Economics has devolved into such a sorry state that all we talk about on CNBC and the financial networks is: What is the Fed going to do next? Is the economy so shallow and impotent that it is all we have to talk about…or have we made it that by giving central banks so much power?
 

The Big Bang in modern economics came when free market capitalism converged with democracy only in the late 1700s. The Industrial Revolution in the 1770s forward, starting with the steam engine which first brought powered machinery to automate the arduous physical labor that had driven most work, free us up to use our brains much more. Democracy had its big debut in the U.S. in 1776 forward with the Revolutionary War and its Constitution that followed, and now most modern wealthy countries are capitalist democracies, and massively more affluent than in the late 1700s. Little House on the Prairie? Nice TV show… but I’m not yearning to go back there!
 

What is funny to me is that people see these two breakthrough concepts as similar, it’s all about freedom. The truth is that they are the perfect representation of what drives all of life and evolution: The play of opposites. Democracy encourages broad participation and input by giving everyone an equal vote. Capitalism rewards those that contribute the most innovation and growth, and exponentially so.
 

''FAILURE'' IS THE REAL SECRET

How does a simple battery create energy: through opposite positive and negative poles! What is capitalism but a system that allows and rewards people and businesses for new innovations. It allows them to create freely, but equally important, quickly weeds out the innovations that are not successful or that add real value. As George Gilder always says: “Failure” is the real secret to free market capitalism.

Everything in life and evolution is this play of opposites: success and failure, light and dark, men and women, booms and busts, democrats and republicans, young and older people, rich and poor, tall and short, light and dark, waking and sleeping. Should we strive to eliminate sleep as it appears to be wasting productive time from our waking state? People who don’t sleep for just 3–4 nights quickly become dysfunctional, crazy people. A lot happens in sleep that isn’t obvious to us.
 

So why do economists see their primary task as to avoid recessions, when the economy actually slows down and does heavy repair and maintenance as we do in sleep every night? And most great innovations unquestionably come in downturns, not upturns!
 

BREAKTHROUGHS REQUIRE FAILURES

The first three years of most decades is where we are most likely to see major recessions/depressions: 1930-32, 1940-42, 1960-62, 1970-71, 1980-82, 1990-91 and 2000-02. The 1973-75 and 2008-09 recessions were the exceptions, not the rule.
 

And who are these now all-powerful economists that head the central banks that now deemed to control the economy? Jerome Powell, Janet Yellen, Ben Bernanke, Alan Greenspan, Paul Volcker (the only good one from my view), and Mario Draghi in the Euro Zone. Have any of them have run a company, large or small, or started a new company that brought new growth to the economy? Most don’t even look like they’ve even had sex!

I quickly learned in my early business consulting career that the greatest breakthroughs in business and changes in strategy come out of failures. I ended up being a turnaround manager in several new ventures when they got in trouble. I could make more changes in months than most managers could in years, but only after such failures forced them to wake up and change or die!
 

FIVE IMPORTANT STAGES

I subsequently saw in my own economic research that the greatest technological and business innovations come out of recessions and depressions, not during booms when everyone is fat and happy. The last major set were in the 1930s and 40s- the era marked by the Great Depression and World War II: the atom bomb and nuclear energy, the jet engine, TV, the first computer (Eniac), and many more. Before that in the late 1800s “long depression” from 1873 – 1896: the combustion engine, automobiles, electricity, telephones, radio, and so on. What would modern day life be without these innovations and many more?
 

Innovation thrives in times of challenge, not in good times of boom and easy growth! The challenging times create most of the new innovations, and the booming times make them easier to expand into the mainstream.
 

If we had an economy with no recessions, we’d have an economy with little or no innovation. That’s another reason why top-down socialistic and communistic governments almost always under-perform. They get in the way of the “Invisible Hand” that the first great economist, Adam Smith so brilliantly conceived…you guessed it, in the late 1700s!
 

Here’s the big insight: How much could our leading, and mostly “academic” economists understand about the powerful dynamics of free market capitalism if they think their number one job is to avoid recessions? As Jim Cramer would explain: “They know nothing!” And ask yourself this question if you think the secret to life is always succeeding? When did you learn the most? From your failures or your successes?

Failure and success, just like booms and busts, and inflation and deflation, are the very powerful dynamic that drives free market capitalism and why it needs to be allowed to flourish with its own natural consequences without being overly managed by academic economists and politicians, who also often have deficits in real business experience.
 

Let me bring the quickest, most summary insight here without turning this article into a book chapter. You can break down a new product or technology’s life cycle into five stages: invention, innovation, growth, maturity and decline. The most important of those are the three when the overwhelming amount of growth occurs on this S-Curve model: the innovation, growth and maturity stages. And 80% of that growth (10-90%) occurs in just the one growth stage from 10% to 90%, in one-third of the S-Curve adoption cycle, and one-fifth of the entire life cycle when you count the invention and decline stages.























 

The 80/20 rule; wherein 80% of the results comes from 20% of the efforts, comes directly from the 5-stage product life cycle wherein the S-Curve adoption quickly proceeds from 10% to 90% in one stage, or 20% of the larger product or technology life cycle.
 

So how important is catching that 10% to 90% explosion in adoption that happens so quickly. It is everything! When I walked into Firestone as that Bain & Company consultant. Radial tires had just captured 10% of the tire market and American executives still saw it as an inconsequential niche market.
 

Michelin (France) and Bridgestone (Japan) were quickly threatening Firestone’s huge and mature bias tire business with fancy new radial tires that cost twice as much. Firestone saw this as a niche business that wouldn’t threaten that much and likely stay confined to about 10% of the market, 20% at most. Instead, they exploded from 10% to 90% in just seven more years as the S-Curve would dictate.
 

Why? The secret was, despite being twice as expensive, they lasted more than twice as long and were “safer” as they didn’t blow out often. Hence, Michelin still has commercials with a picture of a baby sitting in its tire. It only took consumers 7 years to streak up the S-Curve from 10% to 90% buying radials. And, as with all new high-growth new products and technologies, they come down quickly in cost with high growth and expanding scale. Hence, they ultimately become less expensive and take over the old product entirely, or near entirely.
 

FOLLOW S-CURVE PATTERNS

And S-Curves are always overlapping and replacing each other over time as this chart for Super Bubbles Every 90 Years shows from a very long view. It shows 45-year technology S-Curve cycles overlapping and forming more powerful 90-year cycles of bubble economies every two cycles.
 

If we at Bain & Company had not stumbled into Firestone when we did, they would not likely be in business today. By being just a few years late to catch this 7-year radial vs. bias acceleration they already lost share to Michelin and Bridgestone that would cause them to lose their dominant global leadership position along with Goodyear on the global scene.












 








 

The simple lesson here: learn to see and map your business and products on simple S-Curve and product life cycle patterns. I have found that you can estimate them effectively enough- even when you can’t find the perfect information to plot them.
 

And can we stop letting academic central bankers interfere with the most successful wealth creation process ever innovated?   EG  

Economy & Markets Chart - Projectable Pattern of S-Curve New Prodct.jpg
Economy & Markets Chart - Super Bubbles Every 90 Years.jpg