The Business Of America

While I have been neglecting the question of authoritarianism and morality in politics I also have been neglecting my other duty, keeping an eye on Megan McArdle so you don't have to. Thanks to the commenter who pointed out that McArdle has snuggled down onto her new little perch, where she recommences to feather her nest and peck at any lice that might prevent her from doing what she does best, letting Megan be Megan.

The Benefits of Business Experience by Mrs. Megan McArdle, national celebrity and expert on failure and how to turn it to your advantage, as will be related in her new book Permission To Suck. Not that she needs it!

It's not crazy to worry that Obama hasn't got it.

Why are filthy-rich hedge fund managers, so enamored of Obama in the 2008 race, turning on him now? I endorse the rhetorical explanation: Barack Obama has made a habit of bashing financial types and rich people. Bankers and rich people, being people, do not like being treated as villains in Obama's campaign set pieces. So they are naturally disinclined to support him. I am shocked at how many New Yorkers I had thought to be rock-ribbed Democrats are attending Romney fundraisers. Not a huge number, mind you; it's not like they're going to tip New York from blue to red. But if any New Yorkers of my acquaintance were attending GOP fundraisers in the past, they certainly weren't admitting it in public, unless they already worked for National Review. So it does seem like a real change . . . and what they say when I ask them is that, well, they don't like being treated as villains in Obama's campaign set pieces.

Only a fake like McArdle could be a success in journalism without mastering that little thing call attribution. Salmon named some billionaires, why will McArdle not defend them by name? Who are the "rock-ribbed Democrats"? Here, also, is where things get a little fuzzy. It seems that either New Yorkers of McArdle's acquaintance are all hedge fund managers or all of McArdle's acquaintances think exactly like hedge fund managers. Since McArdle has a history friendship with a wide circle of DC libertarian and somewhat liberal bloggers and New York liberals, it turns out that lots and lots of people think just like hedge fund managers. Who knew?

Furthermore, we are supposed to believe that "rock-ribbed Democrats" are now attending Romney fundraisers, which means they are already contributing to his campaign and might contribute more. Anyone who has been reading the left bloggers recently will notice that rock-ribbed Democrats wouldn't vote for Romney if you held murdered babies over their heads. So to speak.

Megan McArdle: Mr. Rock-Ribbed Democratic Hedge Fund Manager! I am so very surprised to see you at this fundraiser!

Rock-Ribbed Democratic Hedge Fund Manager: Well, you know how it goes, Megan. All your beliefs go out the window when you hear your president deliver a few lukewarm populist statements in an election year. Some people might think we would be delighted with laws that cater to our needs, bank bailouts, a healthy stock market, and enormous rise in income equality but we know different. Barack Obama was in the White House for years but he never did anything with it.
 

It's entirely possible--nay, probable--that the hedge fund managers are still whining about mean old man Obama who told them to get off his lawn, as Felix Salmon relates in the post linked below, but it is impossible to determine the facts when none are offered. We must just suppose that as Megan McArdle's acquaintances go, so goes the world.  The only real new information we are given is that McArdle hobnobs with hedge fund billionaires or at the very least people who think like them, which is, no doubt,  central to her point.

Not everyone agrees with McArdle, strange though that may be.

Felix Salmon, however, offers a different view:

There’s a limit to how far you can go asking people to justify their Hitler analogies, so Chrystia asks Cooperman about his “never worked a day in his life” comment. It turns out that by “working”, Cooper means that Obama “never made payroll. He’s never built anything”. In other words, this is very much the Romney version of the great-men-of-history worldview: one where a handful of visionary builders use their skills to create jobs for the masses and wealth for themselves. Recall Nick Lemann, profiling Romney in last week’s New Yorker:

He talks to voters businessman to businessman, on the assumption that everybody either runs a business or wants to start one. Romney believes that if you drop the name of someone who has built a very successful company — Sam Walton, of Wal-Mart, or Ray Kroc, of McDonald’s — it will have the same effect as mentioning a sports hero.

If you’re the billionaire principal of a business you built yourself, then you are very likely to see the world through this lens — and as a result, you’re very likely to be very supportive of Romney’s candidacy.

Felix implies that there is something faintly ridiculous about this.

