The Patricians and the Plebeians in today’s economy The elites aren't feeling today's economy in their bones, the way that the commoners do

We have previously noted the career of Yahoo! Chief Executive Officer Marissa Mayer, and things have not gotten better since the buyout deal with Verizon. From The Wall Street Journal:

Yahoo Core Revenue Drops Again

Internet firm, looking to close its deal with Verizon, also posts earnings that top analysts’ expectations

By Deepa Seetharaman | Updated October 18, 2016 4:58 p.m. ET

Yahoo! Chief Executive Officer Marissa Mayer

Yahoo! Chief Executive Officer Marissa Mayer

Yahoo Inc. on Tuesday posted a 14% drop in its core revenue, reflecting the continued deterioration of its advertising business and raising more questions about the future of Verizon Communications Inc. ’s deal to buy Yahoo.The revenue decline to $857.7 million, which excludes commissions paid to partners for web traffic, marks the seventh decline in the past eight periods for this key metric. Revenue from “Mavens” — a grouping Yahoo introduced to track mobile, video, native and social ads — rose 24% to $524 million.

Yahoo reported quarterly earnings of $162.8 million, or 17 cents a share, and 20 cents a share excluding certain expenses. Analysts, on average, expected the company to post adjusted earnings per share of 14 cents, according to Thomson Reuters. A year ago, the company posted adjusted earnings of 15 cents a share.

I have perhaps more respect than some for Mrs Mayer: in choosing to leave a very secure executive position with Google for the top job at Yahoo!, she took on what Greg Sterling, a contributing editor at Search Engine Land, called a suicide mission, trying to right an already sinking ship, a mission that five previous CEOs over the previous five years could not accomplish.1

But having the courage to take on that suicide mission does not, in the end, outweigh the fact that she failed in that mission. The sale to Verizon, with Verizon already looking for a price cut due to the huge data breach Yahoo! suffered, hasn’t fallen apart — yet — but Verizon is going to be pressing for an even lower price now. If Mrs Mayer can keep the sale on track, it will be about as much success as she has had there, but it certainly isn’t the legacy she had hoped to build.

But, that blow to her legacy might be softened somewhat, with the $44 million to $55 million severance package she could receive if Verizon fires her. In business, success is the only thing that matters, but for some in business, failure isn’t all that bad an outcome.

However, this raises a subject that I don’t think the good people at The Wall Street Journal really understand, the price of failure for small businesses. Mrs Mayer, who just happened to be a “bundler” for Barack Obama, will walk away a multi-millionaire, regardless of what happens at Yahoo! For Cendi Jean Newberry, things are a little bit different. From my favorite CNNMoney reporter:

Meet ‘Joe the Plumber’ of 2016

by Heather Long | @byHeatherLong | October 18, 2016: 12:48 PM ET

Cendi Jean Newberry is voting for Donald Trump.

She didn’t vote for President Obama because she thought he was a Muslim (he’s not). Now she worries Hillary Clinton will take away her ability to own a gun.

“His background was Muslim,” she told CNNMoney over lunch at Diner 23 in Waverly, Ohio, a small town in southern Ohio that is divided almost 50/50 between Republicans and Democrats. When pressed, Newberry admits it could have been information that wasn’t true, “but it set in my mind.”

“Cendi the chef” is arguably the new “Joe the Plumber.” In the 2008 election, Joe the Plumber (aka Samuel Joseph Wurzelbacher, also from Ohio) became the face of the struggling middle class. He challenged Obama over what he would do for small businesses and taxes.

In 2016, “Cendi the chef” is worried about jobs, guns and morals.

It’s would be easy to dismiss her as uninformed. But her life is a complex tale that gets to the heart of what America’s lower middle class is dealing with — and why she’s voting “anti-Hillary” this year.

There’s more at the original, but it boils down to one thing: failure in small businesses means poverty, bankruptcy, and living on the edge, and public assistance. And it is in the small business sector where the public are favoring Donald Trump, because conditions for small business are really, really tight, and most small businesses will fail. Mr Trump has promised to increase our real growth rate to 3.5%, and while I don’t believe that he can keep that promise, it sure sounds good to people who are hearing that 2%, or even lower, is the “new normal” for the US economy.

Opening a small business is tough enough, with expenses eating away at income, seriously enough that it doesn’t take much of a hiccup to push the business into the red. The requirements of the Affordable Care Act then hit small businesses just as they start to become successful enough to reach the fifty-employee threshold, piling on a huge, additional expense just as small businesses reach a growth milestone, souring the dreams of the small businessmen to profit and grow. Hillary Clinton famously said, back in 1993, when President Clinton put the First Lady in charge of devising a universal health care coverage plan, and was old that her plan would devastate small businesses, “I can’t be responsible for every undercapitalized small business in America.”

But small business is by far the major employer of Americans:

In 2012, according to U.S. Census Bureau data, there were 5.73 million employer firms in the U.S. Firms with fewer than 500 workers accounted for 99.7 percent of those businesses, and businesses with less than 20 workers made up 89.6 percent. Add in the number of nonemployer businesses – there were 23.0 million in 2013 – then the share of U.S. businesses with less than 20 workers increases to 97.9 percent.

Among employer C Corporations in 2012, 99.2 percent had less than 500 workers, and 86.2 percent had fewer than 20 employees.

Heather Long noted that 60% of active investors prefer Mrs Clinton for President, while only 40% support Mr Trump. I don’t find that at all surprising, in that the same survey found that 45% of active investors in the E*Trade survey gave the economy an A or a B grade. Mr Trump’s support comes from the fact that most Americans are not active investors, and across wide swaths of the United States, the supposedly rosy economic numbers — the official, U-3, unemployment number is down to 5.0%,2 but the U-6 number is almost twice that, at 9.7% — don’t reflect their reality. From Investor’s Business Daily:

A Census Bureau report published in May 2015 shows that the share of Americans receiving government assistance of one form or another went from 18.6% in 2009 to 21.3% in 2012, the last year for which they had data. Also, the number of people getting food stamps jumped from 33.5 million in 2009 to 45.8 million last year.

More and more people needing some form of government assistance is not the kind of statistic we would expect from an economy that grades an A or a B, as the active investors believed, but an economy in the doldrums, one that the Federal Reserve Board of Governors recently estimated would grow only 1.8% in real terms this year.3 Despite the banks having plenty of money to lend, the rate of new business creation has fallen by 30%. Why? Because confidence in the economy, in the ability of entrepreneurs to actually make money in this economy, has fallen. This is something that the patricians cannot see, but the plebeians can feel in their hearts, in their bones, and in their wallets.

Marissa Mayer will land on her very fashionably-shod feet,4 regardless of how Yahoo! goes in the future; Cendi Newberry will still worry about how to catch up on her mortgage.

  1. Mr Sterling actually gives Mrs Mayer’s performance a “B,” with the qualification that her final grade will depend on the Verizon sale.
  2. The U-3 number is actually up a tick, from 4.9% in August.
  3. We took those estimates by the professional economists to task here.
  4. That might sound a bit sexist, but given Mrs Mayer’s self-promotion and penchant for glamour shots, I don’t find it too inappropriate.


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