20 million nails from recovery

The Boston Globe’s Megan Woodhouse wrote on February 14, 2011, about Marathon Tool, “a small contractor supply company” in Franklin, Massachusetts, to illustrate why job growth is so maddeningly slow in the wake of the Great Recession. To afford to hire another full-time employee the company would need to sell 20 million nails more per year:

At Marathon Tool, the Olsons said hiring one counter clerk at $35,000 a year would require them to also pay $1,750 in state unemployment insurance premiums, $2,170 in federal payroll taxes, $583 for workers’ compensation insurance, and $280 for federal unemployment insurance. Just covering the salary would require them to sell about 17.5 million more nails; add the nonwage costs, and that’s another 2.4 million nails.

While nails are described by Woodhouse as the company’s lifeblood I imagine that a incremental sales of 20 million nails – 5,000 cases – would also result in substantial increases in sales of other goods as well. Still, it makes the point.*

It is tempting to point to companies like Marathon Tool and argue that taxes need to be lowered to spur job growth, but I disagree, even though I very much belong to the tax-skeptic right wing of the politcal spectrum. If anything, the article shows why one should be quite cautious when it comes implementing policies aimed at increasing job creation. The company was founded in 1986 and peaked – so far – in 2006 with sales of $4 million and a staff of 17 full-time and part-time employees. Marathon Tool “were humming right along” according to Ms. Olson. As one might have expected a contractor supply company to do that year, at the height of the debt-fueled real estate boom, a boom that was dangerously inflated by President George W. Bush’s reckless ambition to increase home ownership among Hispanics. Debt-fueled growth was pretty much the only thing Bush offered in way of economic policy and it worked until it didn’t work.

The disaster that followed the bursting of the mortgage bubble brought about the very high unemployment rates that have utterly depleted state unemployment insurance systems throughout the country. It is clear that those systems were under funded given the risky economic policies pursued. I don’t think it’s good stewardship to simply assume that economic policy will become less risky in the future and consequently reduce unemployment-insurance premiums. It’d be as foolish as President Barak Obama’s request that corporations that have strong profits – but often little or no revenue growth – should increase hiring just because such an outcome would suit his short term interests.

Keep in mind that it was only two years ago that the economy was in a free-fall that seemed like it could be just about never ending. A year ago, by contrast, it appeared that “green shoots” in the economy heralded a reasonably strong recovery – one that failed to materialize. It’s been a harrowing time for companies big and small. Now is not the time to rush them in one direction or the other.

The U.S. economy could use a little bit of alone time.

*Selling an extra 15 or so cases a day actually brings about its own set of headaches, in particular the extra inventory to carry, both on the balance sheet and physically in the store and its warehouse.