The economy should not overpower us. It does not work autonomously or beyond
our combined will or consent: It is simply the outcome of [seemingly] complex human
expectation and behavior, and since we can make rational thinking prevail if we try,
our economic system can keep the economy working well for the benefit of all.
Please read my following article. We can make the economy behave. It’s up to us.
Sincerely,
Luis F Molina
June 12, 2011
Hiring vs. Efficiency and the Key for Economic Recovery
[Message sent to the White House on September 16, 2010]
[This Style Revision Published on December 7, 2011]
By Luis Felipe Molina
Leadership and patriotism are the key for economic recovery.
The unemployment rate is determined by the aggregate amount of hiring / firing
management decisions in the economy. And it´s ONLY by means of a net increase of
management decisions to hire people that the USA economy (and the economy of other
countries) may settle at the optimal amount of unemployment –which ought to be of less
than 5%.
But hiring decision-makers, owners and managers of small to large companies, will not
hire if they believe this will likely hurt immediate profits rather than bettering business
prospects for the short-to-medium term. Decision-makers will not risk deteriorating the
business efficiency they felt they were forced to augment due to deformed economic
uncertainties as perceived by the general opinion.
Companies of all sizes are benefiting from payroll tweaks they felt compelled to make.
Even with shrunk sales, there are better profits thanks to increased business efficiency
mainly from fine-tuned labor productivity –resulting in a smaller but “fit” economy that
sadly secludes part of the population. A trend to hire the excluded workers will not surge.
Therefore, if nothing extraordinary happens, large unemployment will continue for an
overly extended time –possibly even for a few decades, as now more efficient companies
of all sizes will continue doing well even with prolonged national and global excessive
unemployment. Not even ingenious fiscal stimulus measurements of all sorts, hoped to
promote via either consumption or investment, would be able to work sufficiently -since
any stimuli need to pass through each company´s perception and assessment of its
efficiency and actual individual risks, both in specific business microeconomic situations.
Leadership and patriotism are the solution.
Public sector leaders and institutions must strive to motivate businesses to hire again:
The President, governors, majors, congressmen and other public sector leaders must
work hard, in a healthy competition, to convince businesses to hire in excess at their
microeconomic levels –anticipating that if most companies hire simultaneously –using
available savings, the revitalized aggregate consumption will provide with increased
sales and profits. Private sector leaders, companies and institutions must campaign
similarly or join in the public sector´s effort to convince companies to hire –generating
the profits, salaries and fiscal revenue required for the good of all worldwide. Private
investors must keep hiring enough, thus satisfactorily performing one of their crucial
roles -in a constant reflection of the bold entrepreneurship that makes the USA great.
Given the about-9% stagnant unemployment rate, if a company has 20 employees,
it must hire just one additional employee. Similarly, if five companies have an average of
four employees for a total of 20 employees, then one additional employee must be hired
by one of those five companies. Likewise, if one company has 100 employees, it must
hire 5 employees.
Since fiscal stimulus alone will not make trends change and no random / autonomous
phenomenon will make hiring habits/norms (currently more efficient) change, motivation
to hire needs to be rooted on patriotism with a vision of wellness for all in the short run to
medium term.....Hiring decision-makers (owners and managers) need to seriously realize
that continuous excessive unemployment will eventually hurt all in several ways: On the
contrary, a sustained equilibrium level of unemployment will keep consumption right
which will continuously invigorate investment for the benefit of all –from rich to poor.
The biggest real thing in the economy is GDP. Fiscal and financial troubles are generated /
exacerbated by curbing consumption and investment, whereas the operation of factories,
shopping malls, agriculture fields, banks and all other real components in the economy can
be easily revitalized if the people (the consumers) just had enough salaries.
We don’t want too much unemployment, so we need to employ. But now the way to this
the solution is not so simple: It requires realism and a commitment moved by patriotism.
Luis F Molina
PS1:... Even if the ‘patriotic hiring’ was only a good fraction of the amount I propose (let’s say it was
just 2.5% of current payrolls), if it is “simultaneously” performed, it will be timely supported by
additional sales, and it will be massive enough to trigger more than full economic recovery:
Investment will be supported, and consumption and profits may contribute to government
budget balance from the fiscal-income side.
Of course, I do not have empirical evidence on that. But, virtually there is no conclusive empirical
evidence in economics. Fortunately, the basic, great issues on economics are straightforward: The
economy is a reaction to human attitude; and, although human economic behavior appears to be
too difficult to be modeled, it is also clear-cut if seen with common sense (“the less common of
the senses”), while it becomes too complex when seen just scientifically.
Intuition emanates from knowledge and experience, and the economist ought to value their
own intuition. Who more suited than the great economists of the world to propose a solution
if their recommendation is a reflection of their intuition rooted on their previous knowledge?
I would humbly beg them to urgently proceed.
I hope the great economists (of whom I once dreamed to be like) would consider and adopt
this my straightforward and very effective solution. It cannot harm.
Luis Molina
August 07, 2011
Just remember that great historical endeavors, like defeating
tyranny in the 1940s and going to the moon in the 1960s, were
motivated by patriotism. LFM. December 6, 2011.
PS2:
I have been reluctant to provide additional explanation of my proposal above, but I am
giving up and will comment as follows:
In the fourth paragraph of my proposal above, I suggest that no fiscal stimulus measure
will have a sizable-enough effect on job creation and on sparking economic recovery neither
via consumption nor via investment: On one side, the increase on the effective demand of
services and goods that a realistic increase on government expenditures (under the current
deficit and debt situation) can create: (1) will be partially offset with productivity increases,
including inventory reductions, not necessarily with new jobs in the private sector, (2) it is an
inflationary measure and (3) it is opposed by a proportion of private-sector job creators. On
the other hand, companies have not been hiring mainly because of uncertainties about the
effective demand for their own individual services and goods, not for lack of capability to
invest due to lack of money or access to financing, thus massive-enough job creation
cannot necessarily be expected from business tax reductions. In general, what will
make the combined hiring in the private sector reach an intensity consistent with
economic recovery is the improvement of the individual company´s microeconomic-level
expectation about the probabilities (real or not) of their individual increases on sales and
profits in the short run.
However, as opposed to these two alternatives, my proposal to fix the economy via public
and private-sector leadership and concerted (mutual) patriotism allows the private sector to
create all needed jobs and the corresponding sales simultaneously to trigger full economic
recovery and added prosperity for all into the short run in the USA and worldwide.
No economist will disagree on this after giving proper consideration to my proposal.
Besides, applying my proposal cannot harm.
Luis Molina
October 17, 2011
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