Why do good decisions tend to occur in bad economic times?

Why do good decisions tend to occur in bad economic times?

It’s human nature to try and boil down a complex issue to a few solid indicators. Candidate Bill Clinton was perfect on this point in 1992 when his campaign stuck by its motto, “It’s the economy, stupid.” As the first President Bush learned, and Barack Obama is learning today, a president is often judged by the economic performance of the country during his watch.

That’s a bit ironic because, just like the cattle cycle, the business cycle exists and the president tends to be either the beneficiary or the victim of it. This is especially true when one considers the lag time between policy and results. The first two years of a president’s term are often more affected by the decisions made in the last two years by the previous president.

Of course, presidents do affect the economy to some extent with their policies, but global macro-economic conditions hold more sway. Economic phenomena like the Tech Boom or the Financial Crisis had little to do with presidential policy, but the sitting president at the time gained the credit or the blame.

If you want to predict election results, or even how a president is perceived, the very best indicator you have are the current economic indicators. As cattlemen, we have a similar measure in cattle prices. When prices are high, we’re all great managers; when they’re low, we are not. Prices and their impact on margins may be the most important number relative to bottom lines, but they’re largely out of our control.

All operations try to manage their costs of production and risk exposure. They also try to maximize the price received for their product via differentiation, marketing and market timing. However, price levels are largely out of the control of individual producers.

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I’m guilty as anyone; we’ve received significant rain in April and I have growing grass to go along with high prices. That makes me a genius, right? Put me back in a drought situation or plague me with post-BSE prices, and I’m pretty close to being an idiot.

A strong market and green grass provide managers with access to all the options available to them. High prices allow you to position your operation for times of tighter margins and for future success. In much the same way, a growing economy gives politicians the opportunity to enact positive change.

Unfortunately, the result for both cattlemen and politicians tends to be just the opposite. Both groups tend to utilize the good times as opportunities to spend more dollars with little consideration of whether those investments are good for the long term. The only thing for certain is that, with high prices and/or a growing economy, cow herds and the government will expand.

The great irony is that politicians and cattlemen have to be more selective and more thoughtful in bad times. In fact, it could be argued that good decisions occur disproportionately more during bad times.

 

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