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Economics & Research Blog

Are the Economists Becoming Whining Losers?

Defeatism is back in economics.

By Dr. Joe Webb
Published: October 22, 2009

Defeatism is back in economics. Back in the recessionary periods of the late 1970s and early 1980s, there was a growing belief that the rule of thumb measures of the economy needed to be changed for a new economic era. Years before, the idea of a 0% inflation rate had died. In fact, it's still funny to read news accounts of the Eisenhower years and the Kennedy-Nixon campaign about how inflation rates were supposedly out of control, and they were usually under 2%!

In that recessionary period of the late '70s, inflation actually hit double-digits for a while, and the idea of getting an inflation rate down below 5% was considered acceptable.

The same defeatist attitude hit the unemployment expectations. For years, full employment was considered to be between 4% and 6% unemployment. This accounted for people changing jobs by choice, or the natural destruction of old jobs and creation of new ones that replaced them in different companies and usually different industries. In that last recession, economists were starting to suggest that rates between 6% and 8% should be considered normal.

There was an article just this past week that brought all of these back to mind, now calling the high unemployment rates the “new normal.” Unfortunately there is nothing new, or normal, about them. It's moving the goal posts to account make mediocre play look like it's championship caliber. There's no reason to change the objectives when the economy has always shown an ability to reach proper levels when the right policies that stimulate investment and risk taking are in place. As long as risk takers cannot detect the nature of long run gains of an investment. Most business investments do not have immediate payback, but we're in a situation where taxes, inflation, and regulations three years from now are not the slightest bit clear. Therefore, companies and entrepreneurs invest elsewhere, engage in cost-cutting, or sit on the sidelines.

This does not mean that the tested measures of economic health should be changed, even casually. The question is how to beat those rules of thumb. At some point enough people will get frustrated enough to want to stimulate investment and reinvigorate business risk. It may unfortunately take time. The Bush43-Obama years might be quite similar to the Johnson-Nixon-Ford-Carter years in terms of economic health. This means that we may have another seven years before economic frustration leads to growth initiatives. This time, however, numerous economies worldwide are free that were not in those times, and are anxious to raise standards of living, and perhaps the growth of those economies will put create pressure for it to happen sooner.

# # #

Ben Bernanke has a bumpy bottom... bottom of the recession, that is. The Beige Book was released on Wednesday, and stated “Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered.” The economy will play out this way for a while. We've turned a corner, but there's nothing to get excited about.

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BIA/Kelsey Group research has indicated greater social media use by small and mid-size businesses. They state “Thirty-two percent of SMBs meanwhile intend to use social media in their marketing in the next 12 months. This includes creating a Facebook or LinkedIn account. Also, 39 percent of SMBs plan to include customer ratings or reviews on their own Web sites, and 31 percent plan to place links or ads on social sites or blogs.”

The same organization has reported that online spending has surpassed traditional media spending among small and mid-size businesses.

Among the problems of printers is that these efforts are not seen, or even understood. This is our chance as an industry to usher in a new range of services and capabilities. What is a bit confusing to some printers is that these tasks are hard to identify, and may be difficult to understand costs that would lead to determining prices. (This is not the time for a discussion about whether cost-plus pricing schemes are valid; we'll save that for another time).

Social media effectiveness has to be relentless and constant. Managing these processes therefore has to be constant, too. This is a retainer-based business after the initial planning and set-up.

The opportunity is in small and mid-size businesses, and most print businesses are not structured to serve them well. This is a prime situation for new print business models to emerge.

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The e-book business became a bit more interesting the other day with Barnes & Noble announcing “the Nook.” The activity in this area is really just beginning, and I'll have some comments, and prognostications, in Monday's column.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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