Saturday, November 15, 2014

Lining Up Postal Data -- A Tale of a Career and Two Calendars

I worked for the Postal Service for 33 years. I never delivered a letter, sold a stamp, swept a collection box or sorted a piece of mail. 

My work there centered on financial and economic analysis. For a large portion of my tenure with the Postal Service I was responsible for the organization's economic and financial forecasts. 

I remember once when I was introduced at a business meeting to a Postal Service budget analyst from Kansas City as Grady. "Oh Grady," he said, "I thought GRADY was an acronym. Everybody talks about GRADY's forecasts, so I assumed that had to stand for something." Well I guess it did, but not in the way he thought.

My favorite workplace award, and indeed the only vestige of postal career displayed in our home, is a framed custom gag award I received from the Postmaster General at a national meeting. A copy is displayed here to the right.

The award is in the form of an honorary degree, Philsophiae Doctor in Predictus Nostradamus, Sin Causa -- loosely translated, a Doctor of Philosophy of Prediction in the style of Nostradamus, the reknowned 16th century prophetic seer -- without cause. 

The diploma is signed by the people I reported to, up the line, to wit, John E. Potter (Praeses -- a provincial governor or doctoral advisor, but better known then as Postmaster General), John N. Nolan (Gubernator -- helmsman of a boat or a leader/governor, but better known then as Deputy Postmaster General), Richard J. Strasser Jr. (Decanus -- chief of ten or subaltern official, better known then as Executive VP, Finance and CFO) and William P. Tayman Jr. (A Secretis -- archivist or secretary, then Manager of Corporate Financial Planning, currently CFO and Treasurer, Corporation for Public Broadcasting). 

There is a reference in the heading to Univeristatum Millerii-Nolanii, the latter being the aforementioned Deputy Postmaster General and the former being the then Chairman of the Postal Service Board of Governors, one James C. Miller III, best known as a Ph.D. economist who served as Director of OMB in the Reagan administration.

The Chairman had been on a bit of a tirade about the importance of using sound economics to help guide the organization, although he knew little of what we actually did. We had communicated in writing with Miller a number of times, but he wouldn't let up. Accordingly, I was invited to a meeting with Messrs. Miller, Potter, Nolan, Strasser and Tayman to explain our work. Several times John Nolan referred to me as Dr. Foster, a misstatement which as low man on the totem pole I left uncorrected. This led in subsequent weeks to my being hailed as "Dr. Foster" in the hallways and byways at work, and ultimately to the award of the "honorary" doctorate that put me on par with Dorothy's scarecrow friend. 

I know who shepherded the creation of the diploma. Other than mentioning that her brilliant and beautiful daughter is the parliamentarian of the United States Senate, I will make no reference to names.

Early on at the Postal Service, I analyzed and projected costs. I dug into productivity issues and studied postal operations from an economic perspective. Later, for many years I managed the forecasting operation that integrated insights from primary and secondary (industry and trade press sources) market research with econometric analysis, macro economic projections and good old logic and common sense to produce quarterly business line projections (First-Class Mail, Priority and Express Mail, Parcel Post, etc.). Our forecasts were used to drive budgets, both internally and externally, as a feed to the President's budget and to structure strategic plans, and were key in the ratemaking process. 

The second published Household Diary Study report cover.
On my forecasting watch we launched and continuously operated what amounts to the Postal Service's version of the Nielsen Survey ("The Household Diary Study"). It has been going on now for 26 years giving continuous data on who uses mail, why and what for (and reams of related demographic and survey data), filling in what had been huge gaps in the Postal Service's business and market knowledge. See the acknowledgment section of the second full year report. In the study's initial years, I produced the cheesy graphics and printed the cover using my home PC (an IBM AT clone in the basement) and high density dot matrix printer. It's more professional now. 

I remember once, it must have been 1989 or so, early afternoon one Christmas Eve, I was giving a presentation to Postmaster General Anthony Frank entitled, "History and Prospects of Electronic Diversion of Mail" The internet was not worth mentioning at that point -- it was even pre-AOL. My basic message was that for the next decade technology would be a net enabler, adding to rather than reducing Postal Service mail volume. But that beginning around the year 2000 the Postal Service would start seeing some negative impacts. By the year 2010 or so, all bets would be off. That's pretty much how it played out. But my clearest recollection of that day is I needed to move along quickly because thousands of people were awaiting completion of the presentation to get the phone call from the top authorizing an early release and wishing a Merry Christmas to all.

During most of my career I was in up to my ears in the regulatory process that federal law imposed on the establishment of postal rates. Postal rate cases were ten month litigation marathons involving dozens of high priced lawyers and consultants representing every corner of the mailing industry (competitors too), duking it out along the way on issues too numerous (and many too arcane) to get into here. "Economic warfare" is how Jim Finch used to describe it. 

