Wed, 02 Jun 2010 15:54:26 PDT econometrics, Associated consultants, scholar, Consulting, Jan Kmenta, advisors, David Cornwell, John le Carre, spy, Intelligence failure, Tailor of Panama, spy novel, teacher Jan Kmenta, Professor of Econometrics
The work of the best novelists and scholars burrow into the psyche. Peculiarly in my own mind the British intelligence officer and novelist David Cornwell (aka John le Carré), and Czech-born Jan Kmenta, the wry professor of econometrics, are inextricably linked. Both exemplify their generation's dedication to finding truth in ambiguous settings through careful application of craft.
Kmenta would begin his graduate course in econometrics with a set of definitions:
An Economic Historian goes into a dark room looking for a black cat.
An Economic Theorist goes into a dark room looking for a black cat that is not there.
An Econometrician goes into a dark room looking for a black cat that is not there and declares: "I found it!"
The rest of the course (and the three that followed) was devoted to an arduous study of the theory and practice that would keep us from making any such a mistake. With humor Kmenta could shoulder the futility of his quest, but he could not abide those who mistook shortcuts for progress.
John le Carré These ruminations began when by some happy accident I picked up my decade-old copy of John le Carré's The Tailor of Panama. Writing in the mid-1990's, as the West was celebrating the end of the Cold War, le Carré adapted his method to the times. Turning away from the earnest style of his previous spy novels, le Carré surprised his readers with a comic approach.
His unlikely protagonist, an expatriate tailor with a good heart and a questionable past, is recruited by a novice spy of uncertain virtue. Together they set out to prove the existence of conspiracy fabricated from whole cloth. True to his craft but inept in spycraft, the tailor weaves selective data with imaginative storytelling to flatter the careless and comfort the powerful. The institutions charged with analyzing and verifying his reports fail to question false information that suits their narrow interests. Let loose in a benign environment, the misdirected agents of change wreck havoc.
In the aftermath of the intelligence failures of this twenty-first century, John le Carré seems eerily prescient. By the same token, clients are advised to select their consultants and govern their projects with unusual diligence. It is all too easy to prove the existence of black cats that were never there.
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Morgan Stanley and Goldman Sachs become regulated bank holding companies, ending era of Investment Banking
Wed.
24-Sep-08
Economists submit letter in opposition to the original Paulson Plan, claiming it is unfair, ambiguous and short-sighted
Thurs.
25-Sep-08
Regulators seize Washington Mutual Saving and Loan and arrange sale to JP Morgan Chase
Sun.
28-Sep-08
First draft of Emergency Economic Stabilization Act of 2008 (HR 3997)
Mon.
29-Sep-08
HR 3997 fails to pass the U.S. House
Wed.
1-Oct-08
Senate passes HR 1424, a modified version of the bill
Fri.
3-Oct-08
Congress passes HR 1424 and President G.W. Bush signs it into law
Week ending 10/10
Dow Jones loses 18% of value in one week.Iceland seizes its banks.Britain proposes direct investment in banks
Sat.
11-Oct-08
G7 finance ministers, then Group of 20 meet at White House to coordinate policy
Mon.
13-Oct-08
Paulson and Bernanke meet with leaders of 9 largest banks.Get agreement on direct infusion of cash
Mon.
10-Nov-08
AIG bailout restructured to include $60 billion loan from US Federal Reserve, $40 billion in securities purchased by US Treasury, and credit lines of up to $30 billion backed by Credit Default Swaps and $22.5 billion against mortgage-backed securities
A collection of posts about the US Economy is maintained here.
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Tue, 22 Dec 2009 07:29:32 PST JP Farrell, Public option, Explanation of Health Care Bill, Economics, H.R.3200, James P Farrell, health insurance, Health Care Reform, health care bill, Health Care image from http://www.PiperReport.com
With the final markups of the Affordable Health Choices Act now clearing committees in the U.S. House of Representatives, the potential scope of the legislation is becoming clear. And, while the American Medical Association is on board with H.R. 3200, the House version of the bill, the insurance industry is coming out swinging.
