D e s e r t E x p o s u r e
April
2009
The Wealth of Notions
At last, the economic crisis explained: It all started with widgets.
I know you've all been patiently waiting for me to explain how we got into the current economic mess. Now that I've taken care of such important topics as New Mexico's winter weather and the (postponed) digital-TV transition, I guess I owe it to a desperate nation to enlighten everyone about the genesis of the financial crunch.
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To do so, however, I'll have to go back before we moved to southwest New Mexico. You see, with 20-20 hindsight I can now pinpoint the exact moment the US economy began heading for a cliff. Sadly, I confess I didn't appreciate the significance of this cataclysmic change of fortune at the time; if I had, my 401(k) balance (if you can even still call it that!) would be very different today. All my assets would be converted to krugerrands and safely tucked under the mattress, next to a shotgun and as much canned peas as the underside of a Posturepedic can accommodate.
But, no, at this pivotal moment in history my only revelation could be summed up in the phrase, "I'm so screwed." I failed to realize that what I was seeing would, several years down the line, translate into the entire American economy — nay, the entire capitalist system — being royally screwed.
The revelatory instant occurred shortly after the family-owned publishing company I then worked for had been sold. Never mind the now-former owner's frequent vows that he would never, ever sell the company. He and his wife — well, I'm guessing mostly the wife — wanted their names on a museum. Their kids didn't want any part of the family business. So much for promises. Let's put that sucker on the block!
But the failure to keep my place of employment as a friendly, albeit penny-pinching family business, where the owner knew everyone's name and we all knew to fear his wife, was not the moment when the free-enterprise system teetered into the abattoir. No, the problem wasn't the seller but the buyer.
The new owners of the company, you see, weren't human. Not even in the limited sense that, say, Donald Trump is (arguably) human. At least Trump can be identified as the CEO of his otherwise faceless conglomerate and, if only theoretically, called to account if his enterprise goes south. Our buyers weren't even an amoral corporation, driven by simple greed to wolf down anything in its path.
No, our company was bought by, well, a pile of money. "Venture capital" was the euphemism in vogue at the time, but the more useful term would be "leveraged buyout" — with the emphasis on "leveraged." Our new owners weren't essentially different from what today we've come to call a "hedge fund." So we got a sneak preview of the new American economy. Lucky us.
But these faceless movers and shakers of money for its own sake did have to have someone in place to run the show — to squeeze out all the profits they needed to keep that "leverage" from biting them in the butt. So naturally they turned to a fellow who had already run one company into bankruptcy. Did it matter that this now-defunct company had not engaged in a business remotely like ours? Of course not! More the better, in fact, since after all that CEO adventure had ended rather badly. Maybe publishing would prove more up his alley!
Or maybe not. Our newly minted CEO — let's call him Winston — called a group of higher-ups and middle-managers like me into his new office for what we naively assumed would be a pep talk. You know, something along the lines of, "You've got a great company here — that's why my evil masters bought it — so I see my job as clearing the way for you all to do what you do best." (Maybe without the "evil masters" part.)
Instead we got what I've previously summed up as the "screwed" revelation. The moment I should have realized not only my future but that of the entire global economy was headed irrevocably down the toilet.
Winston glared at his assembled minions with mirthless, beady little eyes that looked as though they'd just been stolen from some kid playing marbles at recess. "I know some of you may be concerned that I have no experience in publishing," he began. Our gazes flitted nervously around the room. Heck, yes, we were concerned, but heck, no, we weren't going to admit it.
Then the earth opened beneath our feet, at least metaphorically, and we were collectively sucked straight into hell.
"Well," Winston went on, as smugly as someone with beady little eyes can manage, "I want you to know that publishing is just like any other business. It's all about making and selling widgets."
No, I'm not making this up. He used the "w" word. Widgets.
I was so screwed.
In retrospect, I now see this as a defining moment in a drama that would soon play out across the American economy. Companies were no longer making anything that mattered nor interested in growing a sustainable business built on products consumers needed. Money had begun chasing money for its own sake. It's all widgets.
Once human beings, know-how and quality were removed from the equation, the widget business quickly began to show some strains at the seams. For starters, the "black book" prepared by the previous owner — upon which the buyers based all their calculations of future profits sufficient to cover that "leverage" — had, shall we say, certain omissions and unrealistic assumptions. Anyone knowledgeable about the publishing business would have quickly spotted these red flags. But when it's all widgets. . .
Incredibly, as the company was handed off from one get-rich-quick bunch to another in subsequent sales, such tricks persisted. As the new owners learned just enough about the business to be dangerous, they used that knowledge to snooker the next buyers. (Just one example: When both books and magazines are shipped to a retailer, any copies that don't sell can be returned. So it's simple to ship an excess of inventory before the company's sale closes — claiming all the value as income — and then stick the new owner with all the returns and those refunds.) Ultimately, long after I'd escaped, owner number four (or was it six?) wound up suing owner number three over such snookering.
Winston was gone by this point, too, smart enough in his beady-eyed way to cash out before the house of cards collapsed. (Not before, alas, he'd sold the lovingly restored Art Deco building that housed the company and moved everybody to a leased, cookie-cutter building in the suburbs.)
Only by constant, frantic growing, of course, could this pyramid scheme continue. (Paging Mr. Madoff!) The company gobbled up other companies, often with only a dim understanding of their products or markets. Before I left, I was once told I couldn't cut an unprofitable product line — because the revenue numbers could not be allowed to shrink, and those publications padded the gross if not the net.
Happily, my former company seems to have finally found more patient and less pernicious owners, and the musical chairs of money men has stopped for now. But that money-chasing-money experience has since been repeated throughout the economy, in ways large and small. Buy a pig, put some lipstick on it (with apologies to Sarah Palin), and sell it to a greater fool before it becomes obvious you don't know slop about hogs.
It's all just widgets, isn't it?
But don't take my word for it. Consider the recent, surprisingly caustic testimony of that US Airways pilot who saved the flight that went into the Hudson River. Describing an "economic tsunami" that had swept the airline industry, he revealed that he'd recently suffered a 40 percent pay cut and the loss of his pension. Many experienced pilots like him have been forced out of the industry.
Here's the difference, I guess: When the publishing industry loses experienced editors, typos increase. When airlines decide they don't really need veteran pilots, people die.
Either way, the money-changers who think it's all just widgets seem to do OK.
When not sobbing quietly over the state of his retirement savings,
David A. Fryxell is editor of Desert Exposure.