Disconnect
As we move along through this virus-infected year, it is
becoming clear that several critical oppositions are developing. Prime examples include big companies versus small
companies; employed versus unemployed; and the stock market versus the economy.
The enormous financial stress of the pandemic has fallen
hardest on those with the leanest resources.
That’s true for both companies and families. The biggest companies with the most
substantial resources are well positioned to weather this storm. Smaller companies, however, tend to have limited
reserves, which means that many will not survive. Although others will someday replace them, it
will take time, which suggests that the big companies will get even bigger and
end up net ahead.
The situation for families is more complicated. Less affluent families must survive since there
will be mouths to feed. Temporary fixes,
whether for a few weeks or months, will not be enough.
As the millions of unemployed search for work, they
will be confronting a continuation of a trend that’s been under way for years: the
elimination of human workers from U.S. factories. The main reason is automation, not the
transfer of jobs to countries where labor rates are much lower, but the effect
is the same either way.
Given our ongoing concerns about keeping factories
humming while keeping workers safe, one can bet that the trend toward
automation will only accelerate. From
the perspective of safety, this is good news.
But from the perspective of job availability, it’s one more reason why
the current extraordinary level of unemployment is extremely disturbing.
With 35-plus million folks now unemployed, the specter
of a 20% unemployment rate may be the biggest problem we will be facing. Recent news reports suggested that 80% of
those unemployed considered their layoffs temporary, but that optimism is
probably misplaced. Why? Because a substantial share of this group was
probably working for companies that will no longer be around.
The numbers of unemployed with remain unusually high
for years. One remedy might be a massive
infrastructure program, akin to the WPA of the 1930s. Whether that would be saleable politically is
another story.
Another approach could be a nationwide training
curriculum to develop the skills needed for the tasks of our new normal
business world.
In the absence of measures of magnitude such as these,
millions of unemployed people will become increasingly desperate, leading to
violence and crime.
Meanwhile, there is a disconnect between the behavior
of the stock market and the reality of the economy. Stock prices continue to rebound while
corporate profits vanish. Larger
companies will benefit from the disappearance of smaller competitors, gain
during this difficult period, and enjoy a deserved increase in the price of
their shares.
To the extent that the stock market averages are
disproportionately influenced by the successes of the largest companies, there
is a basis for the recent recovery we have seen. Let us hope these market leaders can take up
enough slack to provide increased day-to-day stability as we move ahead and
also that new smaller businesses able to provide millions of jobs will flourish
again.
N. Russell Wayne, CFP®
Comments
Post a Comment