Sunday, June 22, 2008

The Economics of Stupidity

I love it when the experts get it wrong. It usually means that some self-evident truth maybe isn't that self-evident and maybe isn't even true any more.

Witness the gob-smacking rise in consumer spending recently. There is no good reason for it - the Economy is going to hell in a handcart, fuel prices are up, credit is crunched. Many reasons for it have been proposed by puzzled, slightly embarrassed economists, but none have been terrible satisfying. I believe the following force is at work :-

Slack-jawed, reptilian levels of stupidity.

I like to watch reality cop shows on TV. With the advent of Freeview digital TV and digital recorders I could (and often do) spend too much of my life watching "Police, Stop","Street Wars" "Car Wars" and (my favourite) "Police Interceptors". The reason I mention this is that on one of these shows a guy was stopped by police for speeding at 100mph + on the motorway. His excuse ?

"I was running out of petrol and wanted to get to the services quickly".

I think this is a good metaphor for the current anomalous spending boom. If you are running out of petrol, a sensible person would slow down to conserve fuel (55 mph is the most fuel efficient speed) and then turn-off anything (like the aircon) that might burn fuel. Then they'd drive more carefully than they ever had before, avoiding wasteful harsh acceleration in case they needed to brake wastefully hard.

That's a sensible person - a lot of people it seems would simply floor the accelerator and trust to luck and an ignorance of basic Physics.

In short, Economics assumes rational behaviour by large groups of people. Anyone who attends football matches knows this is something of a long shot. I think it's time for economists to realise that Consumers do not always react to bad economic news by belt-tightening but sometimes by putting their fingers in their ears and shouting "LA LA LA I CAN'T HEAR YOU !" and heading for the shops.

1 comment:

Kenny said...

I must confess, I do give it a "la-la-la". I fail to see what possible good my not buying a new whatever can possibly do for the economy. Or what harm for that matter. And to be honest, the government have more control over my finances than I think is fair. I play by their rules but I'm not adopting their religion.

Surely there are easier targets for slowing down/speeding up an economy than rattling the already empty pockets of the masses?

More fundamentally, this is a prima facia case -- inflation rising while markets drop - 30s and 70s combined. There is no magic empirical bullet. We pay people lots of money to fix these things. You'd think they'd think a little deeper than shortcut "community chest" cards.

I nearly threw in some more Latin there but that would have been gratuitous.