Wednesday, April 30, 2008

Beer and Chips: Optimizing Truck Loading

Optimizing truck loading

If you think your trucks are running full, you probably have not met Tom Moore. A logistician with a keen eye for the critical, overlooked detail, Tom knows the importance of getting an extra pallet on a truck that is about to depart Memphis for Miami, and he has helped some of the world's largest manufacturers find creative ways to load their trucks to the legal limit.

Truck loading involves an exquisite set of trade-offs between weight, volume, balance and compactness that even some of the most seasoned supply chain experts do not fully appreciate. U.S. federal law, for example, limits the gross vehicle weight of a tractor, trailer and its cargo to no more than 80,000 pounds when traveling on the interstate highway system. Safety regulations of the federal government and the various states further restrict the dimensionality of trailers and tractor-trailer combinations, such as by limiting the length of a single trailer to 53', the length of tandem trailers to 28', the total length of tractor-trailer combinations, etc. There are even restrictions on the way cargo weight must be distributed across the truck, with no axle allowed to bear more than 34,000 pounds.
(Similar regulations apply in other countries.) Consequently, loads invariably reach one legal maximum before they approach the constraints imposed on other dimensions. They "weigh out," for example, before they "cube out."

Most supply chain practitioners have developed rules of thumb that help them navigate these restrictions without paying fines for overloading trucks. A brewer, for example, may program its order management system to limit its truckloads to 44,000 pounds of finished product, estimating that the weight of the tractor, trailer and "dunnage" (pallets and packing material) will consume 36,000 pounds of the 80,000 pound limit. A logistician like Tom, however, is troubled that this "full" truckload would in a real sense be nearly half empty, as it would be composed of some 22 pallets of beer, each weighing about 2,000 lbs., stacked 5' high and loaded on the floor of the trailer. Above the tab-tops of this glistening load of cans he would see 4 feet of empty space from the front of the trailer to the tailgate.

On the other hand, if the brewer were also delivering potato chips, boxed and stacked in 4-foot high, 1000-lb. pallets, it could replace 11 pallets of beer on a truck with 22 pallets of potato chips and still obey its size and weight restrictions. And, by mixing this light and heavy freight on each truck, the beer and snack food manufacturer could deliver 44 pallets of potato chips (a full truckload) and 22 pallets of beer (two full truckloads) in only two trucks, thereby saving 1/3 of its linehaul shipping cost.

Moore has developed and implemented a software solution for this classic loading problem that
selects freight from a list of upcoming orders to optimally configure truckloads. He has saved his clients, including such sophisticated shippers as Procter & Gamble, from 4-10% of their total freight delivery costs. That pays for a lot of beer.

To read more about our work in supply chain consulting, please refer to our Profile and  Case Studies.

You may contact us directly here.

What do logisticians do for FUN? Try your hand at this game and see how many pallets you can get on a trailer without tipping the scales.

Tuesday, April 29, 2008

Brand, Menu and Store Design

From “Big Mac’s Makeover: McDonald’s Turned Around”, The Economist, Oct. 14, 2004

IN THE entrance to Hamburger University, the ultra-modern training centre for the world's biggest fast-food operation, Ray Kroc's office has been faithfully reassembled. McDonald's managers have looked to their late founder quite a bit lately for inspiration in how to deal with a series of crises, any one of which would have destroyed many companies. Mr Kroc used to say he didn't know what McDonald's would sell in the future, except that the company would sell the most of whatever it was. Remarkably, McDonald's has turned itself into the world's biggest seller of salads and its business is flourishing again…

McDonald's officials insist their salads are priced to be profitable, arguing that if they were not its franchisees would not want to sell them. But then, by some measures, supermarket loss-leaders are also profitable because they bring in customers who buy other products. Nevertheless, salads are sending a message to millions of customers: that it is now acceptable to eat at McDonald's again because the menu is “healthier”—even though the vast majority still order a burger and fries…

It will be a challenge for the company to manage a multi-format operation under one brand, says Jim Farrell. He has followed McDonald's closely since working there as a teenager and later in his career as a management consultant based in Chicago. Having a bigger variety of items on the menu means more potential problems and higher costs. It also means trying to appeal to one group of customers without alienating another. For instance, says Mr Farrell, a restaurant that is attractive to families and is full of children clamouring for Happy Meals (or the toys in them) might not appeal to stressed-out office workers who have popped out for a quick sandwich and coffee.

