April 04, 2014

The Biggest Economic Trend of Our Lifetimes

Patrick Marren
Partner

Has no one noticed the main fact about our country over the past 13 years?

A couple of years ago I wrote an article entitled Strategy's Main Failure: The Extermination of Livelihood.

In it, I came up with the hypothesis that much of what has passed for "strategy" the past decade or more had actually been about cost cutting, and in particular, cost-cutting of the largest line-item: labor. 

Unfortunately, when every company decides it's time to cut staff, then the large-scale outcome will be high unemployment and less demand, as people cinch up their belts and stop spending. And the result of lower demand will be further cost-cutting, especially of employees, and another round of belt-tightening by households, and so on and so on. 

Which brings me to the March jobs report from the Bureau of Labor Statistics, released this morning.

That report registered what was almost universally reported by the press to be an upbeat number: +192,000 net jobs last month.

There were many comparisons in the press to the previous month, and sometimes even to the previous year's March. But how does the number compare to the less immediate past?

Just some perspective: In the 8 years of the Clinton administration, 22,889,000 net jobs were created. That's an average of 238,427 jobs created every single month.

In the 13 years and two months since 2001, the total number of jobs created has been 5,234,000. That's an average of 33,126 jobs created per month. 

That means from 1993-2001, our economy was creating more than 7 times as many jobs per month as it has since.

Not crediting Clinton; not blaming the two presidents since; just saying, when you hear that 192,000 jobs created is a "very positive development" or some such on the news, maybe you should ask them, "Why is it not like the '90s? Why were the '90s not like now? Why have the past 13 years possibly been the worst 13-year period for job creation in our entire national history?"

Something big is going on, and I suspect that until we get a handle on it, we are going to be going down a very, very bad road as a country. 

The fact that no one seems to appreciate this most gigantic single fact about our economy and our society (aside from some superb economists who seem to be trying their best to jump up and down like a monkey to point out this fact, but who have not succeeded in penetrating the thick skulls of the gatekeepers of our national media these benighted days) does not speak well for our politics, our economists, our journalism, or ourselves.

So it may be time to imagine a number of qualitatively and quantitatively different explanations for why we seem, as a nation, to have stopped hiring human beings, and to play those explanations out into the future as scenarios, so we as businesses, government, and citizens can fully examine the possible ramifications of the future of an America without jobs - as well as an America that for heretofore unthought-of reasons suddenly starts hiring again.

Comments  | 

Mark Safford
This is a wonderful example of how economics cannot be used as the sole criteria for any major business decision. If every business were to try and cut costs at the same time by reducing the size and expense of their payroll, the result would be another global depression rivaling 1929! Why? Well, because consumer spending makes up anywhere from one-half to three-fourths of almost every nation's GDP. If people don't work, or make inadequate salaries, they will not be buying. The result: economic recession, which can easily turn into long-term depression. It's not rocket science, but many people fail to see the connection. That is why thoughtful analysis and environmental scanning is needed for any major corporate decision, to include both people AND numbers in the process.
pmarren
Correct, Mark - it's the Fallacy of Composition. When everyone does something that is individually good for them as long as everyone else doesn't do the same thing, but then everyone DOES that thing, then everyone ends up worse off. In the economy, my income MUST be your spending, and your income MUST be my spending - or SOMEONE'S spending. The classic economic cure for persistent low growth and high unemployment is for the government to step in and be the spender of last resort when private companies and individuals are all trying to save. That course of action was cut off politically after the year and a half of historically huge (but, by economists' estimates, not huge enough) stimulus spending. So we are stuck on a hamster wheel, with no one wanting to be the first to spend and everyone "repairing their balance sheets." A good explanation can be found on this very website - http://www.futuresstrategygroup.com/blog/cperrottet/frank-newmans-six-myths-3-if-everyone-tries-save-more-nation-will-save-more-and-0 .
Bub
Remind me: how are we defining "livelihood?"
pmarren
Hey Bub! Well, to begin with, a job. But a job that (a) can potentially support a family, and (b) has some prospect of longevity beyond the next quarter. We've been creating a lot of (b) without (a), and some (a) without (b), but not (a) and (b) both the last 13 years.

Thoughts?