While growth and profits may seem like indicators of success, they often mask significant underlying issues. These financial gains can obscure inefficiencies within the business, excessive corporate bureaucracy, and unproductive employees.
Most notably, the rapid growth can hide the substantial value-draining effect of inflated management teams. In prosperous times, their roles can appear somewhat nebulous. However, during downturns, it becomes painfully clear that many of these executives might not be delivering much value at all.
As profits inevitably decline, senior management—typically occupied with extensive project reviews and complex execution requirements—seems lost. They are left vulnerable and bewildered, questioning what business they actually oversee. What have they been focused on all this time?
Where does the money originate? How is it spent? Over time, without careful oversight, the booming growth tends to drown out the answers to these critical questions.
And when those answers are most needed, it’s often too late. While management was distracted by unwieldy risk management processes and complicated approval protocols, the crucial financial insights slipped away. Instead of merely being caught in the flood of growth, they sink beneath a deluge of red ink.
Fat and Complacent
It’s true that nothing fails quite like success. A long period of prosperity can lead to complacency and spur premature market expansions that may jeopardize core operations.
Eventually, after a stretch of success encourages reckless decisions, fortune turns. Shortly after, losses accumulate like fallen branches in an unkempt forest. A single event can cause swollen salaries and extravagant bonuses to disappear in an instant.
Like corporations, economies can also become bloated and cumbersome. A prolonged period of growth can lead economies to rest on their laurels and accumulated wealth for far too long.
However, as the currency deteriorates, societal values similarly decline. Before you know it, the presidential election transforms into a farce of the democratic process, reflecting a deeply distorted populace.
One can sense the decline when respect for practical governance and common sense dissipates, paving the way for corruption and graft to dominate. Public discourse then focuses on trivial matters, such as regulating restroom access based on gender identity, rather than substantive issues facing society.
The reality is that miracle economies lose their enchantment eventually; their sparkle fades, and growth is undermined by irrational fiscal policies that burden the average citizen.
Brace for the Unexpected
In the United States and globally, the era of robust economic growth peaked over four decades ago. Insights from the Wall Street Journal highlight this reality.
“The quarter-century from 1948 to 1973 represented one of the most remarkable periods of economic expansion in history. In just a generation, millions were lifted from poverty into unprecedented wealth.
“At the beginning of this extraordinary era, two million mules still worked U.S. farms, Spanish homemakers used ration books for olive oil, and in Tokyo, three people often occupied a space the size of a parking spot to eat, relax, and sleep. Within a few years, millions of families owned homes, high school education became universal, and a range of government programs fostered an unparalleled sense of financial security.”
Sadly, this sense of financial stability has proven to be an illusion. When the economic boom faltered in the early 1970s, it coincided with the final severance of the dollar’s last ties to gold.
Since then, public and private debt has ballooned, often yielding lower economic returns. Despite soaring debts, GDP growth has stagnated.
Over the last 40 years, the deception of easy credit and inflated currency has maintained the facade of growth and affluence. However, recent realities—encompassing staggering debt levels, a weakened economy, a devalued currency, a disillusioned culture, a tainted political process, and rising civil unrest—have shattered this illusion.
Clearly, a shift is necessary. Just like a management team in disarray, an extensive overhaul is required.
Welcome to France in 1788. Prepare for the unexpected. Have you stocked your supplies for the challenging days ahead?
Sincerely,
MN Gordon
for Economic Prism
