It’s true in business. I finished reading the book “That Will Never Work”, by Marc Randolph, the co-founder and first CEO of Netflix. The phenomenal success of Netflix took years and countless hours of labour trying to develop a unique and profitable business model (before offering streaming content, Netflix mailed movies on DVD to its members).
This is true in sports where achieving a high level of skill requires thousands of hours of quality practice and continual feedback from a competent coach.
This is true at school where a student will have to invest hours of study to master a new subject.
This is true for our personal finances. Investing requires first and foremost that you have saved money. And saving is a good example of delayed gratification: it means that we postpone the purchase of the objects or experiences that interest us.
To some extent, this is also true for the economy. At times, central banks, including the Bank of Canada and the US Federal Reserve, have to make decisions that are painful in the short term in order to strengthen the economy in the long term.
I think that’s what’s happening right now. The marked rise in interest rates over the past few months, which could very well continue over the next few months, is painful. It hurts and could lead to a recession in the coming quarters. It is no doubt the cause of the sharp stock market correction of recent months, which considerably reduced the wealth (and the feeling of wealth) of North American investors and consumers. However, I believe that it is necessary for the benefit of the economy in the long term. For the economy to recover on solid foundations over the next few years, it is in my opinion imperative that the inflation rate be subdued and controlled.
This is why it is so important that the decisions of central banks remain independent of political authorities. Most politicians will want the US Federal Reserve to adopt accommodating measures in order to secure their next election. The decisions of the monetary authorities must be based on the long term.
Although it hurts in the short term, I’m glad to see that the world’s central banks are making the right decisions and keeping a long-term perspective in their efforts to tame inflation.