I was the rate witness in the rate case that resulted in the "G" stamp. I joked that was the Grady stamp. I withstood cross examination, whispered into our attorneys' ears during their cross examination of opposing parties, wrote thousands of pages of expert testimony and drafted and responded to many thousands of interrogatories. I drafted countless numbers of responses to questions from the then Postal Rate Commission, the Hill and various alphabet soup agencies in Washington (OPM, GAO, CBO, OMB and BLS to name a few). Postal Rate case records would run to the tens of thousands of pages -- there were cases where I read virtually every one of them.

At various times, in one way or another, because of our work I got involved in the major strategic planning issues of the day such as automation strategy (ZIP + 4, OCR development and deployment and mailpiece barcoding), pension and post retirement healthcare benefit funding (hot issues to this day before Congress), productivity analysis (multi-factor productivity) and legislative reform (where my input sadly was ignored) and even sometimes national labor contracts and binding arbitration with the major postal unions.

George S. Tolley, Professor at the
University of Chicago, headed our
econometric consultants.
When doing the forecasting work, I was fortunate to be associated with some very able and hard working consultants connected with the University of Chicago, who performed our econometric research. One of the coolest experiences is when they hooked us up with the legendary Zvi Griliches, who joined us in warning the Postal Rate Commission of the inherent risks in the choppy economic waters ahead. 

In the costing work I was fortunate to be supported by a cracker jack team from Price Waterhouse in the days before Sarbanes Oxley required separation of the firm's consulting and public accounting functions. 

Though I never earned or sought a doctorate degree, after many years of working with these teams I felt like I had received advanced degrees in statistics, finance, economics and business. I was also fortunate enough to attend and complete advanced management programs at the University of Virginia, Duke and Columbia University graduate schools of business. It was an extraordinary career where I was blessed to experience the equivalent of five lifetimes of learning. 

By Postal Service standards I didn't travel on business much. But over the years I got around. 

We traveled to Pittsburgh, Philadephia and Doylestown, Pennsylvania. We shuttled back and forth to New York City and then out on Long Island a time or two. Baltimore, Maryland, and Richmond, Charlottesville, Petersburg and Leesburg, Virginia were on the itinerary at one time or another. We made it down to Raleigh-Durham, Atlanta, Tampa, Orlando, West Palm Beach and Miami Beach, moving down the Atlantic Coast. We flew out to Chicago on the 6:00 am flight, returning the same night on United too many times to count. We flew to East Lansing, Louisville, Nashville and Memphis -- Minneapolis too. 

We stayed on Bourbon Street in New Orleans. Dallas, Texas was a frequent destination. We stopped in Waco and Austin. We flew to Norman, Oklahoma and Kansas City, Missouri, and landed in Sioux Falls, South Dakota on the day of Ronald Reagan's second inauguration, one of the few January days on record where Washington, DC experienced colder temperatures. We flew to Phoenix in August and went to Scottsdale for a conference where Lauren Bacall was the featured speaker no less. We had earlier made it to Salt Lake City, from where I took a few days off for a side trip up to Yellowstone National Park to see it for the first time. Business took me to Seattle, San Francisco, San Jose, Los Angeles and San Diego down the Pacific Coast. I visited Ottawa, Ontario Canada in February and flew across the Pacific Ocean to Beijing in January. It was quite a time.

Mike Shinay talked about finding a reason to get me up to Maine, New Hampshire and Vermont, where I had never been. And when I had productivity management assignments, Dianne Christensen talked about getting me back to Madison, Wisconsin to visit old haunts, but those trips were never to be.

I thank all who offered me opportunities.

To this point, I seldom blogged about the Postal Service or my work there. I shy away from commentary largely because private individuals known to me are still involved and engaged on most issues I might comment on. Seeing that I believe the Postal Service has made major missteps in recent years, in many cases expressing my views would explicitly or implicitly criticize them or would invade their privacy, if I named names. As far as my blog is concerned, if someone is a politician or a public figure (for example a lobbyist or a high level government bureaucrat or corporate officer) that is one thing. If you are a private person, that is something else. We are not out to embarrass private individuals on this blog, and when we refer to identifiable private individuals many of them are dead, and it is typically with praise and/or respect. In my stories and reports, there have been literally thousands of times when I could have named someone and did not out of concern for the individual and their privacy.

Anyhow, this is all a very long lead in to commentary on Jonathan Gruber's and Obamacare's love for the American people. Bet you didn't see that coming! Gruber's arrogance reminded me of a run in we had during a long ago postal rate case with one of Gruber's colleagues at MIT. 

The Gruber videos have come out, five of them to this point. Unless you watch NBC or ABC, Jonathan Gruber and his condescension and complicity in lying to the American people are now well known. The Obama administration paid Gruber $400,000 smackers for his support.

Referring to Obamacare, video one is where Gruber said "It was written in a tortured way to ensure that CBO didn't score the mandate as taxes. Lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass."

If you don't have integrity, you have nothing.

Video 1.a is where Gruber regrets his remarks. Gruber explained “The comments in the video were made at an academic conference, I was speaking off the cuff and I basically spoke inappropriately and I regret having made those comments.” 

Off the cuff? Right. Sure. Here comes out the next day video two where Gruber says the American people are "too stupid to understand."

