Behavioral economics is the latest trend, and it deserves some recognition for taking a lot of the boring stuff out of the equation. Rather than learning about GDP, trade imbalances, and how futures work, this discipline focuses more on why people make the buying, employment, and retirement decisions they do.
The premise is that people will predictably react to situations based on the economic impact the situations will have on them. The conclusion is that most people will do what they think needs to be done, first to survive and then to make things better for themselves. The problem for each person is to figure out what variables will take them from where they are to where they need to be or want to be.Not everyone is beginning from the same place, and not everybody wants to arrive at the same destination. So, while the objective is clear, it is the subjective variables that are problematic when we try to calculate what we should do next. In other words, there is no one answer for any of us, let alone for all of us. Even that which is important in some transactions may not be important in other transactions to the same people.
On a social level, we must determine how the overall good is served without it falling inordinately hard on any group within society. It doesn't do much good to solve one problem by creating another, and it actually puts us back if the problem that is created is worse than the problem that was resolved. Raising interest rates to slow rising prices that are being attributed to inflation rather than price gouging can be used as an example.
Low interest rates created a boom in real estate. Houses were moving so quickly that buyers were offering more than asking price to sellers and doing it quickly to beat other potential buyers who might bid more. Buyers became less concerned about whether the house was worth the bid, and more about how much they could offer based on the payment they could afford. In other words, people whose approved payment amount would amortize a $300,000 loan, began offering the $300,000 for houses that may have been on the market for $280,000.
This worked for buyers and sellers, but it didn't really work out so well for the people putting up the money and who were now sharing some of the profit with the sellers. By raising interest rates, rich people were able to make that same payment amount amortize a smaller loan amount. That not only drove some people out of the housing market, but it also meant sellers stopped getting bids over asking price and buyers were looking at homes for sale for lower prices than the homes they might have otherwise bid upon.
While raising the interest rate indeed reduced the price of housing, it did nothing to reduce the cost of housing for the consumer.
Rather than considering just the numbers in the prices and costs, behavioral economics is more concerned with how consumers will react to higher interest rates, and whether raising interest rates gives us the results we expect regarding inflation. Will consumers continue to buy houses at lower prices, or will they not pay the same amount for a lesser house with the expectation that interest rates will eventually go down again? Did raising interest rates reduce the price of groceries, gas, and medicine, or are the higher prices of these commodities the result of corporate price gouging and not inflation?
We have had forty years of Reaganomics. We now know that "trickle-down economics" would be more appropriately called "piss-on economics" if it were accurately titled. If you prefer, his vice president called it "voodoo economics" when they were competitors in the primaries. It has the same problem as every other economic theory that pretends a change in the economy will change human nature. Human nature doesn't change. Greed will seep in if it is allowed.
Even if something is 99.999% assured of compliance, that means 3,000 people will violate compliance in a country of 300,000,000. That is too many people who are willing to allow greed to ruin that which would otherwise work for everyone, including themselves.
Until human natures change, we are better off to deal with problems we have from where we have them with the resources that we have available to resolve the problems. I don't even know of another way to do it. However, if we are able to predict the behaviors of consumers with various options, then it seems we should be able to move forward such that we ease the pain that many people in the general population experience.
We have had forty years of Reaganomics. We now know that "trickle-down economics" would be more appropriately called "piss-on economics" if it were accurately titled. If you prefer, his vice president called it "voodoo economics" when they were competitors in the primaries. It has the same problem as every other economic theory that pretends a change in the economy will change human nature. Human nature doesn't change. Greed will seep in if it is allowed.
Even if something is 99.999% assured of compliance, that means 3,000 people will violate compliance in a country of 300,000,000. That is too many people who are willing to allow greed to ruin that which would otherwise work for everyone, including themselves.
Until human natures change, we are better off to deal with problems we have from where we have them with the resources that we have available to resolve the problems. I don't even know of another way to do it. However, if we are able to predict the behaviors of consumers with various options, then it seems we should be able to move forward such that we ease the pain that many people in the general population experience.
It is my suggestion that we can and should do what is best for people in general. It would not increase taxes if a small portion of tax money currently going to military contractors and corporate welfare were diverted to general welfare programs. Even if a quarter of the homeless people would try to mess it up for others, we would be able to weed them out as we help the other three-quarters of them that would use it as a springboard to economic productivity.
There are truths and fallacies in every economic theory. There is no reason to discount the truths of one theory over the truths of another just because we prefer the truths in one theory despite its fallacies. It would be better to accept the truths in each theory, reject that which is not true in both, and see how the truths mesh up when put together.
There will be exceptions, of course, but most people will do what they need to do before worrying about what they want to do. Using that presumption, we can anticipate how we would expect people to behave over economic changes, with the underlying premise that they will ultimately behave as human nature dictates, the most basic of which is survival.
We tend to think in lines. Most often we do so because we are trying to solve symptoms and not problems. Nature is comprised of spheres, not lines. In spheres, balance is more important than arriving at a conclusion without considering the effects the solution will have on everything else. Considering and predicting the effects solutions will have on everything else is what behavioral economics is about.
There are truths and fallacies in every economic theory. There is no reason to discount the truths of one theory over the truths of another just because we prefer the truths in one theory despite its fallacies. It would be better to accept the truths in each theory, reject that which is not true in both, and see how the truths mesh up when put together.
There will be exceptions, of course, but most people will do what they need to do before worrying about what they want to do. Using that presumption, we can anticipate how we would expect people to behave over economic changes, with the underlying premise that they will ultimately behave as human nature dictates, the most basic of which is survival.
We tend to think in lines. Most often we do so because we are trying to solve symptoms and not problems. Nature is comprised of spheres, not lines. In spheres, balance is more important than arriving at a conclusion without considering the effects the solution will have on everything else. Considering and predicting the effects solutions will have on everything else is what behavioral economics is about.
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