Friday, January 30, 2015

Big Macro Economics...

Talk about a frightening thought!  It may come as a shock to many of you that this writer, in a prior life, once served for a couple of years on a financial institution advisory panel at the Federal Reserve.  Sounds pretty impressive, doesn't it!  Just e-mail me, if you need an autograph - no charge...

Huddling with Alan Greenspan, Rog, Ned, Mike and the boys on the micros and macros of supply and demand is a tizzying experience which invites intoxication. Gathered in a board room decorated to make Versailles appear quaint; properly awed, it's easy for one's sense of self-importance to run fully and freely amok. Are they really listening; or just killing a couple of hours before lunch? Are those narrowing eyes a sign of intent interest or growing drowsiness? Are they earnestly taking note of our local economic views or simply listing "get milk", "drop off dog", "pick up laundry" reminders for the end of the day commute?

As you might imagine, "advising the Fed" on economic policy is a role I find wildly and severely humorous. After all, how does one advise the gods? What should one tell the all-knowing? What do I know which they and 10,000 expert government economists have missed? And, on a more intricate level; what does Mr. Greenspan really mean when he says "Good morning!"? Does he actually mean it or does he believe our hopes for the morning are irrationally exuberant? How good is "good"? How long will it last? What will it do to interest rates? If I believe I understand what he says, does it mean I've missed the point entirely? Is he being opaque or am I being dense? Who's on first, what's on second... Disconcerting isn't it!

How does one make a contribution of value at this level? 

Eventually a revelation!  It occurred to me that the distinguished governors of the Fed probably did not eat lunch at the same places I frequent - the fast food palaces. Was there a critical economic message hidden at the drive-thrus and in the sack lunches of the masses? 

Obviously, an insightful report on the pricing trends of Big Macs, Whoppers, chicken strips, and biggie fries could offer significant clues as to the direction of price stability. The tendency to "supersize" could even prove to be an important leading indicator of economic expansion. As you and I expand; perhaps, so goes the economy.

Pricing was easy; but was there also a fast food
connection to employment and productivity? Were the economic R-squares and standard deviations of the bag lunch universally significant? The quantitative research on these issues became totally consuming. Ninety days and eighteen pounds later, I had the answers.

Employment correlated precisely with "now hiring" signs at fast food franchises! As unemployment decreased, hand-lettered "now hiring" signs were replaced by professionally produced banners, indicating the onset of a permanent trend. As the labor shortage grew more severe, the "now hiring" banners began to appear en Espanol. Further tightening eventually led to "now hiring" signs in Sanskrit and Braille. (I know that's hard to believe but just trust me, okay!) Worker fringe benefits have also been increased; and now include discount coupons, permitting franchise employees to eat somewhere else!

Productivity measurements proved far more subjective. Productivity gains came in three forms. First, the restaurants have instituted the process of "cross-marketing" on all sales. I'm not certain how successful this effort has been, since the correct answer escaped me when I ordered a soft drink and was asked "Do you want that with cheese?" 

Secondly, the restaurants have changed their product mix. For example, one company now includes only the toy in the "happy meal" box with a subsequent increase in profits, but no net loss in nutritional value. While at another restaurant, the meat patty has been eliminated and the bun now encloses the Styrofoam box rather than the traditional vice versa. (Still tastes the same, by the way!) Fries are now routinely prepared a day in advance; coffee a month in advance.

But, the greatest gains in productivity can be
recognized in customer service, particularly at the drive-thru windows. The incidence of the "surprise meal" is way, way up. The surprise meal occurs when
you open the bag at home and find the contents bear absolutely no relationship to the order you placed. (Your best bet for getting what you want these days is to order something else!) A corollary to this service indicator is the "all or nothing ketchup and napkin solution". One of each is no longer an option. You either get none or enough to fully recreate the visuals in the movie "The Texas Chainsaw Massacres".

But the real acid test of productivity comes in the
way you receive change back with your order. In the past, your change - first bills, then coins - was carefully counted back to you, followed by your food order. 

More recently, your change is handed to you in a stack along with a vanilla shake making verification impossible. Rounding off and randomly estimating the change due is gaining ascendancy in some locations; but the most highly productive workers now simply provide you with the amount of change they feel most appropriate. (One possible retaliatory tactic, by the way, is to under pay and tell the cashier to keep the change.)

While labor productivity gains are enormous from
these time saving efforts, a major, potential systemic risk has been created. A very small group of econo-terrorists can now threaten the stability of the entire U.S. economy on any given Friday at lunch time. 
Simply by presenting $6.53 in payment for a $4.26 fast food meal - while asking for the change to include three quarters, four dimes and two nickels;  terrorists can freeze-up fast food lines nationwide, as baffled cashiers stop the American workforce in its tracks, bringing the American economy to it's knees, never to move again. The threat is real and growing1 (Try it next Friday, if you have the rest of the day off.)

Well, what do you think? Pretty insightful, huh! Hope this synopsis of Big Macro Economics is as helpful to you as it was to the Federal Reserve. They always seemed to nod in amazement at my thoughts and analyses.... and look how well the economy has performed since that time.

 Mr. Greenspan even commented once that he was FED up with my thoughts. Wonder what he meant by that?


Anonymous said...

By any chance are you related to James Gillespie Blaine, leader of the “Half Breeds?”
If so, that probably explains your position on the need for civil service reform and your desire to have our regulators be people of merit.
If not maybe it’s just plain being ornery.

Jim Blaine said...

Nope, no relation to "the Plumed Knight"; JGB hailed from Maine.

If civil service reform means returning to a democratic republican form of government; then yes, I guess I'm for it.

Being ornery probably arises from an over-developed intolerance for injustice: especially when it impacts the lives of the working men and women that CUs are desperately trying to help.

When CUs are engaged in a daily, hand-to-hand struggle to help folks improve their lives, to encourage their hopes, to educate their kids, and to find a way to stretch shrinking paychecks to the end of the month: then yes, I get angry and incensed by silly boys (and girls), sheltered from accountability, and the hard realities of this desperate economic struggle. who recklessly and insensibly make our tasks unnecessarily more difficult.

James G. Blaine referred to them as "Turkey Gobblers"!

Anonymous said...

Mr. Greenspan would probably offer this to your remarks today:

Jim, it was always a pleasure having you at our meetings. Your input was always appreciated though not always understood. Like your blogs, your remarks at times seemed endless. However, I unlike others, knew that you took the time and effort to research your positions and used your vast experience to promote the cause you were advocating.

It sounds like you are still as feisty as ever waking up early in the morning to write your daily thoughts for the benefit of all to read.

Keep up the good work.

Anonymous said...

"civil service" caused me to think of public service, which caused me to think of Public Service CU in Denver.

Anybody else see the irony of the Public Service CU CEO raking in $16.7 million in IRS-990 reportable compensation in 2010 thru 2012?

Diamond Dave could be the poster child for CU tax-exemption abuse.

Jim Blaine said...

Thanks Mr. Geenspan, I'll try to be briefer.

Any chance you have some free time to serve on a federal regulatory board when a vacancy occurs?

Anonymous said...


Mr. Greenspan is more accustomed to serving on real regulatory boards. Your question to him seems to suggest he would be interested in a spot on the NCUA Board. I think no for it is not real but rogue.

Jim Blaine said...

Was hoping he might get tripped up by "irrational exuberance" and say yes.

His exuberance might be wasted over on D-St.; but, he might feel right at home with the irrational part...