Worthy of The Onion

When the Ann Arbor Chronicle pointed out an article in the Tampa Bay Business Journal critical of a subsidiary of Detroit-base Issue Media Group, I found my way to 83 Degrees Tampa Bay, which offers Tampa Bay-area humor about economic development issues, some of which matches the best of The Onion:

- Local Woman Aspires to Under-Employment
- Best Places to Be Laid Off From (funny enough to let the grammar slide!)
- Economics Professor Just Doesn't Get It

Applying "That's not what we do" to your personal life

Today ,via I Will Teach You To Be Rich, I came across another great example of how saying "That's not what we do" is the backbone of strategy.

Jim Collins, bestselling author of Good to Great (my review) and Built to Last, says that the best New Year's resolution you can make is a "Stop Doing" list. This is a similar concept to the second section, "Elimination", of Tim Ferris's The 4-Hour Workweek.

I often feel this way

BLS fails Macroeconomics 101

From the New York Times, via DeaneBarker.net

 

One of the first things we learned in macroeconomics (it was literally in the first chapter of my textbook, by this guy) was that Gross Domestic Product (GDP) is the market value of all final goods and services made within the borders of a country in a year.

 

GDP calculation is (relatively) easy when all production occurs within a single country within a single year. International trade and work across years complicate matters, and one common solution is to use a "value-added" calculation.

 

Consider a simple case: Elbonia has only one product, cogs. In 2007, they produced 100 cogs, which sold for $2 each. Elbonia's 2007 GDP was $200.

 

Slightly more complex: Kneebonia has only one product, widgets. Each widget is made of 10 cogs. In 2006, they entirely produced 100 widgets, which sold for $50 each, and had widgets in process consisting of 10 cogs at the end of the year. In Kneebonia, cogs are generally valued at $3 each. Kneebonia's 2006 GDP was $5,030 (100x$50 + 10x$30). In 2007, Kneebonia produced 100 widgets, and had no widgets in process at year-end. Kneebonia's 2007 GDP was $4,970 (99x$50 + 1x$20 for the value added in 2007).

 

International trade: In 2008, the Kneebonian executives realize that, rather than manufacture their own cogs for $3, they can import them from Elbonia for $2 and pocket the difference. Elbonia makes 2,000 cogs at $2 each, for an Elbonian GDP of $2000. Kneebonia makes 100 widgets, but because they didn't make the cogs, they only get to take credit for the value added of $30 per widget, so even though they maintained their widget production, Kneebonia's GDP decreases to $3,000.

 

So what did the BLS do wrong?

 

Well, the US has had an awful lot of outsourcing and offshoring lately. In some cases, the cogs were outsourced, and the BLS didn't adjust for the value added. In some cases, it appears that the entire widget assembly was outsourced, and the BLS just kept counting it.

 

What does it mean?

 

If the BLS has been consistently overestimating US GDP, it means that actual GDP growth has been less than reported, and recessionary declines greater. By itself, this doesn't necessary make a huge difference, although it may partly account for recent "jobless recoveries", but when factored together with the systematic undercounting of inflation and unemployment, which I've previously mentioned, it adds up to a much worse economic picture than the government has been reporting.

Saying "that's not what we do."

Seth Godin reminds us that saying "That's not what we do" (with an understanding of why -- more than just because you never did) is the backbone of strategy, one day after a nice New York Times article about a new media outlet doing exactly that.

 

On The Texas Tribune's second day of operation, big news broke in their back yard, when a shooting left thirteen people dead at Fort Hood. Tribune staffer Elise Hu described the scene in their offices:

 

We were all sitting around talking excitedly about what we were going to do with it. And then you could see Matt [Stiles] was about to blow his stack.

 

You see, the Tribune is not, and was not intended to be, a general news outlet. Their mission is specific: to report on the politics and policy of Texas state government. So kudos to the Tribune for being willing to say, "that's not what we do." I wish more organizations had their discipline!

Carly Fiorina is a hack

On the heels of her announcement that she will seek the Republican nomination for the Senate seat from California currently held by Barbara Boxer, I thought I'd review the "high" points of Carly Fiorina's career.

- She led the spin-off of Lucent from AT&T. Lucent's IPO price was $7.56 per share, and it quickly rose to $84, meaning that the IPO left 90% of the potential money on the table. Within four years Lucent was struggling, and after 6 years, Lucent's stock had crashed to $0.55 per share. Obviously she wasn't 100% responsible for all this, but she certainly played a key role.