 

Who's that shyly peeping out from beneath McArdle's skirt? Why I do believe it is Ms. Ayn Rand, tireless* purveyor of the great-man-of-history worldview and Megan "Jane Galt" McArdle's philosophical hero. McArdle is much too afraid modest to admit to being a Randian since the intellectual elite ridicule the poor quality of Rand's work, but McArdle's desire to worship the elite is obvious.

I myself am on the record as saying that being a CEO does not make you a good president. And yet, I do think there is something to this complaint.

First and most of all, any discussion of a CEO presidency must immediately address the subject of Bush, Geo. W., who just a few years ago spent eight years as president of these United States, well within the memory span of Ms. McArdle, who is nearly 40. Bush was celebrated as our CEO president and we all know how that turned out. Yet McArdle utterly ignores Bush and the little fact that Romney's business experience was in vulture capitalism, not manufacturing or retail. He ran a chop shop for rich men, which is business experience of a sort but not the kind you want to use when running a country. And according to McArdle, she chose Bush 2004 not because he was a CEO president, but because she was afraid Kerry would nationalize health care and "cut and run" in Iraq. In fact:

  I don't think the president has much, if anything, to do with how the economy runs, unless he's one of those disastrous tinkerers, like FDR and Richard Nixon. Neither of the current candidates is such a lackwit, meaning that their impact on the economy will be minimal indeed. Neither candidate gets my vote here.

So obviously the president doesn't need CEO experience after all.

Obama has almost no experience with the private, profit-making sector: a few summer jobs, and one year as an editor at a business intelligence service.

Obama was a low-level editor in Reference Services, working on reports describing economic conditions in various foreign countries.

By all accounts, he disliked the work, not just because it was pedestrian and boring, but because it was in business. "He calls it working for the enemy," Obama's mother, Ann, wrote after a phone conversation with her son, "because some of the reports are written for commercial firms that want to invest in [Third World] countries."

Of course, we've had many good presidents with no business experience. But Obama's whole administration tends to be light on people from outside the academia--NGO--government triangle. It's something that's increasingly true of Washington in general--and, I think, increasingly problematic.

McArdle's head is so firmly fixed up her gargantuan copy of Atlas Shrugged that she can no longer distinguish fantasy from reality. Just as conservatives cannot leave the happy Land of Imagination in which they are the respected inheritors and protectors of western civilization, McArdle's libertarian fantasy world is a Willy Wonka candyland of boot-strapping men and women who built noble industries with the sweat of their brow and a handful of beans. These Randian Ubermenschen suffer horribly from the depredations of the effete,  elite intelligentsia, who all want to destroy the rich to compensate for their own inadequacy. Only by understanding McArdle's point of view, a wandering mishmash of anecdotes, personal biography and economic hero worship, can one even begin to make sense of this post.

Let's join her as she defends her noble captains of industry, who must steer the ship of state safely between the rocky shoals of liberal extravagance and wind-swept waves of conservative meddling. To do this we must immediately jump from poor, persecuted hedge fund managers to mid-management company employees, two creatures who have little in common, but it takes very little imagination to conclude that McArdle wants to imbue the financial elite with the virtues of the middle class businessman to make the former seem a little less like Whiny, Sleazy and Greedy, three of the Seven Dwarfs of capitalism.

 I have now worked in journalism for (gulp) almost ten years, longer than I've done anything else. But before I worked in journalism, I had permanent, full time jobs as a secretary, a help desk technician, an admin at a corporate training firm, and some higher-level jobs designing and building networks for financial clients.

I don't think "permanent" means what she thinks it means. Perhaps she meant to say that she considered these jobs as permanent, which would be most unusual for someone as educated, ambitious and indebted as McArdle. Still, one hesitates to call a lady a  liar over such a small thing. Although it is also difficult to understand how a secretary or help desk technician gained the ability to assess CEOs. Her professors must have covered such things in business school but they were academics, and as McArdle tell us quite often, academics know nothing. Or everything.

When I was unemployed in New York, I started developing my own technology consulting business for small firms, with all that implies in the way of paying taxes and going on sales calls and managing cash flow.

