The Question Is, How? Not Why?

"The best way to predict the future is to create it." Peter Drucker

Back to basics

The markets this week were reacting to continued concerns over the debt ceiling. Of course, the economy, coupled with interest rates and inflation, has not subsided.

Old school economics, is it still working?

20th-century economic policies were developed during very different periods with different technologies and economic structures. Even during the financial crash of 2007, #iPhones were only beginning to enter the market, and #ecommerce was still a toddler. The advent of AI, digital technologies, and cryptocurrencies in the 21st century has fundamentally altered how economies function. Do traditional 20th-century policies to combat inflation still apply? Don't get me wrong; inflation is a dangerous by-product of easy money. Consider these issues and challenges.

Digital Economy: In the 21st century, the digital economy has become a significant part of global commerce. Old economic mindsets must implement policies without destabilizing these sectors or negatively impacting businesses and consumers.

Artificial Intelligence (AI) and Automation: Here we are with the future looking right at us. Ai and automation have changed organizations and their competitive capabilities. Traditional inflation-control measures that don't consider the effects of automation on labour markets and wage levels might exacerbate these inequalities. This is new territory for everyone. It is impossible to believe central bankers have a better understanding of Ai and automation than, say, 亚马逊 or 微软 or 谷歌 . Even the Gig Economy is new versus 2007-2009. However, I will call out a significant risk to labour. If Ai and automation have their way and impact more jobs, our policies to manage inflation by increasing rates will have serious consequences in the future and possibly even today.

Globalization and Interconnectedness: The 21st-century economy is more interconnected than ever before. Few economic indicators are in real-time, nor are we forecasting global reactions to higher rates. We continue to react to the past, not the present or the future.

Rapid Technological Change: Policies based on a 20th-century rate of change might struggle to keep up with the dynamic 21st-century economy. And needless to say, higher rates are pushing technology startups near the brink of bankruptcy. Are we to assume..too bad as a response.

Consumer Behavior: With the rise of e-commerce and digital platforms, consumers can now access various products and services worldwide. Old economic models may not fully capture these shifts, leading to inaccurate predictions and ineffective policies.

Algorithmic Trading: Using AI and algorithms in trading has made financial markets more volatile and susceptible to rapid shifts. Policies that don't account for this new reality may not effectively control inflation.

Supply, Demand, Inflation, Price Elasticity and Labour are still important, but they are not operating under the same rules. Competition and the speed with which companies succeed and fail have changed. Bank Governance may be too slow. They need to be faster with real-time data. After all, isn't that what all businesses are trying to achieve?

20th Century economic solutions must be revised, but not by an old guard. One thing for certain punishing consumers with 20th-century old policies, and not those that drove greed inflation, who are, by the way, still getting away with higher prices, is flawed. The resolution of higher rates is to push consumers to spend less. What are consumers to do? Not eat, nor pay for a roof over their heads. The irony is that politicians and bureaucrats know it, and without intelligent political will, nothing is going to change in the future either.

Are we in a "Geo-Economic-Political" battle?

It certainly looks that way, and there are complex issues colliding. Such as China squeezing smaller countries on their debt (yesterday, three people reached out to me on this article) from Fortune read this. There is Taiwan, where China wants to integrate; then there is BRICS threatening to abandon the US dollar, and so are nations with sanctions against them, such as Venezuela, Iran, North Korea and Russia. However, there may be more to this than they lead on to. Is the West's focus on reducing emissions and its oil dependency making other countries nervous? Imagine for a moment how power and global influence can shift in the next two decades if oil does not continue as a commodity to threaten the world and finance the wars of authoritarian nations. However, even the most democratic nations face internal challenges, and our biggest risks are extreme views they are a social disease that can unravel nations. So are we in a geo-economic-political battle? Yes! History has taught us that when powerful nations get into military conflicts too often (and we have/are), they weaken internally over time, and their foes are waiting for them to fail from the inside out. Ask the ancient Romans and Greeks.

Retailing: No easy path to 2024

These lyrics are from the song "Baker Street" by Gerry Rafferty. It always comes to mind when I think about the plight of many business leaders and small business owners like my dad, who used to listen to this song.

