Is it TRUE-We live and work in an economy that is changing very rapidly?

One of the more popular and often repeated business and societal themes is that we live and work in an economy that is changing quickly.  This is especially true with individuals who make their living selling programs or seminars dealing and adjusting to rapid and turbulent change. 

The myth is partially true.  You must ask yourself the question of what is changing rapidly—is it trends or events?  

As Aesop illustrated in one his old and respected fables, every truth has two sides.   What you see on television, hear on the radio, and read in the papers are events, and these change quickly.  Events have always changed quickly no matter what time period you examine.  You might say by definition events change quickly.  On the other hand, economic trends change slowly but take on a life of their own.  They move to an extreme and then reverse themselves.  No trend lasts forever, but they can last for sometime.

An example of this is the very low saving rate of Americans.  This has not always been the case.  In the mid 1980’s, Americans save about 8% of their disposable income.  As the great bull market in stocks roared on into the 1990’s and the housing boom of 1999 to 2007, the saving rate declined precipitously.  This trend has now reversed to where Americans are now starting to save again.  This will have an important impact on economic trends. 

The dominant economic trend now and well into the next decade will be a deflating price structure.  There are a few reasons for this.  One is the increase in competition due to the rapid spread of technology.  This state-of-the-art productive technology allows the small entrepreneur to compete successfully with the large mega corporations.  This more productive technology has also spread worldwide.  Companies abroad, large or small, can now employ this latest technology to compete on the worldwide market for goods and services.  When competition increases prices must come down. 

Secondly, is the increasing saving rate for American households.  Think about it; there are only two things you can do with a dollar.  You can either spend it or save it.  As you start to save more in the margin, you spend less in percentage terms.  Meanwhile the worldwide production of goods and services is still increasing.  So what happens to prices or the pressure on prices when production is still increasing and people are starting to save more?  The pressure is on the downside. 

There is another important force in play that will also put downward pressure on prices and hence the revenue or sales of businesses.  The populations in the major western industrialized countries are aging.  This is especially true in Europe and Japan, but also in the United States.  Where do advertisers in print, on TV, and on the radio direct their advertising?  It is primarily to the population age group between 18 to 40 years olds.  As the population ages, they will tend to spend more on health care and vitamins, but less on other goods and services.  Again, this puts more downward pressure on prices and business profit margins. 

As a businessperson or entrepreneur, coping in this type of environment will require that you devote more of your energies and capital in building market share even at the price of a little lower return-on-investment.  On an individual or personal level, you should be focusing your attention on investments that are both liquid and safe.  The important question to ask yourself is how easily is it to exit this investment if I wish to?  Avoid investments that are both illiquid and difficult to exit. 

The old saying that cash is king is not completely true in this environment.  The correct say is that LIQUIDITY IS KING.