Is economics relevant for your job at all?

After my anti-regressive a.k.a. “progressive” economic policies post two weeks ago, I lost 2 subscribers! I haven’t been that happy in a long time, because it meant I got heard. The worst thing for a writer is when no one cares about what he says. After this column, I would probably lose two more.

(Side note: Then again, after standing up to the hatred of Pro-Hamas supporters with vile antisemitic/anti-USA comments, I gained 7 subscribers. So, in my book, 7-2=12.3 million (math courtesy of Brazil’s genius Lulu )??

Now back to perspective-checking “progressive” economic policies.

The divide

Economics is divided along a fault line. On one side, there are economists who believe empirical tests can help predict precise movements in the economy. Others, like classical, so-called Austrian economists, believe empiricism in economics is a futile endeavor as the economy is way too complex for existing models. Moreover, one can always choose carefully which time period to study to “prove” his or her (or zir or their) hypothesis.

I am part of the latter school.

Economics is divided along a fault line. On one side there are real economists, and on the other, there are crystal ball readers

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Why managers don’t trust economists

Same day, these two posts streamed into my MSN feed. In one, economists predicted a 2024 recession . In another, economists were highly skeptical about a recession prediction.

No wonder people don’t trust economists. But here is a catch: the above predictions are not economics. They are playing a financial 8-ball. Take it with a (metric) ton of salt-substitute. Economics is way simpler. It is logical. It is based on a few axioms:

People act, action has purpose, free exchange reflects that purpose, action has consequences, so coercion always has unintended effects.

If you understand this, your predictions of what’s next for your company and its industry reflect not precise dates and numbers, not probability estimates, but broad economic understanding and common sense. Will there be a recession? You bet your life. Soft landing, hard landing, Simon Biles’ landing, are meaningless to your job (though critical to politicians).

Call it a slowdown, cost-rationalization post-Covid, shifting patters of spending, whatever: The essence is your company needs to refine its strategy to address weary consumers when their credit cards are maxed , and the government doesn’t send checks any longer for staying home and cuddling with your dog.

For some industries, the recession is already here. As Bob Nardelli, former CEO of Home Depot and Chrysler said in a recent interview, “the U.S. economy experiences supply chain problems, higher prices for goods, excess consumer demands, and a shortage of workers.”

For some industries, the recession is already here. You know it. Biden doesn't.

My friends’ kids graduating from college can’t find entry jobs, and not just those earning a degree in Renaissance Poetry. Exuberant accolades for the latest job report from Democratic strategists don’t hide the fact that 140,000 of those jobs are directly or indirectly created by government spending , and to keep it up one will need a massive tax hike, making recession even more likely. Also, full-time jobs have declined in the last figure, and manufacturing added 0 jobs; Zero jobs!? Not even one?!

In the tech space, the quarter saw 42,442 job cuts. So, if you are laid off, you can always become a bell boy (or girl or zir) in Holiday Express. Tips are good from government sector’s workers.

Would a system-wide recession happen before the election? Harder to say. The ruling party – whichever it happens to be- will do everything in its power to postpone bringing the house down to AFTER the election. The Fed doesn’t make decisions based on economics alone. It is human. It doesn’t want to appear overtly political, but it also doesn’t want to be blamed for bringing down the house over the head of a reigning administration 5 minutes to midnight. We all agree voters have extremely short memories so any sign of recession on November 3rd means Biden goes home (or being wheeled home). So, as a planner, my prediction- just common sense and in no way infallible- is that your employer has a very narrow window until 2025 to adjust your strategy for leaner times to come.

The Fed doesn’t make decisions based on economics alone. It is human. Your company has a very narrow window until 2025 to adjust your strategy for leaner times to come.

After that, you are toast, and no amount of economic propaganda will make a difference. ?

Economic advice?

The more confusing the news about the economy becomes, the more frequent the warnings and assurances and advice from experts, tycoons and financial wizards, especially about investments. Empirical models of financial markets, however, are a good way to make some people rich and other fools. Behind every advice of a real estate tycoon or an investment mogul or an icon of past predictions lies the naked self-interest of either pushing people to buy or pushing them to sell something the mogul benefits from. This is the real economics, not the advice they push. I don’t blame them. Classical economists’ concept of why markets work by coordinating buyers and sellers’ horrible, shameless, deplorable self-interests rather than some elusive “collective good” is as valid today as it was when Adam Smith wrote it.

Empirical models of financial markets, however, are a good way to make some people rich and other fools.

So, the question is: who to believe?

The model of competitive intelligence that aims to understand third parties’ motivations and drivers helps in assessing what it is that these advisors are trying so hard to push. Just follow the money. Or rather, don’t, until you are satisfied the advice is rooted in real economics, not a crystal ball. ?

If you want to understand long term trends with real economic reasoning, start with this notion of non-empirical economics. You don’t need econometric models to understand that economic principles are not subject to empirical tests. They are just common sense, and they never fail. If demand exceeds supply, prices rise. If demand shrinks, prices fall. Demand can’t shrink unless people have less (real) money to spend. People will not have less money to spend if the government succeeds in flooding the economy with massive spending. ?

Common sense goes a long way.

Common sense goes a long way. Unless, of course, you are a “progressive.” For those, "feelings" reign supreme. They "feel" market economics is "voodoo" and Kim Jong Un's is the equity ideal.

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See how it works: unmasking self interest

At the last meeting of the World Economic Forum in Davos, the new President of Argentina, said there is nothing pro-market about Davos. Davos showcases the directors and lobbyists of Ayn Rand’s Atlas Shrugged: “woke, subsidy-hungry, pleased with themselves, ambitious, conformist, reluctant to express a view until they have a sense of the room…our own age is corporatist, managerialist and high-spending, and delegates duly parrot those orthodoxies.”

Atlas Shrugged is as relevant if not more today than it was in the 50s. But, if you think the US has lost its marbles with its voodoo economics (I agree), UK is way, way worse.

Alternative perspective

There is no alternative to common sense. But it doesn’t stop some people from using an emotional response as a substitute for common sense. They blame corporate “greed” as the cause of inflation. It’s like blaming Dollar Store for failing to keep prices at a maximum of a dollar when nothing costs that little any longer except students’ debt. ?

As a competition analyst, you need common sense above all. It is more powerful than any new "model", or "tool", or technique you are desperate to find. It will allow you to form a perspective which is yours in the flood of contradictory voices in your feed. It doesn’t matter if you are right or wrong in the short term, you’ll always be right in the longer term. Of course, your company may go the other way and then be forced to cut costs as the only remedy it knows when your bosses ignore competitive insight, but you’d remember--

You were prescient.