stages of development - International Business Growth Radio Network

FOUNDER SERIES: S10.1 - ECONOMICS FOR BUSINESS OWNERS - WILLIAM EASTMAN

8/7/2022

We are going to experiment this season with a combination of topics like economics and guests. Last season our theme was "Recession Proof Your Business" and that will continue through the year.

IBGR.News, our business and economic news division, has been forecasting an economic contraction since June of 2021. It now appears we successfully read the tea leaves.

EPISODE 1: Season 10
Before we start into Economic Models and Business Cyles, let's get a few terms out of the way.

Topics:

Supply - what and how much is available
Demand - what do people need and want to buy
Price - the balance between demand & supply
Perfect Information - access to and accuracy of the information
Animal Spirits - degree of confidence people have spending money as oppossed to hording it until a better time
Inflation - the devaluing a currency through over printing
Demand Destruction - a significant increase in price, whether inflation of supply/demand imbalance, that stops customer purchasing

EPISODE 2: Econ Basics - It's All About the Model
Economics is are simple. It is the understanding the behavior of markets, countires and people with an emphasis on decisions. The difference between the numerious 'theories' of behavior range the gambit from rational to emotional.

The rational models believe that people, the ulitmate players, make decisions in their best interest based on the information available. When they don't the government should intervene. The emotional models believe decisions are feeling based with rationality playing a role in justification. It is a belief that ultimately people will make decisions than government.

Thanx to zerohedge for the following definitions.

Topics:

Rational Models
- Marxism: a capitalist economy is not just flawed, but naturally self destructive and therefore requires outside intervention and regulation to be consistent with prosperity. In essence, the capitalist class will obtain exceptional power over the labor class resulting in massive inequality and general hardship.
  - Socialism: derivative of Marxism where the state owns most of the means of product with some private enterprise activity
- Modern Monetary Theory: capitalism is naturally flawed and can only operate at full capacity if the government is used to permanently fill any demand shortages that exist.
- Behavioral: the economy is complex, dynamic and uncertain and is being navigated by imperfect participants. Because of this it could be appropriate for government intervention at times.

Combination Models
- New Classical Economics: rational agents are always making optimal decisions and firms are always maximizing profits, but the economy is often shocked by “real” effects like unanticipated policy changes, changes in technology or changes in raw materials.
- New Keynism Economics: economic agents are rational, but markets are imperfect due to phenomena such as “sticky prices”. This can result in broad market failures leading to recession.
- Post Keynesian Economics: capitalism exists on an inherently unstable foundation and will at times require some forms of government intervention to achieve prosperity.
- Market Monetism: the economy is unlikely to reach equilibrium without a permanent nominal targeted income targeting rule in place.
Emotional Models
- Classical: classical economists were the emerging capitalists from the age of feudalism. They saw outside intervention in the markets (such as regulation and government) as a disruption to the natural order of markets.
- Austrian: the less the government is involved in the economy the better it will perform; the concept that social phenomena result exclusively from the motivations and actions of individuals

EPISODE 3: Econ Happens Within a Business Cycle
Each of the previous models must operate within a business cycle with the exception of Marxism - there is no real market. Since government controls supply and demand, and therefore price, the economic cyle is a function of the goverments response to the global business cycle.

The role of the business cycle is to reward productivity and innovation to achieve growth until the quality of decisions decrease creating bubbles. When a bubble bursts the business cycle cleanses out the bad decisions to better utilize investments in productivity and innovation.

How long and serious is a function of government intervention in the cycle which impacts supply and/or demand and therefore distorts price. Business cycles left unhindered are swift and long lasting (expansions) and contractions short and painful.

Topics:

8 Stages of the Business Cycle
- Expansion
- Equilibrium Point
- Bubble
- Crest
- Contraction
- Eqilibrium Point
- Recession/Depression
- Trough

EPISODE 4: Where Are We Today & How To Handle It?
This is based on a management approach we developed over the years and advice provided to consulting clients. It is based on the premise the business cycle is outside the control of individual business owners.

The only control we have is our response. During an expansion the owner's focus is on markets in the pursuit of revenue. While in a contraction the focus shifts internally and bring costs under control while holding as much revenue as possible.

Topics: