Broadcast August 10, 2001
The old industrial struggle was between companies and workers. The new struggle is between ... companies and workers. But the issue isn't exactly the same as it used to be. The new battle is over who's going to keep spending, and thereby keep the American economy going.
You see, since last year, American companies have cut way back on their purchases of everything from new equipment and technology to advertising, legal services and consulting. The only reason the American economy isn't in a recession is because consumers--the vast majority of whom are employees--have not cut back their spending. In every other slowdown, it's been the other way around. First, consumers cut back on their spending and then companies cut back on theirs because sales are down. This time, companies have pulled in their belts because their top executives aren't very optimistic about the economic future. Employees, on the other hand, keep spending because they are optimistic, or at least they have been. And as long as employees stay reasonably confident and continue to buy, the economy keeps moving forward.
But here's where the tension is growing. You see, employees are already deep in debt. We're seeing levels of borrowing we've never seen in this country. Consumer credit debt climbed 5 1/2 percent in 1998 and in 1999, and then surged a whopping 12 percent last year, and it's still rising at that pace. Mortgage debt is way up, too. Employees can't go on spending like this, especially if companies start cutting back on jobs and wages, which are the next big candidates for serious cost-cutting.
High-tech firms and business services such as advertising and consulting have already laid off thousands of people because the companies that used to buy these products and services have all but stopped. And other companies are starting to whack their payrolls as well.
If this goes on, consumer confidence is going to take a dive. And when that happens, American workers will essentially go on a spending strike. That prospect should terrify American business because when employees pull in their belts, not even Alan Greenspan can save us.
