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Why is the economy so bad?

From the Awl's pseudonymous corporate bond analyst Carl Hegelman:

As a corporate bond analyst, I get some perspective on this. My job is to analyze companies and try to figure out whether they can service their debt (pay interest and return the principal when it comes due), or, perhaps more often, how much of a loss their creditors (banks, bondholders, vendors, pensioners, etc) are going to take in the bankruptcy, and what the company is going to look like when it has screwed them all (except the lawyers and financiers) and emerges in a relatively debt-free state from Chapter 11. I spend a lot of time gazing at spreadsheets (in between ruminating over Solitaire, Hearts, Tetris and Bridge), corporate slide-shows and SEC filings. I listen to a lot of "earnings calls" (the conference calls given by management when their quarterly earnings numbers are released). I read the Financial Times every day. (Gave up the Journal a long time ago, fed up, finally, with the one-sidedness of its editorials).

There's a thread that runs through most of the calls I listen to: Demand is weak; we are responding by cutting the fat and becoming leaner and meaner; when demand picks up, we'll be in good shape. ... Most CEOs and CFOs on earnings calls are not taking the big-picture view. They're focused on the details of their own particular business. Still, I often ask myself if they see the connection that's staring you right in the face: when is "the consumer" going to start spending again? Well, maybe when you stop firing him.

By Ezra Klein  |  July 26, 2010; 1:36 PM ET
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Next: What Bernanke could do for stimulus


And start paying her a living wage.

Seriously, these greedheads who can't understand the economic consequences of giving 95% of the wealth to 3% of the people deserve our scorn. Undortunately, they control the levers of the economy.

Posted by: Mimikatz | July 26, 2010 2:09 PM | Report abuse

"When is 'the consumer' going to start spending again? Well, maybe when you stop firing him." -- Agreed! So, wouldn't it be wise for the federal government to make it possible for businesses to retain employees? Instead, the approach of the Obama/Pelosi Regime is to enact new statutes and regulations (such as the PPACA) which make it impossible for most businesses to retain employees and pay reasonable wages.

The outcry from small-, medium-, and large-sized businesses has been loud and clear, particularly regarding the huge cost of the PPACA which will hit in September, yet the current regime refuses to listen. Why?

Posted by: rmgregory | July 26, 2010 2:12 PM | Report abuse

This is the Prisoners Dilemma, writ large.

Each company is making its own rational decision, and the overall result of all those decisions is a negative.

Posted by: stevie314 | July 26, 2010 2:16 PM | Report abuse

One unfortunate fact of human nature is the natural division between the left and the right. In modern, industrialized nations approximately 50% of the population prefers leftist politics while the remaining 50% prefer the politics of the right. This is measurable and endless repeats(as in the USA, Western Europe, Japan, etc)

Given the above, I must admit that I just do not understand the business model used by the Washington Post. Ezra and his journolist comrades have not only offended 50% of the population, they have also lost all credibility. I mean how can continuing to publish their drivel be good for the bottom line?

Posted by: TECWRITE | July 26, 2010 2:21 PM | Report abuse

Interesting rhetorical shift from the right-wingers... they're calling it the PPACA now instead of Obamacare.

Given that people are already realizing benefits from Obamacare, I can understand the desire to prevent him from getting any credit for it.

Years from now, every Republican that voted against the package will talk about all the work they put into it and that they actually always supported it.

Posted by: lol-lol | July 26, 2010 2:22 PM | Report abuse

Remembering the C+I+G+(X-M) equation. Reagan tried to increase output by boosting I with investment tax breaks (during a recession), G largely by increasing defense expenditures, and C with tax cuts. This plan worked eventually or coincided with recovery with Americans suffering much economic pain during the early to mid-80's.

In the midst of the Great Recession, Obama increased G with a one-shot stimulus bill (but is now looking to reduce G by cutting expenditures). Not much activity on I. Relatively smaller stimulus on C than Reagan with the one-time credit and the senior's rebates. The verdict on his efforts is still out but given the levels of unemployment and those who have left or been driven out of the labor force (worse than under Reagan), there is much more economic pain out there.

