Which Economy Are You In?

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When I ran a small business in a tony Connecticut suburb, I had a few high net worth clients whose kids needed summer jobs to keep them busy. Though I didn’t really need more than one assistant, I often hired two or three of these kids at a time over the summer which was the slow season (college coaching). So why did I do it? Because maintaining good relations with high paying clients usually paid off in referrals. In the long run, it proved to be an effective strategy. As you go down the economic ladder, I think this approach doesn’t quite pay the same dividends but people still make hiring decisions in this manner. If you were on Billy’s baseball team in high school, you had a better chance working for his old man’s landscaping company than Joe Schmo off the street. Everyone knows this.

The financial crisis of 2008 changed the game. The old adage of “it’s who you know” still, and always will ring true but today, it’s only germane to the economic elite. Whereas knowing Billy’s dad might have gotten you that landscaping job in 1972, today the business doesn’t exist and Billy’s dad collects unemployment. That might be a bit drastic but you get the idea. More realistically, Billy’s dad is probably not hiring because business is slow.

The US has bifurcated into two economies: what I refer to as the ‘social economy’ and the real economy – the one you and I live in. The social economy is truly all about who you know. These are the people who end up in cushy middle management positions that don’t demand hard analytical or quantitative skills. Think mid-level executive at a television studio or advertising agency. Have you ever seen that movie “What Women Want” with Mel Gibson? Remember his job in that movie? He basically brainstormed silly adverstising campaigns with that chick from Mad About You for a living and got paid well to do it (see: his Chicago high-rise condo). You mean to tell me that job requires a 4-year college degree? I don’t think so. I know it’s just a movie but somewhere on Madison Avenue, that job exists (think about it: SOMEONE has to come up with all those stupid commercials that ruin football Sundays). It’s a job in the social economy and ONLY people in the club get to apply. You and I are not in the club. It’s why we see TV shows that are horrible from day one like Whitney. It’s why we see movies that are so obviously stupid you have to wonder how they ever got made (I’m looking at you, Parental Guidance). It’s how Andy Reid gets hired as head coach of the Kansas City Chiefs after fumbling through two inept seasons in Philadelphia. It’s also how Eric Mangini, who was an absolute failure as New York Jets head coach, gets hired as an analyst at ESPN. Of all people, I would not trust Eric Mangini’s football acumen given his performanace in the NFL. This economy does not recognize bottom line performance or results. The performance is who you know and the results is quid-pro-quo. I’m speculating but my guess is that Eric Mangini’s agent owes ESPN a favor for taking his shit-bag client as an “analyst.” Or maybe ESPN was returning a favor. I wonder who else is on that client list.

The real economy is the one you and I learned about in Econ 101. It’s all about supply & demand. It only rewards those who can provide skills or services that the market demands. As a software engineer, I am firmly embedded in this economy. The quality of my code is the only factor that determines my employability. If my code sucks, I don’t get work. There isn’t much more to elaborate on this economy.

Until the financial meltdown, I suspect a good deal of the US was operating in the social economy. Middle class businesses probably took on two employees for a job that could have been done by one or kept on a few people who were no longer needed in order to keep people happy. The meltdown of 2008 shuffled the deck and a lot of people got tossed into the real economy without knowing it. Corporations used the crisis as a pretense for massive layoffs and cutbacks (notice how quickly corporate profits rebounded after 2008?). Evidently, corporate America was hiring friends and family even at the bottom of the ladder. As Steve Jobs said, those jobs aren’t coming back. This is the new economy and people will be forced to reckon.

There’s no real message and this post isn’t meant to be a guiding light in any way. It’s just the world as I see it. Which economy are you in?

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