Doctors have to appreciate several aspects of the bill. First, the bill would extend insurance coverage to tens of millions of Americans who currently are denied coverage by insurance companies or who simply can not afford it. (See An Explanation of the Health Care Bill.) Second, the bill enhances the role of the primary care physician in determining the effective course of treatment and offers economic incentives for doctors and medical students to take on this role. The bill also addresses flaws in the Medicare reimbursement mechanism and includes measures to promote wellness and disease prevention.
Insurance companies seem most concerned about the introduction of a government-operated insurance plan, which they view as unfair competition. Health care economists argue that a government plan is required in order to:
Ensure access to affordable care
Provide market leadership in setting standards and negotiating prices for medical services, which currently vary widely by market
Develop (and share) processes and information systems for accurately assessing and paying claims
The legislative history of the bill, a work in process, demonstrates considerable cooperation between and within the Congressional chambers. The Senate had split the bill into two components. Sections of the bill relating to reform of insurance and other mechanisms for funding health care were drafted by the Senate Committee on Health, Education, Labor and Pensions (H.E.L.P.). That Committee completed its work on the bill on July 15, 2009 and submitted it to the full Senate for consideration after the August recess. The Senate Finance Committee, which took responsibility for drafting legislation governing the cost of health care, has not completed its work.
In the meantime, the U.S. House divided its work among three committees, all of which have completed markup of H.R. 3200. That version of the bill closely mirrors provisions of the bill passed by the Senate H.E.L.P. Committee, but also covers areas still under debate in the Senate Finance Committee. Having effectively taken the lead in the legislation, the House of Representatives is expected to pass H.R. 3200 following the August recess, perhaps with amendments taken from the floor of the House, and submit it to the Senate. At that point the Senate may choose to accept it as it stands (which is unlikely) or continue work on its own version of the legislation. If the Senate passes a bill that differs from H.R. 3200, the House and Senate leadership would then create a Conference Committee made up of representatives from each chamber to negotiate a bill that would be acceptable to both the Senate and the House of Representatives.
Important provisions of H.R.3200 that have not been cleared by a Senate Committee would empower the government plan to aggressively negotiate prices, delivery methods and standards of service with providers. The debate about the government's role in determining what kind of care is most efficient and effective is bound to be most contentious.
Expecting a fight in the Senate, the Administration has already begun to telegraph its fallback position by referring to the bill as "insurance reform." In other words, having gotten similar insurance reform provisions through committees in both the Senate and the House, the Administration is confident that at least those aspects of the bill will become law. And, while they would like to adopt stronger measures to accelerate cost containment, those more controversial measures could be sacrificed in the interests of getting insurance industry restructuring underway.
Businesses large and small should be prepared to reevaluate their health care policies, providers and pension plans in light of this new legislation. Economic effects are likely to be profound.
Tue, 29 Sep 2009 12:34:35 PDT Refabricating Architecture, James Timberlake, JP Farrell, Enterprise Architecture, Economics, Consulting, Stephen Kieran, Retail Lifecycle Management, James P Farrell, Restaurant Development Architects Stephen Kieran (left) and James Timberlake (right)
In their path breaking work, Refabricating Architecture:How Manufacturing Methodologies are Poised to Transform Building Construction, Stephen Kieran and James Timberlake argue that the architect of a complex structure must reassert the role of conceptual leader of designers, builders, product engineers and materials scientists. Too often, they argue, architects are relegated to the role of designer, as commercial builder/contractors have taken the lead in bringing cookie-cutter structures from design to completion. The cost of this abnegation of control to project engineers has been a failure to innovate and acceptance of a false choice between usefulness and artistry.
Similarly, our Retail Lifecycle Management model requires that the developer of the retail enterprise define and guide the physical design of store formats that connect the firm's commercial vision with its marketing message, operations capabilities and target customers. We see Store Development, the management of investment in retail structures across time and geography, as the purview of general management, an integrative function drawing as much on the disciplines of economics, organizational development and information management, supply chain strategy and contract law as on architecture, design and construction.
