Let’s Play “You Be The Sucker!”
By Noni Mausa
Let’s Play “You Be The Sucker!”
Let’s see. Business and banks have heaps of money – and aren’t hiring, spending their money, or loaning it out. Meanwhile, a few million working-age Americans have no money and no work, and many are young, strong, highly trained and capable. Business is complaining that they can’t get suitable employees for some sectors. But they aren’t training them, and in sectors where wages are low, they aren’t raising wages. Houses stand empty, while thousands are homeless or living in cramped conditions with family or friends. They are all playing “Don’t Make Me The Sucker.” It’s like a game of musical chairs where no-one gets off their chairs except the terminally benign or naïve. You can crank up the music all you want, but nobody’s moving.
And in this game, they’re all correct. If any of them moves without all the others moving, they get to be The Sucker. For instance, what if the unemployed went first? Suppose they went to the zero lower bound of wages and offer to work for free till the economy improves, “to show willing,” as the Brits say. But the losses they would court – loss of unemployment support, loss of time for real job search – are hardly balanced by the slim possibility that the humble homage they pay to the source of all human worth, the employer, will in the future be rewarded by a decent wage and steady work. Giving something for free hardly ever raises its price. In a rising economy this could work, for some. In a stagnant one, the unpaid employee is the sucker.
But the employer is in a fix too. There’s no fence that keeps his success from nourishing the business-slackers around him. If he goes first, and pays his people a living wage, his employees will spend their dollars at the cheapest stores – the ones who didn’t waste their time and money on wages and benefits. The generous employer creates customers for others, not for himself. If he goes first, he’s the sucker.
Even if new employees were his for free, enlarging his business when there are no customers is a recipe for failure. He briefly nourishes other businesses by building a bigger plant, investing in machinery and training, and what comes of it? He gets to be the sucker. Banks trying to make loans in a time of stagnation are obvious suckers. Where’s the profit in loaning at 3.8% when the risks of default are not only high, but controlled by other, unpredictable, even fraudulent actors in the financial arena? If hegoes first, he’s the sucker.
Businesses who need specialized employees are suckers if they try to train them or take them through apprenticeship. Where’s the guarantee that the employee won’t take his skills elsewhere – to a business that can offer higher wages because they didn’t waste money in training? If a business trains first, he’s the sucker. Each one alone is a sucker for trying to do what, in a functioning economy, makes sense. In stagnation, only fools try to go first, and not one in a hundred succeed if they try.
So obviously what we need, right here, right now, is a nation of fools. Can anything get all the players off their chairs in back into Mr. Fezziwig’s dance? Nobody trusts anybody, and rightly. The smaller players can’t do it, and the giant ones hardly need to. But something needs to be done. As our wise Mr. Pratchett said regarding the game foote-the-ball, “…a tactic was for players to cluster thickly around their own goal so there was no possibility of anything getting past them. I regret however that if both teams do this you do not have a game so much as a tableau.”
And a tableau, however individually sensible, is not an economy.
This sounds like a form of the Byzantine Generals problem, and we all know how well that worked out.
“Business and banks have heaps of money”
Business is not a monolith, many businesses do not have heaps of money.
Of course you’re right. Maybe I should have said Big Business? But there are large businesses which also are not swimming in cash.
Still, somebody is swimming in cash. Coincidentally, there’s an opinion piece in the WSJ from yesterday that shows non-financial businesses are holding $1.74T (http://tinyurl.com/clq8way) It’s curious to see what Casselman does with this data. He begins by acknowleging the size of the reserves:
“$1.7 trillion is still a lot of money, close to an all-time high….”
…and then tries to tell us this isn’t such a big deal:
“…But more significant than the actual number is the implication for what had been one of the most enduring narratives of the recovery: the massive pile of cash that was sitting on the sidelines…”
Of course, being the WSJ, he concludes that the “enduring narrative” is actually no big deal. He offers a Fed chart showing “Liquid Assets as a percentage of total assets of US nonfinancial corporations (http://tinyurl.com/bruygn2) which show that number as sitting between 5 and 6% pretty steadily between 2000 and 2010. He then goes on to tell us:
“The long-term trend makes the cash hoard look even less remarkable. As a share of assets, cash has been trending upward since the 1980s, rising from about 3% in 1982 to just shy of 6% at the end of 2005. Cash reserves tanked during the financial crisis, then soared in 2009, quickly returning to the earlier trend line. Since then, they’ve more or less held to their prior trend.” He does not provide the graph for that long term trend. Can someone find it, say from 1920 to 2010? I’m not an experienced graph-hunter and need to go shortly anyway.
So, is Casselman correct in saying it is “unremarkable” for the liquid assets of corporations to double in thirty years? I really don’t know, but I bet Mike Kimel could tell us. Other things happened in the last thirty years, such as the cutting down of the institutions that support the American middle class — is it possible that the extra 3% of liquidity had something to do with that?
Perhaps the dividing line between businesses that don’t have cash and the ones that do, has something to do with how tightly they are tied to goods and services, things that can’t be folded like a hologram and popped into your pocket. Listoid offers a rundown of the companies with the largest cash reserves in the world, here: http://www.listoid.com/list/148 No time to vet the list, but the ones at the top are,
[China Mobile, $40B]
Johnson & Johnson, $19B
Total minus China Mobile, $226,000,000,000
Cash reserves in US corporations $1,700,000,000,000
226/1700 = 13% in only nine companies.
I’ll leave you all to fiddle with the numbers, I have to dash.
actually, we don’t. care to tell us (the ignorant) a story?
thanks for this. the designated sucker is supposed to be the government. Roosevelt showed that. and it worked.
but of course know all the economists say it was really the war.
well, we have a war now. how is that working out?
i suppose i need to add…
when your government decides the solution is to stimulate the economy by giving money to those who are already sitting on it…
well, that’s insanity. but it is insanity of a familiar form.
“Business and banks have heaps of money – and aren’t hiring, spending their money, or loaning it out.”
Saving IS lending the money out. Unless there as some industry-sized mattresses out there full of greenbacks, the fact that money is being saved is evidence that it is being lent. What I suspect you mean to say is that it isn’t being lent out to the people you would wish. Who are your favorites? Name as many as you like.
Spending and saving are really the only available alternatives.
Nope. As far as I can tell, there really is a huge double mattress out there — one of $1.7T held by corporations, and another $1.6T or so held by Fed Reserve banks. (Chart below)
Saving is NOT lending the money out, though from what I hear the banks do really well by getting interest from the Feds for keeping their cash warm overnight. Oh, the banks might be lending their money to people who already have lots, but for small business investment? home purchase or reno?
I daresay that they would both lend it out fast enough, or use it for upgrades, if the tax structure was different or interest rates were higher. But for now, it’s green waterbeds all the way.