Broadcast September 28, 2001
Consumer confidence is dropping like a stone. Mass layoffs are sending chills through an America already shaken by the horror of September 11th. Last week alone, companies announced more than 100,000 layoffs, and there are signs of hundreds of thousands more to come.
Worries about terrorism, coupled with growing worries about job security, aren't exactly inspiring consumers to flood into the malls and buy a lot of stuff despite patriotic calls to spend money. And if consumers don't buy, there are likely to be more layoffs. You see how it becomes a vicious cycle. Layoffs that undermine consumer confidence create more layoffs, further undermining confidence. When the pace of layoffs is more gradual, you don't get this downward spiral. But too many layoffs occurring too quickly can send the whole economy into a tailspin.
Wall Street faces something of the same problem when too many stocks are unloaded too quickly, and the market drops too far, too fast. Panic selling can lead to more panic selling, destabilizing the whole market. That's why, in the wake of the '87 crash, Wall Street instituted what are called `circuit breakers,' to give everyone time to cool off. If the Dow suddenly drops 10 percent, trading is suspended for an hour; 20 percent, two hours; 30 percent--hasn't happened yet--would stop trading for the day.
Maybe we should consider something like this for mass layoffs by large companies, a kind of circuit breaker that would stop them from laying off too many people too quickly, and thereby bashing consumer confidence. Say, for example, companies with more than 1,000 employees couldn't lay off more than 10 percent of their work force within any six-month period. Over time, they could lay off as many people as they wanted to, but the circuit breaker would at least slow the pace and give everyone time to adjust. Of course, there'd have to be an exception for companies in bankruptcy that had no real choice, but this would be a very small number.
A circuit breaker on layoffs would benefit all companies, even those that might otherwise want to lay off more people in a short time than they were allowed. Just like the circuit breaker on Wall Street benefits all investors, including those who'd otherwise sell more. In slowing and smoothing the pace of market drops, circuit breakers reduce the fear factor. And fear, to paraphrase a former president, is often what we have to fear the most.