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jducoeur ([personal profile] jducoeur) wrote2023-01-24 05:17 pm
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Hot take on layoffs

A lot of discussion going around Mastodon asserts that the tsunami of layoffs happening right now is all about Bossism -- that people are being laid off to crush any idea that workers might have any power.

There's probably a bit of truth to that -- I'm sure that there are some billionaire-scum CEOs who have wet dreams of following Elon Musk's example of completely crushing the will of his employees -- but I honestly think that's probably mostly not it.

Much of this seems to be coming less from the corner office, and more from the investor set -- in particular, from activist investors who are buying into companies, and then massively pressuring them to cut costs, especially through layoffs. The question is, why?

The most obvious answer is of course the simplest: they think that stripping costs will goose the share price, so they can flip the stock for a profit. That's one form of traditional vulture capitalism (one of the nastier forms of market failure, IMO, since it rewards short-term gains over long-term value), and I'm sure some people are motivated that way, but AFAICT it's fairly dumb if done that crudely: most of what I've seen says that the boost to the stock is brief at best (and sometimes counter-productive) unless you couple it with root-and-branch restructuring that actually makes the company better. (Which very little of this appears to be doing.)

The conspiracy-theorist side of my brain (because who doesn't like a good conspiracy?) has been pondering another, much subtler motive: what if it's all about inflation? This is going to get a bit long, but hear me out if you're curious.

We're in the middle of the most serious period of inflation in decades. A lot of folks just brush that off, but it really is bad, particularly for the general populace. If prices are rising unstably, odds are pretty good that your income is going to lose ground unless you have enough leverage to keep getting raises that are equal or better than the inflation rate. (Which most folks don't.) It's easy to pooh-pooh inflation as a detail that only economists care about, but beyond a certain fairly modest and stable level, it tends to hurt most people over time.

The uber-rich don't care as much about inflation from that POV -- their money is mostly parked in assets, whose prices are theoretically rising at vaguely the rate of inflation, so it doesn't matter so much. But what they do care about is the Fed.

The thing is, the Federal Reserve has a mandate to keep inflation under control, so that the government doesn't wind up with riots on its hands. But they don't have many tools to use. Mostly, what they can do is raise interest rates, which tends to hurt stocks, in order to take some air out of the economy -- to cool things off. In a perfect world, they do this just enough to calm things down and reduce inflation; in practice, they usually wind up overshooting and causing a recession. (Not out of malice -- it's just hard.)

Now the thing is, what the Fed is mostly worried about is entrenched inflation. Supply shocks and stuff like that are bad, but if it's just a six-month spike and then things get back to normal, nobody really cares. The real issue is when:

  • Labor (collectively) look at the current state of inflation
  • They demand salary increases that are a little higher than that
  • They have enough bargaining power to make it stick
  • Management gives in (see "bargaining power")
  • Management raises prices to match the extra salary they are paying
  • Lather, rinse, repeat

Basically, you can wind up in a gradually-rising spiral of inflation, which is where the real damage tends to come in.

(A little bit of stable inflation is a non-issue. Most economists think that 2% of steady inflation is generally good; there's plenty of reason to believe it could be more like 4% without any harm. The main thing is that it's steady, and everybody knows that it's steady. The upward spiral is where it gets dangerous.)

Anyway -- like I said, the Big Money don't care quite so much about the rate of inflation, since they aren't salary-oriented. But what they do care about is those stock prices. Remember the stock prices? The Fed raising interest rates tends to hurt the stock prices. When stock prices go down, billionaires get poorer.

So what if the billionaire investors decided to cut out the middleman? The Fed's goal is to cool things off economically. So how would the investors do that themselves, without hurting their stocks so much?

Well, if the doom-loop scenario shown above depends on labor having power, why not just axe that directly? If you have a bunch of cynical billionaires who want to cool off the economy on their own, they might:

  • Buy into a bunch of overheated companies
  • Force management to lay off tons of people -- not because it makes the stock stronger, but just to increase unemployment
  • Lots of unemployed people floating around will weaken the position of Labor, and deflate the economy
  • Now you can argue to the Fed that they can stop raising interest rates, and leave your precious stock alone

That... doesn't not match what we're seeing today. It's kind of Machiavellian, but it kind of makes sense, which is more than I can say about most explanations for these idiotic layoffs, at least some of which don't appear to make any business sense.

Do I believe it? I dunno. Like I say in the title, this is very much a hot take. But I couldn't quickly come up with a reason to dismiss the idea, and it's sometimes worth exploring "evil" (or at least "cynical and self-interested") as an alternate explanation to "stupid".


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