An Economic Conundrum, Part I

Since (obviously) I'm a little late to put in my NFL picks for this week, I'll have to bore you with a completely different subject. Economics.

I know, you roll your eyes or click off the page, but try to bear with me here. After reading Stephen Levitt's Freakonomics last week I finally realized that not every topic pertaining to my college major (that's right, I was an Econ major) has to function as a mild sedative.

Imagine for a moment a major automobile firm hires a new CEO. The CEO is tasked with making the company profitable once again, and doing it quickly. So the CEO does what CEOs are paid to do-- he lays off thousands of employees and shifts his manufacturing plant to South America, where labor is cheaper. Cheaper labor equals higher revenue which, when all other factors are held constant, produces higher profits. On a limb, I'm going to guess that you won't have a difficult time believing this hypothetical scenario.

So is this CEO a good businessman or is he a ruthless jerk? He's made the company profitable with essentially the only quick-fix option available (you could argue for marketing or improved product line, but those are long-term solutions in a highly competitive market where small gains in market share come at a substantial price-- if you don't believe that, just look at Hyundai, who has taken decades to recover from a poor image... and most people still think they suck).

Realistically, he is both. He has at once made himself and his company richer while potentially ruining the lives of thousands of semi-skilled workers. Hard working Americans who hadn't deserved maltreatment by some white-collar shmuck (and whose options for retalitation are essentially zero).

So this is our basis of economic reality. There are, more often than not, two truths to every situation, and those truths will vary drastically depending on your viewpoint. One could hardly fault a board of directors for providing that CEO with a nice bonus package, at the same time as one could hardly blame a now-unemployed Joe Smith for urinating in that CEO's gas tank.

We'll take this as our starting off point and build from here. I'd hate to post more than a few hundred words per article since I know that, generally speaking, the blogging community at large rarely has much free time...

And don't worry, I am going somewhere with this. Seriously.

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