Monday, July 12, 2010
Optimism
Lots of gloom and doom out there, but it depends where you look. A new book has come out bucking that trend. It is called "The Rational Optimist: How Prosperity Evolves," by Matt Ridley. Mr. Ridley is a science writer. His foundation for optimism is: innovation. The long term trend of human history has been upward, he says, because humans are continually innovating. Innovations have led to vast improvements in the human condition, and it is likely that trend will continue. The problem of feeding a couple of billion more people by the year 2110 can easily be solved by the advances in agriculture and biology that are occurring as we speak. In fact, we could have more than enough food, using even less land than we do now. The book is full of statistical evidence that things have been getting better all the time, not worse.
Thursday, July 1, 2010
What can you do?
Realistically speaking, the state of the economy is, well, let’s just say not as good as it could be. We needn’t get into an exhaustive analysis of it here. There is plenty of that in the media, much of it conflicting. But it might not be a bad idea to look at the big picture for just a moment before we move on to things closer to home.
Usually an economy gets into trouble when there is too much debt in the system, and people can’t pay it off. The economy goes into a decline, and by various mechanisms (such as bankruptcy, or the action of creditors simply writing off hopeless debts), the excess debt gets washed out of the system. Then a recovery begins, assisted by renewed lending.
The perils of capitalism include the “business cycle,” which basically describes the action of the economy fluctuating between expansion and contraction. Many contractions over the years (and centuries) have been very painful, even catastrophic, and as time goes on, various governments have passed laws to try to prevent, modify or soften many of the conditions associated with the contractions.
However, you might as well try to legislate against old age. It just won’t work. The business cycle will have its revenge. Some things can be done to delay a contraction. But it just might be that the contraction, when it comes, will be much worse than it would have been if we hadn’t delayed it.
Currently, some debts are being washed out of the system through bankruptcy and such. The real estate bubble is slowly deflating, despite various government efforts to prop it up and ease the pain. “Troubled assets” in the banking system are being “resolved” by government action.
However, the big problem now is that government debt is growing at an alarming rate, and markets are showing investors’ concern about that. Surveys indicate most voters favor cutting the federal deficit, but many in our government want to spend more to stimulate the economy. There is little agreement amongst the so-called experts about whether that would make things better or worse.
These things are important when you vote, but what about now, in everyday life and business?
The lesson of the above considerations is that business and personal finances could be facing some headwinds in the immediate future. No one knows exactly how things will go, but it would not be the best strategy to just assume—or even just to hope--that everything will be hunk-dory by next January 1 (or some such date).
So, what is one to do?
Business strategies:
Businesses that are facing stresses can either (a) give up and go out of business; (b) try to muddle through and hope for the best; or, (c) try to do something effective to make things better.
There is plenty of advice about how to do (c), but if I may I would like to add another “big picture” suggestion:
Your most valuable weapon is communication. Communicating with existing customers and potential customers is paramount. Maintaining and using a mailing list (and/or e-mailing list) of existing customers can be of inestimable benefit to a business. There are also endless means of electronic contact available today—Twitter, You-Tube, etc, etc. (I can’t say I know how to use them all effectively myself, but they are definitely out there.)
Any and all means of contacting potential new customers should be explored: advertising, bulk mailings, etc. (Bulk mailings can be very effective, and cost effective.)
Communication also includes knowing who you are communicating to. Blind advertising and mailings are not the best idea. A little market research—in the library or online—can go a long way. Surveys are also an excellent source of information about your market.
Communicating one on one with customers and allowing them to communicate with you is also extremely important—if not vital. (And when I say vital, I mean it can be a matter of life or death to a business.)
Communication is not going to be the answer to everything, but it is certainly very high on the list of things to do to make things better.
Personal finances:
Although the government and the companies producing consumer goods would like you to resume consuming at all costs, that is not necessarily the best strategy for one’s personal finances. Sometimes one has to consider what is best for oneself and not sacrifice oneself for the common good. (Consuming is not usually thought of as a sacrifice, but in this case it could turn out to be that way.)
Some old strategies (and clichés) are still true. You should have savings. You should budget your money. Don’t put all your eggs in one basket. There’s no free lunch. Get rich quick schemes don’t work.
Making more money is also helpful, obviously. Investing in education is good for that. Or, some people start businesses on the side, get a part time job, or figure out other ways to make ends meet.
