he died at age 64 standing behind the counter of a country liquor store.  Fatty Arbuckle, a corpulent comedian who clowned on the Pantages stage 100 years before Tyson, was acquitted of rape and manslaughter but not before all his films were banned. 

Nowadays, stigmas recede quickly.  The half-life of a stigma equals the time it takes for a producer to pitch a new reality show starring a washed-up star drooling in rehab.  A similar phenomenon has taken hold in finance.  Bankruptcy once was considered a heinous act.  In Renaissance Italy, insolvent debtors were dragged naked to the public square where they would be forced to bang their buttocks on a special rock in front of a heckling crowd.  The stigma is gone.  How many of Donald Trump’s fans remember he went belly-up in 1990 and was forced onto a daily spending diet by his creditors?  Most of Trump’s fans today know only that he’s the blustery billionaire wizard behind the Apprentice.  In 2005 Martha Stewart wore prison stripes and an orange jumpsuit (unfairly), but now Macy’s and JC Penny wrestle over rights to her pine-cone lingerie, or whatever.

Today’s investors forgive and forget quickly.  In 1998, the Long Term Capital Management (LTCM) hedge fund’s outrageous leverage nearly blew up the world’s financial system, with the help of two Nobel Laureates.  But just one year later LTCM founder John Meriwether popped up to launch a new firm with $250 million in speculative capital.  And then there’s Iceland.  In 2008 Iceland’s three big banks collapsed in the Great Recession, and Iceland tore up promissory notes to international lenders.  But by 2011, creditors paddled back to the chilly island and snapped up $1 billion in new Icelandic bonds.  Today Iceland’s bonds rate higher than Portugal, Italy, Spain, Greece and Cyprus and its GDP is growing faster than just about any EU country.  I don’t know if Iceland is the Mike Tyson of economics, but it’s coming back, even without Spike Lee sitting in a director’s chair, screaming into a megaphone.

When pundits bash bankers as immoral or amoral, they might ask whether bankers are any less moral than sports fans, television fans, or college professors.  All the world’s a reality stage, reckless but quickly resurrected.

http://bit.ly/ZIigw3

Naturally, Cypriots are shouting “count me out!” and dashing to their ATM machines to withdraw cash and stuff those Euro notes in their mattresses where the EU snoops can’t find them.  And so today the EU and the Cyprus president backed off to reconsider their reckless scheme. 

Back in 1999 I argued in Market Shock that the Euro would splinter because one monetary policy can’t possibly be suitable for so many disparate economies. Cyprus has 1.1 million people and nearly as many goats.  Germany has 82 million people and exports the world’s most sophisticated autos and machines.  Unless you think a goat-cart should be yoked to a BMW, you shouldn’t think that Cyprus and Germany belong in the same currency zone.   

With near-riots in front of banks, tourists to Cyprus are cancelling their spring and summer trips.  Restaurants and hotels will suffer.  Cyprus would be better off if it had its own currency (which might devalue by 6.75-9.9%), which would entice tourists to flood to the sunny isle to take advantage of bargains.

Finally, there are the Russians, who stashed about $30 billion in Cyprus as a tax haven.  They are not happy.  If, as news reports surmise, there are a lot of gangsters among the Russian depositors, we might yet see coughing Russian jeeps darting around Cyprus, with gangsters holding Kalashnikov rifles aloft, fighting for their property rights.  The tragicomedy continues…

In Lasting Lessons from the Corner Office, I tell the story of Sarnoff and the battle for color television in the 1940s and early ‘50s.  The battle pit NBC (owned by RCA) vs. CBS.  Two titans led their teams in the fight:  Sarnoff and CBS’s chairman, a bon vivant named William S. Paley, who hob-nobbed with Picasso in the south of France.  The FCC was the referee in this bout, for the agency would choose which corporation would have the right to set the standard for color television technology. 

Though Sarnoff and Paley were both the sons of Russian immigrants, they were different sorts.  Sarnoff trained as an engineer, worked with Marconi and earned the rank of brigadier general in World War II.  Paley liked entertainment programming.  He knew about Jack Benny, not about electrical jacks and capacitors.  And so Sarnoff was appalled when he heard that Paley’s CBS engineers were moving at a faster pace to perfect color. 

