Off the Reservation

So who at GM was responsible for pulling the company’s advertising money away from Facebook? The Wall Street Journal told me so today. The man was Joel Ewanick, then the company’s global marketing executive. The Journal’s story tells us that Ewanick was fired—evidently for “failing to properly vet the financial details of a European soccer-sponsorship deal.” Did his actions regarding Facebook play a role. Oh, no! Oh, no! Not the least of it. But Ewanick’s talking to the WSJ about that action, before the Facebook IPO was launched “didn’t go over well among the executives in GM’s top ranks,” the Journal tells us. A European soccer-sponsorship deal? Really? Or was the board just digging for something—anything—to rid itself of a man who was “polarizing,” a “glass breaker,” and a “firebrand”?

Nothing wrong with pulling money from an advertiser—but making GM look like a maverick, making it seem disrespectful of the gods of Social-Media, why that will start somebody digging into European soccer sponsorships.

Reminds me of another polarizing firebrand at GM, Ross Perot. He joined the board in 1984 when GM bought Electronic Data Systems and Perot became GM’s largest stockholder. From his board position, Perot had a look-see. Soon he was in the public media criticizing GM’s ways. Board members don’t do that, Ross. Phrases like “nuke the GM system” and “teaching an elephant to tapdance” reverberated in the media—until, in 2007, the board decided to repurchase all of Perot’s stock for $700 million and to send him back into the wilderness where firebrands belong. I got these facts from an old Time Magazine story (here).

Will we learn, in days to come, that GM has once more discovered that a presence on Facebook “has been shown to be helpful to reach a vital audience”? Wouldn’t be surprised. As for Ewanick, I don’t think he will just disappear.

Expanding Canvas, Shrinking Paint

The WSJ yesterday carried a story titled “Social-Media Stock Frenzy Fizzles.” Whatever the content here, I admire that headline. Catchy. Now all this, I think, began when General Motors called its advertising money back from Facebook—in advance, one speculates, of pouring out vast masses of it on NBC’s coverage of the Olympics. Tell you the truth, I’m falling in love with Chevrolet all over again. The Olympic spirit? Oh, it’s Okay. The Chevrolet spirit? Now that’s the shining red pickup I want to drive to heaven.

I got to thinking yesterday, what with that frenzy fizzling. The abstract thought was: If supply expands fueled by frenzy—but demand shrinks because the customer isn’t shopping anyway, no matter what you say, no matter how low interest rates are, no matter how radiant that Shining City in the Cyber Sky, why then there is a mismatch. And even those people dancing the St. Vitus dance will eventually notice. The visual image that came unbidden into my mind is the situation of a painter who discovers that his canvas is expanding as he tries to cover its surface, and the faster he paints, the more his paint-supply diminishes.

We’ve all noticed it, of course. With-it broadcasters have developed a new sign-off line. “See us online anytime. And follow us on Facebook and on Twitter.” Why is that list so short? Wikipedia shows a list of 198 social-media (link)—from “43 Things” to “Zoopa”—and it doesn’t even include Zynga, a “major player” in services and games.

Painting the sky Chevrolet red? GM has no problem doing that—on NBC. Watching sports big time every four years? Yes. Discovering what itsibitsiThunder has to say on Twitter today? That isn’t quite so big a magnet.

Quantitative Easing

What isn’t easy is to remember what the Federal Reserve’s latest monetary whip, to energize a sluggish economy, means. Here I teach myself again.

Put in the simplest words, quantitative easing is another way of saying “printing more money.” And the name applied here is “quantitative” because the Fed determines in advance what quantity of money it will print. The “easing” part is trickier.

The Fed buys, from the banks, long term financial instruments that they are holding. An example is mortgage-backed securities. The Fed pays for this with money it creates out of thin air. The consequences? The banks have more cash. When instruments are purchased, their value goes up. When dividend-yielding financial instruments are purchased, their value goes up too—but their dividend yields go down. QE therefore reduces “yields” as well. Another name for yield is interest rate.

Now the “easing” part is tricky because what the Fed wants the banks to do is to lend the extra money to businesses and industry. Business and industry spend the money on structures and capital goods. This causes demand to increase. Demand in turn causes companies to produce. And in order to produce, they hire people. Simple, but very indirect.

