In September, 2008, after watching the seams being ripped out of the economy for almost a solid year with the collapse of dozens of major mortgage lenders and the crash of Bear Sterns, I wrote a memo to my staff with my observations of the economy. It was more an exercise for me to organize all the thoughts I had on these events so to try and make sense of it all, and clarify what we needed to do as a bank to respond moving forward in this environment.
Reading the memo again recently, it was better than I gave myself credit for at the time, and what I predicted then that seems somewhat prophetic now is that what we were experiencing was a paradigm shift. The recession rising around us was not just the run- of-the-mill kind of economic cycle, but a major change.
In my blog on September 15, 2010, I recounted the financial events of September, 2008, which would serve as context to that paradigm shift, if you care to go back and read it.
Most notable to me then was that all the previous recessions I had observed were mostly accompanied by changes in the cost of capital. With this one, we were working against the very availability of capital. As an alternative, unregulated capital market arose over the last 20 years, much of the growth our economy experienced was financed there. It largely went away.
At the recently FDIC forum I attended in Washington, Chair Sheila Bair mentioned the statistic that over $2.4 trillion of credit lines disappeared in the financial crisis. My viewpoint was on target well before that statistic could be assembled. Without capital, economic activity to build factories, buy laptops, and hire new helpers collapsed.
Recently an admired friend relayed a second hand story to me about his client who works for a major logistics company. He repeated how that this company had lain off roughly 50,000 employees worldwide during 2008-2009, lowering their total employment to its present level of 270,000. The positive financial rewards to the company for the reduction in force turned out to be only the secondary benfit after the productivity gains they experienced.
What that company’s rapid expansion had masked during the previous ten years, which were admirably profitable, was how many extra people they had on staff. Growth had kept them too busy to recognize some efficiency that could be found with fewer people. Interpretation: those 50,000 jobs are not coming back.
My guess is that there are many Fortune 1000 companies that have made similar discoveries. Maybe not all involved 50,000 jobs, but the collective sum is probably a significant chunk of the 15 million lost jobs in the U.S. The only proper response to this situation is reinvention.
In late 2010, an Entrepreneur magazine article cited that roughly 60% of all new jobs created in 2009 were by start-up businesses. Last week, The Bureau of Labor Statistics released the preliminary January jobs report, which had some confusing results: only 36,000 new jobs were reported, but the unemployment rate fell from 9.4% to 9.0%. Normally it takes about 150,000 new jobs per month just to keep up with new workers entering the job market.
It will be a year before sufficient data adjustments will follow to bring those numbers into focus, but my early read is that many people are abandoning the “job market” and finding another way to earn a living through their own enterprise.
The 9% rate is still too high. With all the President’s ambitions of a greener economy, lower fuel consumption, and alternative energy, a federal workforce similar to Roosevelt’s Civilian Conservation Corps might be a good idea for stimulating jobs.
Imagine a coordinated effort to resume and expand where the original 2009 stimulus left off, and remodel every federal, state, and local government facility to be energy efficient. Then on to every hospital, school, college, transit station, museum, stadium, airport, military base and other building that wastes energy through poor insulation, storm water runoff, inefficient lighting, and bad doors.
Millions of jobs could be restored in the construction business, whose cost would be offset with reductions in energy consumption that could be measured in decades. Short term cost? To be sure, such a program would be a major federal investment, but one much more productive to our economy today than all the money being spent on local warriors in Afghanistan and Iraq.
We need those jobs here, and after all, we are paying the price either way.