But Sarnoff noticed that the CBS model hosted a fatal flaw, a limitation that he couldn’t abide:  CBS broadcasts were invisible to owners of black & white sets.  They would see a blank screen.  Sarnoff insisted that, while NBC broadcast in color, those people who kept their black & white models should also be able to watch the programming, even if it appeared in black & white.  Sarnoff knew it would take longer to build dual-mode broadcasting.  He was willing to wait and wouldn’t rush his product to market until his engineers perfected it.  He spent 16-hour days at the RCA laboratory in Princeton.    

But in 1951 the FCC looked at the competing technologies and declared CBS the winner.  Tens of millions of research dollars were wasted.  Paley rejoiced, and the RCA scientists were devastated. 

Then a lucky break for Sarnoff.  The Pentagon announces that color phosphors are a critical war material.  The CBS assembly lines screech to a halt, and Sarnoff, like a boxer saved by the bell, gets a second chance.   He rushes from his office atop RockefellerCenter to Princeton and camps out in the lab, not wanting to miss a moment of the reprieve.  Given more time, the RCA scientists achieve a breakthrough:  vivid color broadcasts that black & white owners can see in black & white. 

Back to Paley at CBS.  He orders a showdown, a side-by-side comparison of NBC vs. CBS color.  His staffers carry two televisions onto a stage.  Imagine the nervous CBS executives as their dominant chairman leans back in his chair waiting for the two competing televisions to warm up and begin to glow.  He was testing a lifetime of their work.  They had persuaded Paley to spend CBS nearly to bankruptcy to fund their technology. 

Paley later wrote:  “We watched in tense silence for fifteen minutes…There was a deadly pause before anyone would venture an opinion.  I knew exactly what I thought.  I stood up and said, ‘Gentlemen, I’ll be glad to speak first.  I think the RCA camera has us beat’…No one spoke.  So I walked out and that was the end.”  The FCC soon reversed its decision and declared RCA the winner.     

Thirty years later, Paley paid tribute to Sarnoff:  “The way he refused to accept defeat.  The way he kept coming back…to rally his people…the way he drove his scientists to perfect his system.  No doubt about it, he was magnificent in color.”

Bob Hope had a different answer when asked how General Sarnoff won the color wars:  “David Sarnoff stood behind the set with color crayons.”  

But the peak oil prophecy blundered by misunderstanding markets.  Everybody now knows that the fracking revolution has slammed down natural gas prices, by about 75% since 2008.  Moreover, fracking is creating hundreds of thousands of new jobs in hard-hit, hard-hat states like Ohio and Pennsylvania. 

Was this magic?  An accident?  No, it was the work of men, women and markets.  As the price of oil rose (reaching $147 per barrel in 2008) and fears of scarce oil rattled businesses, higher energy prices induced engineers and exploration firms to dig deeper and devote more attention to finding more and different resources.  This is Adam Smith 1.0, as discussed in New Ideas from Dead Economists. 

For the first time since Terry Bradshaw’s early days with the Steelers, a new steel mill, costing $650 million, is being built in Youngstown, Ohio.  Why?  To make tubes for the energy industry.  U.S. Steel spent $100 million to upgrade a mill in Lorain, Ohio.  It can take 10,000 feet of steel tube to reach a shale formation in that part of the country.  These new mills and the new jobs that come with them would not have arrived had oil prices stayed at 1998′s low of $9 a barrel. 

In 1995 Bruce Springsteen lamented shuttered steel mills in his song Youngstown. Back in 1982 Billy Joel sang the sad, poignant Allentown.  On the 7-inch single, he wailed that

Well we’re living here in Allentown

And they’re closing all the factories down

Out in Bethlehem they’re killing time

Filling out forms

Standing in line…

they never taught us what was real

Iron and coke

And chromium steel

And we’re waiting here in Allentown

Someday, Billy Joel might want to spin his 45rpm record in reverse.

For example, Kodak thought it was in the film business and didn’t see digital cameras until it was too late.  Most Kodak customers weren’t devoted to film; they just wanted to see sharp images.  Tower Records thought it was in the record and CD-selling business and didn’t understand that consumers simply wanted to listen to music and were quite happy to hear it through digital downloads. 

Occasionally, a leader will think broadly enough to get ahead of the curve.  Listen to this compelling example.  In my book Lasting Lessons from the Corner Office, I tell the story of the brilliant and innovative David Sarnoff.  Sarnoff, who put RCA and NBC on the map in the 1920s, was basically born a monk in Minsk.  He came to America in 1896 with no knowledge of English. By age 15, while working in New York, he met Marconi and soon developed the idea of putting the radios into homes. 

