Wednesday, August 11, 2010

Mercy, Mercy Me, The Economy!

I keep hearing stories coming from Washington, DC and Wall Street about how the economy is getting stronger and rebounding. I keep hearing this, but everyday another one of my friends is getting laid off. I have a couple of enterprising friends (with MBAs) who have decided to try and start their own businesses (and I'm not talking about selling Amway products or pre-paid medical/legal services). This has not been going well for them either.

So, if the economy is righting itself and getting stronger, who is reaping the benefits from it? Nobody I know, for sure. I suspect that the Federal Reserve board is widely expected to downgrade its growth projections for the American economy (something the panel has already done once already in 2010) when it meets in Washington soon.

For the 6.6 million of my fellow citizens who have been unemployed for more than six months... news of this downgrading is going to cause little more than a yawn and someone saying... "Oh, yeah? Really?

Yet, it's still not clear whether America's policy makers have truly come to grips with the gut-wrenching plight of the so-called "99ers" - at least 1.4 million workers who'd exhausted all their unemployment benefits before Congress just barely passed a 20-week extension - or the fact that some economists fear that the jobless rate could hover near the current 9.5% level for perhaps a couple of years. From what I've been reading, this is the highest unemployment has been since records started being kept, shortly after World War II. You would think that this would have people out in the streets screaming bloody murder... but I suppose, people are too busy either trying to get a job or wondering what Lindsey Lohan is going to do when she gets out of rehab!

It wasn't supposed to be this way. Not in Philadelphia. In January 2009, both Philadelphia and the nation had a little more optimism. The Eagles were one victory away from returning to the Super Bowl (So much for that!) and the $787 billion stimulus package, backed by incoming President Obama, was promised to keep unemployment from spiking above the 8% mark. Neither of these things happened. The job crisis is vexing because by many conventional measures, the economy has improved over the last 18 months. So, why can't Johnny or Mavis find a job? (Me and these names. I know, right?)

Corporate profits have risen a steep 40% since "Black Friday 2008" and the average corporate profit margins are expected to rise to a record 8.9% by the end of next year. That's a key reason that stocks on Wall Street have rebounded so sharply from their early 2009 lows.

But these profits have come on the backs of the American worker, who has watched his and her salaries remain flat. Public companies are stockpiling their excess cash rather than hiring back workers or buying new equipment. In fact, some companies plan to remain profitable through continued job reductions.

These firms basically aren't hiring because... well, they don't have to. Their main obligation is to their shareholders anyway, and more than at any time prior, firms have squeezed out productivity and learned how to do more without hiring workers back. More with less they call it, although that has never made any sense to me.

"Given the very impressive gains we have had in worker productivity over the recent years, companies can produce just as many goods and services as before with fewer workers," said Tom Fomby, professor of economics at Southern Methodist University.

The human effect of all of this is devestating. According to Newsweek the number of chronic, long-term unemployed is something we haven't seen since the Great Depression. The percentage of the 14.6 million unemployed Americans who've been unable to find work for more than six months is a whopping 45% now. Daniel Hamermesh, professor of economics at the University of Texas at Austin, noted a comparable figure of 33% when unemployment spiked above 10% in the recession of 1981-82. Damn!!!

Getting scared yet? Well, you ought to! Social Security is experiencing its first cash shortfall this year because an unexpectedly large number of people took early retirement before the age of 62, many from among the long-term unemployed deciding they would never get a job again.

Which brings me full circle. Yes, the economy has gotten better, but for who? Not me, not you... just the corporate fat cats who find a way to be solvent, regardless of what party is in the White House, I'm going over my cousin's house tonight. I grew up in that house. I think I lost that silver spoon that used to be in my mouth. I'm sure it's over there under the sofa or something!

1 comment:

Rich said...

There is an old saying that goes - "Follow the money". That's what I've been educating myself on this last year - playing the options market - so that I can make money whether the economy rises or falls.

One thing is for sure, at the end of the day, it's more about money than anything else. The only reason the fat cats care about jobs is so that the working poor can go back to carrying the water for them in the markets. Right now, the buckets are getting heavy.


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