It was hard to believe that fortunes were once made where I was standing…
All I could see were the weeds.
But it wasn’t the weeds that got my attention as much as it was the silence. Among the massive abandoned buildings lived the ghost of noise — lots and lots of noise.
The kind of noise that requires earplugs. The kind of noise that is made when thousands of burly tobacco chewers turn ore into steel.
But it was quiet, eerie almost. There was nothing left but the silence and it was deafening.
That’s what I thought as I surveyed the landscape at Sparrows Point, Maryland — former home of the greatest metal-making machine on earth.
At the time, Mittal Steel was still working in parts of the old plant; but it was nothing compared to the days when 30,000 workers called the mill their home. Vast portions of its 300 acres have since been demolished, or sit empty.
And as I drove through the gates that day and left the dusty old mill in my rear-view mirror, all I could do was shake my head and wonder why.
Fat, dumb, and happy
It wasn’t “cheap imports” that killed Sparrows Point; it was complacency.
After all, the vast fortunes made at company headquarters in Bethlehem, Pennsylvania, didn’t flow back into the company — but into the pockets of its executives.
As a result, they didn’t see fit to develop a decent R&D facility, or invest in the new technology that was being developed in Europe and Japan. In their minds, their aging technology was just fine, thank you.
Instead, they colluded with other U. S. steelmakers, divided up the markets, and raised prices to maintain their grip on power. To protect themselves even further, they worked to “freeze their hegemony” by supporting the anti-import campaigns in the 60s.
“The Steel” — as it was called back then — had become fat, dumb, and happy. So when competition struck from both home and abroad in the 70s, “the Steel” was caught flat-footed.
And in a short time it was gone. In January 2004, Bethlehem Steel Corp. was officially dissolved.
Its 131 million shares of stock were canceled at zero, and some 95,000 retired employees had their pensions and health care benefits taken away from them by some accountants muttering something about “stranded costs.”
“The Steel” wasn’t the only one to meet misfortune… Displaced workers and rusty plants can be found all across the country.
One moment you’re at the top, and in the next you’ve been sucked down the memory hole. It is an all too familiar story that haunts us today.
Forget fancy theories
It’s not going away… not now, not ever. In fact it’s getting worse.
You see, Thomas Friedman was right: The world really is flat, and globalization is here to stay.
The problem is that all along this route, we stood complacently by as more and more people were cut from their moorings.
As a result, millions of jobs have been lost and they’re not coming back. The result is that we are left with the prospect of a jobless “recovery” and near double-digit unemployment well into 2012… and likely beyond.
As this charts shows, the job market is now completely broken and has actually been that way since the turn of the century:
That’s why some economists are dumbstruck as the “Zarnowitz Rule” comes up empty this time; after all, the rule maintains deep recessions are almost always followed by rapid rebounds…
But even with all of the schemes and spending that have been thrown at it, the economy is still down on every single count.
When you strip away all the fancy theories, a real economy is about people buying things. And to do so, those people need jobs. Without them, everything else just begins to collapse around the center…
You don’t need to have a Ph. D in Economics to understand that.
But don’t try telling that to the Federal Reserve. They’re hoping to finally drown this fish with another gusher of water. Since QE1 didn’t deliver, QE2 is now waiting in the wings. Long story short, it’s more of the same and it’s not going to work.
That’s why commodities like gold, silver, and copper continue to be strong investments as the Fed prints even more money, debasing the U.S. dollar. The same thing can be said for equities as the broader markets continue to push higher. One area that I like in particular is the biotech sector.
How all of this will work out in the long run is another story for another day; without solid job growth, though, the Fed is just pushing on the string again.
It’s amazing how much economic activity and real wealth you can create when you put people to work. To do that, you’ve got to remove all of the barriers to competition.
If not, all you are left with is an eerie silence.
Your bargain-hunting analyst,
Editor, Wealth Daily