Thursday, May 05, 2005

Results based economics...

Change is certain in everything including economics. We know that gas prices go up and down over time, and that a computer created in 1993 amounts to a fraction of the cost of a computer created today. But do we ever think that people's behavior change whenever prices do? Some of us don't take heed to it, but it is certain that people's behavior will change as the prices do. We've seen the results of such price changes time and time again. But results don't matter to the econ-ignorant; only good intentions count.

Let's say you have your favorite TV show that comes on Monday nights at 7pm. If that show gets moved to Tuesday nights, do you think your behavior might change? That's a no-brainer
of course; you will make all the necessary changes to be able to watch television on Tuesday instead of Monday. So why is this same concept misunderstood when it comes to prices? It's the same principle when gas prices were lowered by the government in the 1970's; people's behavior changed. As a result of people's changed behavior, waiting in line for hours to get gas was normal for nearly everyone at that time.

Moral of the story: Don't look at intentions to determine decisions...look at results.

"The only man who behaves sensibly is my tailor; he takes my measure anew every time he sees me, whilst all the rest go on with their old measurements, and expect them to fit me."
-George Bernard Shaw