Why Unemployment Lags In The Economic Recovery

Obama's stimulus bill is taking a hit, again, because unemployment is not dropping in spite of other improvements in the economy.  Unemployment did not increase as rapidly as the economy slowed down, either.  Many employers tried to weather what they hoped would be a shorter recession since the cost of restaffing when business resumes is significant, especially because rehiring would introduce new employees who must be trained.

Many companies were forced to shutdown when the economy collapsed and many of them will not reopen as their pre-collapse business is assumed by their competitors who were able to survive through the collapse.  When the pre-collapse business volume resumes, fewer companies will be needed to satisfy the demand.  The total employment of these companies will be less than the pre-collapse employment for a couple of reasons.

Economy of scale allows companies to produce more with fewer employees.  When the typical business doubles its volume it usually can do so without doubling its employment.

A second factor, which contributes to the lagging employment, is that the companies that survived did so in part because they made changes that reduced their overhead and production costs.  These companies learned how to survive with fewer employees and less overhead.  As the business volume recovers many of these companies are able to meet their pre-collapse business volume with fewer employees.

New businesses will be required to reduce unemployment and the unemployed must be retrained to do different work.  New business will come in part from new Green industries.  Developing the new technologies will create new jobs.  New businesses resulting from the new technologies will require new employees.

We should expect unemployment to lag the rest of the economy.  The stimulus was focused on maintaining state and local government employment in spite of decreases in state and local tax revenue.  The stimulus was also focused on directly stimulating the economy through infrastructure improvement projects.  Although these projects do not create permanent private sector employment, they do put money directly into the economy through the workers employed and the construction materials required.

I'm pleased with the rate of recovery of the economy.  We shouldn't expect a complete resumption of the old business as usual.  Survival required permanent change and the changes are incomplete.  If we allow our government to stimulate the development of new technologies through tax incentives and spending, the needed changes can be made and will be made sooner and America will be better in the end.

Hang in there.

Should We Rescue the Automakers?

Letting the automakers fail seems like the right thing to do. Why prop them up, artificially, if they can’t stand on their own. I keep thinking that they made the wrong cars, knowingly, and now they can only make big gas hogs when the world can only afford high mileage hybrids or electric. On the other hand, the American consumer wanted the crap that Detroit was making and these companies were financially successful until Wall Street crashed the market and the consumer quit buying.

So, Detroit is in trouble only because the consumer stopped buying cars. Is that Detroit’s fault? The consumer has stopped buying a lot of things and the companies that were making or selling those things are failing but not because those companies were poorly run. Any company with zero sales is bound to fail.

Now that Detroit is failing for lack of sales we are blaming the failure on overpaid CEOs, union labor and low MPG autos. While all of these may be issues none of them caused the companies to fail.

Obama is going to spend money to recover our economy. It will be costly to most of us but he is using this disaster as an opportunity to restore America to something better than it was before the crash. Since we are going to spend a lot of money, let’s spend it to do all the things that we couldn’t afford before the crash. We have long needed to change our energy resources – now is the time. Our bridges and roads are a disaster; our healthcare system is inefficient; our schools are decaying and inadequate. So, while we have to spend at least a trillion dollars to jump start the economy we will spend it so that we are better than before.

In that spirit, we should do something about the American auto industry. However, “I” am not qualified to decide what to do and how to do it. But, I’m convinced that if we spend money on the automakers they should be rebuilt into a 21st century automaker that builds and sells the cars we “should” be driving instead of the cars we “love” to drive. We just may be good enough to build a car that meets both of our needs.

What's wrong with Wall Street?

I don't believe that a single Wall Street manager who accepted a bonus after receiving bailout funds hesitated for even a moment before doing so. They have always been willing to do anything for money. They neither care who they take the money from nor the impact that it will have on them.

Some Compensation Experts are saying that the President went too far because the talented employees that have been earning a lot more than $500,000 will leave the struggling banks to take jobs at banks that do not need bailout funds. I hope that is a promise rather than an idle threat. After all, what good have they done where they are now - their bank failed!

The same experts also said that these managers will not be able to maintain their current lifestyle with only $500,000 per year. When millions of Americans are out of work and millions more soon will be... When millions of Americans have lost half of their retirement savings... When millions of Americans are losing their homes... because the Greedy Wall Street managers destroyed the economy after the government deregulated the banks, insurance companies and commodity trading... How can they complain that they can't live on $500,000 a year? Simple. They only care about themselves; nobody else matters. Really! It is that simple.

We have a name for people like that - Sociopath. The following is a brief description of a sociopath. Let's see how well it fits the conduct of the Wall Street managers who have just awarded themselves $18.4 billion of taxpayers money.

• Glibness and Superficial Charm
• They never recognize the rights of others and see their self-serving behaviors as permissible.
• Grandiose Sense of Self - Feels entitled to certain things as "their right."
• Lack of Remorse and Shame - The end always justifies the means.
• Incapacity for Compassion
• Callousness/Lack of Empathy
• Not concerned about wrecking others' lives and dreams. Oblivious or indifferent to the devastation they cause. Does not accept blame themselves, but blames others, even for acts they obviously committed.
• Criminal or Entrepreneurial Versatility

I hope that they all leave Wall Street.