Abuse of the Word
On today’s show, we’re going to dissect a word where you probably think you understand the meaning.
That word is used often. It makes headlines. In fact it’s a highly abused word, especially in the news.
That word is “Economy”. You’ve probably attended a talk on the state of the economy. I’m going to emphasize, “the economy” as if there is only one economy. Some economic indicators you’ve heard are things like gross domestic product, unemployment, workforce participation, consumer price index. All of these metrics are used to describe the state of the economy.
Let’s run a little retrospective on the past 12 months. The past year has been among the most tumultuous in economic terms in recent memory.
In the United States the economy experienced a loss of 22.36M jobs over an 8 week period from February to April. That amounts to 14.7% of the workforce lost their jobs. But these job losses were not uniform at all. The worst states were Michigan, Vermont, Nevada and Hawaii all having job losses exceeding 20% in a matter of weeks. Michigan was the worst at 23.8% of all jobs lost.
At the other end of the spectrum Oklahoma, Wyoming, Nebraska and the District of Columbia all had job losses less than 10%. Oklahoma lost the feast jobs at 8.5% of jobs lost from February to the trough in April.
Let’s look at the recovery from April to December. How many of the lost jobs were recovered? Well the results vary widely.
Some states like New Mexico only recovered 31% of the lost jobs during the pandemic. Texas recovered 64.4% of the lost jobs and Idaho and Utah recovered 102 and 103.6% of the lost jobs respectively. In Utah and Idaho, the economic downturn has been erase like it never happened.
So for the year ending December 31, 2020 Hawaii is down 13.8% for the year, and Utah and Idaho are up 0.6% for the year. There is no one single economy.
For those who have lost their jobs, and exhausted their unemployment benefits, they’ve burned through their savings, maxed out their credit cards and probably dipped into their retirement savings in order to make ends meet. For them, the current conditions are among the hardest they’ve experienced in their life.
For the vast majority, those who have jobs, who kept their jobs, they kept their incom
e. They didn’t have much to spend it on. The personal savings rate across the US went from an average of 7% before the pandemic to a peak of 35% during the middle of the pandemic before settling out to an average savings rate of 18% for the year. Not surprisingly, with all that extra cash in the system, few places to spend it, credit card debt reduced by about 12% across the nation.
You see there is not one single economy. There are a number of macro economic forces that are at play. They will disrupt the current situation. Imagine taking a chess board, throwing all the pieces up in the air and seeing where they land. Some of the chess pieces will land in a vulnerable spot. Others will land in a winning spot. That’s called luck. If we look to the random nature of that jump ball situation, we will be either winners or losers. But all of that neglects that we have agency, we have the power to change our own personal direction to adapt to the market conditions as they are on the ground. That agency means we can make conscious decisions to play defence and wait it out, or play offence and capitalize on the market conditions. So what does that mean?
Business is nothing more than a sport of solving problems that people are willing to spend money to solve. If you can be seen in the market as a credible solution to a given problem, you can do good business.
It’s not the market’s job to come to you. It’s your job to solve a business problem that people are willing to pay money to have solved. When you look at the world through that lens, the economy is irrelevant. In fact, there is no economy.