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The hyper-debt economy The hyper-debt economy
by Joseph Gatt
2020-10-25 10:49:57
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In the 1980s and 1990s, job satisfaction statistics tended to be decent. It's wasn't all rosy, but a lot of people went to work with a smile on their faces.

Of course in the 1990s, some people hated their jobs. But they always had the option of resigning and finding a better one.

econ0001_400In the 2010s an all-too-classical scenario is one where you get a job. The atmosphere is tense. Insults are flying all over the place.

And then you get paid like 30 or 40 thousand a year, and your boss hands you a note demanding that you find ways to quadruple the sales figures.

Quadruple? Does that mean I've only been doing 25% of what I should be doing?

You try hard to quadruple sales figures, but sales are either stagnating, or actually declining.

You quit. Get another job. Same story. Quadruple the sales, says the note.

You decide sales ain't your thing. You go to teaching. You get a note saying “quadruple test scores or lose your job.”

You decide teaching isn't what it should be. Shouldn't be about test scores. Should be about life skills and useful knowledge.

OK. You decide entertainment is a better option. You can play music. You can act. And then your production company asks you to quadruple the audience rate.

OK so maybe starting a business would be an optimal option. You want to start a bakery or a grocery store. Machinery (ovens, freezers and fridges) are SUPER expensive. And regulations don't allow you to use the cheap stuff. Rent is SUPER expensive. And clients want a wide range of products on the shelves, and that adds up.

So you have to take out a 300,000 dollar loan to start that bakery or grocery store.


How do you make enough profit to cover the debt?

Damn it!

What the companies aren't telling you is that their debt levels are so sky-high, that even if you quadrupled sales you would need to quadruple them again, then again, then again!

That's when you have companies trying their luck with all kinds of business ventures that don't really fit their profile, which leads to a lot of unfinished projects, abandoned projects and failed projects.

And a lot of anger.

“If you want affection get a dog!” That's what they'll tell you at most companies. “If you can't stand the heat stay out of the kitchen!”

Whose idea was it to focus on “debt-led growth?”

In the old days (1950s to early 2000s) companies very often only reinvested parts of the profits, when necessary.

In the old days, the stock market was more of a “bond” market of sorts, and the philosophy was to get normal people to participate in the growth of the company. Funds derived from the stock market were often used for very specific purposes, for example “machine maintenance” or “raw material transformation” or “branch expansion” and the like.

Now in the old days you did not try to compete with the big names of the industry because you were sure to lose.

Then, starting around 2008, people indoctrinated by Tony Robbins and Joel Osteen thought that God would be on their side if they competed with the big names. No honey, God is almost never on your side when you compete with the big names.

The other big factor is the technology factor, where people who mastered the technology could outcompete you, even if you were a big name.

That is, if you have the kind of technology that can produce carbonated drinks cheaper and better than Coca Cola or PepsiCo, you could perhaps take that risk and maybe you'd establish something.

But, using the carbonated drink metaphor, many companies tried to outcompete Coke and Pepsi starting around the year 2000. Problem was not the technology, problem is their drinks were either way too sweet (and would make you super thirsty) or were just bland. And carbonated drinks are also competing with tea, coffee, beer, wine and good old fruit juice and flavored water, which were no competitors in the old days.

So that's a lot of companies borrowing money to compete with each other.

Other example of debt needs: diversification.

In the old days, sports wear companies focused on sports wear and street fashion companies focused on street fashion and professional fashion companies focused on professional fashion.

But then you had the pro fashion guys try their luck with sports and street fashion, the street fashion guys try their luck with professional and sports fashion and so on. Thank God it didn't go as far as Nike or Adidas trying their luck with custom-tailored suits, but I think they might have dabbled with the idea, and someone was smart enough to tell them it was a bad idea.

Other example of debt needs: social change

Technology and sky high debt has led to huge social changes.

In the old days people were debt-free when they got married and the debt trap only started kicking in when they tied to knot. So couples had to be very careful to plan their finances wisely and avoid the debt trap.

Now it's 18 year olds who are falling into the debt trap, and by the time they're marriage material, they can't get married, in some cases much less date, because they have to figure out how to repay their college and credit card debt, along with the car loan. That's a lot of debt.

So that means fewer children and more people living alone. And when a lot of people live alone, a lot of the demand in the economy changes. There's more demand for screens and take out food, and less demand for craft foods, fresh produce, supermarkets, furniture, hygiene products and detergent, children's fashion and fashion in general, home appliances, cosmetics and the like.  

Side note on the debt trap: I remember 1999 when my older friends in their mid-to-late twenties used to say “cars are cheap. I can get you one for 300 bucks, It's the insurance that costs you money. So I'm using public transportation and I'll get myself a 900 dollar second hand SUV when I get married. And that car insurance is going to suck parts of my paycheck out” Now it's 18 year-olds leasing brand new cars that cost 20,000 bucks or more. Not to mention that those kids also pay for car insurance.  

Technology is another factor. Many companies either got outcompeted by companies that had better technology. Or, as companies were getting outcompeted by rival companies that had better technology, those companies borrowed money to purchase the technology to level the field with competitors.

But technology is not just computers and machines. It's also people. And you need to hire people who know how to operate the technology. And a lot of times people have the credentials, but can't figure out ways to operate the technology.

Which leads to the final point in the circle of economic recession: human resources.

Because so much technology is new, and so many regulations are new, and so much of the business environment is new. And because there are so many new factors in the economy.

What companies should do is hire people who “can figure it out.” Not people “who know.” People who “can figure it out.”

That is colleges and training centers (and YouTube) are throwing in all the information and answers at kids, without teaching them how to slowly solve a problem.

In the old days, at school, we would look at “problems” and try to solve them. That was tedious and frustrating, but it taught us patience.

Now this generation of kids is either heading straight to the “answers” section of the problem, or looking it up and hoping YouTube or Google can solve it for them.

One surprising thing I encountered when working with technology, is that a lot of machines are not even listed on Google.

So you have to hire the kind of people who are going to look at the machine, perhaps call the company that manufactured the machine (and hope they're still out there) and turn the machine upside-down to figure out how it works.

Same goes for legal and business problems. A lot of them are not on Google. A lot of them are not in textbooks. And lawyers can't figure out a lot of them.

To be honest, the problem is, companies are not even trying to hire people “who can figure it out.” And not even trying to hire people “who know.” They're looking at things like “college ranking” and “recommendation letters” and “fraternity membership” which has absolutely nothing to do with solving problems and facing the monster challenges that we are facing.

I'll finish like the famous Algerian columnist Hakim Laalam who concludes every single one of his columns by saying “I'll smoke tea and stay awake, the nightmare goes on.”

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