Since McArdle has said that she was desperately poor while being provided with room and board by her parents on the Upper West Side of New York, one surmises that the business was not successful, and therefore perhaps McArdle's understanding of business experience might not be the same as that of a CEO or even presidential candidate.

I also, as long-time readers know, spent a year doing administrative work in a construction trailer down at Ground Zero.

She ran the copy machine. 

These were not jobs that were designed to season young people before moving them up, nor waystops for same; they were mostly permanent jobs, whose main focus was on making customers happy, not nurturing tomorrow's elite. (And indeed, probably half my co-workers had either never attended college, or never finished.) We measured our results in profit and loss, not newspaper writeups or web links.

So these lower level jobs did not lead to high advancement. This will be important later. 

When I look at a lot of what gets written these days, I see how valuable that is. I'm not claiming that my work experience was all that comprehensive, and as an entrepreneur, I wasn't much of an entrepreneur. But what it does give me is some exposure to the legions of people who labor their whole lives at jobs that are kinda fine--and at least a little inkling about how companies, and company managers, think. Which is often not at all how the policy elites with whom I am now surrounded seem to think that they think.

To peddle Myth #1, McArdle must peddle Myth #2: Academics are all liberal obsessed with white guilt and all government workers are incompetents who just want to keep their jobs. Like teachers. And running a shoe store or small factory is just like running the country.
 

The increasingly mandarin elite, hygienically removed from the grubby business of scrounging for customers, frequently seems to have no idea at all what goes on in companies. Stop grinning, Republicans; I mean you too. Yes, too many liberals seem to believe that all infelicitous market outcomes can be cured by appointing a commission composed of really top-notch academics--during the debate over health care reform, the words "peer reviewed study" were invoked by supporters with no less touching a faith than an Italian grandmother performing a rosary for the salvation of the godless Communists.

I haven't seen "mandarin elite" since I last read The Corner. McArdle is still bitter over her loss now that "Obamacare" has been enacted. She did not notice that the right wrote the plan, the medical insurance industry favored the plan, and the insurance industry was given a huge bonus, as people who would be forced to drop insurance as the economy worsens will now be forced to keep it. She is also bitter that all that Koch money couldn't buy her tribe academic respectability and copious cosy jobs but that is what conspicuous consumption is for.

On the other hand, here comes the GOP claiming that entrepreneurship can be started or stopped with small changes in marginal tax rates, as if one were turning on and off a light. This is no less of a technocratic fallacy, even if, as with many technocratic fallacies, there is a grain of sound theory buried somewhere under that towering mountain of unwarranted assumptions.

Yes, conservatives sure are stupid, but they do have some right ideas, such as cutting taxes on the rich. But academics are even more stupid because they think they know how to run companies when they really don't and just muck up everything with their meddling instead. Which makes Paul Krugman either Fred, Shaggy or Scooby, I believe.

The result is that companies usually get treated as a rather simple variable in a model rather than the complex organizations they are. For example, you see people reasoning from corporate behavior to efficacy: if fast food companies spend a lot of money on advertising, then said advertising must make kids eat more fast food; if hiring managers demand a college degree for positions that didn't used to require one, there must be a good business reason. "They wouldn't do it," says the argument, "if it didn't work."

If you've actually worked at a company, this is a ludicrous statement. Companies do stuff that doesn't work all the time, and it can take decades to unwind even the stupidest expenditures and rules.

If companies do stupid things all the time why would we want a businessman/CEO type running the country? Or is McArdle telling us again that the only road to success is through failure?

And I had no idea that corporate advertising was stupid because it didn't work. Why on earth have corporations spent so many millions on advertising that doesn't work? Why do politicians do the same? Has anyone ever told the advertising industry this, or have they just been laughing up their sleeves at everyone all this time? Mad Men? You mean Malevolent Men!

More importantly, when they do have good reasons, they are often not the reasons that outsiders think. The elite projects their own concerns onto the company, instead of asking the company what it's worried about.

This is a sterling example of why people call McArdle an idiot. Academics, who are all elites you know, should be asking CEOs and other businessmen what the latter are worried about, so they can put their thinky minds to work solving the business problems. (Just as employees should be worrying about what their bosses need instead of worrying their pretty little heads about stuff like wages and working conditions.)  Instead of doing silly academic exercises like studying inflation or depressions or Keynsian economics they should be figuring out how to get people to buy more stuff.

