Economists Are Idiots…

Posted: August 5, 2010 in Business and the Economy

…Or, At least the CEO’s Who Aren’t Listening to Economists Are

 

So, who is surprised by the economic “news” that new unemployment claims are jumping? According to the AP article posted this morning, "The very unyielding flow of layoffs now clearly evident discourages any thought that employers are more comfortable with the size of their staffs," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients. I’m wondering just what advice Pierre is offering his clients. Wouldn’t it be prudent to quit laying off clients if you expect the economy to improve? Maybe he is; but his clients are ignoring that advice. It’s all about short term gains.

So, what else is new? In his book “The Reckoning” David Halberstam detailed how American industry, obsessed by short term profits, was being overcome by the 1970’s and ‘80’s Japanese because the Japanese developed 5 year plans in consort with the banks! The concern for profits had to have been in sync because the banks also are, and always have been, concerned with profits.

So, American industry hasn’t learned a thing in the last 40 years! Short term profits remains the only goal. It is stifling the economic recovery.

Another example, this time a work of fiction but nevertheless accurate portrayal of a modern day Scrooge in a picture of corporate greed “Scrooged”, the villain tore down private homes to build a very high-rise office building. In fact he steamrolled homes driving people away. When he got his high-rise building he had nobody to buy what he was producing. How myopic is that? No more than corporations who continue to lay off and refuse to hire in a faltering economy. CEO’s think they can continue to reduce the work force and improve productivity without the slightest concern for the broader picture; which is a continuing weak economy will never sustain economic growth unless there is money in people’s pockets to spend.

“…retailers reported modest sales gains in July, raising concerns about the health of the back-to-school shopping season…” is only a natural result of continuing uncertainty among the still employed along with poverty generated by unemployment.

Later in the article, pregnant with good observations without much advice, “…More jobs are needed to give consumers more spending power to help support a sustainable recovery.” If CEO’s were to buck trends and make bold moves they would spur economic growth and improve their own economic pictures. But as long as they follow the herd and keep employment low they follow a vicious cycle.

It is said that the stimulus funds released by the current administration aren’t enough to spur the economy. That may be; but just how much stimulus would it take to overcome the corporate mindset that absorbs stimulus funds in the interest of short term profits? If banks continue to sit on money loaned to them by the government (stimulus funds should be looked at as a loan because the government will only recoup its investment if the economy improves and generates tax revenues) the economy will never rebound.

There is another factor here that goes beyond the parochial concerns for the economy. Political interests always generate action – or inaction – by corporations. That being said, wouldn’t it be smart in corporate minds to hold the economy back to effect a turnover in Congress? With R’s in power wouldn’t companies gain a stronger position? Never mind the historic evidence that the R’s have little regard for workers. If the R’s regain a majority in either or both of the houses of Congress they will continue to concentrate on concentrating wealth in the top tiers of society and further the divide between the low and middle economic classes and the wealthy.

 

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