The current situation is that banks don’t want to lend to people who need money; they want to lend to the wealthy only—who don’t need money. Banks behave like this because the risks of lending into a sluggish economy are high. But the banks love quantitative easing because they don’t mind selling long-term financial securities. It increases their flexibility without imposing a cost or forcing them  to do anything.

The very fact that the Fed must print money to begin this attempt to stimulate the economy, very indirectly, increases the money supply at a time when there is already too much money in circulation. This means that quantitative easing is inflationary. Inflation hurts people who save and those on fixed incomes; it helps people who borrow; they pay back loans with money that is worth less than the money they borrowed.

Now the straightforward way to stimulate the economy is denied to the Fed—but at least theoretically available to the Executive branch. That way is to launch programs to hire people directly—as Federal employees. If the programs are well designed, thus if the people hired actually believe that the job will still be around in a couple of years, they will start consuming. That causes demand to increase—and the “easing” then follows.

I feel for the Fed. It wants to do what the Executive branch might wish to do but hell will freeze over before the Legislative branch will let it do it.

The V-Words

One of the best-kept secrets in such times is that virtue is efficient. The prevailing view, instead, is that virtue is weak, the mark of the timid; it’s easily shouldered aside by the aggressively competing. The Lords of the Universe didn’t earn their red suspenders by their virtue; they earned them by taking huge risks, cutting corners, and trampling the weak on their way to the top.

Now, of course, people admire success but want their children to be virtuous. The popular media, in response, have produced a kind neo-archetype of the hero. He keeps returning in endless variations. He is a cop so deeply committed to justice that he takes the law into his own hands. That commitment is supposed to stand for virtue; that breaking of rules is supposed to be the much admired aggression. He tramples all over the “bureaucratic” rules, hunts and destroys the criminals, and, with the deus ex-machina of the film-maker, manages to escape the consequences of his transgressions against the public order. Somehow the film neglects to tell us who pays for the dozens of cars and scores of storefronts and bridges destroyed in the big chase. Another version is the “virtuous thief.” He is a fantastically clever jewel thief or bank robber—but his crimes are packaged as punishment for the wicked Big Powers of Money. In the midst of some heist he turns into a supercop and thus, balancing his small crime by solving some Big Crime, emerges washed clean and pure with a halo and the love of the incompetent but luscious female detective whom he helps—and who therefore gets all the credit.

Now back in the real world, vice is destructive  and virtue is efficient, and one does not smoothly morph into the other. The real world, however, operates on another time scale than the movies. Processes are slow. Decades pass as virtue is watered down by complex processes of compromise and what is known as a vicious cycle develops. Its earmarks are weakening of regulations and slackening enforcement, spending what has not been earned, thus mining the future, compressing time, thus working for the near- at the cost of the long term, manipulating perception rather than seeking the truth, and hyping vice under the guise of freedom and self-expression.

The virtuous cycle is equally slow in its development. It depends on patience, savings, self-restraint. Precisely because such behavior is difficult, it values education and training; both are productive of a realistic view of life; you don’t get something for nothing; pay me now or pay me later; results equal effort; do unto others; etc. In the virtuous cycle gains are small—but they cumulate through savings; they are invested carefully, hence they have small rather than “insanely great” returns. The long-term view, therefore is natural. The virtuous cycle, like the vicious, has a tendency of growing exponentially. In due time it produces great wealth. And there we find its Achilles heel. Wealth becomes habitual. The virtues begin eroding. And the first cracks appear. Bits of stone start trickle out; water seeps in. A vicious cycle is born.

Alas. One always seems to beget the other. My hope is that a virtuous cycle is now beginning—and may explain why nothing exciting is happening out there. It takes a lot of time for the buried ants to emerge from the rubble of the collapsed structure and then, in the open again, to start rebuilding a virtuous hill.

11th Commandment

Anxiety and anticipated Schadenfreude†are beginning to erupt. This coming Thursday Facebook will publish its first earnings results since going public. Does Facebook have the moxie to attract the advertising revenues that may in future rival Google’s? Those who hunger and thirst for an uninterrupted population growth in the Olympus of the Cyber Cosmos—especially as Yahoo seems to be ailing—are anxious. Those who delighted in Facebook’s rocky IPO are sharpening their pencils; whatever the results next Thursday, they will find them wanting.