Since publishing our newsletter on Restaurant Lifecycle Management, we have tested these concepts with leaders in chain restaurant, architecture, software and design firms. Surprisingly few restaurant chains can answer a simple question: "Who is responsible for managing investments in restaurant design, construction and remodeling." Generally management admits to being frustrated by an inability to influence store design, while architects complain that management is unwilling to fund investment in the innovative technology that would help them become more integral to the business. Having long ago decided to leave design to the experts, management complains that its design process seems mismanaged.
Bridging this management chasm requires not an architectural solution, but an organizational one. Retailers are advised to establish store development organizations with full responsibility for managing their investments in store design, site development, construction, and equipment. Just as the Operations Group is responsible for managing store profit and loss, so should a Store Development Group control the substantial budgets for design, construction and remodeling. At the same time, retailers should go about reclaiming the intellectual properties tied up in their designs, CAD drawings and layouts that have been scattered among their many contractors, agencies and franchisees.
There are a couple of hopeful signs. One fast-growing restaurant chain where the store development function is managed by an attorney stipulates in its franchisee agreement that contractors of franchisees work from corporate prototype designs and then submit "as built" designs to corporate upon completion. At another equally fast-growing chain, a staff designer lists Refabricating Architecture on his on-line list of recommended reading.
Tue, 22 Dec 2009 06:53:41 PST H.R. 3200, fee-for-service, JP Farrell, Affordable Health Choices Act, Public option, medical insurance, Economics, HR3200, preexisting condition, James P Farrell, health insurance, Health Care, HELP Senators Chris Dodd (D-CT, left) and Mike Enzi (R-WY, right)
The system of U.S. Health Care is now so thoroughly inefficient and inadequate that virtually no serious participant in the debate argues that reform is unnecessary. Partisans disagree about the desirable extent of government involvement in the outcome, but all agree (though not always explicitly) that government involvement is necessary. After all, according to the Congressional Budget Office, government currently regulates the medical insurance, health care and pharmaceutical industries and funds some 60% of health care costs through the Medicare and Medicaid programs, other programs that insure veterans, government employees and retirees, tax subsidies for health care insurance, and subsidies for various health care initiatives.
Many in the U.S. receive exceptional health care and few are denied emergency care, even if they are not able to pay for it. However, with U.S. collective expenditures on health care now amounting to more than 16% of Gross Domestic Product we should expect better performance, including:
More universally available access to services that promote health and prevent disease
More efficient allocation and selection of medical services
Greatly reduced cost of administering and financing medical services
Comprehensive health care reform must address three key areas:
How is care allocated and provided?
How and to what extent is health care subsidized?
How is insurance provided and regulated?
Title I of the bill now in committee in the U.S. Senate, the Affordable Health Choices Act (Bill), provides one solution. Its major provisions would:
Forbid private insurers from denying coverage based on a patient’s medical history
Eliminate annual and lifetime limits on insurance coverage
Require employers with 25 or more employees to provide subsidized insurance to those employers (or face a tax penalty)
Subsidize insurance to low-income individuals
Require individuals to obtain medical insurance (or pay a government penalty)
Establish state-level "Health Benefit Gateways" to assist individuals and employers in selecting appropriate insurance policies
Establish a government-run health insurance organization to compete with private insurance companies
Establish a national voluntary insurance program for purchasing community living assistance services and support (by incorporation of the CLASS Act)
As the Bill moves through the Health, Education, Labor and Pensions (HELP) Committee and onto the floor of the Senate, it is likely to be amended. Some will challenge the limits and taxes it imposes on employers and insurance companies and others will be disappointed by the way in which its various subsidies are distributed and funded. However, in its current form the Bill is estimated to extend coverage to an additional 20 million uninsured Americans without fundamentally restructuring the insurance, pharmaceutical and health care provider industries.