- As CEO of Hewlett-Packard, she was an unmitigated disaster. Over the 5 1/2 years she led the company, HP's stock price went from $55 to $21, a 62% decline, while competitor Dell gained 8% over the same time. She merged HP with one of the crappiest PC makers ever, Compaq. She got in a public dispute with HP board member Walter Hewlett, the son of co-founder William Hewlett. On the day Fiorina was forced out of HP, the stock price jumped 6.9% while the broader markets were down. She has subsequently been called the "anti-Steve Jobs" and one of the 20 worst American CEOs of all time.

- She was a key advisor to John McCain in his 2008 presidential campaign, during which she described Sarah Palin as "a person of great accomplishment", before sticking her foot in her mouth by saying that Palin lacked the experience to run a major company like Hewlett Packard, later adding that none of the candidates on the Democratic or Republican tickets had the experience to run a major business.

Sounds like a great nominee for the Republican Party!

Dave Ramsey's latest lie

Dave Ramsey's latest newsletter had an outright lie, and he should be called out on this:

Washington recently announced that, for the first time since 1975, there will be no cost-of-living adjustment for more than 50 million Social Security recipients in 2010. This is just another sign that the system is mathematically doomed and shouldn't be counted on to fund you at retirement. [My emphasis]

The second sentence is just plain not true, and I'm sure Dave knows this. When there is no (or very low) inflation, there should be no inflation adjustment!

As the Social Security Administration's website states quite clearly:

Because there is no increase in the CPI-W from the third quarter of 2008 through the third quarter of 2009, there is no COLA.

In other words, this has absolutely nothing to do with the solvency, or lack thereof, of Social Security.

Justifiable != necessary

On a recent episode of Real Time with Bill Maher, Richard N. Haass, president of the Council on Foreign Relations, discussed his most recent book, War of Necessity, War of Choice. While Mr. Haass is certainly well-qualified and makes a good argument, in the end I don't think any war can truly be said to be a war of necessity; there is always a choice, however unpalatable in may be.

For example, on the show, Mr. Haass described several wars as "wars of necessity" (from the American perspective), including the American Revolutionary War, World War II, and the Korean War (in the beginning, though he mentioned that it developed into a war of choice with the 1950 UN offensive), while describing the Vietnam War and the current Iraq War as wars of choice. This is an overly-simplistic view which I'm disappointed to find in such a distinguished diplomat.

Each of the wars presented by Mr. Haass as a war of necessity may be a justifiable war (jus ad bellum, though not necessarily jus in bello), but there is a difference between justified and necessary. There were alternatives to each war mentioned: in the American Revolution, 15% to 20% of the white population were loyalists; on December 8, 1941, Jeannette Rankin saw an alternative to war with Japan; in 1951, British Attorney General Sir Hartley Shawcross acknowledged opposition to the Korean War, saying, "I know there are some who think that the horror and devastation of a world war now would be so frightful, whoever won, and the damage to civilization so lasting, that it would be better to submit to Communist domination. I understand that view–but I reject it."

Shawcross's view, as expressed in that quote, probably comes close to Mr. Haass's intended meaning of "war of necessity" -- not that no other options are available, but that any options are perceived as relatively unacceptable. If, for example, you had the choice between losing a toe and losing an arm, most people would choose to keep their arm. That doesn't make losing the toe necessary, but it does make it justifiable.

Kudos to Senator Coburn (R-OK)

I don't agree with certain of his positions, but I must say, kudos to Senator Tom Coburn (R-OK) for holding up $10 billion in unneeded spending.

 

"If we pass a new program, we either ought to get rid of the old program or we ought to make it to where it blends with this other one so it's effective," Coburn said in an interview last week. "Almost everything that they've offered has a duplicate program out there that they're not either eliminating or changing." He said the Senate was shirking its duty by failing to give closer review to the hundreds of bills that slide through by unanimous consent. And he said Congress should not be clearing the way for billions of dollars in potential new spending — even on meritorious projects — without making reductions elsewhere. Fearful of the public debt piling up, he said he wanted the opportunity to at least propose those cuts.

"We ought not be borrowing and expanding the federal government unless we get rid of stuff that is not working," he said.

More on inflation

As a followup on my previous comments about inflation, consider Dow Chemical's announcement today that it will raise prices by up to 25% next month, following on a 20% price increase last month. For those whose math skills are shaky, that's 50% in three months (don't forget to compound!), which comes to 400% annually! Consumers won't see these price increases immediately, but rest assured that this will eventually work its way through the supply chain; manufacturers are not going to just absorb this price increase.