Friday, September 16, 2011

The X Factor of the Economy

Recent Scene at Tallahassee Unemployment Office
I'm "between jobs" right now.  That's code for unemployed.  I'm part of the very unhappiest 9.1% of the US labor force, which is defined as working-age people either actively employed or actively seeking unemployment.  Of course, the use of a broad term like "unemployment" is deceptive, because there are two subsets (the underemployed and the discouraged workers) who are completely ignored by this 9.1% figure (a recent Gallup poll suggests that adding underemployed people alone could double the percentage of the labor force in less-than-optimal employment situations).  

This post is not a means for me to blame my plight on others.  Quite frankly, almost all of my difficulty is self-inflicted.  However, it disturbs me that so many other Americans are struggling to find employment right now, because the political answers coming from both sides of the aisle almost uniformly display an ignorance of the psychology of business.  The real problem is that the uncertainty in Washington translates into uncertainty in business, and uncertainty is the true X factor of the economy.

A January 2011 report in the Wall Street Journal revealed that 50 of the largest companies in the world are currently sitting on $1.08 TRILLION in cash.  This fact is an indication of two things: 1) spending, the Holy Grail of Keynesian economics policies, is alive and well, yet the economy continues to suffer, and 2) businesses are hoarding cash due to uncertainty about the regulatory and economic future.  The more polarizing the debate in Washington and the less decisive our politicians become, the more risk-averse businesses become about future expansion.

What does this have to do with unemployment?  Companies are usually not hiring due to turnover within the company; rather, they hire because they are in periods of expansion.  Business expansion is a good but risky proposition, and without proper care, can lead to the downfall of the entire organization.  Hence, business owners seek to minimize the amount of variability in the potential outcomes of their expansions, because the expected value of such a venture suffers in a volatile climate.

Uncertainty about taxes, uncertainty about regulation, and uncertainty about anticipated demand (note: not's not the present that bothers owners, but the future) lead to businesses not expanding, and hence, not hiring.  It's true that America is suffering from a skills deficit right now, but in practice, it simply means that businesses are much more interested in finding cookie-cutter workers for specific roles, rather than hiring a person who might not fit into one particular box.  Such is my plight, but I had the opportunity to avoid this situation, so don't cry for me.  Cry for the laid-off car worker in Detroit who started working at age eighteen. Cry for the steelworker who quit college because he had to support his family.

Then, once you've stopped crying, write your congressman, senator and President and tell them to make a damn decision one way or the other.

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