Getting ready for the next banana

Let's travel back through the mists of time, to the days when Jimmy Carter was president.  Carter's chief economic adviser, Alfred Kahn, achieved historic significance when he revealed that he had been told not to use the word "recession."  He agreed fully with the order and would, henceforth, say "banana" when he really meant recession.  Now, that's loyalty.

Backing up a bit, there are basically two different economic systems on this planet.  Socialists and communists have command-and-control economies.  The rest of us have market economies, where buyers and sellers continually negotiate the difference between supply and demand.  Command-and-control economies never have, bananas...because abject poverty is constant under such tyranny.

Market economies tend to have cyclical recessions.  Commies try to sell their bill of goods to the economically naïve during those periods, but market economies never stay stagnant for long.  I ran a small business through three recessions.  The end was always obvious.  The phone started to ring again.

But things were still different.  There was more serious competition.  The marginal competitors failed to survive, leaving the better-run businesses to fight with the rest of us for the customers.  I might call this the Darwin effect because it's a stimulant for evolutionary progress.  Yeah, I'm saying that recessions can be considered blessings in disguise because they push private enterprises into cleaning up their acts.  Better-run companies benefit their stockholders, customers, and employees.  Have I left anybody out?

A less considered aspect of recession has to do with employee retention.  When business slowed down, we cut back workers' hours.  Then we had to do lay-offs.  I considered that to be a crime against capitalism, but we had to stay in business.  When the phone started to ring again, at first, we used overtime to make up the difference.  We were compensating for both the reduced hours during the recession for the retained workers while also avoiding serious commitments that may still be premature.  When the recovery continued, we started hiring.  In the European Union, layoffs are severely suppressed.  As a result, European employers do what they can to get by with the absolute minimum number of workers.

A more subtle aspect to all of this is the use of technology to improve worker productivity.  Much, if not all of the pervasive improvement in our standard of living is the result of increases in productivity due to technological advances.  In a business, there are two kinds of costs: fixed and variable.  Considering layoffs and overtime, employee costs are variable.  But when one considers the purchase or lease of new technology, that is a fixed cost.  Fixed costs cannot be reduced when business slows down.  Hence, it can sometimes be desirable to avoid productivity-increasing new technology in favor of workforce flexibility.

Gee, it's really not a perfect world.  We have to struggle to survive, just as Darwin said we should.  It is, however, a benefit to have the freedom to make our own decisions as we work our way through the obstacles that nature and government have placed in our way.  Forbidding honest descriptions of what is really going on just doesn't cut it.

Image via Pxhere.

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