But Sarnoff didn’t stop there.  He realized he was not simply in the radio business; he was in the sound business.  He negotiated to put radios in GM cars.  In 1928 he negotiated with Joseph P. Kennedy to wire movie theaters with speakers, just in time for Al Jolson’s The Jazz Singer.  And he turned sports into a broadcasting enterprise, hooking up a Jack Dempsey fight to radio transmitters in 1921, allowing 300,000 people to listen to Dempsey’s punishing jabs knock out the French boxer George Carpentier. 

Each year around the Super Bowl we marvel that companies will pay $4 million for 30 seconds of broadcast time.  Even more marvelous:  David Sarnoff foresaw this phenomenon back in 1916!

While recently giving a speech in the Dominican Republic, I came across another story of an innovative CEO.  In the 1950s, Leon Bloom was a chicken man.  He ran a small family business in Georgia cleaning and disinfecting hatcheries and chickens. Today, as in the 1950s, many chickens are dunked in chlorine baths to keep them from spreading germs to the dinner table.  Bloom was a part of a two-man sales force for his company. 

Bloom could have stuck with chicken wings and turkeys.  But as he traveled with his supply of disinfectants, he wondered what else they could be used for.  He also noticed that, amid the new prosperity of the Eisenhower 1950s economy, many Americans were upgrading their backyards.  What did he see?  Swimming pools!  Hollywood movies like Esther Williams’ Million Dollar Mermaid turned home swimming pools into status symbols.  Above-ground, below-ground and even plastic and rubberized blowup pools dotted lawns.  (And this was long before hot tubs and Jacuzzis came along.) 

 Bloom figured that if his chlorine mixtures worked well for chicken baths, they could be adapted for swimming pools.  Today his company, Biolab, is still based in Georgia and one of the world’s leading suppliers to the pool and spa industry.  It all started with chicken wings.

It didn’t turn out that way.  Instead of taking in heaps of excess dollars, Congress is bleeding about $9 billion in red ink over the next 10 years.  Of course, Greenspan was proved right about one thing:  the U.S. government did end up owning parts of private companies, notably General Motors (but not for the reasons Greenspan anticipated).

I once gave a speech at the White House entitled “Clarity, Honesty, and Modesty in Economics.”  To borrow a line from Churchill, economics is a modest science, with much to be modest about.  And yet every so often we are bombarded with sweeping, grandiose forecasts that prove to be wrong.  Of course, you can blame all sorts of factors for today’s budget disaster and for Greenspan’s cracked crystal ball in 2001:  9/11, tech meltdowns, wars in Iraq and Afghanistan, the Great Recession, bogus stimulus plans, etc.

But the fundamental error in budget surplus forecasts is uncovered by Nobel Laureate economist James Buchanan, who died a few weeks ago.  In my book New Ideas from Dead Economists, I discuss Buchanan’s disdain for the bon vivants and eastern elites who run Washington.  He said they “can’t leave the mindset” of their role as lofty and wise elders who deliver Olympian pronouncements.  Buchanan was an earthy fellow who worked on a farm and attended Middle Tennessee State Teacher’s College.

More important than his past, though, Buchanan forces us to grapple with the following claim:  If businessmen are self-interested, why not assume that government officials are “political entrepreneurs?”  What do they maximize?  Their power and ability to gain votes.

What does this have to do with the budget deficit?  From 1958 to 2013, the U.S. has enjoyed a balanced budget only 6 times.  Why?  Surely, we haven’t been in recession or at war for 49 years.  Buchanan argued that politicians are driven to please their constituents.  What do people generally want from government?  More stuff.  What do they not want to do?  Pay for it.  And so, Greenspan’s surplus forecast was unsustainable, even if the economy had not gone over the ledge in 2008.

But don’t deficits hurt people?  Sure, but the pain is indirect and diffuse.  Build a wasteful commuter rail project and congressmen pose at ribbon-cutting ceremonies and get their photos in the papers.  When the project starts losing money, no one shows up for a mug shot photo in bankruptcy court.  Future generations may be bankrupted by our rampant spending spree.  But they don’t get to vote today.  That’s why you don’t see politicians campaigning in nursery schools or maternity wards.

Another country boy said it as well as Buchanan.  “I saw a startling sight today,” Mark Twain said, “A politician with his hands in his own pockets.”