Nonetheless, the Bill would alter the functional nature and competitive environment of the medical insurance industry. State-run Gateways would be able to appoint either public or private "navigators" who would essentially act as insurance brokers. Also, by simultaneously eliminating discrimination against individuals with preexisting conditions, eliminating plan limits on annual and lifetime payouts, and limiting the degree to which insurance premiums can be based on age, the Bill is intended to redirect underwriters away from the task of evaluating the risk posed by applicants and toward the task of evaluating the costs and benefits of procedures. In combination these provisions would directly address a major, under-reported, and increasingly troublesome segment of the under-insured, that is middle-aged individuals who are privately employed or out of work and whose previous medical history includes any number of risk factors (however well managed). Among the list of risk factors are treatment for chronic disease, skeletal injury or disease, depression or other mental illness or disorder. Ironically and perversely, the current system penalizes those who have sought medical attention and are taking preventative measures, while favoring those who have avoided medical care. With unemployment growing and hitting middle-aged workers especially hard, the number of people unable to find affordable health insurance of any kind is expected to grow alarmingly unless today's underwriting policies and their underlying causes are corrected.
Title I of the Bill is focused on extending access to health care to more Americans. As such it does little to address issues with the dominant fee-for-service nature of the U.S. health care system. The primary charge leveled against the fee-for-service approach is that it rewards providers for gaming the billing system, but not necessarily for getting efficient outcomes or encouraging wellness. By favoring certain treatments, specialties and procedures, this incentive system keeps various forms of government in the position of determining what kinds of care are administered. The incentives baked into the system encourage doctors to specialize and encourage specialists and health care facilities to recommend courses of treatment that play to their strengths, even when more efficient modes of care might be available elsewhere. An excellent treatment of the fee-for-service issue can be found in the CBO's letter to the Senate Budget Committee of 16-Jun-09.
Paul Krugman puts the public cost of Title I in the range of $1.0-$1.3 trillion over a 10-year period, including the cost of subsidizing insurance for the poor (a topic not addressed in the current form of the Bill).The President has floated at least two vehicles for funding the bill: (a) eliminating the subsidy paid to private Medicare insurers through the Medicare Advantage program; and (b) eliminating the deductibility of insurance premiums under the corporate income tax. At the same time, the Administration is bargaining with health care providers and pharmaceutical companies to hold down the cost of care.
Those interested in learning more about this topic can find the Bill and the Congressional testimony that shaped it on the Senate website at http://help.senate.gov/. See especially the testimony before the Senate Committee on Health, Education, Labor and Pensions of Karen Pollitz, Research Professor, Georgetown University Health Policy Institute, and that of Janet Stokes Trautwein, Executive Vice President and CEO, National Association of Health Underwriters. A partial estimate of the cost of Title I to taxpayers (which excludes the cost of the subsidy to the poor) can be found on the Blog of the Congressional Budget Office at http://cboblog.cbo.gov/?p=315.
Tue, 29 Sep 2009 12:35:45 PDT John Thain, Ben Bernanke, Political Economy, Frontline, Ken Lewis, Economic Stabilization, Financial Bailout, NewsHour, Economics, Merrill Lynch, Hank Paulon, PBS, Bank of America The Frontline story on Bank of America's acquisition of Merrill Lynch was indeed a fascinating look behind the scenes at one of the more controversial government interventions into the banking system. You can view the program in its entirety below.
A collection of posts about the US Economy is maintained here.
To learn more about our work in consulting, please see our Profile, download a brochure about our Practice, or check out our Case Studies.
Tue, 29 Sep 2009 15:37:17 PDT Supply chain, Food and Beverage, Caribou, Starbucks, JP Farrell, Retail Lifecycle Management, Stores, James P Farrell, RLM, Restaurant Development Fresh Pastry at Panera Bread
How much information passes among how many people when a restaurant chain rolls out a new capability? If the chain is well organized and the change is not too great, such a campaign may well be handled through normal channels by a series of announcements and emails and follow up calls.
Suppose, however, the change involves the roll out of a new store technology. For example, a coffee chain that has always brought ready-made muffins in through the back door may decide to bake muffins right in the store. Suddenly, a host of questions have to be answered:
Which of our stores are properly licensed to prepare food on premises? (Some coffee shops are not allowed to smear cream cheese on a bagel.)
