"Change Breeds Fear, but also Opportunity"

Sydney M. Williams

Thought of the Day

“Change Breeds Fear, but also Opportunity”

October 5, 2010

A friend, a hedge fund manager, recently observed that some of the characters in the movie No Country for Old Men were recognizable. Anton Chigurh (Javier Bardem), in his ruthless search for his $2 million, reminds my friend of some on Wall Street who let nothing come between them and a trade. But the character Sherif Ed Tom Bell (Tommy Lee Jones) catches the spirit of a country in flux – of men and women who thought they knew right from wrong and now find themselves uncomfortable in a place they don’t understand.

Stocks are traded with dizzying speed. Vituperative accusations emanate from Washington and are echoed in the Press, dividing the people, so making bipartisan efforts all but impossible. Congress has written and the President has signed healthcare and financial reform legislation, each a couple of thousand pages long – bills not understood by the electorate and most likely not understood by those who voted for them. Turmoil has become our common condition. Over a year into recovery (according to the NBER the recession ended in June 2009) unemployment remains just under its peak; recovery appears feeble. People are frightened – scared of the future and for their jobs.

This fear and uncertainty was addressed in the New York Times on Sunday by Robert Shiller, one of the country’s most renowned economists. He is professor of economics and finance at Yale and co-founder of the Case-Shiller Home Price Index. Even more important, from my perspective, he is an unassuming and thoroughly decent man. His column, “Economic View: The Survival of the safest”, dealt with the painful problem of persistent unemployment.

Professor Shiller writes that “business confidence has been shaken…people in all walks of life are nervous about trusting one another.” He quotes from a book by Truman Bewley, Why Wages Don’t Fall During a Recession (Harvard, 1999). Mr. Bewley’s concern is why, in times of rising unemployment, do wages not fall and why does the labor market not “clear”. Unlike commodities, the price of labor does not adjust when demand is less. Instead, businesses resort to sudden, mass layoffs of “non-essential” personnel. That action allows the business to survive and permits them to keep favored employees on. Managers argue that idled workers don’t “spoil the atmosphere”. Typically, Professor Shiller notes, “managers often lay off more people than necessary, to ensure they don’t have to repeat the ordeal anytime soon.”

The result of such action is a decline in morale. Those without jobs feel unworthy; while those with jobs insulate themselves against sentimentality and worry that they may be next. The (to me, sensible) concept of maintaining a full workforce, but paying everybody proportionally less, is rarely considered.

Truman Bewley quotes the manager of a large manufacturing company whom he interviewed in July of this year: “There is more uncertainty, and everybody is afraid.” Professor Shiller concludes: “Sometimes the private sector needs help from the government, and this is one of those times. We need to break the cycle of protracted unemployment and sagging morale through big government programs to create millions of jobs.” That may be necessary, though I am a skeptic. Even so, I recognize that there is plenty of infrastructure work that needs to be done; for example, no self-respecting third world country would have permitted New York’s Madison Avenue to fall into the disrepair it has.

But, in order to achieve long term success, we need people to learn “how to fish”. We must acknowledge that improvements in productivity have the effect of outdating certain jobs, so education and reeducation must be a continuing process. We need vocational schools. We must train people to compete in a global environment. Along those lines, President Obama, at yesterday’s meeting of the President’s Economic Advisory Board, announced the formation of a new program, “Skills for America’s Future”. The proposal is to link top companies with community colleges, in hopes of bolstering job skills. That’s a positive step, though it should be expanded to include vocational schools and small and mid-size companies as well.

More than anything, the President’s focus should be attempting to instill in the people a “can-do” attitude, lifting their self confidence, reminding them that they, individually – not the government – are the most critical factor in determining success. Dependency, whether it is on drugs, medication, alcohol or the government is ultimately debilitating. Certainly there are times when medication is needed and there are times when government must lend a hand; of course, there are the sick, the elderly, the disabled and others who are unable to look after themselves. But for the vast majority of people it is a restoration of confidence and an acknowledgment of the wisdom in the words President Kennedy uttered in his 1961 Inaugural: “Ask not what your country can do for you – ask what you can do for your country.”

To borrow and alter Rahm Emanuel’s phrase, crises present opportunities. Even “old men” can find a place to call home. Innovation and aspiration are innate elements of most successful people. These traits should be encouraged and nourished, for the growth of our economy will depend more on those who seize opportunity than on a bureaucracy embedded along the banks of the Potomac.