Hot in the kitchen

McDonald's could try to become different things in different locations, and at different times: it is already trying harder to catch the breakfast trade. Mr Farrell suggests another way could be a cluster of operations in which a coffee bar, fast-food outlet and sandwich counter share adjacent parts of the same building—a bit like a food court…

The food of love

The McDonald's brand is big, but it means different things to different people. It can also be positioned differently throughout the day, during breakfast, lunch and dinner, if you are eating alone, or with children. Hence the new advertising campaign that Mr Light launched, anchored around the catchy ditty “I'm lovin' it”, takes many different forms.
Copyright © 2004 The Economist Newspaper and The Economist Group. All rights reserved

See Also: "A Plan to Win: McDonald's new prototype takes a holistic approach," by Vilma Barr, Display and Design Ideas, April 1, 2006

See also our approach to Retail Lifecycle Management™ (RLM), best practices in managing the evolution of store design, by selecting the RLM topic from the Index of Topics on This Site on the sidebar to the right of this blog.

To learn more about our work in consulting, read about our Profile or a few of our Case Studies or Contact us directly here.

Sunday, April 27, 2008

Design is Destiny

Site plan for a Wendy's restaurant

When McDonald's tried to introduce pizza in the early 1990's it flopped spectacularly and predictably.

  • Stores had no ovens. Retrofitting them, even for compact units, was difficult and burdensome.
  • Many independent operators, lacking faith in the concept, refused to undertake the investment required.
  • Execution was inconsistent with the McDonald's operation. A make to order product was introduced to a kitchen that precooked everything else in batches.
  • Consumers were confused. The chain could not support the concept with national advertising when so many outlets were not participating. And what kind of pizza could a quick service restaurant throw together anyway?
The experience illustrates the design challenge faced by any chain retailer when its concept does not fit its operating platform. The operating platform, the infrastructure that enables efficient operation of the retail concept, constrains the operator from adopting new products or practices that overburden scarce resources, such as kitchen space, ventilation or refrigeration capacity, or display space. Often successful adoption of the innovation requires a major investment in remodeling and relaunching.

Even though some chain restaurants are now in their eighth decade, by which point remodeling would seem to be as routine as opening new stores, all chains struggle in this area. Hampered by:
  • incomplete information about their installed base of facilities
  • design processes that rely on building expensive, over-determined prototypes with insufficient input from operations, marketing and merchandising
  • building and materials sourcing processes that must react to final designs because they have not been involved to inform design requirements
chain operators spend hundreds of millions of dollars annually in remodeling and reconstruction.

Retail Lifecycle Management™ is the core of retail strategy. Curiously and at great cost, in an age when PLM (product lifecycle management) techniques have invigorated design programs in automotive, aerospace and high tech industries, Retail Lifecycle Management remains little understood and grossly underfunded.

See our other posts on Retail Lifecycle Management (RLM) by clicking on the "RLM" link in the Index of Content on This Site section on sidebar to the right of this blog. See in particular our post A Lifecycle Approach to Retail Store Development.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Friday, April 25, 2008

The Evolution of the Quick Service Restaurant

The Quick Service Restaurant responds to the universal desire for inexpensive and reliable fare that is freshly prepared, portable and ready on demand.

People were finding ways to escape the dinner table long before the 4th Earl of Sandwich wrapped dried meat in bread c. 1762 so as not to interrupt his work or his gambling (accounts vary). Cornish pasties and their descendants go back at least as far as the 13th century; the South Asian samosa is believed to date to the tenth century.

In 1867, Charles Feltman, a German butcher, opened up the first Coney Island hot dog stand in Brooklyn, New York, though the origin of the term is in dispute. The World's Columbian Exposition of 1893 (Chicago) and the St. Louis World's Fair of 1904 are credited with mass promotion of a number of portable foods, including the hot dog, the ice cream cone and iced tea.

The "diner" concept dates back to 1872, when Walter Scott of Providence, RI outfitted a horse-drawn lunch wagon with a simple kitchen so that he could bring hot dinners to workers.
As automobiles became popular and affordable following the First World War, drive-in restaurants were introduced.

Walter Anderson built the first White Castle in Wichita, KS in 1916, introducing the limited menu, high volume, low cost, high speed hamburger restaurant. Partnering with Billy Ingram in 1921, they formed the first hamburger chain. Featuring a grill and a fryer that was open to customers' viewing, the restaurants were designed to build confidence in the notion that low cost could coincide with high product quality.
A and W Root Beer took its product out of the soda fountain and into a roadside stand in 1919 and began franchising its syrup in 1921. Howard Johnson pioneered the concept of franchising restaurants in the mid-1930's, formally standardizing menus, signage and advertising.