Should the muffins be made from scratch or par-baked in advance and finished within hours of serving?
What equipment would be required to store and bake the muffins?
How should the restaurant be reconfigured to accommodate the new equipment?
Would new construction or wiring or HVAC capabilities be required?
Would logistics systems need to be modified as the proportion of fresh and frozen product flowing into the restaurant changed?
How many stores could be retrofitted for the new capability within 3 months? Within 6 months? What would that cost?
How should the roll out be staged? How should it be announced?
It is the kind of daunting challenge that might cause one coffee chain to "stick to the knitting" and concentrate on the beverage trade, while another, equally aware of the costs, might seize the opportunity to take a strategic leap ahead of the competition.
Of course, the chain with the best processes and systems for managing information about its stores' facilities, capabilities and capacities would find it easier to opt for change, while its competitors would be left to make excuses. And, over the not so very long run, the chains that decide to actively manage information about the lifecycle of their stores will eclipse the competition.
Fresh pastry or fresh attitude?
See our newsletter on Restaurant Lifecycle Management here.
You might be a transportation consultant if…You get excited when you see a truck and know that you have never driven one
You might be a transportation consultant if…You know what a dock plate is but not how to operate it
You might be a transportation consultant if…You know the on-highway retail diesel price, but not how to use it
You might be a transportation consultant if…You can put together a deck of power point slides in 30 seconds and it actually makes sense
You might be a transportation consultant if…You have played consultant’s challenge and spoken intellectually about a random slide a colleague has protected on a screen
You might be a transportation consultant if…You have frequent flyer miles on 25 airlines and have gold status on 5 of them
You might be a transportation consultant if…You are never more than 2 feet away from a laptop
You might be a transportation consultant if…You know the acronym TMS and 20 just like it
You might be a transportation consultant if…You measure age by who remembered deregulation
You might be a transportation consultant if…You worked for Cleveland Consulting Associates
You might be a transportation consultant if…You know what FAK means and can actually explain it
You might be a transportation consultant if…You are accused of not having a job
Submissions for additional“You might be a transportation consultant if…” can be added at:
An article in the Monday, November 17th edition of the Wall Street Journal outlines some of the reasons diesel fuel is likely to remain much more expensive than gasoline.
In addition to the tax difference (diesel has higher taxes on it in the US – a point the WSJ did not mention), there are world-forces pushing the cost of diesel.Key factors include:
Buyers of new European cars are now specifying diesel engines more than 50% of the time.In France and Belgium, 70% of all new cars are diesel because consumers recognize diesel as being more efficient, better environmentally, and in Europe, there are lower taxes on diesel.
Refinery capacity for diesel is going beyond tight.Europe buys a big portion of its diesel from elsewhere.Russia, one of the biggest suppliers of the 700,000 bbl/day of diesel imported to Europe, has old refiners and may have difficulty meeting standards for the ultra-low sulfur (cleaner) diesel.At the same time, European refineries have not invested in diesel cracking equipment – which is more expensive than gasoline production facilities.An interesting bye product of this is that Europe exports a lot of gasoline to the USA.The only new refinery capacity is coming on line in India – which will generate 580,000 bbl/day of diesel.
China is using diesel to make electricity.The recent downturn in electricity demand in that country (4%) may have freed up a lot of diesel – as China has a huge “base” generation capacity in coal fired plants.As China’s economy and infrastructure projects pick up steam, this will put a lot of pressure on fuel-oil supplies.
This can all be summarized by a quote from Pands Cavoulacos – President of the European Petroleum Industry Association – “I don’t see how we can add sufficient capacity over the next decade to handle the increasing demand for diesel in Europe.”...and since it is a world market, expect what hurts Europe and Asian supplies will impact us here in the US.
While Europe will change taxation of fuel cost to favor diesel, this will not overcome the added power and efficiency of diesel and its position as the preferred fuel for cars.And, if current model introductions in the US are any indication, more diesel cars and SUV’s will be using more fuel here in the US.
The bottom line:More demand, fixed production capabilities, and global transfers means that diesel will continue to be a premium cost fuel for the next 10-15 years.
