Why I started to think about it:
If you listen to my podcast or are an ardent reader of my writings then you have most likely figured out that I have become a student of economics, specifically macro economics. In one example of economic theory I find fascinating, I just listened to a show that discussed how and why the different generations perceive money. I became highly interested when the point was made that my generation, Generation X, was more fiscally conservative than the preceding and following generations (baby boomers, and Millennials respectively). The reasons stated had to do with major events that happened during our formative years, when we were in our teen’s and throughout the early parts of our careers. The points were made that the entire generation is more conservative because of the macro fallout from the biggest economic influencers our generation lived through. To put it bluntly we got hit with multiple wars, two financial crisis, and an era of free trade that was supposed to increase economic activity and drive wealth creation across the entire economy but did not live up to those promises. Woven together it makes for a compelling big picture story on how a generation’s experiences can define trends in thinking and behaviors across that that group. Yet, as compelling as that story was, I couldn’t help thinking, and so what? How does this knowledge change my life?
The Free Trade Example of Generation X’s reality:
For this article I’ll focus my example on comprehending the unique macro trends, the big picture if you will, of free trade over the last twenty or so years. We can look at geopolitical machinations, fiscal and monetary policy, and how they all work together to affect currency markets and ultimately jobs, but that’s an obtuse subject. I want to keep things somewhat simple, at least for this post. The free trade conversation is a bit clearer. It’s easy to visualize a factory being built in one part of the world and one closing down in another part. So, back to the show I listened to about generations and the big macroeconomic picture.
The point was made that the free trade agreements actually did what they were was supposed to do in shifting more money into the country and growing the overall economy, but not like it has happened in the past. Traditionally when there is more open trade, there is flexibility in the workforce. Jobs are slowly lost but generally speaking more jobs are created than are lost. To put a face on it, the local furniture factory may be shut down because of cheaper labor in some foreign location that can make furniture for less. The investors or owner of the displaced furniture factory replaces the business by some higher tech and usually higher paid manufacturing that can not be done overseas. The workers may go to school for a few weeks or months, then cross the street to the new plant and bam! Higher Paid jobs! Daddy is movin’ to a Cadillac-ak-ak-ak with his big raise. Except this time, unique in modern history, that it didn’t happen. Well to be honest it is happening. I know this from my day job where I work in workforce development but I also know it from paying attention to my surroundings and the news about broad trends. It’s just happening much much more slowly than people thought it would.
The lethargy in the economic recovery and wealth creation for the professional and worker classes comes from a few factors. It’s these factors working together that makes this point in history as unique in it’s own way as World War II was in it’s time. In this era we are witnessing the the ascendance of China and India and other third world countries as trading partners. This, in theory, is a great thing if you consider what is supposed to happen. The free trade rising tide is supposed to raise all ships. Using our example, the trading partners get wealthier because they now have a furniture factory generating cash where they had nothing before. After a short period of time we get wealthier because of our shiny new high tech and high profit factory that can service a larger customer base who can afford our products with their profits from their new furniture factory. It’s a win/win. Except this time we all aren’t getting wealthier. There are two big picture elements which are the cause of the difference this time around. They are the ubiquity of advanced information tools and sheer size of the displacement. I will explain both.
Let’s start with information tools. There has been an explosion of technology adoption around the world. Not the least of which is a world crisscrossed by fiber. Fiber everywhere means a financial bookkeeper in Pittsboro, NC, a bedroom community of Chapel Hill, may now have to compete with an accountant in Mumbai India. Let’s pretend for a second that the bookkeeper was servicing the furniture factory, and historically would have gotten the account for the bigger high tech factory. The bookkeeper would have had to hire another assistant to do the work of the bigger factory and jobs are created. Except now there is more competition from around the world. Going back to the Mumbai based bookkeeper, Who do you think is going to bid less for the factory accounting job? Who is more hungry? If you look at the data between the Raleigh Durham area and Mumbai India, you can see where the typical indians cost of living is much lower but they also have low purchasing power, which means they are potentially more aggressive about winning at business.