It is difficult to predict how the national and international economy will impact one’s life. Who knows if a particular investment will turn out to be good or bad? What unexpected event might happen that would throw off your calculations?
But there are things you can do to try to keep control of your situation. Having a big cushion (which is not all in one basket) to fall back on works well if one can manage it. Being able to handle problems when they come up is also a nice skill to have, if one has it.
Also remember the mustard seed, and don’t give up.
Usually an economy gets into trouble when there is too much debt in the system, and people can’t pay it off. The economy goes into a decline, and by various mechanisms (such as bankruptcy, or the action of creditors simply writing off hopeless debts), the excess debt gets washed out of the system. Then a recovery begins, assisted by renewed lending.
The perils of capitalism include the “business cycle,” which basically describes the action of the economy fluctuating between expansion and contraction. Many contractions over the years (and centuries) have been very painful, even catastrophic, and as time goes on, various governments have passed laws to try to prevent, modify or soften many of the conditions associated with the contractions.
However, you might as well try to legislate against old age. It just won’t work. The business cycle will have its revenge. Some things can be done to delay a contraction. But it just might be that the contraction, when it comes, will be much worse than it would have been if we hadn’t delayed it.
Currently, some debts are being washed out of the system through bankruptcy and such. The real estate bubble is slowly deflating, despite various government efforts to prop it up and ease the pain. “Troubled assets” in the banking system are being “resolved” by government action.
However, the big problem now is that government debt is growing at an alarming rate, and markets are showing investors’ concern about that. Surveys indicate most voters favor cutting the federal deficit, but many in our government want to spend more to stimulate the economy. There is little agreement amongst the so-called experts about whether that would make things better or worse.
These things are important when you vote, but what about now, in everyday life and business?
The lesson of the above considerations is that business and personal finances could be facing some headwinds in the immediate future. No one knows exactly how things will go, but it would not be the best strategy to just assume—or even just to hope--that everything will be hunk-dory by next January 1 (or some such date).
So, what is one to do?
Business strategies:
Businesses that are facing stresses can either (a) give up and go out of business; (b) try to muddle through and hope for the best; or, (c) try to do something effective to make things better.
There is plenty of advice about how to do (c), but if I may I would like to add another “big picture” suggestion:
Your most valuable weapon is communication. Communicating with existing customers and potential customers is paramount. Maintaining and using a mailing list (and/or e-mailing list) of existing customers can be of inestimable benefit to a business. There are also endless means of electronic contact available today—Twitter, You-Tube, etc, etc. (I can’t say I know how to use them all effectively myself, but they are definitely out there.)
Any and all means of contacting potential new customers should be explored: advertising, bulk mailings, etc. (Bulk mailings can be very effective, and cost effective.)
Communication also includes knowing who you are communicating to. Blind advertising and mailings are not the best idea. A little market research—in the library or online—can go a long way. Surveys are also an excellent source of information about your market.
Communicating one on one with customers and allowing them to communicate with you is also extremely important—if not vital. (And when I say vital, I mean it can be a matter of life or death to a business.)
Communication is not going to be the answer to everything, but it is certainly very high on the list of things to do to make things better.
Personal finances:
Although the government and the companies producing consumer goods would like you to resume consuming at all costs, that is not necessarily the best strategy for one’s personal finances. Sometimes one has to consider what is best for oneself and not sacrifice oneself for the common good. (Consuming is not usually thought of as a sacrifice, but in this case it could turn out to be that way.)
Some old strategies (and clichés) are still true. You should have savings. You should budget your money. Don’t put all your eggs in one basket. There’s no free lunch. Get rich quick schemes don’t work.
Making more money is also helpful, obviously. Investing in education is good for that. Or, some people start businesses on the side, get a part time job, or figure out other ways to make ends meet.
It is difficult to predict how the national and international economy will impact one’s life. Who knows if a particular investment will turn out to be good or bad? What unexpected event might happen that would throw off your calculations?
But there are things you can do to try to keep control of your situation. Having a big cushion (which is not all in one basket) to fall back on works well if one can manage it. Being able to handle problems when they come up is also a nice skill to have, if one has it.
Also remember the mustard seed, and don’t give up.
Subscribe to:
Posts (Atom)
