Monday, December 8, 2008

Contagion, Big Media and the New Economic Feudalism

David Carr, business writer for the NYT, has an interesting take on the role of Big Media in stoking fear and panic (social contagion, as I've written about previously here, here, and here) about the economy.

Every modern recession includes a media séance about how horrible things are and how much worse they will be, but there have never been so many ways for the fear to leak in. The same digital dynamics that drove the irrational exuberance — and marketed the loans to help it happen — are now driving the downside in unprecedented ways. The recession was actually not officially declared until last week, but the psychology that drives it had already been e-mailed, blogged and broadcast for months.

“When everyone is talking about recession, we all feel like something has to change, even if nothing has changed for us,” said Dan Ariely, author of “Predictably Irrational,” a book that explains why people do things that defy explanation. “The media messages that are repeating doom and gloom affect every one, not just people who really have trouble and should make changes, but people who are fine. That has a devastating effect on the economy.”

With unemployment, auto sales, home foreclosures and consumer confidence all benchmarking historic levels of distress, news outlets are hardly making it up. But the machinery of the economy began to freeze in place far more quickly than it has in the past, in part because so much scary data is circulating so much faster than it used to. This recession got deeper faster because we knew more bad stuff quickly.
None of this is particularly unknown, but Carr's main point follows:
Nobody fears getting caught out on a down cycle more than those who run public companies, and defensive layoffs — not based so much on current realities but on horrors to come — have become the norm[...] There is a kind of emotional contagion afoot.

James H. Fowler, an associate professor at the University of California, San Diego, recently co-wrote a study looking at how happiness can be spread among friends. The opposite is true as well.“There are studies on bank runs, and it shows that people who know others who have taken their money out of the bank are much more likely to do it as well,” he said. “We always overshoot the upside and, because of the same contagious effects, we overshoot the downside. Everything is fine, and then all of the sudden we are looking for water and supplies to ride out the coming storm.”
Eve Tahmincioglu, who writes a business and labor column for MSNBC, echoes a similar theme.

Corporations are cutting thousands of jobs and slashing benefits but is there any real rhyme or reason to the employee bloodbath.

Just today, Dow Chemical Co. said Monday it will slash 5,000 full-time jobs and Post-It makers 3M Co. announced cuts of nearly 1,800 positions in the fourth quarter. This follows last week's string of big layoffs at major companies like DuPont Co. and AT&T Inc.

The media is covering all these workforce reductions as if they all make sense. No one is even asking if cutting thousands of workers right now is a good idea for employees, the firms themselves, or the economy at large.

In other words, what do Post-It notes have to do with the housing industry? Or automobiles with paint? One word answer: PROFIT.

Eric Patton, a professor of management at Saint Joseph's University who researched downsizing during the economic downturn of the early 1990s, says what we're seeing now is mainly "a knee-jerk reaction to cut costs and keep profits up."

Workers, he says, have a big bulls eye on their backs in this mad dash to jump on the expense-cutting bandwagon. If one company cuts workers and benefits today, tomorrow its competitor will feel pressure to do the same or risk having a crummier bottom-line.

The more this goes on, the more it seems as though I've seen this movie before. As Christian Parenti wrote about the recession of 1982, this current downturn similarly has more to do with "disciplining labor" and increasing corporate profits than it does any naturally occurring economic cycles. In other words, a recession is the ultimate form of social control.

In the eyes of [then-Fed Chairman] Paul Volcker, [the recession of 1980-1982] was a good thing. 'The standard of living has to decline,' said Volcker, and as the recession was reaching new depths in 1981, Volcker again explained the utility of his artificial economic disaster: 'in an economy like ours with wages and salaries accounting for two-thirds of all costs, sustaining progress will need be reflected in moderation of growth of nominal wages.' The chairman's goal was labor discipline.

The cold-bath recession did precisely what it was designed to. With more than 10 million people unemployed, reductions in wages rippled from one industry to the next and from the center of the country outward. The wealthy, meanwhile, were enjoying a state-subsidized renaissance. (pp.38-41)

Sound familiar? We greenlighted $700 billion for Wall Street, but so far have made the Big Three automakers (who employ what's left of organized labor) grovel, hat in hand (and twice so far), for peanuts in comparison. Did anyone broach the idea of "re-organizing New York" or creating "government industry oversight boards" for Wall Street executives? I don't recall.

Not only does all of this sound familiar, but oddly Volcker is even back from the dead, as chairman of Barack Obama's Economic Recovery Advisory Board. That's comforting, no?

This isn't to say this economic "crisis" isn't real for those being thrown out of work, but if you mix up contagion, fear and Big Media's rabid pursuit of hysteria (after all, who profits more from breathless, doomsday scenarios than corporate-owned Big Media?), you have the "economic crisis" perfect storm. And yet another way to make corporate malfeasance (via the housing and mortgage market fiasco), take everyone else down as well.

I like Carr's point about how "we no longer have to be obsessed to be neurotic: the neurosis comes to us."

I came across this scary bit about Paul Nawrocki, a former toy company executive who takes a 90-minute train ride into New York to walk the streets with a sandwich board. “Almost homeless,” reads the sign. “Looking for employment. Very experienced operations and administration manager.” I’m already working on mine. “Will write for food.”
And btw, lest you think I write this from the comfort of the "ivory tower" and unaffected by the possible reality of a recession: since contract employees and other adjuncts (instructors, lecturers, part-timers, etc.) in higher education will be the first to go if the university system starts laying people off, I should probably start saving coffee cans and prepare my sandwich board too. "Will Teach & Do Research For Food" up and down Baldwin Street.

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