Wichita, KS was the home of another fast food innovation, the "Valentine Diner", a portable steel sandwich shop introduced by Arthur Valentine in 1938. Valentines could be purchased with a low down payment and financed through a lock box into which the owner was to deposit 50 cents daily. Circuit riders stopped by monthly to collect this fee; deadbeats discovered that their wagons had been hauled away.

Curb service was introduced in the late 1920's and was mobilized in the 1940's when carhops strapped on roller skates. The term "fast-food" was coined in 1951, the same year t
he drive-through window and speaker system was introduced to chain restaurants by Jack-in-the-Box in San Diego, CA.

It is interesting to note that the fast food leader, McDonald's, did not embrace the drive-through window until 1975. It now accounts for approximately 60% of sales.

See Honk for Service by Lou Ellen Mcginley with Stephanie Spurr (Tray Days Publishing, 2004).

For more information see Retail Lifecycle Management.

To learn more about our work in consulting read some of our Case Studies.

A Management Consultant @ Large

Thursday, April 24, 2008

Building the Scalable Enterprise

Early McDonald's restaurant, circa 1960

In 1954 Ray Kroc, a Multimixer salesman, took notice of the restaurants started by Mac and Dick McDonald in San Bernadino, CA in 1948. McDonald's was a highly focused, highly visible operation, featuring a simple menu (hamburgers, cheeseburgers, French fries, shakes and fountain soda), high quality ingredients and walk-up windows. Kroc partnered with the Brothers McDonald to franchise their speedy service system, then worked out the means to secure financing and expand the concept.

Kroc's unique genius was his ability to organize a highly distributed business network that promoted efficiency and rapid growth. Rather than waste resources on vertical integration, Kroc kept McDonald's operators focused on delivering a high quality experience to consumers, what he called "Quality, Service and Cleanliness."

Behind the scenes he built his enterprise by partnering with experts to provide essential services that his business lacked the scale to provide efficiently on its own. He and his small, entrepreneurial staff rapidly and successfully extended the enterprise by concentrating on core development processes:

  • Maintaining control of product quality and operations
  • Securing long-term rights, by lease or ownership, to the most promising restaurant locations
  • Recruiting and training highly motivated franchisees
  • Advertising the the service experience and promoting the product
  • Securing a reliable stream of ingredient supply
  • Designing efficient operations and accommodating them with functional, distinctive and attractive structures
Just as he had franchised operations to small businessmen, he partnered with key suppliers, including Golden State Foods, Interstate Foods, Perlman Paper Company, and later Martin-Brower to franchise supply and distribution operations. The evolving McDonald's Corporation (MCD) maintained absolute control over its core product offerings, advertising characters and messages, but allowed local operators to run their own promotions and even introduce trial products. Corporate officers qualified and approved suppliers and negotiated materials specs and service terms with them, but groups of local operators chose which of these suppliers would serve each market.

By 1972 the McDonald's system was generating $1 billion in sales through 2200 restaurants. Kroc was preparing for global expansion.

See our newsletter on Restaurant Lifecycle Management here.

Also of interest:
"Why Do Fries Taste So Good? A Brief History," by Scott Horsley, NPR
Behind the Golden Arches (New York: Bantam Books, 1986), by John F. Love

Grinding it Out: The Making of McDonald's, by Ray Kroc with Robert Anderson
(Chicago: Contemporary Books, Inc., 1977)

See also related posts on
Enterprise Architecture, Supply Chain, and Retail Lifecycle Management (RLM) by selecting topics from the Index of Topics on this Site in the sidebar to the right of this blog.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Tuesday, April 22, 2008

How Does the Elephant in the Room Like Your Lapel Pin?

Charles Gibson, ABC News

Sometimes a problem is so big that everyone is afraid to discuss it. The aggregate liability of the U.S. government, the National Debt, has reached such staggering proportion that officials only discuss it in its parts, lest voters recognizing its massive scale should panic and alarm the beast. That notwithstanding, this elephant in the room is consuming a lot of hay and throwing off a stench that has been noticed by the foreign governments and other investors that have helped finance its upkeep.