A little win at business for an indian equals a big win in their quality of life so they go for any win no matter the cost to their private life. My personal experience with Indians in business bears this theory out. It’s not just an accountant who may be affected, there is pressure on any job that can potentially be outsourced. This isn’t news to anyone who has been paying attention to the trends for the last ten years. Going back to our example, the bookkeeper is now forced to provide services for less, and can’t afford to hire an assistant, or if they do, they can’t pay the assistant as much as they would have without the increased international competition. Between this outsourcing, automation, and other rapid technological advances the economic benefits of free trade grow more slowly.
The second factor that differentiates this period in time is the size of the population in India and China vs. America. An entire country or industry sector can’t usually displace an incumbent sector in just a few years after a relaxation of trade restrictions. Usually it’s only a smaller part of an industry that is affected. Our economy typically has had the benefit of time to develop the ability to deal with the economic shocks. The problem is that even when a small portion of Chinese and Indian companies start competing aggressively, the net effect is highly disruptive due to the disparity in size. Going back to our example of the furniture factory, let’s say only 20% of furniture companies in China have the infrastructure and expertise to build a complete supply chain which can compete with American companies. The sheer difference in size means we went from minimal competition for jobs to massive competition. Remember China is almost 4.5 times the size of the US. So if ONLY 20% of their furniture industry population can become competitive it in a couple of years, that means in that short period of time china has developed a competitive industry that’s the exact same size as the one that has existed in America. To make matters more challenging their industry is poised to grow exponentially faster as the rest of their industry comes online. This multiplier can be used as a very rough rule of thumb for understanding all the challenges with Chinese economic ascendency.
But that’s ok, we can quickly create our high tech factory to replace the lost furniture industry? Unfortunately the speed and size of China’s growth stopped that from happening. Yes, in our example some Chinese companies will make furniture but some others will quickly learn how to make that new high tech product we were about to start building. This means the American investors just keep investing in China rather than build or invest locally, which makes sense as that is where the action, and profit, is. This isn’t all doom and gloom. American Investors do invest locally, but they don’t do it until there is a way to make more profit locally than internationally. It is business and the point of business is generating profit. We can never forget that fact. So the new economic growth happens much more slowly here. The top of the economic pyramid, the investors, makes money and the middle and bottom has had to wait it out until substantial growth returns. Going back to the local financial services guy, the Mumbai based bookkeeper now is going to sell their services to the Chinese furniture companies (making the Chinese company and it’s investors more profitable) and the American bookkeeper is going to class at night to be a barista to serve coffee to the few people who benefited from their investments overseas.
If you were to look at the populations of India, China, and America on a graph it looks a little like two big kids and a tiny kid playing keepaway. Unfortunately the ball that’s bouncing back and forth are jobs and the kid who can’t catch a break is the USA. The jobs never materialized but equity has flowed, and the macro economy has gotten much much better on paper when looked at total figures assuming you believe the financial reports and when the former president was talking about economic recovery. You should believe the financial reports because it’s true; the reality is that it is actually happening. The organizations are seeing productivity gains, the investments are becoming more profitable. This time all of the wealth generation is happening at the peak of the economic pyramid, with the CEO’s and the shareholders. They are benefiting from the trading and investing but the jobs, new jobs, have not materialized like they have in the past. This means the benefit of the free trade didn’t trickle down. The hourly and mid-level professionals haven’t seen the increase in anything except for their grocery bill. This led, among other things to the ascension of Donald Trump as President of the United States where he ran on a protectionist platform.
There are a million sources of information that align to my examples. I just did one based around manufacturing but you could also weave in financial markets, generational buying habits, etc.. You really can get stuck in the details and that’s something I want to avoid. This article is already too academic. So let’s go back to my main question: how exactly is knowing this going to help you? I’m sure you can think of many different ways so let me clarify that question for you even further: how is that information going to help you today? The simple answer is that I’m not so sure it is.
