The Economics of Shock and Awe…

Fuel Shock

While the phrase gained popularity as the moniker of George Jr’s sequel to Operation Desert Storm, the lead word “shock” has come to be defined by the later (Awe) when it comes to things economic these days.  As one can’t seem to turn around without hearing the word “shock” coupled with a noun to explain our “Awe” of something and not in a good way.  So how did “shock” sneak into our slang lexicon of consumer centered economics and what is the driver.

First, let’s consult our ole friend Merriam Webster as to the meaning of the word “shock“, as we will see:

1. To strike with great surprise and emotional disturbance.
2. To strike with disgust; offend.
3. To induce a state of physical shock in (a person).
4. To subject (an animal or person) to an electric shock.

So when we look at the current headlines and see phrases such as “Fuel Shock” or “Food Shock” we can see it’s built upon the sudden occurrence of an outlying event.  In that it’s a function of “time” coupled with “change” with both leaning toward the rapid side of the equation much like the lobster who finds its way to dinner via the boiling pot on the stove.

However what is different today which allows for such “economic shock” to enter our causal systems?  After thinking about it for a bit, the answer hit me as I was driving down the road to the airport looking at my speedometer as the answer was right in front of my face all the time and it was a good one.  So think about it this way, the drive to the airport for me is two hours on average with most of the trip via “freeway” meaning I can not only keep a higher rate of speed, however also a more constant pace too.

However at the very end of my commute, the freeway will dump me off on some surface streets which have much slower speed limits as well as traffic (stop) lights.  So if I were to check my speed say 5 minutes after leaving home and record the number it would be 70 mph (miles per hour).  Then 5 minutes prior to arrival repeating the same process it would most Likely be only 25 mph, so if the two are averaged you would say my speed was only 47.5 mph.

However if my sampling changed to every 15 minutes, my average speed would jump from 47.5 mph in the prior sampling, to 63.4 mph or about a 27% change!  In short the reason for “shock” is greater “resolution” which is driving the new world order at a faster pace with greater abilities. It also drives a higher likely hood of what I refer to as “System Shock” by affecting multiple “causal systems” at once.

Here is a working example, if a store wanted to say add 10% to every product they stocked, in the past it would be a laborious task as they would have to re-price thousands of products on the shelves.  Now with bar codes, they just change a number in a computer and boom, instant price hike across the board.  Whereas before they would run out the old stock and up lift the new adding a delay to pricing loop, as until the old stock sold you were not impacted by the rise in cost.

Now instead of just one product, think of the viral impact of it being every product at once in a grocery store.  Then expand that to the gas stations and so on and you start to see the risks building in our economic systems as the higher the resolution, the less “dampening” and therefore the greater the risk for a “Black Swan” event.

About Joseph Campbell

As a strong believer in the fact that "people work for people", it has been a life driver to better to understand the complexities of the various aspects which drive efficiency within this axiom, especially the concepts of leadership. Supporting this, I have been fortunate enough to having experienced this as leader on a global basis over the last decade and half. During this time it has been clear there are three core drivers being Life, Leadership and Economics.
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