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What Makes America Great: Layoffs!

Posted By Barry Ritholtz On September 1, 2010 @ 6:47 am In Employment,Really, really bad calls,Taxes and Policy | Comments Disabled

I am watching Squawk Box around 6:30am as I get dressed this morning. The conversation turns to various incentives in Germany, where firms are actually paid not to lay people off in a downturn. (Firms cut hours, but keep most of their staff). The lower German unemployment rate of 7% has less people with financial hardship, so the public continues to work, spend, save, invest, engage in all manner of economic activity. We are told this is the reason Germany’s economic data — employment, sentiment, retail consumption, etc. –  looks so much more robust vs. the US.

But the German approach of maintaining taxpayer supported employment is immediately criticized. Any discussion such as this — more taxes! — must immediately be criticized.

A guest notes that in the US, a recent report [1] finds CEOs that engage in the greatest number layoffs are rewarded with the highest levels of pay and bonuses; apparently, this is proof of its appropriateness. Guest host Andrew Ross Sorkin makes an effort to argue that the cuts are short term, some of these companies have cut too far into the bone — and is mostly steamrolled. The massive USA layoffs are defended, erroneously acknowledges as a Tragedy of the Commons [2]. (The correct dilemma they were looking for is the Paradox of Thrift [3]).

Now for the fun part: Not only is the German approach of less layoffs, better sentiment,  higher economic activity not worthy of much actual debate, it is actually unAmerican (well yes, because its German). The layoffs in the USA are defended as raising productivity to record levels, and (at least over the short term) enhancing profits. One of the hosts suggest this high level of productivity “Is what makes America great.”

Gee, I always thought it was creativity, entrepreneurship, innovation, risk taking, economic opportunity, and freedom.

Turns out it was productivity enhancing layoffs.

Go figure.


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URL to article: http://www.ritholtz.com/blog/2010/09/what-makes-america-great-layoffs/

URLs in this post:

[1] report: http://www.ips-dc.org/reports/executive_excess_2010

[2] Tragedy of the Commons: http://en.wikipedia.org/wiki/Tragedy_of_the_Commons

[3] Paradox of Thrift: http://en.wikipedia.org/wiki/Paradox_of_thrift

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