Traditional Arguments for understanding the big picture.
If you are in manufacturing and there are less factories being built, and the only jobs available are lower paid service sector jobs what exactly can you do to change that? I guess you could go back to school for two to four years if you can figure out how to keep paying the bills while you learn a new in-demand skill, assuming that new trade isn’t outsourced or displaced in some way. But that’s two to four years plus the time it takes to build up career equity in the new career. Goldman Sachs may like it, but it may not the best way to be effective immediately.
Going back to international investments: Where is the value in knowing that the trend is towards equity flows to growth markets if your not an institutional investor? I guess we can make the case that many people have retirement investments. But how much does the decision to switch your 401K mutual fund to an international growth fund really change your income (not at all) or your future retirement (only minimally)?
These arguments are good, but they all have a longer time frame associated with being able to benefit from your understanding of the big picture aka the longer term trends. So it makes sense for professionals, a tremendously intelligent class of individuals to just ignore the big picture. To focus on the task at hand, but that’s not what we do, at least it’s not our default.
Why do we do it?
It’s important to understand that there is an allure to comprehending the big picture. This desire comes from many sources.
Education: We are trained to see the big picture. There is always someone who does have to see the big picture.It’s valid to include an analysis and understanding of broad topics in training for those who are ascending to leadership positions in their respective industries. But as we’ve seen, with the flattening of organizations and the proliferation and growth of individual contributors, very few individuals get to those lofty positions. This means most people don’t really need to understand the big pictures. Yet,most professionals are generally trained to see the big picture through their education. The BA Black hole is real in part because bachelors level education focuses on the big picture. Interestingly enough our enculturation as a class to analyze the big picture starts earlier than the four year degree. I teach a business and technology class that’s designed for first year students out of high school who want to get a tech degree. A large percentage of the information in the textbook is about the broad nature of the technology industry. It’s about major trends and theories. It’s so steeped in theory that it generally misses the mark on the reality. There are many examples about how to make CxO level decisions but very few on how to engage day to day activities. The aggregate nature of this education, my class, and really all post secondary education is that the skill to automatically look for the big picture becomes a part of how you view problems. You can’t unsee it, you can’t be un-trained to just focus on your task and ignore all others. Using a military analogy, why would we train soldiers to think like generals when we just need them to go to one little area and destroy things? In the Military, they mostly train their enlisted troops to do just that, go and blow up things. Although I haven’t been through military training, It’s my understanding that there is very little taught about managing deployments over a battlefield to infantry and sergeants.
Media: It’s not just our education, it’s also in our informational culture. We keep seeing the big picture presented to us again and again. Analysis, deep analysis, and even more analysis. We are drawn to this media as continuing reinforcement of our education. Yes the media is filled with lots of incendiary garbage, but their is also a ton of big picture stories presented in places like financial channels, NPR, and anything that’s not a sitcom sinkhole. If there are stories on topics that can’t be changed, that won’t be changed, no matter how much we want, how much does it help making sure we feed ourselves with this information 24/7? We get it on our computers, on our TV’s, on our phones, heck it’s even on our watches.
Distractions: Another reason we do it is for the same reason people watch expositional reality shows, comedies or dramas. Life is tough, and we need a distraction from it. Kids, Health, Careers, Mortgages, Relationships, etc.. We are always looking for an answer, or something to distract us. Yes we can bury ourselves in entertainment media like video games or the next HBO drama du Jour but to many educated professionals there is something more valid about watching a news report on politics, economics, or world affairs than spending three hours with the next big Superhero Movie. We want to see it and we feel empowered because unlike the ‘honey, sweetie, baby’ girl from the waffle house, we can understand it. It’s easier to think about our solutions to the trends than to deal with our reality and immediate needs.
Does seeing the big picture Help?
