Things to Come 2 - Business Closures

With no hope in sight, businesses are throwing in the towel.

During Bill Clinton's 1992 campaign for the presidency, his legendary adviser James Carville had one primary piece of advice regarding the best strategy: "It's the economy, stupid!"

Throughout the 1992 election season, unemployment was in the mid-7% range.  It peaked at 7.8% in June before dropping steadily to and beyond Election Day.  Unfortunately for George H.W. Bush, the American people didn't really feel the recovery that was in progress; they voted for Mr. Clinton who promised to make it better, and by the time he took office in January, it already was.

Throughout the 2012 election season, in contrast, the unemployment rate has never been lower than 1992's peak of 7.8%.  Indeed, it's been 7.8% or above for Mr. Obama's entire presidency, whereas President Bush I's recession lasted barely a year.  Yet Mr. Bush lost, while Mr. Obama was returned to office.

We'll explore the reasons for that later on in this series, but right now we're talking about the future of employment.  A good starting principle is this: if nothing changes, existing trends will probably continue, though with diminishing force.

So what are we seeing in the employment market?  We aren't seeing Great Depression levels of 30% unemployment, nor are we seeing widespread mass layoffs.  Most people who still have jobs are keeping them.

Alas, most people who don't have jobs aren't finding them because jobs are simply not being created.  Current high unemployment has been stable for four years now.  Mr. Obama has strongly proclaimed his intention to keep to his same policies, so why would we expect unemployment to change in the next four years?

The End of the Rope

Recall the beginning of our principle: "If nothing changes."  No, Mr. Obama isn't likely to change anything.  Nevertheless, something very important has changed:  there is now no hope.

Economies go through bad patches; every well-run company maintains cash reserves to tide it over bad patches.  Companies can borrow money, run up credit lines, and keep their people onboard for a few months.

But these resources eventually run out: as a recession lengthens, companies do layoffs, then more layoffs, then asset sales, then shut down peripheral operations.  Eventually the company reaches a point where it's profitable, barely, with a skeleton crew; those folks' jobs are probably safe.

Alas, we're seeing all too many companies who have done all the usual cutbacks and still aren't profitable.  CEOs have bought time as long as they can, hoping for a turnaround.  No doubt many small businessmen hoped and prayed for a Romney victory and a return to economic growth.

Now that they know that's not happening, though, there's a hard decision to be made: Can the company survive another four years of this economy, or worse?  For a great many, the answer is "no" - and that means it's time to shut down and salvage whatever can be turned into cash.

The legendary manufacturers of Twinkies decided that it's just not worth trying to negotiate with their unions any more; they've shut down, laid off all 18,000 employees, and are liquidating the assets to whoever will buy them.  No doubt there will still be Twinkies around but they'll be made in Mexico, or possibly in the Deep South with nonunion labor paid far less on highly-efficient modern machines that require only a skeleton crew.

The Internet is full of reports of companies large and small who've made the same calculation: they can't survive as is, more workers must go, or it's time to lower the drapes and lock the doors.

This creates a vicious cycle: the people who still have jobs know they'll never find another if they lose what they've got.  In those circumstances, who will dare take a chance on founding a new company or striking out on their own?  The companies not founded and the jobs not created can never be counted or known, but they're real nonetheless.  In every modern American recovery, most of the new jobs have come from small businesses; if nobody dares to start a small business, there can be no recovery and thus no hope of new jobs.

Instead, for the forseeable future America and the Western world will experience, in the words of the Telegraph:

The eurozone has officially joined us in a newly emerging international organisation: we are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too... This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it.   Instead of a dynamic, growing pot of wealth and ever-increasing resources, which can enable larger and larger proportions of the population to become prosperous without taking anything away from any other group, there will indeed be an absolute limit on the amount of capital circulating within the society.

But past recoveries, by definition, started at the peak (well, trough) of recessions; the world didn't end in 1935, 1979, or 1992.  There were people willing to take a chance then, many of whom reaped the rewards of their daring.  Why aren't there any willing gamblers now?

In the next articles in this series, we'll examine the key factor that has changed between past recessions and this one: regulation and the goal of government.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Business.
Reader Comments

I am sure the economy will improve. We can always change the way we count the non-workers again. Why we can probably get the unemployment down to 7% in the next 4 years as we get more and more people to drop out of the job market. Will we extend unemployment compensation to more than 99 weeks when there is no money in the kitty? Why not? It is child's play, or at least the way children play make-believe.

