Inflation will bust your bubble
Depending on what we read or who we listen to, it sounds like everything is great. I was just chatting with someone who was telling me how great his 401(k) is doing.
I hated to bust his bubble, but I had to remind him that those apparent increases can be largely, if not completely, due to inflation.
It never ceases to amaze me that we can go to the grocery store, to the gas pumps or anywhere else and know that things are far more expensive than they were just a few years ago, and yet forget that when looking at the value of our personal finances.
Admittedly, a quick review of many measures can make it sound like we are doing very well. Profits are up. Revenues are up. What more could we want?
Unfortunately, those dollars do not have the purchasing power they used to have, and that’s really hard to get used to.
If I’m a manufacturing company, a more honest relative measure might be something like units shipped. Are we shipping more or less than we used to ship? If I’m a service company, something like the number of billable hours might yield a more honest comparison of one year to another. Although astute managers probably do this sort of thing, we never seem to see this kind of information publicly.
There are also other factors to consider.
If you buy a box of cereal, you’ll probably notice that some boxes are thinner than they used to be, meaning they contain less cereal. In such a case, the net weight of the product would be a more honest comparison.
All of this presupposes that honesty or the truth is valued, and that’s not always the case. I’ve often told high-level managers that the higher you go, the longer it’s been since you’ve heard the truth.
“What do you mean?” Well, think about it. When reporting up, don’t we try to make everything sound as good as possible, hopefully, without actually lying?
“Yeah.” Well, the person you’re reporting to very probably does the same thing. By the time it gets to the very top, a disaster probably doesn’t sound so bad.
We’re all trying to get ahead, and there’s literally no benefit to making something sound as bad as it really is. In fact, that can be a liability and derail your career.
I wouldn’t be at all surprised if some board members can honestly think everything is going well from the numbers they’re given. If they don’t know enough to drill down and get to a more meaningful comparison, they can honestly think life is wonderful.
Remember Enron, WorldCom and others a few years back? There were an awful lot of surprised people when they suddenly went belly up. Some of these included high-level managers within the companies, board members, stock analysts, stockholders and employees. Admittedly, in each case, there were people who contrived it and were aware, but it was often a too well-kept secret.
Desperate times breed desperate strategies.
So what do we do when our costs are rising and our customers can’t or won’t pay more? We have to try to make our operations more efficient without cheapening the product. Admittedly, this is really difficult and sometimes impossible to do. Even so, perhaps one of Scotland’s most famed and beloved authors, Sir Walter Scott, said it best:
“Oh what a tangled web we weave when first we practice to deceive.”
Dishonesty may delay the consequences, but it’s an illusion. We’re digging a hole that will be harder and harder to climb out of.
Each reporting period, we’ll need a more elaborate ruse until it becomes so complicated, we can’t even keep track of it all. Eventually, it all comes crashing down. It’s always better to face the music sooner than later.
When those companies imploded, yes, some guilty people went to jail, but a lot of innocent people got hurt as well. I can’t imagine that any of the perpetrators don’t wish they had never gone down that road. The problem is once you start, it becomes more and more difficult to get out.
Honesty isn’t just the best policy; it’s the only policy for survival.
Ronald J. Bourque is a consultant and speaker from Salem. He has had engagements throughout the U.S. and in 12 foreign countries in Europe and Asia. He can be reached at ronbourque@myfairpoint.net.