So we know why we do it, but honestly does it help? Well Are you are on a fast track to senior leadership in your organization? Will you soon be able to make decisions that better align nearly every aspect of your entire organization to meet the challenges of a changing world wide economic and cultural landscape? Me neither. Bottom line is that understanding the big picture isn’t going to help you much. You will still have to try and hold on to your job every single day when the job market has become tough, which is most times. It doesn’t matter if you understand that the credit market softness from euro zone defaults means your firm’s bond rating is limiting their liquidy options so staff rightsizing is on the table. That’s meaningless if you have to figure out how to pay for the water bill and Jr’s braces.
Maybe you want to move. Understanding that a fed policy of raising interest rates to curb inflation coupled with a population exodus from your state means softness in the single family housing market in your price range is also meaningless. The bottom line is you still have to figure out how to sell your house for at least what you owe on it. The ‘why’ in why are there so few home shoppers is much less meaningful than actually locating a buyer.
It could be more personal. Understanding that the combination of lower cost data rates, better cpu process technology and inexpensive manufacturing increased mobile device adoption rates among younger generations is interesting. That knowledge doesn’t help getting your kid to put the damn phone down and crack open a book.
If you can see the big picture but can’t do anything about it what is the benefit? Knowing why you now have to play the political game to keep your job is independent of playing that game well and keeping your job. Take the manufacturing example from earlier. If there are no more engineering or marketing jobs because all of the factories went out of business from a series of trade deals coupled with the adoption of low cost automation tools, does that help your ability to find related work in the short term? If there are no jobs now or coming soon then there are simply no jobs.
Would not being able to see the big picture lead to a more fulfilling life?
If focusing on the big picture becomes a distraction from the realities of your life challenges, then maybe it’s best to not see it at all. Sometimes knowing the ‘why’ can actually get in the way because the focus isn’t on the ‘what’ as in ‘what to do next’. I think this is why some people are more effective in their lives and work even though they aren’t very intelligent. They don’t bother with the why’s of life because they don’t get it. They just focus on what they need to do and don’t let other things distract them. I’ve seen this effect with managers and salespeople. It’s the answer to the question everyone has asked at some point “How in the world did that idiot become the boss?”
For those that still feel the call to understand the big picture, I really can’t see where there is much satisfaction in understanding it other than the simple gratification of acquiring knowledge. For those that want to be effective at changing their environment, understanding the solution to the big picture issues without the ability to affect change will always be an exercise in frustration. Any knowledge that leads to unresolvable frustration is probably not a good candidate for something that will help you achieve the things you need to achieve. The answer then becomes: Yes, as in Yes, not being able to see the big picture may lead to a more fulfilling life.
What should you do?
I admit, it’s fun to think about the big picture. Like many professionals today, the education system has trained to do it and that training has been reinforced over the years by my inquisitive personality and readily available information. Like I said at the beginning of this article I’m fascinated with macro economic theory which is about as big picture as you can get. I also know that there is a little voice telling me that ‘this doesn’t really matter to the reality of your world’. That little voice is correct. So that leads to the question of: what you should do? I’m a visual thinker, so I gravitate to the seeing the forest through the trees analogy. Only this time the point of referencing the analogy is opposite it’s traditional use. This is the moment when seeing the size of the forest doesn’t matter. You have a tree that has fallen in front of you and you have to figure out how to go over it, under it, or around it. Maybe you just need a hatchet and you chop your way through it. The point is, the problem is in the here and now. It’s not 20 years from now, and it’s not 20 years ago. Presidents, and committees that make economic policy are so far removed from our daily world that it’s pointless to worry about them.
So the next time you turn on CNN and you see a story about trade policy, or the next time you flip through the kindle bookstore and you see a book with some title that reads “Understanding the housing market crash” think about what you are about to learn. You may still choose to watch the show or read the book and that’s fine. My advice is simply to not let it affect you any more than the latest episode of whatever new risque drama is being talked about in the office every week. The one thing the big picture analysis and the drama have in common is that for purposes of practicality, they are both just entertaining stories that have very little to do with the day to day reality of your life.