Uncle Henry, Charlie Kellstadt, and Donald Trump

As President Trump has focused on persuading certain specific companies to increase their US employment (or at least to refrain from decreasing it as much as originally planned), concerns have been raised about his ability to operate above the level of the single case and to think in terms of framing general policies.  I do share this concern to a certain extent.

But I’m also reminded of Peter Drucker’s story about two old-line merchants.

The first of these, called “Uncle Henry” by those who knew him, was the founder and owner of a large and succesful department store. When Drucker met him, he was already in his eighties. Uncle Henry was a businessman who did things by intuition more than by formal analysis, and his own son Irving, a Harvard B-School graduate, was appalled at “the unsystematic and unscientific way the store was being run.”

Drucker remembers his conversations with Uncle Henry. “He would tell stories constantly, always to do with a late consignment of ladies’ hats, or a shipment of mismatched umbrellas, or the notions counter. His stories would drive me up the wall. But gradually I learned to listen, at least with one ear. For surprisingly enough he always leaped to a generalization from the farrago of anecdotes and stocking sizes and color promotions in lieu of markdowns for mismatched umbrellas.”

Drucker also knew another leading merchant, Charles Kellstadt (who had once run Sears.) Kellstadt and Drucker served together on a Department of Defense advisory board (on procurement policy), and Kellstadt told “the same kind of stories Uncle Henry had told.” Drucker says that his fellow board members “suffered greatly from his interminable and apparently pointless anecdotes.”

On one occasion, a “whiz kid” (this was during the McNamara era) was presenting a proposal for a radically new approach to defense pricing policy. Kellstadt “began to tell a story of the bargain basement in the store in Chillicothe, Ohio, where he had held his first managerial job, and of some problem there with the cup sizes of women’s bras. he would stop every few sentences and ask the bewildered Assistant Secretary a quesion about bras, then go on. Finally, the Assistant Secretary said, “You don’t understand Mr. Kellstadt; I’m talking about concepts.” “So am I,” said Charlie, quite indignant, and went on. Ten minutes later all of us on the board realized that he had demolished the entire proposal by showing us that it was far too complex, made far too many assumptions, and contains far too many ifs, buts, and whens.” After the meeting, another board member (dean of a major engineering school) said admiringly, “Charlie, that was a virtuoso performance. but why did you have to drag in the cup sizes of the bras in your bargain basement forty years ago?” Drucker reports that Charlie was surprised by the question: “How else can I see a problem in my mind’s eye?”

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What Chicago Boyz Readers Are Reading (December 2016)

Below is a list of the books, ebooks, music and videos that Chicago Boyz readers viewed and/or ordered in December 2016 via Amazon links on this blog. (A cumulative list of Chicago Boyz readers’ Amazon purchases is here.)

Your book and non-book Amazon purchases help to support this blog via the Amazon Associates program. Chicago Boyz earns a percentage on all of your Amazon purchases as long as you get to the Amazon site by clicking on Amazon links on this blog (including the Amazon banner in the blog header, the link above the Amazon banner, and even Amazon links on Chicago Boyz for products other than the ones that you want to buy).

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The Ballpoint Pen as an Economic Case Study

Chinese Premier Li Keqiang has lamented China’s inability to “make ballpoint pens with a smooth writing function.” After five years of research, a state-owned steel company now says it can.

WSJ notes that 80% of the world’s ballpoint pens are made in China…but that thus far, China has not been making all of the pen’s components.  Specifically:

The tip of a high-quality ballpoint demands metal work involving high-precision machinery and very hard, ultrathin steel plates. So 90% of pens made in China have imported tips. China’s leaders want “self-sufficiency,” in pens as in semiconductors. Now they claim they’ll have it.

This little story is interesting from at least three angles.

First–as the WSJ story points out, China’s desire to control the entire ballpoint pen supply chain indicates that their leaders still value economic autarky, and that Chinese leadership denunciation of President Trump on grounds of his insufficient respect for free trade carry more than a whiff of hypocrisy.

Second–the ballpoint pen example makes the point that the apparent simplicity of a product does not necessarily reflect the complexity or lack thereof involved in manufacturing it.  American economic commentators often fail to grasp this point when they assert that America’s future must lie in producing “advanced high-technology products.”

Third–the example should also clarify the point that the highest value in a product supply chain does not necessarily lie in the assembly of the final product.  The final product assembly is usually the most visible part of the supply chain, but very often the creation of components that go into that chain involves more complexity and requires more skill than the final assembly process itself.  It’s considerably more difficult to make integrated circuits, for example, than to assemble those chips onto circuit boards and to assemble the boards into a plastic or metal case.

The Right Hand Side of the Menu

I’ve never understood people who don’t notice costs. Maybe it was because we didn’t have a lot of money when I was growing up, maybe it was bicycling around to deliver papers in the snow . . . but I don’t think so. My life wasn’t all that rough. I think it is good old Scottish common sense. It is sensible to assess price in terms of worth. Or as Franklin would see it – is the value of the time I spent earning that money a good exchange for the use or pleasure it provides. From different perspectives, this was what I thought when I set prices in my business and when I wander around a store, touching and thinking about that dress or dish.

I’ve long wondered about D.C.’s ability to spend money. As a Kelly girl, I found state and federal offices squandered time in ways private businesses never did. We know the stories of lottery winners whose money is gone in half a year. I suspect someone who considers the lottery a good investment probably isn’t all that good at assessing worth, though they may be misled by winning.

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National Tantrum

As the Deity be my witness, I have never – not even since 1968 (which I am sufficiently old enough to remember, being 14 years of age in that cursed year) – seen such a massive and public temper tantrum as that which we have been observing since November, 2015. Let it be said that I am observing all this with appalled and horrified fascination. It used to be that only certain very far-leftish intellectuals and college students were given to briefly melt down in such an over-the-top fashion – but over the last month and a bit this appears to have become the chosen reaction to their side losing an election on the part of most Hollywood A- B- and C-Listers, all the social justice warrior front, most of the establishment media, a good chunk of our public intellectuals, a good few businesses (looking at you, Kellogg) a generous selection of our Democrat Party establishment, and a representative sample of leftish freelance political freaks. (As an aside – good show; displaying your contempt toward at least half of your prospective audience/consumers/& etc is a sure winner, when it comes to the consumer market. This household will never purchase Kellogg brands again. Or go to a movie with Meryl Streep in it.)

So – why the Cat-5 hurricane degree of hysteria, which shows not the slightest degree of diminishing? A number of reasons, I would venture; and for many of the most demonstrative “Never Our President” virtue signalers it may be a combination of several of these.

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