February 2009 - Posts

• Measuring pain

  Every hospital room, doctor’s office, and ER bay has a faded copy of the Universal Pain Assessment Scale taped to the wall: it’s an annoyingly reductive approach to “measuring” a patient’s level of misery — which is obviously an important diagnostic and clinical task, but as a patient or loved one I’d rather not have the comparison to happy, glum, sad, and horrified faces.   This is the image that popped into my head when I read the Fabricators & Manufacturers Assn.’s announcement that their economic analyst believes the current recession is “less ‘painful’” than those in the past. In fact, Dr. Chris Kuehl predicts that recessionary conditions will ease later this year. “Unless the current doom and gloom becomes something of a self-fulfilling prophecy, the recession is on a par with past downturns and real improvement will start to manifest itself in 2010,” Kuehl writes in the FMA’s economic-update newsletter. His analysis is based on the National Bureau of Economic Research’s data analysis technique — the standard used in business reporting — which is that overall economic growth must decline for two consecutive quarters in order to define a recession. Once the decline reverses for two quarters, the recession is over. “The NBER has a reputation as being pretty conservative and reacts to factors beyond GDP to declare a recession,” Kuehl says. “It uses six criteria to determine when a recession has started and when it ends. These are GDP, real income, employment, industrial production, wholesale sales and retail sales.” Kuehl’s analysis of government data on GDP, income, unemployment, and production since 1970 leads him to conclude: “It is pretty apparent the recession of 2008-09 is not worse than those in the past four decades. In fact, the recessions of the 1970s and 1980s were arguably more painful on almost every level. “For example, real GDP dipped lower in 1975 and 1980, and unemployment rates were higher in 1981-82,” he adds. “The statistics also show that although this is no shallow and unimportant recession, it isn't the worst we have been through – not by a long shot.” I hope he’s right. But, just like the diagnostic chart there’s a lot of room for misinterpretation here. The NBER was widely criticized in early 2008 for relying so strictly on data that it didn’t recognize accelerating recessionary conditions. Nor does the NBER account for regional declines in its statistics, which may make the recovery from recession more difficult in some industries than others. Most important, the NBER scale does not seem to incorporate anticipated developments — e.g., proposals for taxing carbon emissions — in the decisions businesses make that might prolong or suppress a recession. In short, there’s no way to measure anxiety. “To those who are frantically trying to hold their business together, the recession is as bad as it gets,” Kuehl says. “But, for those who are trying to decide how radical they need to get to protect their business, a realistic assessment is needed. At this stage, the recession is on a par with what has been endured previously, which means it can and will be survived.” Let me repeat: I hope he’s right. “The strategy now should be to hunker down and wait out the downturn – without taking steps that gut a company's ability to react to the turnaround,” Kuehl says. “This means hanging on to valued employees who soon will be needed again. It means making those investments in capital goods that keep a company competitive, and it means staying true to strategic goals in marketing.” Posted Feb 27 2009, 02:54 PM by REB with 1 comment(s)

• In all fairness

  Last year’s strike by the United Autoworkers union versus American Axle & Manufacturing was a revealing development for the U.S. manufacturing sector: it aired all the problems involved in maintaining high-value production programs in the global economy, in the face of rising costs and declining demand. Needless to say, it also revealed the tensions that persist between manufacturers and Big Labor. Those tensions have become much more apparent as manufacturers worldwide have been crippled by the credit-market collapse and demand is virtually stalled. The UAW’s side of the argument in 2008 contained much of the populism that is now so prevalent. Calls for “justice” and “fairness” against “greedy” business owners and executives are common. The fact that populists rarely if ever credit responsible or self-denying owners and executives is, to me, proof that their complaints are merely rhetorical. But, if this story is true, last year’s critics of AAM’s management salaries, and populist of all sorts, have now the chance to prove otherwise.   Posted Feb 23 2009, 07:16 AM by REB with no comments

• Everybody get in line

  Forgers will get a little bit closer attention for their role in the financial meltdown soon, as one of the most recognizable domestic forging companies joins the crowd of petitioners seeking federal assistance. FormTech Industries, barely three years old, is among the companies being led by the Original Equipment Suppliers Assn. and the Motor Equipment Manufacturers Assn., seeking to have government aid to the auto industry extended to automotive supplier companies. When everyone else is getting something, it probably is a mistake (in a competitive sense) not to take the same advantage. But, these days, competition is a highly theoretical concept. What are those other supplicants really gaining? More specifically, what's gained comes at a steep cost in terms of public perception. Already the most overworked quip in the U.S. involves casual friends or total strangers asking out loud, in exasperation, "Where's my bailout?" Until now, all the bailout money has gone to "Wall St. billionaires," and other irresponsible characters, who have never cared much about their reputations for "quality" or "performance" anyway. And, in exchange for the financial support they've been obliged to show up in Washington to be bullied and berated by Congressmen (of all people!) At least the bankers got their hands on the money first; the automaking execs were humiliated that way before they got anything. They're due for another round of "hearings" in March, and you can expect more staged outrage. Which ought to be a signal to the auto parts manufacturers, but apparently they can't help themselves. Apart from recognizing that this money is not free, they ought to consider what they're giving up for it. With a few obvious exceptions, these are companies that generally don't need to clear up "toxic" debts, don't need to restructure or to reposition themselves, and don't need to cut out excess capacity: they just need for consumer demand to revive so that their customers can get back to placing orders. They've spent the past 20 years right-sizing and optimizing. Some fresh cash will help keep the lights on, but it's not going to fix their biggest problem. Once they do take the money, they'll have a whole new set of problems but they still won't have anyone buying their products.   Posted Feb 12 2009, 10:42 PM by REB with no comments

• A temporary fix

  There are many, many issues to be addressed about our financial mess, but no one would can argue that most of the difficult problems would resolve themselves if the economy were growing. Exposing deceptions or punishing frauds is fine, but it’s a distraction. A temporary fix, in the current vernacular. Growth is the only way out of our decline. This is the core of my objection to a fiscal stimulus program built around the idea of infrastructure investments. But, even while that initiative has just barely started, it’s being weighed down by a very predictable demand from U.S. manufacturers that federal spending guidelines contain “Buy American” provisions. There is merit to the idea that investments in domestically manufactured goods will extend the impact of the government’s investments. But, stipulating such choices undermines the speed and quality of the stimulus the feds aim to create, because it will limit the available options. And, that limitation squanders the taxpayers’ very real stake in all this spending. (Such stipulations also contradict free-market principles, but at this point, no one's listening to those arguments.) Worse, such mandates implicitly invite lawmakers to pick favorites among companies and organizations to be helped by their “investments” — and thereby to reward the highest contributors, or the favored voting blocs, or the local interests of specific legislators. At that point, we’re just a wink away from “earmarks” and “pay for play,” and all the other governmental vices we’ve been assured will no longer take place now that we’ve had a change in Washington. Posted Feb 01 2009, 10:23 AM by REB with 1 comment(s)