Then there was video three. Referring to the Obamacare Cadillac tax, Gruber said, "It's a very clever, you know, basic exploitation of the lack of economic understanding of the American voter."

And a fourth video is at this link. Referring to Dear President's claims that Obamacare would reduce costs and the bill's claimed emphasis on that, Gruber said, "Barack Obama's not a stupid man, OK? He knew when he was running for president that quite frankly the American public doesn't actually care that much about the uninsured.”

In a fifth video Gruber mocks a stupid American voter who asked questions expressing concerns about Obamacare.

"Was this written by my adolescent children by any chance?" he asks of the questioner. Jeepers, creepers.

Then there was Jerry Hausman. Hausman like Gruber, is professor of economics at MIT. Also like Gruber, Hausman is for hire when he is not writing journal articles and advising doctoral students. 

Dr. Jerry Hausman, Professor MIT
One postal rate case, the third-class bulk business carrier route mailers, better known to the world at large as junk mailers, hired Hausman to press their case for a special rate reflecting the very low costs of their mail and its unique market characteristics. On their behalf, Hausman specified and estimated econometric time series models showing a statistically significant difference in price sensitivity (elasticity) between the carrier route and non-carrier route mailstreams, which under the regulatory regime governing Postal Service rates made a prima facia case for that special rate. I asked our senior management whether we should dispute Hausman's testimony -- they said go for it.

This was around 1990. Hausman was viewed by many as the best promising young economist in the United States, somebody who one day would be a Nobel laureate. Professor Hausman received the John Bates Clark Award from the American Economics Association in 1985 for the most outstanding contributions to economics by an economist under 40 years of age. In 1980 he had received the Frisch medal for the best article published by the economics profession in the preceding two years.

The hullabaloo was primarily about something called the Hausman specification test. The findings supporting this test were first published in Econometrica in 1978. Here is page 1, including the synopsis.

You don't have to understand matrix algebra and the statistics to understand what the specification test is about. Suffice it to say that Hausman had developed a method gauging whether a model actually explains what is going on -- in pure statistical and mathematical terms at least.

But the biggest issue is not the model. It is much more important to get your hands on (all) the right data and to use the data properly. To employ one of Gruber's favorite words, it is all too easy to make a "stupid" mistake. So we pored over the inputs to Hausman's junk mail regression models. 

Now the Postal Service, along with the federal government as whole, works on an October 1, to September 30 fiscal year. So the postal data for the first quarter are from October 1 to December 31, the second quarter is January 1 through March 30, and so forth. Adding an additional complication, the Feds had once operated on a July 1 to June 30 fiscal year. When it changed in 1976 there was something called the transition quarter, a yearless quarter that bridged the 92 days between FY 1976 and FY 1977. We noted these timing issues very prominently in the data books that Hausman used as his source for postal inputs. 

However, the economic data published by the Department of Commerce, Census, BLS and others, is and always has been on an ordinary calendar year basis. This means when lining up the quarterly data from the different sources, you had to either advance the postal data one quarter or push the economic data back to get a match. Hausman had neglected to do so.  

We propounded low key interrogatories to the young professor pointing out his error and asking he confirm it. In writing, he categorically denied the error with an air of smug superiority that made clear what he thought of us postal dolts in the pecking order.

So when it came time for the hearing on Hausman's testimony and our oral cross examination we came in loaded for bear. On questioning, he repeated orally that his data were correctly aligned. So our attorney handed over as cross-examination exhibits including the original source published documents displaying the econometric model input data and the related dates. He walked Dr. Hausman through the data line by line. 

You could see Hausman's face getting redder and redder with each passing question. Finally, he admitted (the quotes are approximate from decades old recollections), "Oh yes, I see, you guys are right." "But" Hausman said, "in cases like this the data are so intercorrelated that being off by a quarter seldom makes a difference in the econometric results." 

Our attorney leaned over and asked what should he do now. I whispered in his ear, "But with respect to these data and this model you don't know that the data are sufficiently co-linear as you sit here today, right?" Our attorney repeated the question aloud. "That's right," Professor Hausman said, "and I bet you do know how the model performs," he continued, now sheepishly. Our attorney needed no prompting -- "That's for me to know and for you to find out Professor Hausman. I have no further questions." We had, of course, correctly aligned the data and re-estimated the model, which we would later reveal. Hausman's findings no longer held.

DC, former newspaper association counsel.
To rub salt into the wound, the lawyer for one of the newspaper associations (they wanted the postage rates for competing junk mail to be high so newspapers would garner a larger share of the advertising dollar) followed up. One by one, he had Hausman confirm each of the prestigious awards and professional accolades on his resume, identify each of the journals he edited and/or refereed, comment on each of his many published papers, relate his teaching class load and describe the success of his burgeoning consulting business. The lawyer summed up, "Not much time to check your work, you are a very busy man, Professor Hausman." "Yes" Hausman said, "But in high school I was the speed reading champion of West Virginia." Looking around the hearing room, I saw most had hands over mouth, including a couple of commissioners, straining to not break out in laughter. Hausman was there and now he was gone.

And so are we for now. Have a great day!

The real thing, on display.

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