PFSD – An applied Austrian afterthoughtPosted: June 13, 2011
This is build on my post about Post financial stress disorder.
The brilliant economist Roger Garrison of Auburn U once told an anecdote to me (it might not have been his creation, my notes delude me on this subject). When asked how Hayek and Friedman differed in their respective approach to dealing with the Great Depression the following story serves as an illustration: Imaging a great big green monster showed up in Louisiana and started a rampage of destruction. Both economists are send to investigate. Friedman starts by examining how much is destroyed, how fast is it destroyed, when is it destroyed, was it eaten by the monster or trembled by it’s great feet? Etc… Hayek on the other hand, tries to solve why the big green monster appeared in the first place and if we can learn from this so not to have it reappear again.
This short story tells of one of the main lessons of the Austrian Business Cycle Theory; that the period of unsustainable growth fuelled by overspending and loans is actually just as big a part of the business cycle as the resulting downturn. So what does that tell us about avoiding PFSD in the future for your origination?
Honestly I am not sure yet. We still have a lot to learn, but what I believe to be important is to set clear goals and not care about much else. When selling you time as an employee the least you can ask for is knowing what you are expected to deliver and do.
That sometimes takes a backseat in times of growth and prosperity. Instead you just hire and hire. Then when the financial stress sets in you are stuck with no real knowledge of what the right performance are and who is contributing to it, so you just fire and fire (in many cases based on seniority, so essentially trying to get back to the pre-spend days). That leaves all employees and subsequently the organization as a whole, with a traumatic feeling of loss. So use you time now to set up systems that tells and reward the right behavior.