Friday, May 22, 2009

Ironies in economic behaviour

I listed the following economic truisms last year. I repost them here, as a reminder to both individuals in regulating their future behaviour, and to policymakers designing tweaks in the economic system.

1. Quest for everything at the cheapest cost. Not only has this led to the occasional substandard or dangerous product, this has also led to global wages standardizing down instead of up. Do the math.

2. Quest for maximum utility. When it comes to scarce resources, every additional utility we squeeze for the present, we are taking away an equal utility from the future. Do the math.

3. Quest for the riskless reward. The recent derivative innovations has only led people take even bigger risks, while at the same time diversifying the risk onto everybody else.

4. Quest for overspecialization/division of labor. This has led to people putting ever greater focus on ever more specific tasks and objectives, each time leading to greater over-all loss of sight of how real value is created.

5. Quest for the person who will take the first step during uncertain situations. This has led to longer and deeper recessions than necessary, and also to lack of innovation during times when it is needed the most.

6. Quest for someone else to pay your liabilities. This has led to the proliferation of all sorts of insurance and health management firms that either end up in bankruptcy, or taking money from people while avoiding paying claims at all costs.

7. Quest for the greater fool. This has led to momentum investing in the stock market and in all other financial markets. Everybody hopes that there will always be that someone else who will bail him out after he makes that one last bold move at the “peak” of the market.

3 comments:

Forex said...

xex nice quest really

Rose said...

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Nicholas said...

I like what you had posted.. the list of economic truisms.. keep us updated with your new posts..



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