Sunday, March 6, 2011

Discussing a Four Letter Word

  • “Jobs”
  • Creating new demand

When we hear that someone is using four letter words, we think of words that should not be used in polite society. Most of the time we don’t think of more positive words such as “Love” and “Like.” Rarely do we include a word on the tongues of some in the rioting crowds of the Mid East/North African (MENA) countries, “Hate.” I posit that the base disappointment of the crowds today is indeed a four letter word, “Jobs.”

Mobs and Jobs

Throughout history, demonstrating crowds have been made up either exclusively or mostly by young men who cannot find jobs. Without sufficient income, they do not marry and procreate. Thus in many respects, the intensity of their fervor is testosterone based.

Many so called developed countries, including the US, also have large scale unemployment of young people. My guess is that many of these youths have not had their first full time jobs and thus are unlikely to be counted in the unemployed numbers. Governments are not blind to the political crises caused by unemployment and underemployment. They react through their central banks, spending policies and tax preferences, funneling money to those activities that are already creating employment. The theory is that if they had more money to spend they would hire more people. However, it is not working, or not working fast enough to head off political disruption.

My friend Chip Dickson of Discern, in a very thoughtful set of PowerPoints, using data from the St. Louis Federal Reserve Bank’s website, tracks the last eleven recoveries from 1947. He concludes, “The key determinant of the ultimate strength of this expansion and stock market is employment. Private sector employment levels are more in line with an economy struggling to recover.” Bottom line: the old ways of throwing money at the problem are not working well enough to avoid trouble.

In the past there were two realities that helped “solve” unemployment. The first were the natural disasters of flood-induced food shortages and virulent diseases. The second was war in its fullest sense. At times, wars killed off as much as 25% of the able young men. Hopefully these techniques will no longer be a factor in closing the employment gap.

Is the problem structural?

I maintain that we have become too productive per unit of labor to vastly increase our use of human workers at the foreseeable levels of aggregate demand. Part of this picture is caused by too high wages and too little relevant education and job discipline. (Numerous employers have said that they would hire if they could find the right people.)

New product demand

As a global society, we need to create several large quantums of new demand for new products and services. Three examples are:

  • Think of five or ten times the ultimate demand for iPads and similar tablet communication devices.
  • Radically new wellness products and services.
  • Rebuilding our cities, requiring additional large mass transit investments and jobs.

Some of this new demand will be for new services as well as manufactured products, but too often services do not have labor leverage characteristics, thus are really just transfer payments.

Historically, politicians and governments follow the people in the private sector. Thus, I do not expect leadership will come from the central political forces. I do expect the more aware political leaders will be reasonably quick to jump on the new demand elements and start to throw taxpayer money on the accelerating train once it is underway, e.g. through large scale credit extensions, government purchases and tax incentives.

I suspect that somewhere along the delivery channel both technology and advertising will become important conduits. As investors, we should be watching the customers of both technology companies and advertising agencies to pick up the accelerating momentums relatively early. Investment in these two sectors may be worthwhile early identifiers of meaningful change as we find new and more productive ways to put well-meaning young men and women to work. In that fashion, jobs can become a positive word.

Please send me a comment with your suggestions.

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