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Economy Growth Catch-22, Part Two

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Vicious cycle.

Our economy is in one and yesterday I suggested we may be on the verge of making it much worse by putting an unintentional vice on spending by “wealthy” executives like you and me: higher taxes.

Look, I like President Obama and I think he’s a smart guy. More importantly, he has inherited a holy mess and won an electoral mandate to fix it in the best way he sees fit. Maybe harvesting higher taxes from everyone earning $200k is the answer. Maybe it is unavoidable. Maybe there’s a reverse virtuous cycle that will end up benefiting all Americans, even us executives. (That’s the argument, right? And maybe it’s correct.)

Now – a related but altogether different example of behavior that could have unintended, negative consequences – fueling the vicious cycle. The junket – sometimes called boondoggle – has received a lot of attention lately as major financial institutions took government “bailout” money and didn’t have the good sense to cancel their “regularly scheduling programming.” Most recently, Northern Trust Bank was slimed for staging “lavish parties” and a “fancy dinner” and a concert by Sheryl Crow, plus Earth, Wind & Fire – plus golf! - in conjunction with their contractual sponsorship of the PGA tournament near Los Angeles last week. Northern Trust accepted $1.6 billion in TARP funds – at Uncle Sam’s insistence – despite record profits of $795 million in 2008 and a solid balance sheet. Congress, media commentators (on the right and left) and taxpayers hammered Northern Trust. Not surprisingly, Morgan Stanley quickly cancelled out of collateral entertainment connected to their June sponsorship of another PGA event, and another TARP recipient, Wells Fargo, will do the same in April.

The Newspaper Industry is even worse shape than banking, and hasn’t been fortunate enough to receive any TARP funds. Yet, the American Society of Newspaper Editors canceled its annual convention, which was scheduled for Boca Raton in October – six months from now. (There may not be many newspaper editors by October, but that’s another blog.) The point here is to think through the consequences of these cancellations: less revenue for the hospitality industry, along with airlines and the local economies of the destinations involved.

To be sure, there are two kinds of boondoggles or junkets: the Northern Trust variety, where a company hosts dozens (maybe hundreds) of clients in an effort to thank them for past business and prime the pump for future business. By “business” I mean income, which is the economy’s growth fuel. And then there are industry trade shows and conventions. Those are especially meant to serve two purposes: increasing expertise through knowledge-sharing workshops, speeches and seminars and secondly, to network with potential business partners (which leads to income, which is the economy’s growth fuel). Yes some attendees accomplish nothing – and yes, many have some actual fun. Are we human?

That said, we should all realize that as companies cut back or cancel these two kinds of road trips, they are saving money and all-important “face” – but they may be costing themselves more than they’re saving. And without doubt, they are hurting the hospitality and transportation industries and local economies from Florida to Vegas and California (areas already suffering deeply from the mortgage crisis.) So the economy weakens, making companies likely to cut back even further next year.

A vicious cycle worsens. Anyone having fun?

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Erik Sorenson is chief executive officer of Vault.com, Inc. Mr. Sorenson, 52, oversees the strategic direction of the global, New York-based media company. He is widely regarded as an expert on media strategy and industry trends, with experience spanning radio, local and network broadcast television, cable and syndicated TV, and the Internet. From 1998 through 2004, Mr. Sorenson served as president of the MSNBC cable news channel. He has won more than twenty Emmy awards as a writer, producer, and television executive.

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