Thursday, January 28, 2010

Business Model

Mark Thoma gives us access to this link to the Fed Reserve–Dallas. It brings a really good Overview of the Unemployment levels of the recessionary periods since the Great Depression. The Unemployment rate is rising higher than ever before since WWII. One should recognize some exterior factors to this data: the last shreds of the WWII generation are leaving the labor force, the Baby Boomers have reached the Retirement range with many retiring early, and many of the younger generations are avoiding employment; all of which probably produce about 2% of the Unemployment rate. All of the above elements are structural, and while they could have been initially recession-created, are self-sustaining after separation from the labor force. It all means that a real premium in Wages must develop before most of these labor elements will return to employment. This is highly unlikely within the current economy, and most of these labor elements are permanently gone, and should not be accounted within the normal employment schedules.

I agree and disagree with the Federal Open Market Committee. I would have joined Thomas Hoenig in dissent if granted the Vote, as I think that cheap finance is one of the suppressants of the economy. Business does have no incentive to raise Prices, but both Employees and Consumers possess little desire to expand their consumption patterns–especially with the maintained high rate of Consumer Credit. The Inflation, on the other hand, has not been cancelled–simply delayed. It is inbreed in current practice, and will reappear in magnified form just as soon as the cheap money disappears for Business. The later will not even expand into new production until a higher Return seems approachable, requiring higher Wages, greater profits from Consumer Savings, and higher product Prices; all requiring a return to more expensive funds. The Fed intends to support a business frame whose Time has already past, when it needs to generate a vibrant economy.

One can find one of the relative destructive elements of current banking practice here. There should be a real limitation of labor reward in relation to Stockholder reward mandated into law, except it is hard to interject a sound number. It would do much to equalize the Living Costs structure across different sections of the Country at base, and bring an equalization of Consumption within society. Housing shortages would be reduced, and a more uniform Cost could be brought to Housing construction. The current practice of business management consists of the more one gives to the employees, the more management can collect for itself. I would suggest a 50-50 Split between Employees and Stockholders, with a limitation of 25% of Profits going to business expansion. It will quickly become apparent that there will be immense protest from all Sides, but everything can be resolved by a more efficient Pricing structure for the business Product. This would be a basic movement away from Growth identification, but it seems Time such an aged format (coming from the 1950s) should be abandoned. lgl

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