Now, don’t you know it, advertising must be personalized. The ads appearing when You land on Facebook must mean You, You, You. And Facebook, presumably, has all the stuff it needs to personalize the ads. After all, its members reveal such tightly-held secrets as their gender, age, and where they went to school. And then there are those many words they write there that can be individually mined and polished into pointers straight at ads. Am I a little doubtful? Yes. Suppose I shared with Facebook that I spend a minimum three hours a day in giving myself elaborate pedicures. Just suppose that. Now if I really did that, I would have quite an arsenal of nailclippers, creams, and even nail polishes already—not to say tiny little cotton pads to place between my toes to keep them sweating as I labor on their edges or polish, prime, and paint their sufaces. Foot odor would be a no-no, several brands of foot deodorants would stand there waiting to yield creams and sprays. Therefore, arriving at Facebook, all those ads trying to sell me Surecut Serrated Toenail Scissors (which I usually call SSTS here at home) or Sally Hansen Clip n’ Catch—or bottles of her Hard As Nails, of which one is still half full—or Pour Homme Ultra Slim Clipper in Black Leather Pouch (which I bought and only use for clipping the small toe nail on my left foot), why all those ads would mean nothing at all to me. They would be same-old, same-old. Yes, I have my doubts.

But what can a poor industry, entirely dependent on advertising revenue, do? What except to innovate? Yes, to innovate. Thus Facebook has a program of tracking people’s off-Facebook travels on the Internet and examine, using little bots (they work for mere pennies per nanosecond), the key words found on those sites so that, when people return to Facebook again, new ads, based on this on-the-hoof research can be presented to the owner. I went to check out how the Roman poet Virgil’s name is spelled. In the future, once that innovation is in place, I’ll see on Facebook is an ad offering me Virgil’s Aeneid. But I already own three different editions.

So what else can the poor industry do? They can drive me, lash me, seduce me, prod me to do even more self-entertainment. Only when I do that can they present me with their ads and if the minor gods of statistics so will it, I will actually click through. It should be a commandment, the 11th Commandment. Thou Shalt Engage in Entertainment. Failing which, the Cyber Heaven will cloud over and the radiance of the gods up there will dim.

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†The German word means joy over others’ misfortunes, literally “damage-joy.”

Stalled

I’m bored by the economy; surveying it I see nothing of interest. This absence of interest is starving LaMarotte. The problem really is that all that’s really happening—at least as reported by the media—concerns finance above the level where it matters; all news of services and products hype electronic or web phenomena.

I learn for instance that banks want to lend money to people who don’t need to borrow. Goldman Sachs is building a new “private bank” to lend to wealthy individuals and companies (WSJ, 7-17-12). Why is that? Lending to those who need money is dangerous. A good deal else in the news deals with that level of finance where gambling is taking place—thus where all bet money but only some win. When a company offers shares in order to get money from the public, that act is genuinely linked to economic activity; when stock is traded, that’s already a kind of gambling; when secondary, tertiary, and higher level abstract instruments are traded, that is a kind of unreality—seen from the ground up, never mind how profitable.

The real economy is where objects are sold and services provided. Here I picture a similar spectrum from real to vaporous. Real is what we need. What would we need, for instance, if electricity absolutely failed. Vaporous are things we could do without. Virtually all product and services that make it into the media have something to do with electronics or the Internet.

My own interest is in the economy is with the basics, not the ethereal or the frivolous. If a trend began to build high-speed rail and to bring back public transportation in the cities—I would get interested. If maintenance took on the popularity of finance suddenly—I would be cheering. If a third of the houses on my block were all changing their roofs to receive solar panels, mine would be one of those: that would signal the presence of a major national thrust to do something real.

As it is, the country now is frozen. The big news really is an absence of confidence—but the few polls that track it are not enough to really know why it is there and what it portends. The indirect measures available, however, make the case. Polarization in politics. Everything on hold. Therefore, in a sense, LaMarotte is also on hold. Waiting to see what happens. Just waiting for Godot.

Nader on Advertising

In an article published July 18 in Common Dreams (link), Ralph Nader says (“Growing Doubts About Advertising”) heretical things such as I’ve been saying for fifty years—ever since I got to know the field by working in it. You can see the parallels by looking at five postings on the current and ten on the previous version of LaMarotte (accessible by using the Categories feature). Indeed Nader mentions the subject of my last posting on this subject here—GM’s termination of its advertising on Facebook. Nader’s authority is the same as mine: based on observation of human behavior and on thought. But Ralph Nader’s decades-long prominence as a consumer advocate gives his pronouncements a certain radiance, as it were—which is all that advertising ever bestows on brands. My own most slashing attack has been to say that advertising is about as effective human sacrifice was in our southern continent—or in Carthage, for that matter—but a little more humane. Carthage fell to Rome eventually—and the Aztec Empire to the conquistadores.