According to the U.S. Treasury Department, the total Public Debt Outstanding of the U.S. federal government is $9.4 trillion, of which $5.3 trillion is Debt Held by the Public and $4.1 trillion is Intragovernmental Holdings. The total represents 65% of the $14.4 trillion U.S. Gross Domestic Product, which is the primary measure of total U.S. economic output. It continues to grow whenever total government spending plus interest on the debt (now at rates of 4.5%) exceeds receipts from taxes and government fees, i.e., when the budget is in deficit.

Debt Held by the Public is composed of interest-bearing instruments issued by the U.S. Treasury, mostly in the form of Treasury bills, notes and bonds. When most policy-makers were in school, the debt was excused by Keynesian economists as a cost of full employment. Believing that in a "closed economy" like the U.S. of the early 1970's (i.e., where imports and exports were relatively low) deficit spending would act as an effective stimulus, economists reasoned that the debt was financing a level of prosperity that Americans would not otherwise enjoy. They went on to say that the debt was actually money that the government owed to Americans, since most of it was held by U.S. citizens either directly or indirectly through their ownership of U.S. Treasury securities.

Since then, however, a number of factors have come into play that call this happy model into question.

  • The Congress set up trust funds for Social Security, Medicare, Military Retirement, and Civil Service Retirement and Disability, but then gave itself permission to borrow against these trusts. These borrowings already make up most of the $4.1 trillion mysteriously described as "intergovernmental borrowing." While the public generally believes it is contributing to public savings accounts from which they can collectively draw when they retire, the federal government is actually using the current surplus from those accounts to pay for current operations of other government functions and issuing paper notes back to those funds that amount to unfunded liabilities. The "surpluses" of the latter Clinton years were entirely composed of surpluses in the trust funds; the operating budget of the U.S. government was actually in deficit throughout the 1990's. These operating deficits ended in 2000 but then increased sharply as a result of the 2001 tax reductions, the weakness of the economy following the burst of the internet bubble in 2000 and the increased spending on military actions and civilian security following the attacks of September 11, 2001.
  • A large and growing portion of U.S. public debt, some $2.4 trillion, is held by foreign governments and non-U.S. citizens, including China and Hong Kong ($644 billion), Japan ($587 billion), the United Kingdom ($181 billion), Brazil ($147 billion) and a collection of Oil Exporting countries ($146 billion).
  • The U.S. has become an open economy, enjoying the benefits of free trade, but also subject to its discipline. Economic stimulus measures like tax rebates "leak" from the U.S. economy when consumers use them to purchase imports or invest in foreign stocks. Expansionary monetary measures, such as interest rate reductions, devalue the dollar relative to other currencies, mitigating the intended effects. Hence, the presumed virtues of deficit spending are often exaggerated.
The U.S. has become so indebted to its economic rivals that it is reasonable to question how independently it can exercise foreign economic policy, particularly in its dealings with OPEC and China.

Moreover, the surplus cash being withdrawn from the trust funds will need to be replaced with cash from general tax revenues when these funds go into deficit, beginning around 2018. By failing to invest these surpluses, for example by purchasing back Treasury instruments from the public or foreign governments, the Congress and the Administration have put an untenable obligation on future generations. According to the innocuously entitled 84-page report, "Federal Debt: Answers to Frequently Asked Questions--An Update," issued by the respected Government Accountability Office (GAO) in August, 2004 (GAO-04-485SP) and signed by the Comptroller General of the United States, David M. Walker:
Long-term simulations by GAO, CBO [Congressional Budget Office], and the Office of Management and Budget show that absent policy changes, debt held by the public would rise to levels ultimately unsustainable by the U.S. economy (p.1).

Previously, debt held by the public peaked at about 109 percent of GDP in 1946 following the Great Depression and World War II. ... Due primarily to known demographic trends and rising health care costs, our long-range budget simulations show debt held by the public far surpassing this level in the coming decades (p.40).
If U.S. citizens do not "feel" the impact of current deficit spending, as many commentators suggest, it is perhaps because the public does not understand that the government is spending their retirement funds. Among the measures that could avert this impending crisis are:
  • Reducing federal spending
  • Raising taxes
  • Postponing and/or reducing retirement benefits
  • Reducing Medicare benefits
  • Reducing the rate of increase of federally funded medical costs or reimbursements
  • Increasing the expected number of active workers participating in Social Security and Medicare funding between 2010 and 2040 (such as by recognizing more legal immigrants)
The gross economic imbalances that have arisen in the past decade will need to be addressed by an informed electorate and a responsible administration. And yet, the moderators of a recent Democratic debate thought it would be a good idea to ask the candidates about their positions on lapel pins.

