Why do I think the stock market will plunge this year? Because most companies are boosting their stock prices not by developing new products or selling more goods and services but by slashing their payrolls and buying back their shares of stock. These steroidal tactics are generating temporary boosts in share prices, but they can’t be sustained. There are only so many workers to be sacked and so many stocks to be repurchased. These companies remain as incapable of generating things people want as before. Consider Hewlett-Packard, which yesterday announced plans to cut an additional 11,000 to 16,000 jobs. Wall Street is enthusiastic, pushing the stock up more than 6 percent today. But the tactic won’t work over the longer term because Hewlett-Packard’s PC sales are dropping and business customers are shifting toward cloud computing, where it’s not a major player.Robert Reich
More to the point, as big companies across America continue to shed middle-class jobs in pursuit of lower costs, median household income continues to drop. Which means fewer Americans can afford to buy what these companies have to sell. Which means these companies’ profits are bound to shrink and their stock prices to drop. Get it? Workers are consumers. As these companies’ workers do worse, so do their customers, and so, ultimately, do they.
I have observed many times when discussing the vagaries of market economics and corporate greed that the bean counters insistence that labor pools were cost centers was wholly unsupportable. Yes, there are savings to be made by reducing workforces, but the number of people in the purchasing group of potential customers goes down by some number larger than the number laid off.
…not to mention the TED talk about leadership that I was watching the other day. The one where leaders didn’t ask anything of their followers that they wouldn’t be willing to take on themselves. You want us to cut back, demonstrate this ability yourself.