Mon, 29 Sep 2008 16:17:00 +0000 Logistics Management, Supply Chain Management, Freight Rates, Scheduling Software, diesel prices, Transportation Consultants Talking with the logistics director of a Fortune 50 Company, he related their conversion to SAP. He described it as “Ruthless Standardization.” Immediately, images come to my mind of a group of IT geeks on horseback, armed with axes and swords, riding through the ranks of Operations people – indiscriminately slaying them.
While my imagination may be a little far fetched, Operations do appear to be the victims in standardization. In this instance, Operations loses its ability to:
Increase load size using optimization technology
Move orders. For example – a full load of product made in Atlanta must ship to a Seattle customer from the local warehouse rather than direct from the plant
How is it that the complexities of the US market are ignored in the quest for standardization? Why are small countries, like my native land of New Zealand – with 4 million people – and one DC treated the same as the great US market? I have a conspiracy theory. My belief is that the IT folks believe that the millions of dollars spent in the operations area is hidden. At the end of the project, they can point to IT head-count reductions and “hard savings.” Operations expense, after all, is often confused by the various “world” changes. Operations costs increase but it is all blamed on fuel or insurance… not paucity of systems. In the case of the Fortune 50 Company, the cost will be many millions in one division alone.
I am not sure if it is possible to convince the IT folks that “keep it simple” (KIS) is stupid. If this were me, I’d add a line to my budget – “the cost of ruthless standardization” – and track all the cost to that.
We all know that the infrastructure is under pressure.Congested roads, bridges that are in urgent need of repair, and roads that should have been ripped up years ago are everywhere.Yet both presidential candidates are talking about a stimulus package – giving money to consumers who will buy flat panel TV’s made in China.Here is an idea:invest the same amount of money in the roads and bridges we use every day.While we don’t need or envision anything on the scale of the “New Deal”, a focus on bridges, for example, will create good jobs for construction workers, steel manufacturers and equipment manufacturers.The value to industry is huge.The trickle-down impact will be great – and the country gets lasting benefits from stimulus.Can somebody please tell Mr. McCain & Mr. Obama?
The bottom line:Consumers and the economy will benefit from investment in infrastructure
A July 11 article in CFO magazine entitled “What Keeps CFOs Up at Night?” - http://www.cfo.com/article.cfm/11731286/c_3805465 - has senior writer Kate O’Sullivan politely pointing out that with oil at $140 a barrel, the cost of fuel has officially registered on finance executives radar screens.About time!The impact that $4.70/gallon diesel will have on the economy, and each company, is large.Consider the fact that most consumer product companies provide free freight to their customers, when they order a truckload of product.This means that the only way they can recoup the additional cost is to increase the prices of their products.If product costs go up – you and I are the ones that pay at the store.Hello inflation!Hello higher interest rates!Hello a big slow down!
CFO’s should be kept awake at night by fuel costs as their companies’ margins are under fire.Some how they need to support their operations team’s efforts to reign in the fuel monster. What is this somehow?Since IT normally works in the finance side of the house, the CFO needs to influence his IT people into providing genuine support – not, as I heard from a client, “we are getting SAP in 5 years, that will solve all your operational problems.” You could not make this kind of stuff up!Who can wait that long?How many gallons of diesel will need to be wasted before we stem the flow?
Thu, 17 Jul 2008 21:03:00 +0000 fuel cost, Supply Chain Management, Freight Rates, diesel prices, Transportation Consultants When you talk to many car drivers, they complain of “nearly being run off the road” by speeding trucks. Many of us have cut our speed but a wide range of owner operators and small fleets don’t seem to have got the message:
“SLOW DOWN – SAVE FUEL”
Time must be – to them at least – more valuable than money.
During the oil embargo of the 1970’s, speed limits were dropped to 55 mph. The concept of doing this is totally repugnant to us all… but the simple fact remains, we are, as a nation, spending too much on oil. The balance of payments can’t afford this huge spike in imports.
The bottom line:Truckers need to slow down before they are forced to slow down