See Federal Debt: Answers to Frequently Asked Questions, by the US. General Accountability Office, a non-partisan agency of the U.S. Congress, for an in-depth discussion of U.S. government accounting terminology and a historical perspective through 2003.

See Keys to the Lockbox, a video by Paul Salmon of Online NewsHour of PBS, for an explanation of the Social Security Trust Fund and to see the actual file cabinet that holds the notes issued to it by the Treasury to fund current operations. The video was broadcast August 22, 2001, three weeks prior to 9/11, when Social Security was the key topic of political debate.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Saturday, April 12, 2008

No Time for Panic

Illustration by Brian Rea

In his recent column, The Economy of Fear, John Cassidy makes an excellent case that the U.S. is headed for an awful economic outcome. He compares the current economic situation with others caused by credit crunches over the past 150 years and does not like what he sees.

Unlike some past recessions, which were rooted in inflation problems, this one has been triggered by credit and real estate—both of which have a lot to do with how people perceive their financial well-being and, in response, how they adjust their spending. (View a tally of recent recessions and their causes.) For what is probably the first time since the 1930s, home prices are falling sharply. Nationwide, housing prices have slipped about 10 percent in the past year, and the decline is accelerating, according to the S&P Case-Shiller home-price index. As prices drop, more and more homeowners discover that they owe more than their property is worth, at which point they experience the temptation to hand the keys back to the bank or mortgage company. Jan Hatzius, an economist at Goldman Sachs, estimates that by the end of 2009 up to 15 million households could be in a position of negative equity. If Hatzius is right, the glut in houses for sale will only get larger, and prices will fall a lot further. Just how low they could go is anybody's guess, but a reading of data compiled by Yale economist Robert Shiller, which show the evolution of inflation-adjusted home values since 1890, suggests an overall drop of 30 or even 40 percent.

The situation is certainly serious, but in this analyst’s opinion not as grave as Cassidy portends. Like most U.S. analysts, Cassidy is understating the positive impact that globalization is having on world markets and how this can redound to the benefit of the U.S. And, he states that U.S. Federal Reserve Chairman Bernanke is pursuing Keynesian policies, when in fact he is taking a more nuanced approach.

First, the world economy is in far better shape than the U.S. economy, for a number of reasons:

  • China and India, the Philippines, Malaysia and Eastern European countries are reaping the benefits of the opening of global markets in manufacturing and services
  • As those economies build much-needed infrastructure and develop professional classes with strong consumer demands, they are driving up commodities prices and purchasing industrial and transportation equipment
  • Oil-rich countries are reaping the windfall profits born of the tremendous uncertainty in global supply brought about by the Iraq war

Second, the deflation in U.S. housing prices, while very significant, is also very local. Financial centers like New York, Boston and San Francisco will be the hardest hit, while more balanced economies like Chicago and St. Louis are not feeling such great impacts. A 15% drop in housing prices nationally would be an astoundingly bad result--10% is much more likely.

Third, Bernanke is taking a targeted approach (see Getting it Right on the U.S. Economy), directly absorbing risk in financial markets while reducing interest rates and constraints on lending. Opening up the supply of money by reducing federal lending rates and shifting some risk from financial institutions will only be inflationary if matched by corresponding increases in demand. In the near term the more likely scenario is that all institutions will adjust through a rocky first and second quarter, financial and housing stocks will bottom out and increased export activity will start to be felt. Lenders are already finding creative ways of absorbing some of the cost of over-financed properties, as they attempt to avoid becoming America’s (bankrupt) landlords through mass foreclosure.

In the near term, government policy should be directed, as it has been, toward averting panic in the financial markets. (This is a far cry from a bailout—investors in lending institutions are in for a very rough time.) Moreover, the U.S. should be pulling out all stops to increase trade. Pennsylvania workers, for example will feel much better about their economic situation if they can start exporting Chef Boyardee product from Milton, PA to Canada, which currently matches our high tariffs on dairy-based products.

The U.S. might also try being a little friendlier to foreign tourists and students, not to mention U.S. business travelers. Much of the hassle of air travel is a direct result of the inability of Homeland Security to distinguish one common name from another, my own being a case in point. Perhaps it is time to rebalance our approach to risk and apply a political thumb to the economic side of the scale.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Wednesday, April 9, 2008

What is the Extended Enterprise?

The "Extended Enterprise" is a loosely coupled, self-organizing network of firms that combine their economic output to provide product and service offerings to the market. Firms in the extended enterprise may operate independently or cooperatively.

