Ted Hickman

Gaining a Better Understanding of the Economic Cycle and How it Affects Businesses

Have you ever asked yourself why it is that a group of say 5-10 economists, all highly educated as graduates of prestigious institutions, can never agree on the same basic economic concepts they studied, as applied in the real-world market? More interestingly, you get major business news channels featuring what is essentially a resident economist, who comes in weekly or more frequently to give their views as an expert analyst.

They give their opinion and sometimes predictions on what the market is going to do — opinions often intended as casual-but-expert investment advice for viewers, listeners, readers etc. In the event that those predictions made are around stock prices and the way the market is going to behave, even when they get it wrong, they’re still largely viewed as the experts their qualifications and experience suggest…

The answer is we appear to all have an inherent, basic understanding of the economic cycle and how it affects business. However, gaining a better understanding of these inner workings of this economic cycle can go a long way in solving what is essentially the collective problem of the fair distribution of wealth.

This is not the advocation for or against political and economic systems such as socialism over capitalism, or vice-versa, but rather a required lateral view of the entire point of enterprise. More so, it’s a required lateral view of the intricate micro- and macro-processes that make up the entire point of enterprise, i.e. human development through the need for survival.

Generally speaking, we do appear to be in harmony with regards to the whole point of enterprise, a conduit of which understanding is epitomised by individuals coming together to form and run a company. Many disagreements may ensue as part of the day-to-day operations, but the overall consideration of the general direction in which that company is headed ideally has everyone in the same boat…

The economic cycle is where the uncertainty comes into play though, because at the end of the day you simply cannot say with 100% certainty that the huge customer base you currently have is going to still be in existence and ready to buy merely next week. This is why you get differences between shareholders, employees, or any other individuals making up an organisation and sometimes you get these differences in opinion among what should be a united group within the organisation.

Example, it appears as if at some point in time, the Indian e-commerce company Snapdeal, was clearly headed for insolvency and subsequent liquidation, but the reports suggested that the top brass were conducting some kind of hedge experiment which would have them coming away financial winners regardless of what happens. Are Snapdeal shares an indicator of the company’s success or failure, when some employees can go into work every day sure of the salary they’ll receive?

We know that the economic cycle has peaks and troughs, but unfortunately we can never really predict what the wavelength of the cycle will be, so that’s why what sometimes appear to be competitors can step in to save failing companies from liquidation. Such harmonious collaboration is better for the market and economy at large.

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