Behind Your Business

BARELY a week goes by without a report on the level of confidence among consumers, businesspeople and investors. Optimism is what’s wanted—Keynes talked of the “animal spirits” that influence economic activity. Pessimists are routinely denounced as Jeremiahs. Those who try to bet on falling prices find their activities are restricted.A cheery disposition may be necessary for societies to function. Daniel Kahneman, a psychologist and Nobel economics laureate, has a chapter in his book “Thinking Fast and Slow” which describes overconfidence as “the engine of capitalism”. No entrepreneur can be sure that his planned investment will succeed but if no one took a risk, new products and jobs would never be created. A certain blindness to the odds may be necessary. According to Mr Kahneman, the chances of an American small business surviving for five years are just 35%. But ask individual entrepreneurs about their prospects and 81% think they have a better than seven-in-ten chance of success.This self-confidence may be innate, just as most people think they are better-than-average drivers. And it would seem...

IF STEVE SCHWARZMAN thought it was valid in 2010 to compare Barack Obama’s “war” against business to Hitler’s invasion of Poland, what can he be thinking now? Private-equity executives must be hoping the boss of Blackstone will keep his opinions to himself. More bad publicity is the last thing the industry needs. Other Republican presidential candidates are competing to see who can say the most damning thing about Mitt Romney’s career at Bain Capital. Newt Gingrich’s supporters have even made a sort of horror movie about what happens when private-equity firms like Bain Capital get their hands on otherwise healthy companies.The buy-out bit of the industry, which buys mature companies, fixes them up and sells them on, is the one on trial (few have a bad word for venture capital, which invests in start-ups). It is charged with destroying the jobs of ordinary people while enriching the likes of Mr Romney.Examples of dud deals are not hard to come by. The tax code’s treatment of debt (with interest on debt payments being tax-deductible) and private equity’s thirst for profits have at times driven the industry to...

THE downturn in the euro area and the wobbly recovery in America have already taken their toll on the emerging world. Setting China’s still-bouncy economy to one side, the average growth rate in other developing countries is estimated to have slumped to an annual rate of less than 3% in the fourth quarter of 2011, from 6.5% in the first quarter. Some of that slowdown was the result of policy tightening to cool overheating economies and curb inflation, but it also reflects weaker exports and reduced capital inflows. If the euro-area debt crisis worsens, things will get nastier for emerging economies.The good news is that whereas most rich countries have little or no room to cut interest rates or to increase public borrowing, emerging markets as a group still have lots of monetary and fiscal firepower at their disposal. That room for manoeuvre served developing countries well during the downturn of 2008-09: monetary and fiscal easing was more effective in boosting demand than it was in the rich world, thanks to healthier private-sector balance-sheets. Although the emerging markets have less room for easing...

JAPAN holds the modern record for years spent with interest rates at zero; they were on the floor from 2001 to 2006. America is on track to break that record. Having cut its short-term rate to near zero in late 2008, the Federal Reserve said on January 25th it will probably stay there “at least through late 2014”, more than a year longer than its previous guidance.On the same day the Fed for the first time published projections of the year individual members of the Federal Open Market Committee, its main policymaking body, expect the federal-funds rate to start rising and the path it would follow over the next three years. The median forecast for a rise in interest rates is 2014 (see chart) but the accompanying statement implies it will probably be later.The Fed also took the long-awaited step of announcing an explicit inflation target—something that many other central banks adopted years ago and that the Fed chairman, Ben Bernanke, has long advocated. The central bank said it prefers inflation of 2%, also the target (or the midpoint in a target range) of the British, Canadian, Swedish and Israeli central...

FOR the chief executives of Deutsche Börse (DB) and NYSE Euronext, this week’s hobnobbing in Davos was strictly business. A $9.5 billion plan to unite the two exchanges was derailed in early December when European Commission staff revealed they were likely to advise blocking it on competition grounds. The exchanges are lobbying hard to persuade the 27 EU commissioners to ignore their staff and approve the deal. A decision is due to be made on February 1st.On the face of it, investors should support the commission’s recommendation to stymie the deal. Its competition wing is mandated to stop mergers that are likely to raise prices, reduce quality or dull innovation. In this case the concern is that the exchanges’ derivatives businesses—DB’s Eurex and NYSE Euronext’s Liffe—would share over 95% of European trading for some assets. There may also be concerns that a merged exchange would be able to force investors to use its clearing facilities (for which it could ratchet up charges) once trades have been made.But there are reasons to think that the deal could be beneficial to investors. Exchanges are platforms on which buyers and sellers can meet, so a lower number of exchanges, which increases the potential for buyer-seller matches, can be better than a fragmented system. In addition, making all trades on one exchange could lower investors’ costs. This is because some assets (...