When COVID-19 hit, many predictions were made about how the global pandemic would impact the macroeconomy. Some of those predictions were accurate, some of them turned out to be false alarms. But when business leaders need to make strategic decisions with macroeconomic forecasts in mind, how do they tell the truth from the doomsaying?
Philipp Carlsson-Szlezak is the global chief economist at Boston Consulting Group. He also leads the BCG’s Center for Macroeconomics and regularly contributes to publications like the Harvard Business Review and Fortune.com. His book, Shocks, Crises, and False Alarms: How to Assess True Macroeconomic Risk delves into strategic ways business leaders can assess macroeconomic risk in the face of events like a global pandemic, war, or even presidential elections.
Philipp and Greg discuss the necessity for today’s executives to understand the macroeconomy, a new approach to judging macroeconomic risk, and why conventional models of the past might not be the best predictor for the macroeconomy’s future.
*unSILOed Podcast is produced by University FM.*
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Technology fuels productivity growth
31:53: What's important to recognize is that technology is only the fuel of productivity growth. That's what we call in the book [Shocks, Crises, and False Alarms]; it's the fuel, but you also need the spark. You need firms to actually embrace the technology and put it to use. And the spark—that's the tight labor market. When the availability of labor is low or when the price point is too high, that's when you first nudge firms and later force firms to replace their labor needs with technology.
How are leadership and macroeconomics connected?
06:30: Most leadership is about coming to a conviction of what the future will be like and adjusting actions around that conviction. Macro is no different, and the more we treat macroeconomics as a science, the worse the outcome will be.
How do we decide the optimal amount of history we ought to incorporate into our way of thinking about the world?
25:40: History has great case studies. It shows often coherent drivers that illuminate important parts of the story. But history is always idiosyncratic, and so applying it, extrapolating, or copy-pasting from history is exceedingly difficult, all the way to the sort of inevitability of the great power war. It's simply not true that a rising rival power always leads to great power conflict. I mean, most obviously, Britain was displaced by the U.S., and it didn't come to a head, or like a war or conflict in that sense. So, if you look at the patterns of some of these predictions, it fails right there in the sense that there never is a sort of template-like use of history. All of it is rather idiosyncratic, and that makes it both beautiful and treacherous as an analytical tool.
Navigating distractions with a strategic perspective
49:19: It's so easy to be distracted and go down every rabbit hole the financial press will lay out for you. Every data point is spun into disaster. For every true crisis, many false alarms. And how do we learn to navigate that with more calm and, frankly, a better experience? Well, it's by learning about that more strategic picture of how the thing works.
unSILOed with Greg LaBlanc