The Spymaster and the Economist

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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Timeline of Financial Bailout of 2008

Day	Date	Action
Q3-Q4: 2007		Subprime mortgage meltdown begins
Fri.	30-May-08	JP Morgan completes acquisition of Bear Stearns
Sun.	7-Sep-08	U.S. Treasury seizes control of Fannie Mae and Freddie Mac, government-sponsored mortgage guarantors
Sun.	14-Sep-08	Bank of America agrees to buy Merrill Lynch under terms set by the US Fed
Mon.	15-Sep-08	Lehman Brothers files for bankruptcy
Tues.	16-Sep-08	Treasury agrees to loan $85 billion to A.I.G.; takes control
Wed.	17-Sep-08	Treasury/Fed worry about runs on money markets and investment banks
Thurs.	18-Sep-08	Paulson and Bernanke present 3-page plan to Congressional leaders
Sun.	21-Sep-08	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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Health Care Reform Takes Shape

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.

The American College of Physicians has published three white papers: A Public Plan Option in a Health Insurance Connector; Reforming the Tax Insurance Exclusion; and Individual Mandates in Health Insurance Reform.

A collection of posts about the US Economy is maintained here.

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Architecting the Retail Enterprise

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.

For related posts see Retail Lifecycle Management.

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An Explanation of the Health Care Bill

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.

See also Health Care Reform Takes Shape.

A collection of posts about the US Economy is maintained here.

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Shotgun Economics: The Merrill Lynch Deal

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.



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May I Have a Scone with my Coffee?

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.

See also Brand, Menu and Store Design and Chain Restaurant Development.

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Prof. Courant on the Stimulus Package

Paul N. Courant, Economist


It was a pleasant surprise to find my erstwhile thesis adviser, Professor Paul Courant, blogging on matters related to economics, libraries and electronic publishing among other things (see Au Courant).

HIs post on the Stimulus Package, a masterpiece of clarity, begins:

Suppose that there were a major fire, and that in order to put out the fire you would need, say, a trillion gallons of water. Can you imagine a city council that would say, “oh no, we can only afford 734 billion gallons of water, so let’s leave out about a quarter of the neighborhoods. It’s the right thing to do because we won’t go into debt, and future residents will be better off for having had a quarter of the city burn down.”?

Or, for a better analogy, suppose that your ship is sinking, through a hole that is 10 feet in diameter. How about saving on repair costs but inserting a plug that covers only 75 percent of the leak? Sound like a good plan? Not so much.

The reason that we need fiscal stiumus is that monetary policy is impotent to provide sufficient stimulus (not generally true, but true now, and essentially no one disagrees with this view).

A collection of posts about the US Economy is maintained here.

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Innovation Thrust Upon Us

Maestro David Robertson on kazoo - Photos by Konrad Fiedler for The New York Times

Sometimes innovation, like greatness, is thrust upon us. As last Friday's rains washed over LaGuardia, the St. Louis Symphony Orchestra kept time through a series of ground delays at Detroit Metro. Months of preparation had gone into the annual trip to Carnegie Hall and hours of flight delays were threatening that evening's off-beat program, which was to pair Mozart's "A Musical Joke" with H K Gruber's "Frankenstein!!", with Gruber himself singing the lead. In Chicago Gruber was having travel problems of his own, word of which had already spread to staffs in New York, St. Louis, and Detroit.

By the time the SLSO's plane hit the tarmac in New York at 6:08 p.m., rehearsal had already been canceled, Gruber had been written out of the program and members of the orchestra had been granted dispensation to appear on stage in street clothes. Then, in the kind of brash and brilliant move we have come to expect from him, Maestro Robertson handed the baton to his assistant, Ward Stare, and took on Gruber's solo role himself. It is a showman's role, not a singer's, and Robertson (who had voiced a part in The Music Man earlier this season) was more than up to the task. As reported by Anthony Tommasini in The New York Times:

You do not need a proper singing voice to perform the part, but you do have to be uninhibited. Mr. Robertson's performance was a tour de force in uninhibition.

When necessity called, Robertson, Stare and the entire orchestra and staff rose to the occasion. Though physically separated, the team communicated throughout the day, developing a strategy (Robertson, already in New York, began rehearsing that afternoon), and adjusting the plan continuously. Orchestral musicians, masters of going with the flow, had shrugged off a day of travel delays, tight quarters, and nervous updates by the time the baton struck the first note. And the audience shared an experience that no recording could capture.

How do you get to Carnegie Hall? Practice.

See the account of events by Eddie Silva on the excellent SLSO blog here. For a previous article on innovation and the orchestra (same time, last year), see The Surprise of the New.

