Who Makes Job Losses Happen?

As Tom Brokaw, NBC-TV's Nightly News anchor, was reporting on the loss of jobs in several Western Illinois towns, I received a call from a telemarketing firm trying to sell me a new credit card. I picked up the phone, heard out the pitch and said, 'Sorry, I am trying to cut down on my use of credit cards' and hung up.

By way of my refusal to purchase the new card I was no doubt contributing to some downsizing at a financial institution. By my refusal to make extensive use of credit cards and my general cut back on purchases, I was contributing to job losses somewhere in the world, maybe even in Western Illinois.

But when NBC-TV's Nightly News reporter visited the towns where the job losses occurred, we heard several people denounce not the buying'-or, rather, non-buying'-public but the companies that had to cut back on jobs in order to remain solvent and manage to employ the remaining personnel and deliver some return to investors. I do not know why it is that people around the country have such little understanding of elementary economics.

It is not CEOs who lay off employees, ultimately, but customers. They are the ones who turn to another vendor for the goods and services they want, not those from whom they used to buy these goods and services in the past. Or they are the ones who decide to cut down on their purchases, save the money and redirect it, by way of their banks, to enterprises that are in demand by customers somewhere.

That is the basic explanation for job losses, not the evil motives of capitalists or corporate executives. A pink slip is a message from customers and is delivered by the messenger, the personnel department manager in the company that employs the people whose work is no longer wanted by customers. But this elementary fact is somehow not grasped by millions of people whose jobs have evaporated after customers have made new decisions, changed their buying habits. So, they want to shoot the messenger.

Perhaps the reason for the ignorance is that people in the main hesitate to blame those who behave exactly as they do. Most of us when we go shopping have no compunction about switching alliances. Sure, for a while we shop at Wal-Mart but then switch to Sears and then to J. C. Penneys. Or we go from Good Guys to Radio Shack. Or again we no longer like to attend baseball games and go, instead, to tennis matches. And the switching game goes on and on and on, uninterrupted, and nearly everyone takes part in it.

Employees who lose their jobs are among these people who engage in the switching game. They wouldn't want it any other way. When they get an idea that some money they have regularly spent on X should now be spent on Y, they wouldn't tolerate anyone standing over them and dictate to them to do otherwise. Consumer freedom is taken for granted and no one would think of messing with it.

Yet, it is just this freedom that contributes to the volatility of a free market. Sure, there are more insidious causes'-governments often step in and wield quite a lot of economic power with their decision to close down some road, decide to declare some shop a blight on the community or do something else that is usually sudden and not easy to prepare for. But the bulk of changes come from consumers, customers who switch their vendors, who get smitten by something novel or just want to take a break from shopping.

Perhaps if primary, secondary and higher educators spent a bit more time teaching young people about these elementary economic facts, more people would echo the outlook of one citizen in a Western Illinois town who told NBC-TV that it would be best to stop lamenting the departure of old line firms from the neighborhood and build new industries. As he put it, 'Perhaps we should stop counting on 1600 jobs from one company and instead develop 100 times 16 jobs from numerous small, local businesses.'

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Tibor R. Machan's picture
Columns on STR: 70

Tibor Machan is a professor of business ethics and Western Civilization at Chapman University in Orange, Calif., and recent author of Neither Left Nor Right: Selected Columns (Hoover Institution Press, 2004).  He is a research fellow at the Hoover Institution, Stanford University.