Repeat After MR: Businesses Hire when they are Swamped with Demand

Josh Brown – a very smart and funny person – lays it out so even Forbes magazine can understand what is happening to the U.S.:

Well, you enormous fucking idiots, you fired all your customers. You’ve spent the last decade or so suppressing wage growth in the name of “creating shareholder value” and now even your shareholder base is disappearing.

You allowed wages to stagnate for a decade and made every decision you could in the service of nudging the quarterly profit higher, thinking less of the yearly profit and virtually nothing of the long-term viability of your business.

One hundred years ago, Henry Ford gave his employees an unasked for wage increase and, when asked why, he replied “How else will they be able to buy my cars?” [Bold Mine]

Wow. Corporate profits are extremely high, but CEO’s are still worried about customers coming into their doors. It’s because we do not have enough demand to fully use all of the resources we have at our disposal. We have a huge Aggregate Demand problem, and that’s what’s causing the miserable economic times.

(Update: added link to the Josh brown post.)

Comments
  • Tyler Healey December 4, 2012 at 8:25 am

    Is lack of education also a problem? The unemployment rate is only four percent for Americans with at least a bachelor’s degree.

    • beowulf December 4, 2012 at 3:57 pm

      Tyler, a college degree is a signaling tool. It just tells employers a job candidate has the brains and (perhaps more importantly) the conscientiousness to complete a degree program. Smart, dependable employees (or at least those perceived as such) will always have a below-average unemployment rate.

      The trouble is without sufficient AD, more education in aggregate only gets you a better educated unemployment line. it wouldn’t matter if every adult had a bachelors degree, employers would just find another signaling tool (masters and doctorates I guess) to ration out the limited number of jobs they have.

  • JGF December 4, 2012 at 9:37 am

    Could you put a link to the story in the post? (Link below)

    http://www.thereformedbroker.com/2012/12/02/forget-fairness-lets-talk-about-stupidity/

    • Michael Sankowski December 4, 2012 at 9:29 pm

      Yes, this somehow got chopped off when I posted!

      Thanks!

  • Alex December 4, 2012 at 1:24 pm

    China’s middle class grew by 400 million in the last decade. The demand growth is there. That demand is creating a record number of billionnaires. When are you going to make products they can afford?

    • Pierce Inverarity December 6, 2012 at 11:56 am

      Totally simplistic. You realize China doesn’t allow its currency to float freely, right? We can’t compete in their domestic markets due to their currency manipulation and product quotas. If they allowed their currency to appreciate on the open market like they should, American goods would be far more affordable.

      • Michael Sankowski December 6, 2012 at 5:59 pm

        China is about to lose even with the controlled currency.

        The U.S. crossed a huge level in Q3 2011. We are no longer more expensive than Chinese aluminum parts.

        See here: http://monetaryrealism.com/u-s-beating-china-on-price/

        I’ve seen it on the ground in the aluminum industry. They can’t make parts fast enough. It’s a boom time – a huge, huge boom.

        • beowulf December 6, 2012 at 6:40 pm

          Good for utilities, isn’t aluminum like the most energy intensive industry on the planet?

  • Alex December 4, 2012 at 1:46 pm

    The auto industry is a perfect example of how being worker driven instead of consumer driven destroys national industries. In the 80s, the USA introduced prohibitive tariffs on auto imports, so that American automobiles would been similarly priced to foreign autoparts. This was about a $1,500 more per vehicle advantage. Instead of passing those savings along to the consumer, domestic manufacturers chose to increase worker wages, thus pricing American automobiles out of all other markets. If you went to Thailand, or Senegal, you would see that virtually no autos on the road were American, and considering where the growth lay, the writing for the American automobile was on the wall. So Chrysler was sold to Daimler, then private equity. GM was nationalized. And parts and assembly were increasingly outsourced.

    Demand has not died, it is greater than it has ever been. China now purchases more cars annually than the USA and Japan combined, yet only 5% of households own automobiles. Demand is king. The _Consumer_ is king. And prioritizing workers over consumers is almost always fatal in a competitive environment against others equally skilled without such priorities.

    Economics fundamentally is not that difficult. There is a curve. Then there is another curve. Sometimes, if allowed, they intersect. If you offer your services for $10 if someone else is offering them for $5, you’re not going to do very much intersecting.

    • Eryximachus December 4, 2012 at 6:55 pm

      Alex, you’re misunderstanding how international trade works. You’re also using a totally reductionist theory of human nature.

      Trading with China or any similarly foreign or barbaric country is suicide. Competing with slave labor is simply not something anyone in America or the West in general wishes to do, and why should they?

      The solution to globalism is nationalism. It always has been. Chinese like being slaves. Europeans do not. Forcing the two people to live on the same terms is simply impossible. Deal with it.