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International Business, Small Business, U.S. Exports

The Global Economy: A Greek Tragedy

What’s Wrong with this Picture?

Let me get this straight…

A prime minister in Greece suggests a referendum on their country’s bailout package, and the Dow drops by 2.5%? So, if you had a 401K of $100,000 tracking exactly to the Dow, you just lost $2,500 in one day… because of what an idiot in Greece said… Are you kidding me?

Sure, the almighty Dow will eventually rise again as this Greek tragedy comes to a boring conclusion, with the Greek PM committing political suicide. That’s not the point.

The point is that the global economy is unstable. If the PM of Greece can open his mouth and make global markets crash, this is certainly not a viable global economy. We need to come back to reality and fix the problem. What’s the problem? The global financial markets are disfunctional.

Academics can dispute me here — and I welcome their debate — but economics is nothing more than a social science. It’s not about numbers. It’s about people and how they react… or how they are supposed to react… to changes in the economic environment. Example: If interest rates go down, savings will go down and stock prices will go up. This assumes that people logically will pull their money from a bank savings account at 2.5% if that money can average a 10% return in the stock market. Perfectly logical. The problem is that 99% of people on the earth do not understand this logic. They just move with the tide, as dictated the global economy.

Answer this question: I would assume that most readers have savings accounts. When the Fed (or other central bank) dropped interest rates, did you react by pulling funds from your savings account and investing in the stock market? If you answer “no”, you are in-fact refuting the laws of economics. How many people answer yes? My guess is 2%. Not enough to justify the wild swings in the stock market.

Economics is not math. Economics is not a hard science. Economics is a “soft science”. It’s about how people react to a given situation. If you think that most people react “rationally” according to the laws of economics, then you are drinking the Kool Aid of economic theory. (Link provided to explain the American Kool Aid metaphor.)

In my article, Small Business of the World Unite, I stood on the soap box to insist that small businesses should not fall into the trap of stock market follies. I feel that small businesses (not big businesses, not Wall Street), need to lead us out of this “economic” mess with common sense.

Think about it. By avoiding the stock market insanity, small businesses can prop up our world economies with common sense business strategy. The solution is about people. It’s about profitability. It’s about good business practices. That’s why small businesses survive and grow. Let’s apply this strategy to the global economy and see what happens. It certainly can’t be worse than our current situation.

I look forward to hearing from those economists out there… Oh, and by the way, if you are an economist with less than 20 years of experience in the real business world, don’t bother joining the discussion… That should eliminate about 90% of economists.

Article by Ray Hays, Member Arizona District Export Council. All rights reserved.

Ray Hays serves as an international consultant for businesses that wish to enter new global markets or expand current operations abroad.

Click here for more information on consulting services of Ray Hays.

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About rayhays

Ray Hays is an international executive and Member of the District Export Council of Arizona. Ray has over 20 years experience in franchising management, international business development and small business growth. He has field experience in over 50 countries, working for global market leaders in the service sector. He holds an MBA from the Thunderbird School of Global Management and a BS from Georgetown University.

Discussion

4 thoughts on “The Global Economy: A Greek Tragedy

  1. Ray, what you are showing with the analogy to a Greek tragedy is that business and investment strategy to be successful needs rules and leaders to illustrate those rules are worth following otherwise everyone turns into either be a follower or a panic merchant.
    It is important to not over think all this as otherwise you break to golden rule the rules that sufficiently clear that people can understand and follow them. The concern equally is that by placing rules in place, each business person and investor needs to understand the basis for why those rules were created and know when occasionally the circumstances are so extra that the rules do not apply. Without this the sort of rational investment strategy that you outlined and many other rules are then discredited and the market is turned in to a panic.
    This illustrates why so many delegate the entire decision making process to a dysfunctional market because those people think that the dysfunctional market is actually setting and undertaking the rules that need to be followed instead of realising that the dysfunctional market is failing to follow the rules.
    Your article asks in essence how to break the cycle between a market lead by the irrational panic and rumour such as the Greek government’s initial decision to seek a referendum (later cancelled) and a market where time is taken to assess the odd and the unusual (like the Greek referendum) and not jump to a decision without persuasive logic.
    Due to the fact that some people in fact ‘short’ this type of dysfunctional market and make money due to that fact , the chance of quickly making a change to return to a rational market will not happen but as we are now in an age of near instant communication it is now in the hands of the experienced economist and business leaders to repeatedly high the error of the Greek tragedies that happen on a daily basis and eventually lift the awareness of the real rules that should govern the market and investment strategy. Then the ‘little guy’ can be more confident and not see his/her 401K dip in value for no good reason.
    Alan Branch is part of Global Franchise Partners an international group who take successful businesses into many overseas markets and aim to set the rules that make the investment sound and profitable.

    Posted by Alan Branch | November 7, 2011, 1:29 pm
    • Sage advice. Overthinking it could certainly turn you into a doomsday theorist. I do believe that we will soon begin to see the non-Wall Street market forces coming to bear. The Occupy Wall Street movement, while not clear in its plethora of goals and interests, does underscore a grassroots rejection of the status quo in the markets. Many of the market rules go back to the lessons of the Great Depression. With the today’s globally linked world, is Wall Street (read all global financial markets) evolving fast enough? Or perhaps too fast? Do the old rules still apply? Will the financial markets simply evolve to fit the new reality, or will something completely revolutionary take its place? Time will tell.

      Posted by rayhays | November 9, 2011, 11:44 am
      • Ray:
        Your article underscores a plain and simple fact: the workings of a Global Economy are being misunderstoond and therefore rejected by a great number of main amd marginal participants. You have missed the point and the scope of the resignation of the Greek Prime Minister. The point is simple: the politics of PARTISANTSHIP and/or STRICT IDEOLOGICAL GOVERNMENTS ARE DEAD. FINITI. KAPUT. If you or a Greek citizen or a Bolivian Citizen expect from now on or in the foreseeable future to be protected, supported or otherwise MANTAINED by a Government, ANY GOVERNMENT, then you will have to pay a very high price for it. The SCOPE of the Prime Minister resignation is NOT that of the importance of Greece in the context of the European Economy or for that matter the wORLD ECONOMY. The scope of it is simply this: that European Governments will no longer be able to continue to mantain a Social Democratic network of VAST Benefits “ad infinitum” WITHOUT ANY CONSEQUENCES. If this lesson is being missed now, you will not have to wait much too long before the SAME HAPPENS TO THE USA.
        The markets are very FUNCTIONAL. They are working fine. The markets are punishing those that do not hesitate to go deeply into debt to MANTAIN THE STATUS QUO. And not just DEBT is at stake here. STATISM is also at stake. CORRUPTION is at stake. RIGID IDEOLOGY is at stake. The DYSFUNCTIONALITY of the STUPID POLITICAL debate between Right or Left or Center or TEA PARTIES and/or the like is at stake. And the fate of the great majority of FUNCTIONAL economic entities in the FUNCTIONAL world is at stake.
        And maybe just maybe you should open up your intellectual powers to LISTEN to those economists that have LESS that your individually picked “limit” of less than 20 years of experience if only because they might bring a better understanding, through FRESH THINKING, of the NEW inner-workings of this New Functional Global Economy.
        Fernando Ampuero

        Posted by Anonymous | November 10, 2011, 5:20 am
      • Fernando – Thanks for your input and valid comments. I am limited on time today but will elaborate with a more detailed response soon.

        Posted by rayhays | November 11, 2011, 10:55 am

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