It Won’t Get Better

Posted on | December 15, 2010 | 1 Comment

Beware irrational optimism.

I talk a lot about this view that “getting better” is right around the corner. I wrote a blog post about that kind of irrationality on my main blog earlier in the year.

“Just hang on, it’ll get better,” your friends say.

“If we can just hang on for another quarter,” a business owner will say.

Beware of the irrational optimist claiming things will get better… that a recovery is right around the corner.  This isn’t true.

Aside from the raw numbers (example: 15,000,000 people in the US are unemployed and last month, the US added 35,000 jobs – do that math and see how many months at that rate of growth that would take to re-employ even 10 million people, and this number doesn’t keep up with 3 million entering the workforce each year – it would take an economic miracle to see growth at 500,000 jobs per month to get out in 3 years), there’s a danger in this thinking that leads to complacency.

Right now, US firms are sitting on $2 trillion dollars and are experiencing record levels of productivity. Why? Because they’re learning how to do more with less and acquire what they need at much lower costs.

So if a company has learned to be more efficient and productive with fewer people, where’s the incentive to bloat?

When/if the economy gets better, these businesses are going to then become less efficient and hire more labor (which is an exponential variable cost) to be just as productive? Why would they? Capitalism harbors no incentive for inefficiency.

If a company used to get talent for $120k a year, but can do now do it for $60k a year, why would they buy talent again at $120k?

Further, if they’ve learned to outsource or acquire talent off-shore, and they can get their needs met for $25k a year, where’s the incentive to go back to $120k a year?

Every year that goes by, companies are becoming more efficient and learning how to scale better without labor and leverage stuff like outsourcing, crowdsourcing, and freelance labor.

It’s not like they’re going to discard these lessons, and those who haven’t learned and are dependent upon hiring more labor when the economy improves will operate at a competitive disadvantage since their variable costs would be hire than a company who scales better with higher volume. If they’re not learning these lessons already, these are the companies that won’t be around when hiring does improve.

Like I said, beware of irrational optimism. You can still be optimistic and see opportunities in the new economy. You’ll need to be your own boss – your own employer, your own financier – in the new economy. Companies won’t be willing or able to pick up the slack.

R

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