I was home with a migraine yesterday afternoon and happened to have the TV on, which was tuned to one of those mindless daytime money shows which are a handy way of taking your mind off of the temporary belief that you are dying. Anyway, someone was bemoaning the fact that Americans are negative savers, which, despite continued strong economic and job growth, is apparently one of the signs of the apocalypse or something.
I was about to pride myself on my own saving and engage in a round of self congratulation and smarmy sense of being “different,” when I realized that I too was a negative saver. I think I save a lot – every month, money goes into the house, Roth IRA, 403(b), and my online brokerage account. In case of emergencies, there is my “Armageddon Fund” of gold Krugerrand and cartons of Lucky Strikes (cigarettes are historically good money substitutes). However, despite all this apparent “saving,” none of it actually counts as saving (according to the government), and even though I pay off my credit cards in full every month (and “save” some additional airline miles); the fact that my credit card balance exceeds the amount in my checking account for half of the month makes me a negative saver.
The savings rate is supposed to be a knowledge process – that is it should tell us something about how much people are actually saving. However, since people “save” differently than they used to, the government’s measure of savings is no longer terribly accurate. The same can be true for the different knowledge processes used in business, which can just as easily stray from what they are really supposed to be measuring. For example, speedy throughput is a lousy measure of success if it is just building up inventory. Indeed, even sacrosanct measures such as cost or P&L may still be misleading if they fail to account for benefits that are measured elsewhere. An obviously unprofitable division of a large conglomerate only narrowly avoided shutdown a few years ago after business leaders realized that it served as one of the only buyers of products from one of the business’s other most profitable divisions. The seemingly hapless business was actually creating plenty value for the company, but the measurement showed up elsewhere.
You can’t make good decisions without good information, but we sometimes don’t bother to look how this supposedly “good” information is gathered. Like with savings, knowledge systems are notorious for failing to quickly add new variables, while slow to discard irrelevant or fading old ones. So the next time you look at the measurements you use or hear someone throw around a number that reportedly “means” something, it might be worth thinking about the content and usefulness of these knowledge processes – you might be saving more than you think.
Recent Comments