You and The Economy

You cannot rearrange the economy like you rearrange the living room furniture.  It is easy to rearrange furniture because each piece is independent.  You cannot kill a chair by moving the sofa.  The furniture is in harmony but not dependent.

Many people, and most politicians, believe they can rearrange the economy. They cannot.

The economy is more like rearranging the organs in your body.  While each has a particular function, they are mutually dependent.  Altering one, or emphasizing one leads to trouble.  Even death.

For those who believe they can improve the economy, give them a test.  How would they improve their body?

What is truly frightening is that the economy is far more complex than the body, yet people still want to tinker with it.  In its natural state, the economy’s parts rearrange, some grow while others atrophy or disappear.  Entirely new parts can appear, seemingly at random. They cannot be commanded to do so because the interactions are unknown.

Despite having no clue, politicians still want to “fix” the economy. Regulation, taxation, incentives, monetary policy, and safety nets. Everything will work then.

Unintended consequences abound in this environment.

Our own financial lives are easier. We have some personal complexity, but we must merely plug in to the larger marketplace to get along.  We cannot alter the marketplace much, but we can fit.

Our fit becomes problematic when we have unreasonable expectations.  The marketplace does not care about any individual.  It optimizes across the entire population.  It makes sense when viewed from 50,000 feet.  It makes less sense when viewed from 5 feet.  We tend to see the trees and not the forest and that can destroy our ability to be objective and reasonable.

To avoid the unreasonable expectation issue, each of us must learn more about how the marketplace works. What is rewarded and how do we attach to that?

The simple answer is that the marketplace rewards value supplied to it.  To be successful, we need to know which values are rewarded and most of all, the ones we can each provide.  Time is one variable.  Skill is another.  Skill is more rare than time so worth more.  Some skills are more rare than others.  Innovation is quite useful, but hard to learn.  The marketplace rewards leadership.  Persuasion skills are valuable.

Know your skills and your limits.

What does the marketplace punish.  Recall that the marketplace is objective and ruthlessly fair.  If you provide nothing you get nothing.  If you incur obligations like debt or children, you will be forced to honour those obligations from future earnings.  Be wise about obligations.

If you think you possess a skill you do not, trouble ensues.

Organize your affairs by optimizing how you attach to the market. Be wary of people who want to tinker or avoid connecting properly. The something for nothing plan. There is a word that describes them. Hubris

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact:  705-748-5181

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