Saturday, March 14, 2009

Going against the CW

I should mention to you that I probably write three blog/diary entries for every one I post. One common reason for not posting something I’ve written is that the situation I was writing about has changed. The other common reason is because I’ve lost interest in the subject. I would guess that eventually my hard drive is going to become clogged with unfinished blog entries. I do expect to finish this entry, because it’s important to me personally. [Note: I was pretty much finished writing this entry a month ago, but because I lost my internet connection during my self-imposed editing period, I have not been able to post it until now.]

If you read my bio you’ll notice I’m a manager at a large movie theater in Silicon Valley. I’m not going to mention which one, or what chain we belong to, partly because I need the job, partly out of respect for my employer. We don’t always agree on things, sometimes by a lot. I’m hoping this is not one of those times, because this entry is all about something I did at work.

One of my personal traits that often causes me trouble is that I’m pretty good at focusing on what needs to be done now to the detriment of things that need to be done later. Short description: I procrastinate a lot. I’m especially bad about paperwork. This doesn’t necessarily make either my boss or my employees happy. It’s probably a good thing I don’t do hiring at my location, because we’d probably only have three employees and a hamster running the place if it was up to me to get the paperwork done.

My boss had to give me a deadline to get my employee reviews finished because I was procrastinating like heck about getting them done. However, I did get to thinking about it a lot.

I tend to follow the New York Times. I find that the economic coverage is quite good, especially Paul Krugman’s work. I’m sure it’s no surprise to you that we’re in an economic “downturn,” which is the tepid way of saying that the economy is going down in flames at the moment. For once (make note) I’m not going to assign blame to any politician or political party, okay. This might be the only time, so pay attention. This has affected the theater where I work in surprising ways. I wouldn’t have been more than marginally aware of them if I hadn’t been paying attention.

Several of the major theater chains have gotten together in a consortium to borrow money in order to buy digital 3D projectors for their theaters. Often banks will be more willing to lend money to consortiums, thinking there’s less of a likelihood of them defaulting on the debt if you have several of the majors involved. This hasn’t completely been the case this time. Although the banks have loaned some money to the theaters for digital 3D roll-outs, the theaters have had to cut back on the rate of installs because the banks just aren’t willing to loan as much as the theaters need for the ambitious plans they had. Dreamworks Animation head Jeffrey Katzenberg is definitely aware of this if industry emails are to be believed, and is trying to get the banks more motivated into loaning the money.

If you’ve read some of my past entries, such as the one about my financial situation (which hasn’t changed much at this time,) you’ve probably read my speculations that bankers are so freaked out about the economy that they’re just psychologically shutting down. To me it seems that they’ve traded out years of a “lend any amount of money to anyone, regardless of ability to pay!” attitude to replace it with a “don’t lend anything to anyone, regardless of who, why, or ability to pay!” attitude. They don’t seem to realize that neither attitude is going to help them. You can’t make money as a lending institution if you lend it out to people who don’t repay it, or if you refuse to lend it out to people who can. Basically, bankers, and a whole lot of other businesspeople have decided to hunker down, save as much as they possibly can, and hope for the best. They can hardly be expected to do differently, since the common wisdom (or CW) says that’s what you’re supposed to do. Professor Krugman calls this “Irving Fisher’s theory of debt deflation.” In his blog at the New York Times, he says: “As everyone tries to work off excessive debt, the combination of a contracting economy and falling prices puts everyone deeper in the hole.”

Professon Krugman describes this more fully in his editorial in the New York Times on Monday, Februrary 16th, 2009:

And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

The CW also says that movie theaters tend to thrive in bad economic times. People want to go out for entertainment, and if concerts and other promotions get to be too expensive, well, movies are still a good bargain. There has been some speculation that this time is different, that people will instead stay home and watch TV on their new big-screen HDTVs. I decided to analyze our box office for the month of January for both 2008 and 2009 a little while ago on a lark. In fact, I didn’t even have a reason in my mind for doing so other than I found out how easy it was to do it a few weeks ago while playing around with the company software in the office. My discovery was that, at least for our location, the CW was right. Year on year we saw a significant increase in attendance and box office gross. I feel that I can’t say exactly how much the increase was, but the percentage difference was in the low double digits. This is remarkable to me considering how much weaker I feel the movies were this January over last (that’s just my opinion.) I’m at least partly attributing the increase to having two different 3D titles that month at our theater. The industry as a whole is also reporting a record month this last January, so I know it’s not just us. Also, the increase isn’t just in gross or net income, it’s in overall attendance as well, so we know more people are coming to see movies.

So, in my opinion, and with the limited data I have at hand, the bankers are making a bad decision in deciding not to loan more money to the theater chains to install these projectors.

Reading the New York Times online has gotten me thinking a bit differently about how my actions affect things and people around me, especially the economy. As I started working on my employee reviews I found that I had to make a choice about how much of a raise I was going to give them. My opinion has been, and this is just my opinion, that if someone is doing a bad enough job that they don’t deserve a raise at all, I should fire them. That means that everyone I give a review to gets some kind of a raise. Confronted with the information above I had to then make a decision on how much of a raise to give my people.

The theater is doing pretty well right now, but that could change if the economic situation gets worse and people decide to stay home and watch TV. So, it might make sense to lower the minimum raise amount I give my employees so we can save payroll in case of a downturn in receipts later this year or next.

But what effect would giving my employees a smaller raise have?

My employees tend to be younger. Most are college age (with some of them going to college, and many not), with a few high-school age employees (some going to school, some not), and a few of them shooting for retirement. What is likely to become of the extra money my employees make?

The ones that are retirement bound are likely to save the extra money, or use it to pay off debts. That’s not such a bad thing. If they save the money in bank accounts, that means the banks have more money to work with which is likely to calm them a bit. They are just a little bit more likely to start lending money out.

Well, the ones that are high-school or college age are likely to spend that money for the most part. That money doesn’t disappear. It is mostly going to go into the local economy. That could mean that some local businesses that may be on the brink of bankruptcy, especially restaurants near the theater, may avoid that fate. Their employees could keep their jobs and continue to see movies at my theater.

That’s a big plus for my company.

So, what did I decide to do? I decided to increase the raise I gave to my employees by a lot. The employee that did the worst (which isn’t saying much since I have a good staff right now) is going to get a larger raise than I gave to my best employee last year. My best employee is getting a raise nearly twice what they got last year. And now my employees are going to have more money to plunge into the local economy. In addition I hired more employees in my department to deal with upcoming movies.

And this year the company changed from yearly reviews to biannual reviews, so in six more months I’m going to be doing this all over again. So, even if I go back to my usual raise amounts they’ll have gotten a nice one already this year. But hopefully I won’t have to, especially for the sake of the new employees I’m hiring who will be getting their first reviews at that time.

Here’s the thing, though. Even if I do this, and it has a small stimulative effect on my local economy, it’s not going to be enough to really get the economy out of the doldrums. One theater can’t stimulate the economy by itself. In order for this to have much of an effect more people will have to do the same thing. I’m sure there are a lot of middle managers out there who, like me, only have spending authority over their employee payroll and maybe some petty cash. Those of us that are looking at a good year, which should include almost all movie theater managers, should strongly think about increasing the amount that we pay our employees. If we don’t, we risk Irving Fisher’s theory coming back to bite us.


Paul Krugman’s Editorial, Monday, Feb. 16th, 2009: “Decade at Bernie’s”, link:

Paul Krugman’s Blog, Sunday, Feb. 15th, 2009: “Debt in Wartime”, link:

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