For those who don’t have a lot of economics background, I like to use an analogy. I tell them; imagine you are in the business of competitive sailboat racing. Your success depends on two angles.
The first is how well you understand the capabilities of your boat. How good of a sailor you are and how do you make decisions when sailing your boat?
The second angle is what happens in the environment itself, meaning if there is a major storm brewing in the ocean at the time you’re sailing, then it is going to affect everybody on the water, maybe not in the same way but it will affect every boat in some way.
So, let’s go more in-depth on the first angle of economics where you are trying to understand how individuals make decisions and as a manager who understands economics, those decisions will impact your decision making.
Thus, it is really important to have a good understanding of your customer base and things that may affect their decision making.
In the second angle, you need to have a good sense of what the macro economic scenario is in your environment – for example unemployment rate is in your community could tell you how willing and able consumers are to buy your product, or service. Without this knowledge of economical trends, companies have a higher probability of making decisions that could affect the sale, or promotion of their product, or service negatively.
The next step from there is to put it in a framework that allows you to ask the question: what piece of the puzzle am I missing?
Although economics is an important piece of the puzzle, it is not sufficient. Students also need to have enough insights on how to use statistical methods and know how to use things like operational understanding, finance, and marketing together to create a complete picture. Without this type of thinking a good business person is incomplete.
I push students to keep an eye out for other ways of looking at data in their other MBA classes so they can gain more skills that will be valuable to their employer.
How Are Uncertainties Changing Economics?
Uncertainties have always been there, but I think now they’ve reached a different level.
For example, if you’re a business manager, you want to know how your customers are going to react in this new environment. Are they going to spend money and are they going to buy your product?
For example, there is uncertainty on how the Federal Reserve might implement their mandate, or how the government actions might impact the unemployment rate. All of these things create a lot of uncertainty.
However, I still think if you have a framework to think about the complexities and help you view these complexities you are in a much better position to find the right actions. That’s the benefit of learning economics because it teaches you how to think about things differently.
In my class, we talk a lot about how frameworks can be utilized to understand individuals and businesses decision making.
On the macro side of things, we use the framework to understand how the Federal Reserve makes the decision and how that decision plays into their overall economic situation.
So, while it is complex, it is not unknown. There’s a lot of things changing and the best thing you can do is to have a solid understanding and foundation of those frameworks and be able to quickly adapt and learn.
How has Economics Changed Over the Years?
If there’s anything that is different it’s the pace at which things are evolving. I think that’s what is accelerating quite a bit. There are a variety of factors, not to say the least, the nature of the interconnected world that we are in.
For example, if Japan makes a change on their policy on beef, then that has the potential to significantly impact the Midwest because we need to export beef.
So, the interconnected nature of the world is important because it causes a lot of changes.
How Can People Learn More?
If you have a long drive into the office, then you should try to listen to NPR’s Marketplace live, or podcast. It’s a great way to gain more exposure to economic concepts and stay tuned into what’s happening in the economic world.
If podcasts aren’t your thing, try reading your local newspapers money section. Not only will it help you stay updated on all current events, but it will also give you an opportunity to look out for economic themes taking place in the world around you.