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General Motors Surrenders

Steven Rattner (left) and Ron Bloom (right) - Time Magazine

There is an element of politics whenever a chief executive departs, just as there must be in the timing of Rick Wagoner's departure from General Motors. In this case the White House has made quite clear its rationale in strict legal language. This week findings of the Presidential Task Force on the Auto Industry were posted on the White House website, including "Determination of Viability Summary: General Motors Corporation," which states:

The Loan and Security Agreement of December 31, 2008 between the General Motors Corporation and the United States Department of the Treasury ("LSA") laid out conditions that needed to be met by March 31, including the approval of Labor Modifications, VEBA [pension plan] Modifications and the commencement of a Bond Exchange.

As of the date of this memo, the above steps have not been completed, nor are they expected to be completed by March 31. As a result, General Motors has not satisfied the terms of its loan agreement.

The report, which takes exception with a number of key assumptions in the plan put forth by General Motors, goes on to state:

...even under the the Company's optimistic assumptions, the Company continues to experience negative cash flow (before financing but after legacy obligations) through the projection period, failing a fundamental test of viability.

In short, the Task Force put GM's best plan through a "stress test" and it failed.

Those who fear the Administration is being heavy-handed are reminded that it was General Motors that asked for the loan, then asked for another, then failed to produce a viable business plan. Today it became clear that the Administration would enforce market discipline by putting General Motors through the same kind of "financial workout" that other lenders routinely enforce when companies fail to meet their obligations to bondholders.

The Task Force is fully loaded with economists. Headed by Treasury Secretary Tim Geithner and Larry Summers, Director of the National Economic Council, the Task Force includes another seven members of the Cabinet and the Director of the White House Office of Energy and Climate Change, Carol Browner. The staff are directed by Steve Rattner, a corporate workout specialist, and Ron Bloom, whose experience includes advising the United Steelworkers union. Other Official Designees include economists Diana Farrell [no relation to the author], Gene Sperling, Austan Goolsbee, and Jared Bernstein, Chief Economist to Vice President Biden. Goolsbee's agency, headed by former Fed Chairman Paul Volcker, is specifically charged with (among other things) "reducing corporate welfare," according to remarks made today by Office of Management and Budget Director Orszag.

This new toughness on corporate bailouts occurs just as President Obama heads off to London for the G20 (Group of Twenty) Summit. There the Administration faces one more important sales job--that of convincing leaders of the other major world economies to fully and harmoniously participate in resetting the global financial system. A draft communique prepared for issue on April 2, pledges participants to supporting an "open world economy based on market principles, effective regulation, and strong global institutions."

One could fit nearly every version of capitalism within the confines of those broad, competing goals. For General Motors and its stockholders, lenders, suppliers, employees and pensioners, however, the options have decidedly narrowed.

See also Responses from Readers, a summary of reader comments when we asked in November whether the auto industry should be bailed out.

A collection of posts about the US Economy is maintained here.

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Jon Stewart: All Kidding Aside

Jon Stewart (right) and Jim Cramer, The Daily Show, March 12, 2009

Fight of the Century. Comedy Central vs. CNBC. In one corner, Jon Stewart, court jester extraordinaire and master of "fake news;" in the other, Jim Cramer of the adolescent voice, purveyor of fake investment advice.

Stewart takes off his comedy gloves and delivers a series of left jabs as Cramer retreats to the ropes, murmuring apologies. Stewart pulls him to his feet and delivers a hay-maker, forcing Cramer to view a clip of himself explaining to an interviewer some of the tricks he had used to deceive investors back in his trading days. Bewildered, Cramer staggers from the set. Stewart never cracks a smile. The audience that had come for comedy witnessed bloodsport instead.

It is telling that it was a comedian who focused populist ire against the financial Masters of the Universe and their apologists at CNBC. By the time word of AIG bonuses had leaked out two days later, public rage was in full boil. Congress, which had voted for restrictions on executive pay before they voted against them, scrambled for the low ground. And President Obama, who had spent two months trying to divert public attention from the injustice of the Wall Street bailouts toward the necessity of solving the financial crisis, finally had to begin to address the ways and means of punishing the whinging, unrepentant culprits.

One may well ask what has happened to the Fourth Estate when the most trenchant journalism is left for television comedians to deliver. As mass media has become big business has it lost its taste for controversy?

In his book The Big Con, Jonathan Chait devotes a chapter to "Media: The Dog That Didn't Watch." He laments that mainstream journalists now seem compelled to present at least two sides of every argument, no matter how patently ridiculous the argument may be on one side or the other. Ironically, his point is made by Jim Lehrer, whose Newshour on PBS routinely offers up some of the best reporting on television. When asked how he treats official statements that are "blatantly untrue," Lehrer responded in the relativistic style that has become the hallmark of mainstream media:

There's always a germ of truth in just about anything...My part of journalism is to present what various people say about it the best we can find out [by] reporting and let others--meaning commentators, readers, viewers, bloggers or whatever...I'm not in the judgment part of journalism. I'm in the reporting part of journalism."

However harsh his delivery, Jon Stewart's message to CNBC and to journalists in general is that reporting goes beyond stenography; that the editorial page is not the exclusive realm of editorial judgment. Professional journalists and media that purport to be something more than publicists for special interests are at least expected to filter the nonsense before they file their reports. By transcending his comedic format to deliver a stinging rebuke, Stewart made the issue personal and identified himself with his outraged viewers. He reminded us that journalism has consequences. Failure to speak truth to power has its cost too.

See The Big Con: the True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics, by Jonathon Chait (Houghton Mifflin, New York, 2007).

For our previous posts on the financial crisis, see US Economy and the Bailout.

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Obama at the Augean Stables

Maureen Dowd, The New York Times


We missed Maureen Dowd's columns throughout her December hiatus. She returned this week with fresh themes for a new administration: the novelty of "hot nerds" in the Cabinet and the looming internal conflict between fiscal stimulus and deficit control. Most intriguingly, she compares Obama's challenge of managing the Clintons to the Fifth Labor of Hercules, cleaning the Augean Stables.

Dowd writes as sparingly as a poet, asking the reader to complete her inferences. Wikipedia tells us this about the Augean stables:

The fifth of the Twelve Labors set to Hercules was to clean the Augean stables in a single day. The reasoning behind this being set as a labor was twofold: firstly, all the previous labors exalted Hercules in the eyes of the people and this one would surely degrade him; secondly, as the livestock were a divine gift to Augeas they were immune from disease and thus the amount of dirt and filth amassed in the uncleaned stables made the task surely impossible. However, Hercules succeeded by rerouting the rivers Alpheus and Peneus to wash out the filth.

One is left to wonder how far she meant to carry the analogy.

Dowd, who wrote an entire column in mock Latin this past October, makes frequent references to mythology and classical literature. In her book, Bushworld: Enter at Your Own Risk, she cast George W. Bush in the role of Oedipus, in psychological battle with his father as he unwittingly brought down the House of Thebes. This is at least her second reference to Obama and the Twelve Labors, the other occurring in her July 12, 2008 column about Obama's European trip, Ich Bin Ein Jetsetter. In that column she refers to Ms. Clinton as "the Amazon Warrior Queen Hillary." When Dowd says "I have a girlfriend in New York who puts her boyfriends through Feats of Strength," we suspect she is putting Mr. Obama through the same paces, just as she did with earlier references to him as Obambi, a fawn cowering under the withering gaze of Mrs. Clinton during the debates.

Like the devoted followers of the famous Sunday crossword puzzles of The Times, one is encouraged to have reference materials handy when reading Ms. Dowd. The columns are worthy of the effort.

Myths, neither histories nor fates, are sung anew by each generation.

See Bushworld: Enter at Your Own Risk, by Maureen Dowd (Penguin Group, New York, 2004).

For a translation of Dowd's witty but intractable column in Latin, Are We Romans, Tu Betchus, see the blog Ablative Absolute. The comments that follow the post offer further refinements. The translation reveals just how biting Ms. Dowd's satire can be when cloaked by a dead tongue.

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McDonald's: Relevant Retailer for a Down Economy

McDonald's restaurant, circa 1960


The lead business story in this Sunday's New York Times on the continuing success of McDonald's Corporation sounds a number of themes that readers of this column will find familiar.

The chain has broadened its merchandising appeal beyond kids and young parents just as management's renewed focus on value, quality, service, and cleanliness has taken hold.

Minor adjustments in the menu in the form of fresher food, better coffee and more savory seasonings (including a return to the Big Mac sauce in use when CEO Jim Skinner and I worked on McDonald's crews in 1971) appeal to the tastes of an aging population. Reformatted restaurants feature more comfortable seating, faster drive-thru operations, and flat-screen TV monitors.

Under Skinner this is a company that has rediscovered the secret sauce.

See our newsletter on Restaurant Lifecycle Management here.

See also McDonald's Strategy: Meat, Potatoes and Coffee and Brand, Menu and Store Design and Chain Restaurant Development or visit our Google Group page featuring articles about McDonald's Corporation.

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