"You used to think that it was so easy...You used to say that it was so easy...But you're tryin', you're tryin' now…?Another year, and then you'd be happy...Just one more year, and then you'd be happy...But you're cryin', you're cryin' now". You can listen to it here (Listen). There are many retailers, perhaps not all crying but challenged by the marketplace that has changed so much in such a short period of time.

If you are planning growth in 2024, you need to rethink it. Central banks have news for you unless you have a brand with a following like 耐克 , lululemon or a value proposition like 沃尔玛 or Costco Wholesale . Two things will inundate the retail space. First is the cost of living, specifically the combination and after-effects of inflation and higher interest rates. As I have said before, expect a very volatile and competitive marketplace. And especially on how to respond to the impact and amplification of Artificial Intelligence. It will be pervasive and has already begun with a ChatGPT app on #Apple IOS and Android devices. It is my belief that the consumer economy with tight budgets on the home front means they will browse more frequently and effectively with Ai. This will be a game-changer as it is unleashed. And it would be a mistake to dismiss this. If your retail guru is still pitching customer experience and dismissing Ai, it's likely that they don't understand the implications and how to get out in front of it. I invite you to read The Retailer's Dilemma, a short essay.

Mergers & Acquisitions

It's been a silent front on major M&A activity. However, we should expect turmoil to create opportunities in retailing and the tech sector. The tech sector is already feeling the pinch of higher interest rates, which has shrunk exposure to growth capital, creating opportunities for mergers where it makes sense. Most of it will be steered by opportunities to develop Ai to higher levels of performance. The retail sector will not be exempt. As Ai permeates through this consumer landscape, there will be mergers and acquisitions opportunities, especially in categories that can't make the leap but fit in the portfolio of other retailers.

Wild Fires

Whether human or nature, the devastation is unimaginable for many of us. Here is an interactive link to current wildfires globally. Link. In Alberta, over 301,000 acres and 30,000 people have been impacted by uncontrolled wildfires. Is this climate change? Read this

Personal Log: The economic impact of sustainability

At the risk of being attacked, I am already sold that we have environmental issues. In one of my presentations, titled "Scorched Earth or Blue Earth," I ask the fundamental question. What have we done to ourselves? And seriously, that is the biggest problem: what we humans have done to ourselves. So now we are faced with the challenge of clearing and cleaning it all up. We have forever chemicals in us and nano-plastics in our vegetation and perhaps in humans as well. However, it could take decades to stop damaging the planet and humans.

Then I ask the next two most important questions: plan and cost. What is the plan to get there, and the cost of all this? If we listen to advocates, they want us to stop, for example, from using natural gas and oil to heat our homes or cook with and convert to heat pumps. So who will pay for this transition? Shifting to electric heating and cooking will put more pressure on electricity grids worldwide. In addition, where is the electricity coming from? Sustainable green energy is nowhere near ample to fill in the demand. Again who is paying for this? The cost of moving to green energy and the Megawatts needed globally would take years and trillions of dollars. Tax dollars, that is. Nuclear is the most efficient way to generate electricity but the cost and comfort! Other than in China, no one is building enough nuclear reactors.

And then there is the question of the destructive nature of shifting consumers from one form of energy to clean energy. Not to mention all the industries impacted. Destructive in the loss of GDP and jobs. Sure, there will be new ones, but who qualifies?

That's why in these presentations to sustainable groups, I propose "Incremental Innovation" instead of Creative Destruction, which is damaging and finds a lot of resistance. I am not changing the timeline for 2050. I am merely pointing out that we need a plan, and the two sides, one for and the other opposing, are not really doing their part to protect the economy or the planet.

Simply I am all for creating the future versus allowing it to come around on its own with no plan. Therefore the question is how it is no longer why we need to do this. However, this lack of planning is what also exasperated the crash of 1929 and drove the Great Depression, with human farm workers being displaced by mechanization. The same could happen with this shift. We need a plan!! Instead, we have a global divide. Regimes and authoritarian nations don't care about humans. They care about their own personal power and are forming alliances under the guise of leaving the US currency. This is really about quelling the West's desire to keep humans and the planet from harm. If every nation on the planet isn't aligned because they fear losing their wealth and power, then the planet loses despite our acknowledgement of the risks.

Thank you for reading this week's issue of The Business Brief

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