As countries deal with the fiscal consequences of the COVID-19 pandemic, media commentary is primarily focused on the economy and the future. From the perspective of small business owners and working individuals, the economy is a sea of meaningless statistics and predictions made by people who generally get it wrong.
Any economist who could accurately predict the future state of the economy, marketplace or interest rates would not make those forecasts public; instead, they would keep this information to themselves and use it to become wealthy.
Nassim Nicholas Taleb sums this up well in his book, The Black Swan: “The problem with experts is they do not know what they do not know.” This has been apparent to me for a long time. Many of the “professionals” I meet think they know all about business because they have been to university and obtained a degree. On the other hand, tradespeople – plumbers, electricians, carpenters, etc. – know there are things about business they don’t know, which is why they seek advice and then follow it. They do not argue with the advice. They ask, “What do I do, and how do I do it?”
One of the most often-used measurements in the economy is GDP (gross domestic product), yet very few people understand what GDP is. Some years ago, in Australia, I went into a department store and bought a new Italian suit for $600 or $700. I thought it was my lucky day because I got 40% off. As I was driving home, the GDP figure for the previous quarter was released, and it occurred to me that in the next quarter, my Italian suit would be included in the GDP, including the portion that went to the tailor or factory in Italy. Similarly, the money we pay for all manner of imports goes into our retail sales. Yet a whole range of vital but unpaid activities – such as grandparents minding children, families looking after disabled children, and volunteers working for fire services, charities and sporting organisations – are not included in the measurement.
The only economy that matters is yours, whether it is your business or personal finances. The nation’s economy is and always will be made up of millions of individual financial stories. The economy will not affect these stories in a big way, but individual stories can affect the economy significantly.
We are in a time when getting clear on our personal finances and managing them – earning, spending, saving and building reserves effectively – is so important. The government may want you to spend money to boost the economy, but you have to think about this in terms of their economy. It is more important for you and your family that you focus on what’s best for your economy.
If you’re unsure what is best for your economy right now, email me at email@example.com.