Tuesday, March 23, 2010

The Hair Salon Index

TPM highlights this appearance by former GE CEO Jack Welch on the morning Squawk Box and points especially to his comment that the Republicans may be shocked by how well they WON'T do in the Fall. Welch's comments obviously surprised the hosts of the show, but his case is compelling. He makes the point that jobs are what the election will be about, but it isn't simply the question of whether enough people have jobs. What also matters is the confidence of those who already have jobs (90% of employable people) that they will be able to retain those jobs. If those people feel that the economy is getting better, then they will not be as willing to vote for change.

I think this is an important point that a lot of people overlook and I think it takes a person of Welch's background to point this out. He made a lot of money paying attention to the hidden indicators of economic activity. We all talk about employment and GDP and inflation. But what he talks about here are things like whether people buy their own hair care products or they go to the salon. He talks about whether people mow their own lawns or they hire someone to do it for them. It's these intangibles that tell the story of re-emerging economic confidence.

The economy went into recession in 2007. But the economy didn't really go into free fall until the Fall of 2008. What caused that free fall? Was it the collapse of the financial services industry? That, again, is the observable factor. But what was going on behind the scenes that people didn't pay as much attention to?

It's what I call the kitchen table moment. It's the moment when a family realizes that their financial situation is unstable and could become even worse. So a family meeting is called around the kitchen table. At this meeting it is decided that the time has come to cut back on the luxuries until such time as the family's financial situation stabilizes. What turns this normal human behavior into a global economic meltdown is when EVERY family has a kitchen table moment at the same time. When that happens, a small recession suddenly becomes a great recession. And if the austerity measures the family takes last for more than a year, it starts to become a depression. If they last more than a couple of years, it becomes a great depression.

Obama and the Democrats prevented that from happening by stabilizing the economy and creating the atmosphere where families could peak out from their shelters and think, "You know, the lawn really is looking crappy but I don't want to mow it today, but we might just have enough money to pay someone else to mow it for us."

And that's when the economy starts to turn around.

The Republicans are pinning their hopes on the despair of that 10% who haven't gotten a job. What they are forgetting is that the remaining 90% are starting to feel better. Not great. But better. And as long as they think things will continue to get better, the Democrats will do just fine this Fall.


Blogger Не е истина said...

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1:20 AM  

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