New Jobs and Labor Force Growth

To give the monthly employment report a little more precise context, I thought I’d look at trends in the growth of the labor force. The two sources I’ve consulted, both reports by the Bureau of Labor Statistics, present labor force growth projections, thus the age group 16 years old and older. The sources are here (Table 5) and here (Table 4). Very interesting.

Demography rules. What the data show is that the U.S. workforce is growing more slowly as the very large baby boom generation exits the workplace and is replaced by much smaller cohorts. I’ve taken the BLS demographic data and have expressed them as “new jobs needed every month to keep up with the growth of the workforce.” Looking at this requirement decade by decade, we get the following picture:

In the 1980s we had to add nearly 150,000 jobs every month just to keep up with new entrants to the workforce. Each succeeding decade, that minimum has dropped. At the present time, we need to add, on average 87,300 jobs just to keep afloat, as it were.

After a massive recession, such as the one we say in the 2008-2009 period—in which we lost 8.7 million jobs—only jobs above that minimum may be counted as recovery. Therefore, with relatively low levels of job creation, recovery is doubly slow. Here for instance are average monthly data to the period of recovery thus far, 2010-2012. Data for 2012 are based on six months’ results.

Year	New Entrants (Average) per month	New Jobs Created per month	Jobs assignable to the “Recovery”
2010	87,300	78,300	-9,000
2011	87,300	158,800	71,500
2012	87,300	153,700	66,400

Based on these numbers, of total jobs added in the 2010-2012 period (3.8 million), only 1.1 million were actually genuine “recovery.” The rest were just keeping up with a growing labor force—however slowly it may be growing.

The slow-down in the growth of the labor force also means that fewer people are actively working and, by their taxes, supporting the total population: the young and the old. Looked at this way, things look more grim to me. And perhaps the reason why the economy is not spouting like a brand-new, feisty young fountain is because, well, it’s an old fountain and the piping is corroded.

Job Growth Then and Now

Looking at last month’s job growth numbers, I got curious. The question I asked myself was: What does a so-called “healthy” economy look like? I decided to chart, as I’ve been charting monthly job growth or decline for the current period, a like sequence of months going back to December 1994 and extending to June of 1998. That was, of course, a period of expansion, known later as the dot.com bubble. I present the data here:

The scale used in both charts is the same. Now, mind you, 2009 was part of the great recession, hence it shows steep job losses. The last three years in the two examples are instructive, however. Growth in the late 1990s also fluctuated month to month, and that period actually had two months of net job losses. But the gains were almost uniformly higher in each month, in most months exceeding 200,000 jobs. Not so in the current period. That earlier period, however, shows where the tilting point is. It is around 200,000 jobs gained every month. Once we start averaging round about there, the media will lose interest in this series and they’ll go back to chasing what’s new on the Funk scene—or where the great art of “body decoration” might be headed—or whether it’s time for big cars and even bigger trucks to became the rage once more.

Employment Update: June 2012

Employment in June increased over May. BLS revised May results slightly, from 69,000 to 68,000. June results were 80,000 jobs added. This is actually good news. Seen objectively, a gain over the previous month is better. But this series has of late become a hot-button issue. “Economists,” whoever they are, anticipated more, therefore it was doom-and-gloom in the media yesterday. This post comes a day late because we were recovering from a power-outage.

Part of the good news, for me, was that employment erosion in the government sector was just 4,000 jobs over against negative 17,000 in April and 28,000 in May (as currently revised). Souring my generally positive view was that the largest gain was produced by Temporary Help Services, 25,200 jobs added. That, of course, signals that employers are hesitating—or getting used to staffing with temporaries to whom they are not obliged to give benefits.

This is becoming a marathon, as it were. Maybe recovery, as we imagine it, may never actually arrive. Maybe we’re into a qualitative change in our way of life. Fingers keep pointing to Europe, at President Obama, at Asia’s taking a deep breath. But what if the post-war era is actually ending and proving itself to have been a kind of giant bubble? We’ll see. My graphic is becoming crowded. The Great Recession is becoming a memory. But here is the chart: