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|In: Business Ethics|Last Updated:

Some unidentified genius recently coined the term “Tinkerbelle economics.” It’s the philosophy that says the financial markets would be healthy right now if everyone would just believe they’re healthy.

Sadly, as we all just learned, wealth in the financial marketplace has to be backed by real assets or it goes away, Tinkerbelle notwithstanding. Hidden somewhere deep inside the most arcane, securitized, credit-default-swapped mortgage-backed derivatives are real houses — assets which, when they lose value, destroy the card-houses built upon them.

Investors, though, are good at finding new assets that do have value — whether real or Tinkerbelle doesn’t matter, at least for awhile.

So when you see the DJIA finding its floor, it means investors are figuring out where to put their money. It doesn’t mean the economy of employment, production, and purchase of real goods and services has found its floor.

It hasn’t. In a healthy economy, employment drives spending, which drives production, which drives more employment. This cycle drives just as well backward as forward, though, and when economic growth is a Tinkerbelle nobody believes in, less employment drives less spending, driving less production, driving less employment.

It’s basic economics — the discipline Thomas Carlyle called “the dismal science,” although it’s far less dismal than the exercise most readers of this column are going through at the moment — either preparing for a large round of layoffs or dealing with the aftermath.

Layoffs are about hard choices — hard enough that when deciding who stays and who goes, your employee rankings just might prove to be worth less than worthless. Here’s why:

Compare two IT professionals. One can look at situations creatively, working actively with business leaders to turn a new idea into a new reality. The other knows how everything you have is put together and knows how to go in efficiently to tweak things, fix small bugs as they’re discovered, make minor enhancements, and in general keep things running.

In the normal course of events, if you had to rank the two employees, you’d think in terms of the marketplace and career potential, probably giving the first employee a higher rank.

This isn’t the normal course of events. If you’re preparing a round of layoffs, it probably means your company has decided to adopt a defensive posture — to ride things out until the economy improves, rather than take the risk of trying to aggressively exploit the defensive postures of your competitors. Defense usually leads to shutting down most big development and integration projects or putting them on hold until the time again comes for the business to pursue expansion opportunities.

As usual, “best” really means “best fit.” In your new circumstances, the maintenance programmer is starting to look a whole lot more attractive.

You’re going to have to re-rank your employees. Most won’t be affected by the exercise too much. There are some, though …

There is, for example, the sysadmin known as PiN, as in Pain in Neck. You know who I’m talking about — the guy who communes with the servers and can bring a failed one back on line by placing his hands on each side of the box and coaxing it.

He’s also the one who loudly declares staff meetings to be wastes of time, IT’s standard operating procedures to be wastes of storage, and most of his co-workers to be wastes of carbon.

Under normal circumstances you’d rank this character near the bottom, make it clear his future depends on his ability to work and play well with other human beings, not just with technology, and consider terminating him as a gift to the rest of the team.

Now? Now, you just might decide your best choice is this unlovely alternative: You’re going to offer PiN a bribe. To wit:

“This is your lucky day. Right now, we need your technical skills more than we need to get rid of your personality. On the other hand, I’m going to be too busy to deal with any more complaints about you.

“So here’s the deal: Every month end, if I haven’t heard any new complaints about you, you’ll get a check for $1,540 — that’s a thousand bucks after taxes. The deal is good for a year. But it’s for no complaints at all. Period.

In a year, you can explain that now PiN has no excuses. He’s proved he can behave decently when he chooses to.

Or, you might figure he’s worth more money now, and make the deal permanent.

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|In: Industry Commentary|Last Updated:

We’re all economists now.

We have no alternative. Whether you’re a CIO, IT manager, IT professional, business leader or just read KJR out of morbid curiosity, the economy’s future and your expectations thereof affect you profoundly.

Your plans depend on your short-term and long-range (three-year) economic forecast. They will drive your career planning, investment planning, and, if you lead an organization, your strategic and tactical planning.

Quite a few people think our current situation is just another recession — a speed bump in the road to prosperity. If you’re among them, my best advice is, using the ignore/defend/exploit/ally framework presented here a few weeks ago (“Surgery vs injury,” Keep the Joint Running, 10/13/2008), to ignore it all. If you honestly think we’re undergoing nothing more than a short-term inconvenience, your best response is to prepare for a future that’s very much like the recent past … which presumably is exactly what you had been doing all along.

Some friends and acquaintances are concerned we’re replaying 1929, and expect massive unemployment, food lines, and other forms of widespread misery. If you agree, my best advice is to invest in Walmart.

Maybe think about getting a job there too, to beat the rush, because low-cost providers will be just about the only businesses for which widespread poverty is an opportunity. Which means your company’s strategy should probably focus on finding ways to remain profitable while cutting prices by a hefty percentage. For most companies this constitutes a defend strategy. For companies that are low-cost providers already or are well positioned to head in that direction, exploit is the way to go.

My own expectation is in the middle. I see this as an economic replay of 1973. Then as now we saw huge economic disruptions presaged by years of deterioration in the fundamentals; then as now we saw large corporations undergoing massive layoffs.

The situations aren’t, of course, perfect parallels. For example, Johnson financed the Vietnam War by increasing the amount of money in circulation, which directly fueled inflation.

Our current story is all about debt. Bush financed the war in Iraq with it, and the private sector financed all sorts of non-real-wealth-creating investment through the accumulation of its own debt — I’ve seen estimates as high as $50 trillion for the combined total.

Eventually, debtors have to repay. If we repay without expanding the money supply we’ll have little left to invest, publicly or privately, in creating the real wealth we need to grow the economy.

So I expect at least some of our future national economic policy will include expanding the amount of currency in circulation (that’s “printing money” for those who prefer plainer expression). By doing so we’ll pay off at least some of our debt with cheaper dollars than the ones we borrowed. By doing so we’ll also have some money left to invest in economic growth.

And, of course, by doing so we’ll increase inflation.

This course of action won’t rescue us. It will just soften the blow. We’ll still see larger levels of unemployment than we’ve been accustomed to, coupled with higher levels of inflation and very limited economic growth.

In 1973 economists called this combination “stagflation.” It took the United States more than a decade to deal with it (Ronald Reagan usually receives the credit for ending it; Paul Volcker is the one who deserves it).

This is what I’m expecting and planning for. It’s why my consulting company, IT Catalysts, is repurposing its methodologies, frameworks, and intellectual capital to support (ahem) “aggressive cost management.” It’s also why we’re placing additional emphasis on promoting our Bare Bones Project Management seminars: We think we provide as much seminar value as our competitors at a much lower cost.

I’m not trying to convince you the future will be ten years of stagflation. I’m trying to persuade you to perform as dispassionate an analysis as you can, draw your own conclusion based on what evidence and logic tell you, and plan accordingly.

Then find ways to hedge your bets in case you’re wrong.

* * *

Tomorrow is Election Day. My by-now-predictable advice: Decide based on competence — on which administration, legislators, judges and other candidates you think would bring in the best talent, would accept no substitute for evidence-based decision-making, and would think things through before taking action.

We are privileged to have two fine presidential candidates this year, no matter what you think of their positions, policies, speeches and campaigns. We have important choices, and often fine candidates for other offices as well.

As citizens we are government’s owners, not its customers.

That’s how each of us should vote.

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