The Great Recession of 2008-10 demonstrated the power that macroeconomic and financial forces have to alter the risks and rewards that frame choices for both private and public sector decision makers. Moreover, these forces completely overwhelmed the complex, micro mathematical strategies that were the rage of many investors. Yet many approaches to decision-making in finance and economics are more like cookbooks—they tell you how to prepare a specific meal, step-by-step, but not the fine art of being the gracious host that leads the guests through a wonderful evening. Too much focus is exclusively on the fine techniques of micro management, while ignoring the reality of the broader set of macro scenarios faced by actual decision-makers involving the many changes in economic growth, finance, and globalization that are ongoing. Is it any wonder that failure and surprise accompany the economic shocks of the day? Our finest financial engineers fail in the face of real world change.
Dealing With Cyclical & Structural Change
“You can’t argue with a hundred years of success.”
--William I. Walsh(The Rise and Decline of the Great Atlantic & Pacific Tea Company, Lyle Stuart, New Jersey, 1986)
Actually you can when the environment changes around you—not knowing that the economic world is changing and the world is always changing. In the early 1950s, A&P, which was then the leading grocery chain in America, ranked only behind General Motors in annual sales. Americans tastes changed. They wanted choices, not the limited availability associated with the Great Depression and World War II periods of thrift. A&P stores did not provide the level of variety, nor cleanliness, expected by the new, growing middle class suburban households that began to emerge after the war. America’s tastes had changed and the offering of A&P did not. (See Jim Collins, Good to Great, Harper Business, 2001, pp. 65-69.)
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