Mar 27, 2009

You can't plan the economy

Trucks are back. Putting aside the fact that there were too few vehicles bought, the economy voted on what vehicles they really want automakers to build. Their troubles were not brought on by not offering consumers what they supposedly want.

At the top were the Ford F150 and the Chevy Silverado. The Dodge RAM was #8 , Ford Escape #11, Toyota RAV 4 #13, Jeep Wrangler #16, and the Toyota Tundra #24. Americans still want to drive out on the range to check the cattle, carry tools to the jobsite, compete in off-road challenges. No matter if they just use them to drive the kids to school.

Mid-size cars had their market space. The Toyota Camry and Corolla were in the third and fourth slots with the Accord, Altima, and Civic just behind. The Chevy Malibu was #10.

Among the newer products, Ford took #12 with the Focus and #14 with the Fusion.

The Prius took #17. You can’t really judge preferences for hybrids from this data because they are not being built in large numbers yet.

As sensible as it might be to drive small, fuel-efficient cars, you can’t mandate that they be built or bought. If people want testosterone wagons, you build them. Have choices, of course. That’s what a market economy is. If there’s a shift in preference to smaller cars, the automakers will build more of them.

Let’s quit making automakers the scapegoats for the stalled market.

The March 2009 Ford newsletter reported on 2009 year-to-date vehicle sales (sorry, they didn’t cite the date that the year is to) from “manufacturers reports.” Let’s just say that’s adequate for our purposes.

Mar 25, 2009

Learning practice

My yoga practice today got me thinking about learning. When I started going to Sattva Yoga almost a year ago, it was hard to follow along and do all the poses. I asked Chuck, my teacher, if he had a handout or something that showed the right way to do them. He told me he didn’t, because the “right” way was unimportant. He said I’d learn as I kept at it.

As they teach, Chuck and Leslie will correct a pose with gentle hand to help you straighten an arm or a shoulder, support a wobbly leg on a balance pose, or move a bolster under your back on a lying down pose. I used to obsess over what I was doing wrong whenever anyone did this. I’m one of those people who grew up wanting to do everything right, to avoid criticism or blame, to have all the answers.

Culturally, we’re immersed in the blame game. Congress, the press, and most of the people we know are going on and on about the AIG guys and Tim Geithner and million dollar bonuses. We really want a scapegoat for our scary economic situation. It’s as if finding someone to pin the blame on will fix the whole problem or make us feel better. We’re not able to say that giving the bonuses was just a poor decision. Amid the 10,000 things he has going on, we castigate Geithner for not putting the kibosh on this.

A bit of blame is also being applied at a local 240-hour continuous concert marathon. There’s a schedule on the website that’s not being updated. Of all the processes that had to be invented in a couple of months, that one had a failure. Some people are complaining about that, and glitches in the webcast and the sound system, along with a few scheduling mixups.

Fortunately, most people involved in the marathon see that it’s a miracle that so many things are going right and fixes are being improvised on the spot as problems occur. Camaraderie and collaboration have developed.

[Joke from the webcast chat board: How many sound techs does it take to change a light bulb? Answer: 24. One to change the light bulb and 23 to say how much better they would have done it.]

We need to keep reminding ourselves that continuous improvement means learning by doing. Mistakes are normal. No complex system has every worked perfectly. Toyota knows this.

My yoga teachers are helping me find out where to place my body in space so it is stretched and strengthened, and muscle memory will get me approach the optimum each time I practice. Without their guiding hands, I wouldn’t make the same progress toward the full benefit of yoga.

If only the same learning orientation was being applied to our economic situation. If we had a learning culture, we wouldn’t single out Geithner or anyone else to take responsibility for fixing the economy. Or rake up more examples of people and practices to rant about.

It is probably good to surface the question of whether employees of failing companies should get millions of dollars in incentives. It’s a worthwhile dialogue that might or might not yield consensus. Could we have a real dialogue about the wisdom of creating and selling derivatives, or should we chastise certain people for having allowed the game to be played? Should we take the opportunity to simply adjust breakdowns, and acknowledge that some of the adjustments will need correction as we see how they work?

That would make for boring radio and TV news. Blaming gets the emotional juices flowing. We get a certain pleasure when we take the privileged kid out to the playground and beat him up. But that doesn’t help anybody get a job.

And back at the café, hundreds of people are taking their turns on stage, and others are working long shifts at the soundboard and fixing microphone and guitar cable problems. For the most part, the webcast has been fabulous, once it was found that no one else can use wifi in the café for the duration. That interfered with the ability to update the website. The schedule was being meticulously maintained in a master notebook that can’t be removed from the café, and apparently resources weren’t put in place beforehand to keep the website updated.

Simple mistakes. By the time that one process can be dealt with, the event will likely be over. The important thing is that bands are on stage for their time slots, or filling in when there’s a no-show, and the concert continues. Changeovers are getting more efficient. The sound guys are getting more skilled at running a new sound system.

Adopting that learning attitude is hard. It’s not Japanese or zen. It’s not yoga. It requires that you turn your inner feelings about right or wrong, correct or incorrect, humiliation or support, upside down. There’s nothing gained by fretting or complaining. It doesn’t help to waste people’s time in needless and embarrassing press conferences when they could be studying and understanding processes, thinking about the breakdowns and testing adjustments.

