Will American Businessess Ever Recover?
By Daiv Russell
Posted Friday, September 3, 2004
The economy is a crazy thing. The Dow Jones Industrial Average and S&P 500 are some of data used to determine America's economic health. The values of those constituent stocks are based upon prices people are willing to pay for them. The stock price is determined by the shareholders as a prediction, or guess, in many cases, of either earnings or growth. Companies are only likely to increase their earnings or value in a "good market." But the very nature of a "good market" is determined, in part, by the perception of the people who value those stocks.
When people feel distraught about the economic climate, stock prices go down. The naysayers rush to the scene with their bag of I told you so's. More and more sensationalist media are saturated with news of the bad economy. Soon, even though you may only distantly know of three people who were laid off (and may very well have deserved it), this news becomes the topic of everyone's conversation. Fearing that they, too, may soon be laid off, they slow their purchasing and start saving for that inevitable rainy day that will soon bear down upon them.
Eventually, the companies from whom they normally buy things start to notice this decrease in consumer spending. As a result, the companies shift gears. Their suppliers do the same. Lather. Rinse. Repeat. And eventually, Johnny (or a close friend) loses his job, just as he predicted. Boy! It sure is good that he was prepared!
Which came first, the bad economy or the emotional upheaval?
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Last year, Stanford Graduate School of Business proved that intense election night reporting actually sways voters. Earlier this year, we watched The New York Times lose their executive editor and managing editor due to fabricated news items. And right now, we are watching America's economic recovery go uncovered, as stories about unprecedented economic gains are buried deep and dispensed with a grain of salt.
As we witness this strong comeback, the headlines are filled with yet more sensationalist news of economic scandal, this time in the mutual fund industry. So, instead of bolstering the economy and fostering a sustainable comeback, the reaction from the half of American families investing in mutual funds will be to make a "run on the bank," plummeting demand for, and in so doing, the price of, stocks.
"See, I told you we were in an economic crisis. I told you we wouldn't maintain that third quarter growth rate," will be broadcast across the media yet again. The front pages will be plastered with pictures of baby-boomers who just watched their 401k plans shrivel further. People react to this sensationalism, and in a variation of the Hawthorne Effect (http://www.envisionsoftware.com/Articles/articles/Hawthorne_Effect.html), whereby monitoring people affects their behavior, they try to cash out before their retirement funds are completely drained. Lather. Rinse. Repeat.
This is our call to action.
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Just as the popular media can impact the future, so can we. The bleak picture of tomorrow which has been drawn for you does not have to become reality.
As business owners, executives, or managers, it's up to us to alert our customers and suppliers to the growth that we are experiencing. We need to send out a wake-up call to the purchasers and committees who are storing up for the nuclear winter unwittingly predicted by mass media. Share the positive messages with your customers. If you have a newsletter, write about the growth and not about the woe. Hunt for the news clippings at the back of the business section about our economic recovery and send them to your customers. We need to counter the effect of this "yellow" journalism with our own "green" journalism.
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