I keep hearing that we are waiting to recover from the great recession of 2008, but I will share a few thoughts on that statement that you might ponder. First of all, this period we are experiencing is no recovery. Nothing resembles the typical way our economy has always performed by taking a few months of rest, and resuming steady growth with consumer confidence restored and good job still held. We Americans always expect to return to the good life with gusto. And to do so quickly.
In fact, my view is that we are not in recovery – we are at the beginning of living with less. Recovery assumes you will return to where you were. Think about residential housing and new bank start-ups. We are not going back to the heedless growth in those two sectors, and they were a significant part of the economy that fueled our blind confidence. The fallout from the loss of those two sectors continues to reverberate in virtually every sector of our economy.
A few weeks ago at Georgia State University’s Quarterly Economic Forecast, someone noted that the economic output in terms of Gross Domestic Product (GDP) had been restored to levels known prior to the 2008 crisis. In other words, we were producing and selling the same number of products and services in total as before. But today that level of economy was produced with 6.5 million fewer workers.
Think about the impact of that reality. Those jobs aren’t coming back. If you are without a job today, chances are that either obsolesce or lack of demand has eliminated many of the jobs you are experienced to perform and may continue to seek. And if you have been unemployed more than six months, you likely face a brand new kind of discrimination: no one wants to hire anyone who doesn’t already have a job.
A third-hand story related to me last month was about a well-known Fortune 500 company based in Atlanta with worldwide operations. At the beginning of the economic crisis, they planned and executed an international workforce reduction in response to lagging sales and the anticipation of a recession. Their expectation was that the savings would provide them with a modest increase in profits albeit on lower sales.
The company reduced their total workforce from 320,000 employees down to 270,000 over the course of several months. On one hand they were right about the higher profits, but it turned out to be only a secondary benefit. They were stunned by their new gains in productivity. The company performed better with 50,000 fewer people. Those 50,000 jobs will not be restored.
That story represents a convergence of effects that may define the new normal. Along the successive growth cycles in the 90s and new millennium was a sharp rise in technology intended contribute productive machinery to supplement and replace some human activities. I interpret this story as one where the company was too busy growing to fully realize the benefits of their new technology, and when forced to do so by the economy, the company found that they had more capacity to perform with vastly fewer people than anyone realized. Those 50,000 jobs will not be restored.
What does all that mean? For now, many people are learning to live differently. Fewer consumer frills, more basic necessities. Good food, less wine. Drive the old car more miles, remodel the existing house rather than buy a new one. While our confidence will take some time to adjust, we have quickly adapted to a new reality.
And don’t think that those who have apparently gone unscathed are off the hook: they have lost a major portion of their future client growth, and their existing customer base has been shaken. It’s obvious that homebuilders can’t find anyone to build for, and bankers can’t find anyone to lend to. But consider that the economy is one long food chain of money. Everyone is someone else’s customer. When your cycle is disrupted, you will disrupt someone else’s cycle.
We are all going to be living with less.