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How American Airlines' Mass Layoffs Could Be A Sign Of A Coming Economic Collapse
Erik Sherman
Senior Contributor
Personal Finance
Two women walks past a closed down pizza deli, Thursday, June 4, 2020, in Cleveland. The state says ... [+]
American Airlines AAL -4.3% readies itself—or, rather, its employees—for a bitter pill.
Breaking news: American Airlines has given official notice that it could lay off as many as 25,000 employees, as Reuters reporter David Shepardson tweeted, although the company hopes that it will be fewer.
While American Airlines "believed demand for air travel would steadily rebound by Oct. 1," that didn't happen. And so, 25,000 employees will receive "Worker Adjustment and Retraining Notification" letters.
If, of course, there are replacement jobs. Certainly not in airline transportation because American isn't an outlier. The entire industry is troubled. How many of the carriers, their executives, and their investors now regret the billions spent on share buybacks?
People largely don't want to fly at this point. (If they did, the airlines wouldn't be in trouble.)
It's too easy to call online meetings, as started to happen back during the SARS pandemic, but which has kicked in more easily this time. No need for special video conferencing rooms or additional software. Everything is readily available if not already at hand.
Patterns of air travel are likely to switch, at least for a long stretch, where the business users that bolstered revenues and margins largely won't be there. That leaves the cheap seats favored by travelers, many of whom also aren't interested in being locked into a metal cylinder for hours with people they don't know who might decide not to wear a mask while drinking coffee.
That person could even momentarily be you, scaring off other potential passengers, unless you can tank up on liquid at the start and hold off until you land, like a flying camel.
The airlines don't operate in isolation. Hotels are in trouble and also performing mass layoffs. Then there's ground transportation. Restaurants. Tours. Attractions. All of them, particularly the numerous smaller providers, will continue to shed employees as reasonably run states reestablish closings after spikes in the number of cases. Because they were too anxious to reopen.
When the Federal Reserve estimated unemployment levels of 9% going into 2021, were the forecasters being realistic? Or is this a case of changing events pushing previous estimates out the window?
The absolute top national unemployment rate during the Great Recession was 10%. What if the country hits that level, or even more, for an extended period of time?
One problem with economics is that even the experts are limited in their understanding. These are complex systems, not laboratory experiments or devices and software designed to do one thing or another. Trying to understand them is incredibly difficult and gross simplifications, while useful in some ways, aren't reality.
In 2008, the U.S. economy collapsed after the trigger of housing. There were many existing problems that provided massive kindling.
Material like the income inequality that is even worse today than at that time. Investment and innovation in financial engineering and rent-taking, so paper profits mount up without actual investments in anything more tangible and ongoing, is just as pronounced if not more so.
What starts an economic collapse? It doesn't begin across the board. One sector, sufficiently large and intertwined with others, historically has been enough. Job losses in that area create people unable to spend money in others. An increasing number of companies in more and more industries see slower business and reduce headcount, which means more people out of a job who can't spend money.
Eventually the economic problems hit bottom, but there's no way to tell how far down that could be. Until then, you have a vicious circle in which downturns reinforce themselves.
That brings us back to today. Assuming that people will find other jobs at a time when unemployment is already at a relatively high point is foolish. Offering people a bonus for returning to work rather than continuing enhanced unemployment insurance protection is silly. If the job is available, the person isn't eligible for unemployment. If it's not, they don’t find the job and, so, don’t get the bonus. Such things are feel-good measures in which politicians and leaders who aren't thinking want to pretend that they are.
Is it dangerous for the government to keep spending money it doesn't have? Possibly. Anyone who knew for certain and could tell what might happen would likely be in line for a Nobel.
Discussions of modern monetary theory and whether a country can keep creating currency without danger, so long as inflation doesn't spike, are so much opinion. The difficulty is that no one, the supporters or the detractors, knows for certain what might happen.
The Keynesian concept of government stimulating demand through deficit spending was only half the idea. The other: when times improved, countries would pay down their debt before the next difficult time a stimulus was necessary. The country incurs debt and then pays it down, rather than, as many states do, build up a rainy-day fund in advance to have it available to spend down when necessary.
Collectively, we in the U.S. are neither prudent nor wise. During the longest growth period in our history, one administration and Congress after another spent recklessly, driving up the national debt. Voters and the media didn’t hold them accountable.
For decades, there have been no reserves from which to draw. But now we face a need to pour money back to be sure individuals—the source of 68% of GDP—are able to remain afloat.
Should they have saved? Naturally. Would that have been far more likely and possible had not systems intentionally driven wealth upwards, increasingly concentrating it into the hands of a relative few? Of course.
To not support everyone—rather than contemplate more tax cuts for those already bloated with wealth who float upon a sea of humanity—would be reckless and should be unthinkable. Sadly, little is. Which is why disaster might be just around the corner.
Erik Sherman
Senior Contributor
Personal Finance
Two women walks past a closed down pizza deli, Thursday, June 4, 2020, in Cleveland. The state says ... [+]
American Airlines AAL -4.3% readies itself—or, rather, its employees—for a bitter pill.
Breaking news: American Airlines has given official notice that it could lay off as many as 25,000 employees, as Reuters reporter David Shepardson tweeted, although the company hopes that it will be fewer.
While American Airlines "believed demand for air travel would steadily rebound by Oct. 1," that didn't happen. And so, 25,000 employees will receive "Worker Adjustment and Retraining Notification" letters.
If, of course, there are replacement jobs. Certainly not in airline transportation because American isn't an outlier. The entire industry is troubled. How many of the carriers, their executives, and their investors now regret the billions spent on share buybacks?
People largely don't want to fly at this point. (If they did, the airlines wouldn't be in trouble.)
It's too easy to call online meetings, as started to happen back during the SARS pandemic, but which has kicked in more easily this time. No need for special video conferencing rooms or additional software. Everything is readily available if not already at hand.
Patterns of air travel are likely to switch, at least for a long stretch, where the business users that bolstered revenues and margins largely won't be there. That leaves the cheap seats favored by travelers, many of whom also aren't interested in being locked into a metal cylinder for hours with people they don't know who might decide not to wear a mask while drinking coffee.
That person could even momentarily be you, scaring off other potential passengers, unless you can tank up on liquid at the start and hold off until you land, like a flying camel.
The airlines don't operate in isolation. Hotels are in trouble and also performing mass layoffs. Then there's ground transportation. Restaurants. Tours. Attractions. All of them, particularly the numerous smaller providers, will continue to shed employees as reasonably run states reestablish closings after spikes in the number of cases. Because they were too anxious to reopen.
When the Federal Reserve estimated unemployment levels of 9% going into 2021, were the forecasters being realistic? Or is this a case of changing events pushing previous estimates out the window?
The absolute top national unemployment rate during the Great Recession was 10%. What if the country hits that level, or even more, for an extended period of time?
One problem with economics is that even the experts are limited in their understanding. These are complex systems, not laboratory experiments or devices and software designed to do one thing or another. Trying to understand them is incredibly difficult and gross simplifications, while useful in some ways, aren't reality.
In 2008, the U.S. economy collapsed after the trigger of housing. There were many existing problems that provided massive kindling.
Material like the income inequality that is even worse today than at that time. Investment and innovation in financial engineering and rent-taking, so paper profits mount up without actual investments in anything more tangible and ongoing, is just as pronounced if not more so.
What starts an economic collapse? It doesn't begin across the board. One sector, sufficiently large and intertwined with others, historically has been enough. Job losses in that area create people unable to spend money in others. An increasing number of companies in more and more industries see slower business and reduce headcount, which means more people out of a job who can't spend money.
Eventually the economic problems hit bottom, but there's no way to tell how far down that could be. Until then, you have a vicious circle in which downturns reinforce themselves.
That brings us back to today. Assuming that people will find other jobs at a time when unemployment is already at a relatively high point is foolish. Offering people a bonus for returning to work rather than continuing enhanced unemployment insurance protection is silly. If the job is available, the person isn't eligible for unemployment. If it's not, they don’t find the job and, so, don’t get the bonus. Such things are feel-good measures in which politicians and leaders who aren't thinking want to pretend that they are.
Is it dangerous for the government to keep spending money it doesn't have? Possibly. Anyone who knew for certain and could tell what might happen would likely be in line for a Nobel.
Discussions of modern monetary theory and whether a country can keep creating currency without danger, so long as inflation doesn't spike, are so much opinion. The difficulty is that no one, the supporters or the detractors, knows for certain what might happen.
The Keynesian concept of government stimulating demand through deficit spending was only half the idea. The other: when times improved, countries would pay down their debt before the next difficult time a stimulus was necessary. The country incurs debt and then pays it down, rather than, as many states do, build up a rainy-day fund in advance to have it available to spend down when necessary.
Collectively, we in the U.S. are neither prudent nor wise. During the longest growth period in our history, one administration and Congress after another spent recklessly, driving up the national debt. Voters and the media didn’t hold them accountable.
For decades, there have been no reserves from which to draw. But now we face a need to pour money back to be sure individuals—the source of 68% of GDP—are able to remain afloat.
Should they have saved? Naturally. Would that have been far more likely and possible had not systems intentionally driven wealth upwards, increasingly concentrating it into the hands of a relative few? Of course.
To not support everyone—rather than contemplate more tax cuts for those already bloated with wealth who float upon a sea of humanity—would be reckless and should be unthinkable. Sadly, little is. Which is why disaster might be just around the corner.