For us little people, there are things we can’t control. But we can always practice learning.

Mar 12, 2009

Are Americans working harder and getting paid more?

News reporters--unless you’re prepared to read and understand the entire news release, including the “Technical Notes,” don’t write about productivity and wage statistics reported by the Bureau of Labor Statistics.

Even James Surowiecki in the March 2, 2009 issue of the New Yorker wrote a piece that appears to be based in part on the February BLS Productivity and Costs news release. He is generally an incisive and well-informed business writer.

He had seven points to make:
• While millions of jobs have been lost, average hourly wages have increased.
• Employers don’t cut wages because wage cuts “wreck employee morale and eat away at productivity.”
• Productivity has risen at “an impressive 3.1 per cent.”
• Workers get paid more the more productive they are.
• Companies used to “hoard labor” in downturns, but with the just-in-time economy, they are quicker to fire people.
• Companies are obsessed with doing more with less.
• We need the stimulus package because prospects are bleaker for those out of work.

That sounds eminently logical and based on data. But wait a minute—what data?

As you read the technical notes of the news release that start on page 8, you see words like adjusted, estimated, sampled, imputed, based on ratios, deflators, aggregated, NAICS, chain-type current-weighted index, assuming…

Your eyes have glazed over already, haven’t they? These are highly-derived, 20,000-foot level statistics developed in the 1930s and 1940s to help make economic policy decisions. (The effectiveness of such decisions may be open to question.) Each metric that feeds the aggregated data has its own derivations, uses, and margins of error.

The people who gather and analyze this data are not misleading anyone. They issue all sorts of publications explaining what they’re based on and how to read them. They continuously improve how they measure things, and improve accuracy. They publish retrospective critiques of their own forecasts. They’ll talk to you if you call them with a basic question and they’ll answer your e-mail.

Surowiecki started with “average hourly wages,” which have indeed gone up at the same time the number of jobs has gone down. He suggests that, with productivity rising, the best and most productive workers are keeping their jobs and the slackers are being let go. But what are “wages” and “hours”?

“Wages” means total compensation paid to all people working in the business sector of the economy, which excludes a few categories like government workers and employees of nonprofit organizations. That total compensation includes the millions paid to some people, and the pittances paid to others. When lower level employees are let go, but the big shots stay, the average is going to be distorted. Total compensation includes the cost of benefits, including health insurance and workers comp. Speculating on average pay for the average worker based on this data is not a good idea.

“Hours” is a calculation of all hours worked by all people in the business sector workforce. It excludes vacations and other time off, based on surveys of company policies. It can include overtime, or not. (As the workforce shrinks, how many people are working unrecorded overtime to keep up?) It’s an approximation. You can compare this year’s figure to the same figure five years ago and draw some conclusions about the economy as a whole. You can’t draw conclusions about how much time an average worker is putting in.

“Average hourly wage” is an approximation divided by a guess.

Do employers avoid cutting wages? Yes and no. If there are any new hires, are starting salaries lower than before? Are wage increases smaller? Are unions being asked to make concessions? Are benefits being cut? Are employees contributing more of their own money to get benefits? What about bonuses?

The biggie—productivity. Has it risen an “impressive 3%”? Do more people have their noses to the grindstone? Are American workers the most hard working and productive in the world? We really like to think so—and most people do work hard. But that has nothing to do with “productivity” as reported by the BLS.

“Productivity” is just another calculation. Gross domestic product—all the stuff sold for consumption in a given time period—divided by the number of hours worked. (Note that it doesn’t include all the stuff produced that got left in a warehouse somewhere.) In the last reporting period, the economy made and consumed slightly more stuff, while fewer hours were worked—since fewer people were working—so “productivity” is up. But “productivity” is just an estimate divided by an assumption.

You can speculate on a lot of situations that could feed productivity—for example, an unemployed person works no hours but still consumes what somebody else makes. But long term productivity growth, what we like to point to when we want to show how hard Americans work, is largely driven by the work done by the information systems and machinery that used to take many hours of labor to do. That’s the dirty little secret. You can’t say that anyone is working harder at any time compared to any other.

In fact, right on page 9 of the news release, if you bother to read that far, the BLS says:

Although these measures relate output to hours at work of all persons engaged in a sector, they do not measure the specific contribution of labor, capital, or any other factor of production. Rather, they reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the work force.”

You can’t speculate on less productive people being fired while more productive people keep their jobs, as Surowiecki does.

Next question: Does a “just-in-time” economy cause companies to fire people more quickly? I have no idea what this is supposed to mean.

Are companies obsessed with doing more with less? Yes, but they don’t usually go about it in any effective way. You can randomly fire thousands of people and hope that those left will magically be able to think of ways to get all the work done. Or, less likely, you could be going about continuous improvement in a systematic way and letting attrition run its course if you need fewer people, or hiring on an agreed-upon contingent basis and do without them when things are slow.

Do we need the stimulus package to include extended unemployment benefits? I think that’s true, but that doesn’t have anything to do with the BLS cost and productivity report.

I’m sorry to pick on Mr. Surowiecki. He hasn’t done any worse than 99% of the media.

However, we have a responsibility too. As consumers of economic news, we have the obligation to dig down to the roots of assertions from time to time. With the web, all we need is to take a little time and read the first nine pages of a press release. Just once.
Copyright @ 2005-2014 by Karen Wilhelm