How 3 Myths Drive Europe’s Response to Debt Crisis: Harald Uhlig

In many ways, things in Europe look better than they did just a month or two ago. The European Central Bank is providing banks with almost unlimited cash to buy their governments’ bonds. Yields on Italian debt have declined.

This breather is a perfect opportunity to examine some pernicious -- and widely circulated -- myths that have emerged from the crisis and could still do much harm.

What problems can the U.S. solve with renewable energy?

Four years ago, both presidential candidates acknowledged the threat of climate change and endorsed vigorous policies to move away from fossil fuels. The U.S. seemed on the verge of committing to greenhouse-gas reductions and developing alternative-energy technologies. Since then, most Republican leaders have become skeptical about global warming and now oppose any major policy response.

Most policy ideas for reducing demand for energy rely on one of two claims about why consumers need to be steered toward using less of it. Call these claims Flawed People and Flawed Markets.

Flawed People consume too much energy if they do a poor job of considering energy prices in their decisions, and thus make bad choices about which cars and other energy-intensive products will suit their tastes in the most cost-effective way. Flawed Markets lead to too much energy use if people do a great job of considering energy prices in their decisions, but those market prices are too low to reflect the real costs to society. In this case, people who make cost-effective choices for themselves create negative spillovers for everyone else.

Mergers are famously disruptive for companies and employees. They also don’t always make business sense: About half of all combinations are considered financially unsuccessful, according to a 2003 study by the Federal Trade Commission.

So what makes for a successful merger? Experience shows that the primary reason for failure is the difficulty of organizational integration. A 2010 PricewaterhouseCoopers survey of post-merger companies finds that careful planning of integration ensures that a combination is more likely to achieve cost synergies or other goals. The report says that “speed is critical,” adding that the most important challenges “are motivation of employees, alignment of cultures, organization and processes as well as IT systems.”

Not long ago, Washington policy makers, especially the Treasury and the Federal Reserve, were declaring the U.S. banking system safe from the throes of the subprime-mortgage crash.

One good sign: Most large banks were paying back their bailout loans from the government. The passing grades assigned to most of the same banks as part of the Federal Reserve’s stress test were another positive signal. Even those lenders receiving less than top assessments could access additional private capital to stabilize their balance sheets.

Although the phrase is now somewhat out of fashion, the issue of corporate responsibility is at the heart of many of the debates on economic policies around the world. Should corporations simply maximize profits and let the invisible hand do its wonders, or do they have some obligation to be good corporate citizens as well?

As with many politicized debates, this one has been captured by two extreme positions, neither of which are, to my mind, particularly sensible.

For many aspiring entrepreneurs, the hunt for venture capital is a tale of frustration and woe. Yet an entrepreneurial minority, sometimes viewed as the lucky few, appears to raise money with relative ease.

It turns out there is a roadmap to venture-fundraising success. My research with Stanford University’s Kathleen Eisenhardt, which will be published in the February edition of the Academy of Management Journal, identifies four hallmarks of efficient prospecting for money. By efficiency we mean attempts that take less than two months of formal, almost full-time fundraising, while yielding offers from desired investors.

There is a time for everything, it says in Ecclesiastes, and a season for every activity. Now is the time for the European Central Bank to loosen its monetary policy.

With a liquidity facility providing 639 billion euros ($820 billion) to banks and an interest rate at 1 percent, one could argue that the ECB’s monetary policy could hardly be looser.

A gentleman with a thick Georgia drawl once told me that he could explain the erosion of communism in China with two words: “AY-ur conditioning.”

The citizens of the People’s Republic, he said, looked at their compatriots in Hong Kong and decided that their lives would be much improved if they, too, could afford such modern conveniences.

Business lore and business school classes are full of stories about vertical integration. They range from the classic tales of Carnegie Steel Co., Ford Motor Co.’s River Rouge complex, and General Motors Corp.’s 1926 acquisition of Fisher Body, to Boeing Co. (BA)’s recent decision to bring production of the 787 Dreamliner in-house after costly delays at its suppliers.

What these stories share is the notion that companies vertically integrate so they can ensure ready supplies of key inputs.