In a recent interview, President Barack Obama worried aloud that 10% unemployment might be the new normal. The more I thought about this, the more uneasy I became. Our current financial crisis has been called the worst since the Great Depression. A lot has changed since then and the changes are not conducive to a speedy recovery.
Globalization of the Economy
This is not the 1930’s. We are all interconnected now. We have a global economy and a global workforce. If you can’t find workers who suit your needs domestically, you look abroad. In particular, if you can’t find workers who will work on the cheap domestically, you look abroad. Outsourcing to India, Brazil and China is making rich executives even richer. They get cheap labor with sharp skills. In some cases, the cost savings even makes a skill sacrifice worthwhile. A company that I follow closely regularly sacrifices getting the job done well so that they can get it done cheap.
Doing More with Less
The corporate mantra of the late 20th and early 21st centuries has been increased efficiency. Companies finding themselves “up against it” start cutting jobs and asking those who remain, to work harder. When the system does not break, the corporate executive brags about higher efficiency and sees no need to go back to the days of three men doing three men’s work. This was a factor called out explicitly by Obama in a recent interview. It is an aspect of corporate behavior that gets ignored when we talk about job creation in the United States.
Democratization of the Stock Market
There was a time when only the wealthy bought stocks. A show like CNBC’s “Mad Money” would have had an audience in the thousands at best. Thanks in large part to the Internet and online trading platforms, now everybody and his mother is a stock owner. What is worse is that for many of these folks it has nothing to do with the old-fashioned values of “owning a piece of the company”. Now it’s gambling pure and simple. In the old days, the formula was simple. If you pleased your customers, you made money and you had happy investors. Now, investors desires and customer’s desires don’t always coincide. The priority of many companies is pleasing the investor at the expense of the worker and potentially the customer. Look at how a company’s stock behaves right after a layoff announcement. More often than not, the company gets a nice bump. Good behavior no longer correlates to better stock price because too many of the buyers have more on their minds than good corporate behavior.
The End of Empathy
February 19, 2009 was a watershed moment when CNBC analyst Rick Santelli launched a rant from the floor of the Chicago Mercantile Exchange. Only recently have I seen journalists wake up to the wild irony of someone yelling and screaming for the “common man” surrounded by the symbolism of the most wealthy people in the world, i.e. the floor of a stock exchange. Despite the cognitive dissonance of this display, the rant was heard all over the country, and is credited with igniting the Tea Party movement. Here is the money quote (no pun intended):
How about this, Mr. President and new administration. Why don’t you put up a website to have people vote on the internet as a referendum to see if we really want to subsidize the losers mortgages? Or would they like to at least buy cars, buy a house that is in foreclosure … give it to people who might have a chance to actually prosper down the road and reward people that can carry the water instead of drink the water?
This is America!
How many people want to pay for your neighbor’s mortgages that has an extra bathroom and can’t pay their bills?
Raise their hand!
“Subsidize the losers mortgages”, “reward people that can carry the water instead of drink the water” and “your neighbor’s mortgages that has an extra bathroom and can’t pay their bills”. This was the new social currency delivered from the CME by Mr. Santelli. Did he give any thought to why someone might not be able to pay their bills? Did he entertain the notion that in a civil society, we help our neighbor? Did it occur to him that maybe decent living is not about winners and “losers”? Well of course not. He’s in the business of making money and money has become our God. Empathy is over. If you don’t have enough money, you must have done something wrong. You’re a loser and to hell with you.
So what this means is that corporate America no longer has the moral imperative to put Americans back to work. It’s each man for himself and the corporation is the big man on campus. If they don’t make as much money as humanly possible, then they are the losers in the Santelli model. Better they be winners with cheap Indian labor than losers employing out-of-work Americans, who again by Santelli’s yardstick are losers themselves.
All these factors contribute to an environment in which corporations have zero incentive to do serious hiring of unemployed Americans. What troubles me and what should deeply trouble our President is that we live in a country where unemployment is no longer everyone’s problem. It is only the problem of the unemployed. There is no stimulus program that can change a nation’s mindset. There is no action that the Fed can take that can make it a virtue to put America back to work. As long as the winners keep winning, who cares what happens to the losers? And with that, 10% does indeed become the new normal.