Posted by: tuber | July 26, 2010 2:48 PM | Report abuse

I wonder how much this guy gets paid for his ennui and "insight". Probably much more than the middle class folks that the liberals are all crying about.

If the liberals really want to help the middle class, why not reduce the burden of government we're carrying?

If you are so sure that the middle class deserves a break, why let the tax cuts expire?

The answer is simple: the liberals don't actually love the middle class, they just love our money. If they take less money from us, then they have less power and when did a liberal demand less power to the government?

Posted by: skipsailing28 | July 26, 2010 2:49 PM | Report abuse

Clearly, this Carl Hegelman is not a business owner. If he were a business owner, he would understand that he can not be the first business to get less lean by hiring a number of people because other businesses will then undercut him.

The fact is that businesses need to stay lean until there are emerging technologies that bring into the labor force new employees from the previously unemployed. Real Business Cycle is the correct economic school here. When the economy grows through real advances in technology and economic output, then we will have a good and sustainable recovery.

Posted by: lancediverson | July 26, 2010 2:54 PM | Report abuse


the dems are trying to extend the tax cuts for the middle class.

Posted by: eggnogfool | July 26, 2010 3:03 PM | Report abuse

Very nice. You can see the punch line coming but the rather terse ending makes up for any lack of surprise.

Posted by: chrisgaun | July 26, 2010 3:05 PM | Report abuse

"Given that people are already realizing benefits from Obamacare, I can understand the desire to prevent him from getting any credit for it."

Including small business. Small businesses will be getting tax credits for providing what many of them have been providing all along (yes, health insurance for their employees).

Posted by: tuber | July 26, 2010 3:16 PM | Report abuse

What nonsense eggnog. Once again I'm reminded of AlGore's idiotic statement: tax cuts for the "right" people.

Yeah, sure. Liberalism always has as its operational feature the punishment of success. Gain success in America and watch the liberals demand your money.

It was proven so clearly by the outcry over Steinbrenner's untimely death. Imagine, the liberals said, this guy had the nerve to die BEFORE we could re enact the death tax.

You guys are kidding yourselves. When the marriage penalty is returned, when the VAT rears its ugly head, we're all gonna suffer.

that fool of a treas sec was on TV I heard. Apparently he's opposed to continuing the Bush tax cuts. Same old class envy nonsense from a guy who isn't smart enough to make turbo tax work.

I'm gonna be taxed by tax cheats, and regulated by crooks. All of whom are Democrats.

Good luck in 2010

Posted by: skipsailing28 | July 26, 2010 3:25 PM | Report abuse

"Demand is weak; we are responding by cutting the fat and becoming leaner and meaner; when demand picks up, we'll be in good shape."

This is the important point. They're not saying 'we're cutting production staff but are looking to expand again once demand picks up.'

"I often ask myself if they see the connection that's staring you right in the face: when is "the consumer" going to start spending again? Well, maybe when you stop firing him."

So businesses should just hold onto employees regardless of staffing needs?

Posted by: justin84 | July 26, 2010 4:38 PM | Report abuse


What geithner said:
"The right thing for the country, the fair thing, the responsible thing for the country is now to make sure we leave in place and preserve tax cuts that go to more than 95% of working Americans,"

in addition to making stuff up about that, you are also just making up the "liberal outcry over steinbrenner" stuff.

the VAT is mostly a Republican idea (some moderate dems don't oppose it).

Have you ever met a fact you didn't ignore?

Posted by: eggnogfool | July 26, 2010 5:20 PM | Report abuse

No skip likes to relate false information and then claim that the lest does it. He knows full well what the admin position on the tax cuts is. The problem with the American corporate model now in favor is that it places all its weight on current income. It doesn't think of growing the business with future income in mind. The CEO is rewarded for earnings and they make onscene bonuses for doing so. What should they care if after a couple years the economy and business is in shambles ? They've made enough to be wealthy for several generations and can leave with a golden parachute. Workers have no one to protect their interests and it is this model which has undermined America. The middle class has been shafted to increase corporate and executive income.

Posted by: Falmouth1 | July 27, 2010 5:58 AM | Report abuse

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