Take advertising. Some of it aims to increase consumption of a product; the "Got Milk?" campaign is a famous example. But that doesn't mean it works--the Got Milk? campaign,which went nationwide in 1995, doesn't look to me like it had much lasting impact on milk sales.

Actually, if you look at the link you will see that milk sales stopped falling, the reason for the campaign in the first place, and ended up higher than before the campaign. If you read the history of the Got Milk campaign, which is very interesting, you will see that it was a California campaign meant to increase California milk consumption, which it did while becoming a cultural phenomenon in a small way and winning many awards. All in all, the campaign was tremendously successful.

Yet that doesn't mean it was unsuccessful, because the trade association that paid for it probably did achieve its primary goal: showing members that they were actively promoting the interests of dairy farmers. The members, not milk-buyers, may have been the real "audience" for that campaign.

Just like her father, who was managing director for the trade association of New York city construction companies called General Contractors Association. Evidently he was wasting his time by pretending to actively promote their interests while he really just wanted to milk them of a high salary instead. In fact, he is very much an example of the "academia--NGO--government triangle" that McArdle was discussing earlier but moved from government to private practice to academia and back again, not NGOs. It's odd that McArdle ignored the famous revolving door between business and government. Maybe it just slipped her mind. However we know he provided service in return for his high pay, contra McArdle, when the government investigated organized crime's role in construction.

Commenting on Mr. Goldstock’s [director of the state’s Organized Crime Task Force] findings , the managing director of the General Contractors Association, Francis X. McArdle, said he was ”unaware of any pervasive patterns of corruption” regarding his group. The association represents more than 100 contractors primarily engaged in construction of public buildings and plants.

Mr. McArdle also disputed the need for a new investigative agency. ”We don’t need more people tripping over each other in search of glory, facts or whatever,” he said.

Like father, like daughter. Who needs to find out why banks fail or mortgage companies break the law? Things just happen and there's no villains and there's nothing we can do about anything.

But advertising isn't even always aimed at raising consumption. GM does not spend money on car ads because it hopes that many more people will start driving, or that some of them will buy three cars instead of one. The purpose of a car ad is to make people buy your car instead of your competitor's. It's certainly possible that this is how McDonalds thinks about its advertising, but the policy elite isn't worried about McDonalds putting Burger King out of business, it's worried about fat kids.

 Let us pause to note that McArdle is complaining that the "policy elite," also known as academics and government officials, care about kids' health instead of McDonald's profits. The bastards. How could their values be so out of wack?

And of course, we shouldn't count out the possibility that companies spend a lot on advertising because they don't know whether it works--and don't dare find out. An immense amount of IT spending is done this way.

If McArdle were actually a real journalist instead of someone who plays on tv she would do some research and find out if she was correct. If she read even one article she would discover that McDonald's spends two billion a year on advertising, that its advertising campaigns have been very successful in increasing sales and encompass everything from movie-tie-in toys in Happy Meals to product placement in movies to lavishing attention and perks on mommy bloggers, and it knows every detail of its advertising campaigns, including efficacy and cost, down to the last dollar.. It's a fascinating tale as McDonald's has such an enormous market share and is a part of American culture, but you will not hear that tale from Miss Megan, who is not one to let facts get in the way of peddling her propaganda.

To recap: we now know that advertising doesn't work because advertisements do not change behavior. Therefore, whenever the "policy elite" "projects their own concerns onto the company," they are doomed to failure. The advertising companies all know they are failures but they want to be paid so they just pretend to do their job. The corporations go along with all of this expensive Kabuki because they are afraid to find out if they are wasting their money.

Which is why we should elect a CEO president, so he can tax the country to pay for services we won't get but are too afraid to find if we will get them or not. I thought we were already doing that. 

I'm not claiming that McDonalds advertising doesn't make kids eat more, by the way; I'm just saying that this is a fact which has to be proven on its own merits, not inferred from corporate behavior.

Ah, the classic McArdle double-fake. I didn't say what I just said, I am just saying that it is possible that what I said but did not say is true. If only there were a way to find out....

The flip side of this is the people who think that companies don't do anything at all that couldn't be done better by government or academia . . . except sit back and rake the money in. This is particularly prevalent in discussions of health care, but it frequently pops up elsewhere. 

My goodness, it sure is silly to think that national health care could work. And since government can't do anything right, maybe it was a mistake to let it run the war effort in WWII, or the space program, or the NIH or CDC or the highway system or anything else. Because adding a layer of profit to any endeavor is sure to make it cheaper and more efficient.

My favorite in this genre is Jerry Avorn, the professor of pharmacoeconomics who told Ezra Klein that we didn't really need drug companies because now academics with good drug prospects could simply go straight to the capital markets and raise money to fund their own projects. This is simply breathtakingly wrong. For one thing, venture capitalists want an exit strategy before they will put money in, and in biotech, exit is often a sale to a big pharmaceutical firm; no Big Pharma, no VC funds. And second, few newly hatched biotech firms have the complementary capacities to bring a drug to market by themselves. Forget the sales force; I'm talking about the expertise to get the thing through the FDA approval process and produce it in massive quantities. How do they acquire those capacities? They partner with Big Pharma, or license to them.

I doubt Jerry Avorn would tolerate someone making sweeping statements about what a hypertension drug would do without, say, making a basic investigation into the properties of the cardiovascular system. But among policy elites, there's frequently a reluctance to do this with companies, because the companies are seen as self-interested; spending too much time listening to them will only compromise your objectivity.

"The companies are seen as self-interested." Well, no wonder those elite academics are so confused and are so willing to force their body politic on the innocent, vulnerable billionaires. The government and academia think that businesses are in the business of making money and might even do things are, perhaps, in theory, a little less than altruistic. Which could never happen, and which is why all those rumors of massive pollution in Koch industries could not possibly be true.

At a salon dinner in Washington not long ago,

Ah, yes. The Atlantic salon dinners, in which The Atlantic pimped McArdle out to corporations, who eagerly repeated everything they wanted her to say.

I found myself explaining why so many people go into consulting: it's less exhausting than corporate jobs. One of my friends who went into the management training program at a telecom firm out of business school found himself managing a call center. It's a responsible position, but it's also a little stressful and not always interesting.

"I'm sorry," said one of the other attendees, a very smart and insightful person who writes beautifully and knows a whole lot about economics, "but if you get an MBA from Chicago, and you manage a call center, you're an idiot."

Likewise, anyone who pays $100,000 for an MBA and ends up training to be a fake journalist at the Koches' Institute for Humane Studies must be an idiot as well.

This is pretty much exactly wrong. If you are going to someday be a senior manager at a major telecom firm, you should absolutely manage a call center: nowhere else will you get the kind of hands on experience with the firm's customer base in their most irascible, demanding moments, or learn as much about the company's cost structure and operational challenges. And surely it is not actually idiotic, even for someone with an MBA from a top school, to want to be a senior manager at a major telecom firm?

Didn't McArdle say earlier that the lower level jobs were permanent jobs? And don't most top jobs go to people from top schools with top credentials and top contacts?

And yet, it's such an unsurprisng remark, because this so often seems to me to be the animating spirit of our governing class. The purpose of an elite education, the thinking goes, is to equip you to design and run the system by which 300 million Americans live together--and to ensure that you never, ever have to actually interact with the 280 million who did not graduate from an elite academic program.

McArdle, as always, extrapolates from personal experience.

To be sure, that's a charge that can often be leveled at consulting and finance--the two jobs where Romney got his fortune, and apparently, many of his supporters. But at least the consultants and the bankers have to convince some very non-elite CEOs to give them money, and their non-elite employees to give them information. At least their performance gets measured by a metric that's hard to fudge for very long, or spin into something more pleasing: is there more money in the bank, or less, at the end of the quarter? And the people who do run non-elite, consumer focused small businesses are also disproportionately going for Romney over Obama.

It's like the last four years never happened. No bank failures, no bailouts, no hidden bad investments. Tra-la-la, McArdle skips merrily past the truth and down the garden path.

That same article (on a poll by SurePayroll) also included the following quote:

“It’s deeply concerning that optimism plunged 15 points at a time when we’re struggling to maintain the recovery,” said SurePayroll CEO and President Michael Alter. “This suggests a lack of growth through the election, but what’s more troubling is what it could mean beyond that. When small business owners are not optimistic, they’re not investing and they’re not hiring."

It seems small businessmen lean towards Romney because they are very stupid; they form their business plans around their mental state, not the needs of their business. When small business owners don't have order to fill they don't invest and they don't hire. No matter how pessimistic or optimistic they are, hiring depends on demand, not their mood. McArdle might want to read her source material some time--it's very odd but the material frequently does not support her claims, at least not convincingly. She might want to look into that some time.

This is not to disparage jobs outside of business. I have one. So do most of my friends and family. The people in those jobs work very hard, they are often brilliant, and they even occasionally contribute something positive to the world--something that is hard to say about, say, an associate structuring a really innovative tax-arbitrage deal.

But ultimately, businesses are where all the money comes from to pay for us to opine about the state of the world--present and potential. They are the ones who generate the goods and services, the advertising dollars and tax revenue, that keep the rest of us afloat. It matters that fewer and fewer of us have any real experience at all with how they work. We sit in our air conditioned offices and presume to plan the economy, yet how many of us could keep a trucking firm in business for a whole month, sell a customer on an unfamiliar new generator technology, or turn a lawn-mower repair shop from deficit to profit?
 

"We" plan the economy? No, I don't think so. McArdle writes for a Tina Brown blog, she doesn't plan anything except her next extravagant purchase.

I'll be the first to say that I couldn't. What my time in the private sector gave me is mostly a terrific respect for how hard it is to manage a business, particularly one filled with workers who are doing a job, not pursuing a vocation.

The world appears to be overflowing with academics and journalists who could do a much better job running the Fortune 500 than those grasping yahoos in the C-Suite . . . if only they weren't so busy with their research. But I am not among them. I hate repetitive jobs unless they involve data collation, dislike telling other people what to do, can't stand to make sales calls, and have a low tolerance for the minutiae of management. And so my hat is off to anyone who manages to keep a business in the black. Even if they make a bunch of really stupid mistakes.

When Obama sat down with the auto task force to confront the problems of reorganizing GM, the first thing he asked was "Why can't they make a Corolla?"

There are a lot of answers to that--cost structure, labor practices, the structure of the American car market, the pool of automotive engineering talent available to American manufacturers. But the simplest one is that GM is not Toyota.
 

And humans are not bonobos.

Companies are individuals, with individual strengths and weaknesses, and a Car Czar cannot turn one company into another any more than a surgeon could turn you into one of your cousins. To even ask the question seems to reveal immense hubris: why, oh why, has GM not done the obvious and produced what I, in my imperial wisdom, believe to be the car of the future?

I think you can make an argument that consultants and bankers do quite a bit of this, with money and interest rates replacing policy levers. But I also think you can argue that they do somewhat less of it, because at the end of the day, they do have to get in there and deal with an actual company; if sales plummet, it's no good pointing to your model and declaring that it's still working fine.

So when America's sales plummet and America can no longer make payroll, we need a CEO president who will be able to make cold calls to Russia and China to get them to buy our iron ore and guns.

This emphatically does not necessarily mean that Romney will therefore be a great president, or that you should vote for him. I have lots of thoughts on this, but given how long this post is already, I will have to share them on another day. For now, I'll just say that whatever the flaws of Mitt Romney, or the financiers who support him, I think that the worry about Obama's lack of business experience is a fair concern--and that I wish more of our leaders and policy analysts had started their careers in the private sector, seeing how it creates the wealth that they deploy.

We started out talking about hedge fund managers but now we end up with a paean to the workers of the world, or at least the people who hire the workers of the world and create most of America's wealth. Therefore we must vote for Mitt Romney (not that she is telling us to vote for Mitt Romney, mind you) because Obama never ran a Stop-n-Go and therefore has no idea how to run the country, despite the fact that he has been doing just that for years.

People are rightly concerned with McArdle's dishonesty but her biggest problem is that she just isn't very bright.

*The amphetamines helped, no doubt.