Can The Economy And Business Survive?

The United States is a troubled country; what does that mean for business and the economy? Consider words from the chairman of the Federal Reserve:

“I think also that something has happened to the American people, something has happened to the system of responses of both consumers and business people. They are not reacting to classical remedies the way they did because they are living in a disturbed world and they are themselves disturbed and are to a large degree, confused. These have been very troubled times and they have left their mark on the psychology of people, on the thinking of people, and that inevitably spills over into the economic realm. We have had a very long and most unhappy war which has divided this country and confused the people. Not very long ago we had riots in the streets and we had riots in the colleges….

“Now we have youngsters who are going to vote and now women are also marching in the streets, and now we have badly unbalanced budgets. If only life would quiet down for a while, if only both the administration and the Congress would become just a little less active in pushing new reforms for a while, if only some of my academic colleagues would keep quiet for a while, then I think this country might absorb a little better all these tumultuous changes around us and we might find that old-fashioned economic policies are working better. Of late, they have not worked too well.”

That was Arthur Burns in 1972 testimony to Congress.

Fifty years ago we were winding down the Vietnam War. Riots had occurred in major cities and on college campuses in the 1960s.

Busing of school children began in the 1970s, Burns noted (at the end of the first paragraph, where the ellipsis appears). School desegregation had been outlawed in 1954, but little integration had occurred since then. So busing began but was very divisive. People who accepted integration as an abstract concept objected to their own children forced to take long bus rides to attend a school outside of their neighborhood.

The workplace experienced challenges. A few years before Burns’ statement, a Ford Motor Company vice president of labor relations said about their employees, “For many, the traditional motivations of job security, money rewards, and opportunity for personal advancement are proving insufficient. Large numbers of those we hire find factory life so distasteful they quit after only brief exposure to it. The general increase in real wage levels in our economy has afforded more alternatives for satisfying economic needs.”

Ford’s experience in the late 1960s presaged current labor market challenges: companies unable to find workers, and when they did succeed in hiring someone, found the person likely to quit or just stop showing up without notice. The key insight was people didn’t need unpleasant work to pay their bills.

The killing of George Floyd in 2020 triggered many protests and some riots, with businesses and the overall economy affected by the strong public revulsion. Yet the 1960s saw large scale riots in many cities, including Los Angeles, Newark and Detroit. The commission set up in 1967 to study the riots reported, “Our nation is moving toward two societies, one black, one white—separate and unequal. Reaction to last summer’s disorders has quickened the movement and deepened the division. Discrimination and segregation have long permeated much of American life; they now threaten the future of every American.”

Today in 2022, our current challenges are real and need attention. Recounting past problems does not negate the current problems, but it does leave us with perspective: Nothing happening today will sink the economy or business in general. Changes have to be made, for sure, but nothing happening today warrants massive despair. We have come through worse turmoil, and we came out the better. We will come through today’s challenges, probably in better shape than we were before.

Note: the Burns testimony and Ford memorandum are described in Super Money by George Goodman writing under the pseudonym Adam Smith.