Just what is a dollar? Or: Is the macro micro?
For small business, I’ve been told that the “macro” issues of the business cycle are either inscrutable, irrelevant, or unavoidable—or all the above.
This is partly true, but it is also partly false, and those parts matter. Just think about home prices, which thanks to various forms of government involvement, have proven quite volatile. They may be on the cusp of proving it again, too.
Cycles shake down into changes in sales volume, unit prices, and the cost of productive assets—obviously (isn’t it?). Low interest rates might, through Cantillon effects, boost sales, but also might boost the cost of asset acquisition to meet the sales demand. The inevitable retracement can produce the opposite effect, with the individual firm the bag-holder with excess production capacity and no possibility of sufficient cost recoupment should they sell the excess productive assets.
I guess we can argue about just how inevitable retracement is, but we’ve seen enough ups and down where very expert people said “downs” were an historic artifact, only to be proven disastrously wrong within a year.
This question of ill-timed expansion or acquisition truly marks a heavy proportion of all the crises we’ve seen over multiple decades. Is this just bad luck to be endured? We think not, especially since it’s less about having perfect timing than in avoiding the absolute worst timing.
Talking about this in the abstract, or the general, is actually much harder than just working through it as it befits your own business specifically. In the process of planning you can grok the mistakes you can’t afford, as well as the opportunities you can afford to miss. It’s an iterative process, and practice makes perfect (or in real life, good enough, which is truly better than good enough). The manager who’s run detailed plans through a half-dozen annual intervals will write more predictive plans that target and realize higher profits than the manager who’s just starting out.
Does it REALLY matter? For dramatic illustration, look at corn prices before and since the abandonment of anything like a gold standard:
The prices and the relative volatility went bananas. That might be a change that won’t regress to mean, at least until some more stable currency finds it way back into our system.
Is it gold? Or, has it always been gold? It’s a different topic and beyond my pay grade, but a series of quotes from newest to oldest at least feel timely, and underline the volatility we’ve had to endure and likely will for some time:
“(I)f we went back on the gold standard...as it exists let’s say, prior to 1913, we’d be fine...the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States." --Alan Greenspan, 2016
“Gold is money. Everything else is credit.”--J.P. Morgan, 1912
“Woe to him who heaps up what is not his own—for how long?—and loads himself with pledges! Will not your debtors suddenly arise, and those awake who will make you tremble? Then you will be booty for them.”--Habakkuk 2:6-7