Economic Headwinds: A Self-Fulfilling Prophecy

 

If the Biden economy is so good, many ask, why are some meg-sectors – heavily in media, finance, tech and now manufacturing – laying off so many people? So many CEOs and financial gurus had predicted that by now, the United States would be mired in a recession. Back in October, JP Morgan Chase CEO and billionaire Jamie Dimon touted that there were “very, very serious” mix of headwinds was likely to tip both the U.S. and global economy into recession by the middle of next year. He added that “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now.” His pessimism was echoed up and down Wall Street, mirrored in every corner of the financial sector, but… there does not seem to a recession looming here. In fact, the United States seems to have the most solid economy in the developed world.

We complain about price increases, but with the pressure to push immigrants out of the US and prevent them from entering, just as our incumbent population is facing seriously declining birth rates, we now have all sorts of labor shortages. So, we’ve substituted those lower cost immigrant workers with local US workers, who have responded by demanding and getting major wage increases. American unions have prospered accordingly. Americans are, on average, earning a whole lot more, even as commodities the world over rise in price. So, who’re the idiots embracing a policy to keep lower cost workers out of the country for jobs Americans just won’t do?

Yet despite good numbers, this economic pessimism just doesn’t go away. That job bubble may burst, however, in that constant hammering of economic doom, a self-fulfilling prophecy. The more people believe it, the less they’ll spend, and the more companies will have to lay workers off.

As reflected in the March 12th Quartz.com, Dimon admitted that the recession had not arrived but today: “Two years after warning that a ‘hurricane’ could hit the U.S. economy, JPMorgan Chase CEO Jamie Dimon re-upped his concerns Tuesday [3/12] about a potential recession in the U.S. He said the possibility of a recession is not ‘off the table’ and that the Federal Reserve should hold off on cutting interest rates for now. Dimon made the remarks at the Australian Financial Review Business Summit in Sydney.

“‘The world is pricing in a soft landing, at probably 70-80%,’ he told the summit via video link, referring to when inflation comes down without a painful rise in unemployment. ‘I think the chance of a soft landing in the next year or two is half that. The worst case would be stagflation.’

“Dimon has at least some track record of being inconsistent and missing the mark on the economy and emerging technologies. In mid-2022, he predicted that a ‘hurricane’ would hit the economy. He also has something of a love-hate relationship with blockchain technology, which drives cryptocurrencies like Bitcoin. He once said blockchain is useful for exchanging assets or data, but in 2018, he called Bitcoin a fraud. Then in 2019, JPMorgan launched its own dollar-backed digital coin called JPM Coin for payments between clients.”

It seems almost Trumpian that if you repeat an inaccurate statement enough, it must be true. Oh, and by the way, eventually there will be a recession. It is a cyclical part of economics… and always has been. Wait long enough… But as pessimism has remained an unceasing chant in the last year or two, you might wonder what’s really going on. In tech, scientific disruptions (AI-driven) have marred many business plans. As the rollout of charging stations has not accelerated fast enough, the automotive sector has pulled back on EV manufacturing as sales have declined because of consumer fears over that charging issue. Higher interest rates impact everything, but only the Fed controls that. The fuel for so much corporate growth, cheap money, has left the building.

Still, we’re doing well enough, but the MAGA chorus points to higher food, rent and real estate costs as clear evidence that our entire economy is imploding. But it isn’t. Even as oil and gas output is hitting record amounts, Donald Trump has convinced his sheep that we have an energy crisis… as if “drill, drill, drill” would have the slightest impact on the price of oil, a global commodity where the US is unable to control pricing. Sam Dean, writing for the March 14th Los Angeles Times, adds: “Chief executives at accounting firms, cookie companies and Crypto.com have all laid off thousands of workers in the last year, and pointed the finger at one metaphorical culprit: economic headwinds.

“The phrase evokes a solemn CEO scanning the sky from the deck of the corporate ship. Eye on the horizon, he senses a change in the weather, a different snap to the rippling canvas, a new chop to the sea. With a grim set to his jaw, he concludes that only one course of action can save the voyage: massive layoffs… Headwinds have always blown around in business English, but the phrase economic headwinds serves a special purpose: a majestic waving of the hand, an abandon to the fates, an inkling of force majeure [literally an uncontrollable event or series of events, much like an act of God].

“‘It’s a useful term, because we can’t control the wind,’ said Thomas C. Leonard, a historian of economics at Princeton University. ‘If you’re a corporation trying to sell unhappy outcomes to shareholders or regulators, it’s a way of saying it’s a tough environment, but more importantly it’s a tough environment beyond our control.’… It’s a phrase heard often these days in the tech and media sectors, which face real challenges.

“Tech companies that could raise and spend cash freely when interest rates were close to zero are struggling to stay afloat. The ad market has hit the doldrums — in part because all those companies that used to have cheap cash to pump into ads now have to keep their powder dry — which has taken the wind out of the sails of many media businesses, which had been facing financial problems for decades. And in L.A., Hollywood studios have been slow to pick up the pace of production after last year’s strikes, as they face questions over the viability of the streaming business model.

“Executives in these industries are using the term precisely because of the contrast between their challenges and the wider world, Leonard said… ‘The wild thing is, notwithstanding the headwinds in media and technology, the economy is doing unbelievably well,’ Leonard said. Inflation is down, unemployment is at historically low levels, the U.S. is outperforming other rich countries, the stock market is booming, and inequality of wealth and income is falling, Leonard said.”

It seems that there is an attitudinal change in nation where political blame is rampant, and we explain away mistakes by avoiding responsibility… the CEO/candidate new normal. We really seem to believe that repeating inaccuracies and conspiracy theories enough will make them true.

I’m Peter Dekom, and too many of us seem to have outsourced our opinions to purported gurus who are, of late, increasingly more wrong than right.