Sunday, December 28, 2008

Market Forces

We’ve been hearing a lot about “market forces” in the news lately. A lot of people, including the self proclaimed experts, don’t understand what market forces are and how they really work.

One definition of market forces is: “in economics, the forces of demand (a want backed by the ability to pay) and supply (the willingness and ability to supply)”.

That’s fine but it leaves out some critical information, such as:

1. Market forces are only clear to history.
2. Market forces only react to events, they never cause them.
3, Market forces don’t react to small leading indicators, only to big
changes or events.

You can’t manage an economy using market forces since you won’t really know what market forces think about a decision for months or years and by that time it’s too late to change anything.

You’ve got to have yet a set of tools to estimate the direction that current events will drive you.

The decision makers saw the same little changes that the workers saw but the decision makers thought “That’s too small to matter.”

Well they were wrong. They were looking at the wrong leading indicators, and drawing the wrong conclusions.

It’s not about blame, it’s about recognizing the decision makers who were wrong and those who were right (darn few) and to start listening to the ones who got it right! In a manufacturing process, when the end product doesn’t pass the quality check, you look at where in the raw materials or on the production line the product first failed to pass the quality checks. I the case of our economy it’s the end result of a lot of small decisions that turned out to be wrong.

Now companies are going to have to look at who, within their organization, was telling them “Don’t do that” and start listening! That person was right and EVERYONE who said “Yes, we should” was wrong. Who do you want to follow, the one who turned out to be right, or the one who gave you the bad advice?

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