November 30, 2012 1:30 PM

As if things are not bad enough now what is going to happen when interest rates rise? Can the fed keep the economy afloat with more inflated dollars? Who is stupid enough to keep buy US bonds at current interest rates? The command and demand economy of Europe has created several large companies that for the time being is keeping them afloat to a small degree. What happens to Europe when these companies cannot pay anymore to their governments? The people of Europe can riot in the streets all they want to but it won't do any good, the cupboard will be bare. We here in the US are heading down that same path. The Gates, Buffets and the Costco's of the world will become more and more powerful as the US form of capitalism will become more entrenched into our economy. The real unemployment number today of 15% will grow to 25% by the end of obama's 2nd term of not earlier. The 99 week unemployment check will be lengthened to 129 and the 149 weeks.

We are still in the fairyland mentality of thinking that he corporations are to blame, both large and small. Our populace is ill educated with no relief in sight. In my opinion what you will see is people making a small amount of money off of the "books". These are cash jobs that have always flown under the radar but are not worth going after by the IRS. WIll this change? Hardly since most of the people are obama voters. It's kinda ironic that a union worker will start himself up a job on the side after he finishes his shift and proudly pockets the money while businesses that pay taxes, buy licenses and hire people have to compete with him. It's also funny that this same union worker will never hire a union worker to fix anything at his house because he can get it from a buddy that also works on the side for a lot less money. Yes, these guys talk out of both sides of their mouths. Ironically they practice what Ayn Rand says in that they look out for themselves in every business transaction but when it comes to their real jobs they are as inflexible to the point of suicide. I have seen companies here where I live have their doors shut because the union would not recognize the harsh economic facts.

Petrarch's article lays out the fact that no small business will be created under obama's plan. He is absolutely spot on in his assessment of the situation. If he erred anywhere he did not plant a dire enough warning of the coming economic recession.

December 1, 2012 1:32 PM

President Barack Obama travelled to Michigan this week and made his case for class war in defense of the welfare state.

We need to take more money from the rich, he said, or schools will not be able to afford books, students will not be able to afford college, and disabled children will not get health care.

"Our economic success has never come from the top down," said Obama. "It comes from the middle out. It comes from the bottom up."

Obama spoke these words a few miles from Detroit — the reductio ad absurdum of his argument.

If America continues down the road to Obama's America — a road that began when President Franklin Roosevelt started building a welfare state here — our entire nation will become Detroit.

Obama's economic and moral vision has played out in that city. What he seeks has been achieved there.

Last week, as reported by the Detroit Free Press, Michigan's state treasurer told Detroit's mayor and city council that the state may soon appoint an emergency financial manager for the city. Under Michigan law, the paper said, only such a manager can initiate the steps leading to a bankruptcy filing for the city.

By current calculations, Detroit faces obligations over the next six months that exceed its revenues by $47 million. The city, the Free Press reported, now pays $1.08 in benefits to municipal workers and retirees for every $1.00 it pays in salary.

What happened to Detroit? It is achieving socialism in one city.

Traditional two-parent families and the productive taxpaying citizens they produce have fled. In 1950, according the U.S. Census Bureau, Detroit had 1,849,568 people and was the fifth-largest city in the nation. By 2000, its population had dropped to 951,270; by 2010, to 713,777; and by 2011, to 706,585.

What has happened to the people who remain? The Census Bureau estimates there are 563,055 people age 16 or older in the city who could potentially work and be part of the labor force. But only 54.3 percent of these — or 305,479 individuals — actually do participate in the labor force, meaning they either have a job or are looking for one.

Another 257,576 of Detroit residents age 16 or older — 45.7 percent of that demographic — do not participate in the labor force. They do not have a job, and they are not looking for one.

In fact, these 257,576 people in Detroit who do not have a job and are not looking for one outnumber the 224,846 residents who do have jobs. But of the 224,846 residents who do have jobs, 34,500 — or 15.3 percent — have jobs with the government. Thus, this city that boasted 1,849,568 residents in 1950 has only 190,346 private-sector workers today.

There are 264,209 households in Detroit, and 91,204 of them — or 34.5 percent — get food stamps.

Very few of the people who are staying out of the labor force in Detroit are staying out because they are stay-at-home moms with working husbands. Of the 264,209 households in Detroit, only 24,275 — or 9.2 percent — are married couple families with children under 18. Another 78,438 households — or 29.7 percent of the total — are "families" headed by women with no husband present. Of these, 43,742 have children under 18.

Of the 363,281 housing units in Detroit, 99,072 are vacant. Indeed, vacant houses have become a powerful visual symbol of what advancing socialism has done to the city. Traditional family life is nearing extinction in this once vibrant corner of America.

Obama said in Michigan that if the federal government does not take more money away from people who have earned it, the public schools may not be able to buy school books. But the Department of Education says that in the Detroit public schools — which have books — only 7 percent of the eight graders are grade-level proficient in reading and only 4 percent are grade-level proficient in math.

December 12, 2012 12:23 PM
Add Your Comment...
4000 characters remaining
Loading question...