Alternatively referred to as a "supply chain" or a "value chain", the extended enterprise describes the trading relationships among a community of participants involved with provisioning a set of goods and service offerings. The extended enterprise associated with "McDonald's," for example, includes not only McDonald's Corporation, but also franchisees and joint venture partners of McDonald's Corporation, the 3PL's that deliver food and materials to McDonald's restaurants, the advertising agencies that produce and distribute McDonald's advertising, the suppliers of McDonald's food ingredients, kitchen equipment, building services, utilities, and other goods and services, the designers of "Happy Meal toys, and others. In this example, McDonald's Corporation has organized local purchasing cooperatives, made up of representatives of local McDonald's franchisees and McDonald's stores, which determine how the local stores will source local advertising, food ingredients and other materials.

Extended Enterprise is a more descriptive term than supply chain, in that it permits the notion of different types and degrees and permanence of connectivity. Connections may be by contract, as in partnerships or alliances or trade agreements, or by open market exchange or participation in public tariffs.

The notion of the Extended Enterprise has taken on more importance as firms have become more specialized and inter-connected, trade has become more global, processes have become more standardized and information has become ubiquitous. Process standardization has permitted companies to purchase as services many of the business functions that previously had been incorporated directly into the organization of the firm. By outsourcing certain business functions that had been previously self-provided, such as transportation, warehousing, procurement, public relations, and information technology, firms have been able to concentrate their resources on those investments and activities that provide them the greatest rate of return. The remaining core competencies determine the firm's unique value proposition.

How the Extended Enterprise is organized and structured and its policies and mechanisms for the exchange of information, goods, services and money is described by the Enterprise Architecture.

See also:

Jeanne Ross et al. (2006) Enterprise Architecture As Strategy: Creating a Foundation for Business Execution, Cambridge, Harvard Business School Press. ISBN 1-591398-39-8

Chris Zook with James Allen (2001). Profit From the Core: Growth Strategy in an Era of Turbulence, Cambridge: Harvard Business School Press. ISBN 1-578512-30-1

To learn more about our work in consulting read about some of our Case Studies.

You can contact us here.

A Management Consultant @ Large

Tuesday, April 8, 2008

Getting it Right on the U.S. Economy

Benjamin Bernanke, Chairman, US Federal Reserve Bank

In all of the recent hand-wringing over the economy it is easy to forget that the world economic outlook is not uniformly bleak. Residents of China, India, Russia and Dubai are more likely to be complaining of growth pains and shortages than looming unemployment. In their great race to build housing and infrastructure, they have been bidding up world prices for oil and other commodities, just as North American farmers decide which crops to plant to feed and now fuel a hungry world.

If one shifts attention from depressed Ohio and Michigan factory towns toward Peoria and Moline, Illinois where Caterpillar (CAT) and John Deere (DE) manage global operations for manufacturing and marketing agricultural and industrial equipment, the mood improves. Both companies have seen growth in both their US and international manufacturing operations. While each has been hurt by the downturn in the US housing market and its impact on US forestry, building materials, construction equipment and trucking, they are being more than compensated by increasing sales of construction equipment overseas and agricultural equipment both domestically and internationally.

With commodity prices continuing to rise and interest rates having fallen substantially in recent months, Americans should be concerned about the prospects for inflation, particularly for energy and foodstuffs, but also for imported electronics and automobiles. Policy makers know, but are loathe to admit, that there are no simple U.S. economic policies that can assuage the angst of the common man. More than at any point in their history, Americans operate in a global economy and the tried and true economic policies learned by the Elders during more self-sufficient times are much less effective now.

The uncertainty in the U.S. financial markets reflects not only the immediate risks in the housing sector but also the greater risk that American government leaders will take the wrong course. Fiscal moves to stimulate consumption, such as Congressional plans for temporary tax rebates, will feed inflation without addressing the underlying imbalance in housing debt. Interest rate reductions may have little effect on housing lending if too many lending institutions become insolvent and unable to lend at all.

Thus, it was with some relief that the markets saw Ben Bernanke take a measured, if previously untried, move toward stability by directly having the government take on some of the risks in mortgage-backed securities. By addressing the problem tactically and head-on, the Fed reduces the risk of doing greater mischief longer term.

Well done.

Now, if we could get the U.S. presidential candidates to speak more honestly about the American role in the global economy, they might come up with more sensible approaches to entitlements, health care, immigration and military policy. Forgive me the audacity of hope.

To learn more about our work in consulting, read about our Practice or check out our Case Studies