The New Real

Can the Dismal Science, help us through the ‘New Real’?

Over the years most of us have been exposed to the study and first hand dealing with the “Dismal Science”, which is the study of economics.

In the current period of uncertainty we can remember and utilize the principles of supply and demand to help us manage our businesses and to evaluate risks of our decisions. We must trust that time will allow markets to function but how will they function under the “New Real” is unknown at this time.

We should know that we are influenced by short run and long run conditions and it is too early to estimate what the “New Real “ is or will be.

Graphs, charts and funny looking lines of supply and demand curves intersect at a point of equilibrium where market price is thought to be located. This is a point of stability where supply and demand is balanced. Sounds good but we know that supply and demand volatility can change overnight.

It doesn’t matter what product market we are examining as curves vary depending on a lot of factors. This even applies to timber stumpage prices as each product from the woods goes to different outlets and markets.

The supply curves are thought to be more inelastic or less liable to change than the demand sector curves which are elastic as they can change very quickly. This applies to the economics of marketing a widget or pine saw timber. Knowing where you are as a supply side or demand side participant is critical. If you are a first processing point for stumpage you are probably a demand player but in the products that you produce you become a supplier. It all depends on where you are in the product flow process.

An unknown event such as the COVID-19 pandemic and major upheavals in all markets caused by a natural disaster creates higher decision making risk and uncertainty that can be at a world, national, regional or local level.

The take home message is that in the short run there will be some craziness in the balancing of supply, demand and prices across every product and market sector.

With market instability there are obvious opportunities for failure and success by figuring out how we can operate, survive and even thrive in the period of the “New Real”.

Sometimes we are the windshield and sometimes we are the bug. This isn’t the first rodeo for most of us entering the “New Real”.   We should take some very deep breaths and calmly evaluate each situation and continue to know that in any business venture the wolf is always at the door and deal with it accordingly.

Hope you will share this and add comments about your thoughts!

Edward F. Travis

 

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