Last month I talked about goals and incentives (La importancia de los incentivos, y cómo el 99% de la gente (incluidos los directivos) no los entiende) and about how people are blind to the failure of their projects (La teoría del caballo muerto o cómo nos negamos a afrontar los problemas). Following those ideas, today I want to talk about the economic myopia of most people.
I don’t know if it is because I studied some economy or because of my experience in many organizations, but I can spot bad economic ideas from a mile, even if they are disguised in good intentions. But I don’t think I’m a genius. What surprises me is how most people accept or buy into «Troyan horse ideas«: sugar-candy proposals that will bring terrible results.
- Why do politicians always seem to create more economic problems when they intervene to «solve» the previous ones?
- Why can’t people understand that what seem like good ideas in the short term have bad consequences?
- Why do we insist in the same recipes that sound attractive but have proven wrong several times in history?
- Why don’t we understand that everything has pros and cons, and that there are no solutions, only compromises?
There many examples, like printing money, fixing prices, raising taxes and tariffs, taking money from people who work to give it to those who create nothing, doing a bad job for a customer, being dishonest, eating too much and exercicing too little, spending more than you earn, etc.
In this video we learn about the broken window fallacy and how it can help us improve our economic understanding of the world.
Some key questions that you need to ask every time you are proposed an idea:
- What’s been broken? Why? (Root causes, not symthoms) Have we understood how the problem was created?
- Is your proposal better or worse than the problem? Is it better or worse than other proposals? What other solutions have worked / not worked in the past? What are the pros and cons of each of them? Are you solving the problem provisionally and making it worse in the long term? What are the evident and not so evident risks?
- How is this solution going to solve the problem? How are you going to measure its success? Will you change it if it doesn’t work or is counter productive?
- At what cost? What are the drawbacks? What wealth is the proposal going to destroy? Will it create more problems somewhere else?
- Who’s paying and who’s benefiting from it? Is it overall good for the society? Even so, is it fair and ethical? Does it break individual rights?
- Is this idea yours or are you repeating someone else’s without any criticism? Do you have an emotional attachment? What are your biases and blind spots?
- Are you risking something if your solution doesn’t work? Do you have a personal interest in it? Who will win or lose something if it works and if it doesn’t?
Next time you have or are proposed a «great idea», please use these questions to help other people think rationally.
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