Decisions, the basis of economics.

Economics is a confusing and convoluted field. There are countless studies on economic subjects that rigorously follow the scientific method and because of this these studies can be quite reliable and verifiable. However you must then ask, how does any individual study relate to the economy as a whole? If I can accurately predict what flavor of hard candy 5 year olds from a single small town in Utah will buy on Tuesday afternoons would that really have any greater meaning in the overall economy?

Our economy is a huge cluster of variables and is one of the most, if not the most, complex systems any human being will ever interact with. This complexity makes it very difficult to approach economics, on the macro scale, with the same kind of scientific rigor that is used to study chemistry or physics or biology. This inability to produce hard and fast answers doesn't mean that economics is an invaluable field of research.

Lets look at the simplest unit of economics, the cost benefit assessment. Everything that we do involves a cost benefit assessment. Start at the beginning of your day, your alarm clock goes off. Do you hit the snooze button and get a few more minutes of sleep? Getting those few extra minutes of shut eye may prevent you from having a second cup of coffee before you leave the house. Is the cost of missing the second cup of coffee worth the benefit of the extra few minutes of sleep? Hitting or not hitting the snooze button depends on the cost benefit assessment you probably didn't even realize you were making. While out shopping you find a shirt for $30.00 that you really like and that would look great on you while you are on vacation the next week. But buying that shirt means you would have $30.00 less to spend on a nice meal while you are on vacation. The shirt, of course, is something you could wear once you got back from vacation while the meal is something you would only enjoy for a short period of time. Vacations though are about splurging and that extra $30.00 could be the difference between a really great meal you would remember and eating the same fast food you eat every day at home. Once again, you are forced to make a cost benefit assessment.

As you can see these assessments we make every day may or may not involve the exchange of money for goods or services, but on a basic level they are all economic decisions. We always want to make the right choice so that we gain the greatest benefit at the lowest cost, it doesn't matter of the cost is money, time, effort, or anything else. It also doesn't matter if the benefit is spiritual, physical, emotional, or monetary in nature, we want to get as much as possible for as little as possible. This is the basis of all economics.

But things start getting complicated pretty quickly. Think back to the $30.00 shirt. When making the decision to buy or not buy the shirt were we thinking about all of the costs and all of the benefits? If we were buying the last shirt in that size on the rack would we force someone else to make a cost benefit assessment on waiting for the store to restock or using their $30.00 to buy something different? If we buy the shirt would our reduced spending while on vacation force a worker at the resort you are going to into deciding if they should buy the name brand or the store brand cereal for their child because you couldn't tip as well? If you didn't buy the shirt would a cashier at the store have to decide what to do when the bonus they would have received for selling their quota in shirts didn't come through? Every cost benefit assessment we make changes the cost benefit assessments that others around us will make. Every single last decision we make creates a butterfly effect that spreads out and effects people in ways we can't imagine.

Of course we can't make decisions if we are hobbled by having to worry about things that we can't predict and so most of the time all we worry about is the personal cost we will pay and the personal benefit we will received based on our decisions, and this is the way it should be. Most of the time. Occasionally though, through personal knowledge or historical evidence we can reasonably predict the ripple effects of our actions. This is why some people choose to pay more for organic produce. This is why some people who enjoy consuming alcoholic beverages choose not to drink. Sometimes the cost or benefit to others, or our society, or to our environment effect our decisions because the cost to us may be greater than just the money we spend on a shirt or the few minutes of sleep we might miss.

This is where you get to the nitty gritty of many of the economic arguments you hear coming out of your TV or that you read in political blogs such as this one. How much do we need to think about the rest of society or the rest of our economy when making decisions for ourselves? Lately it seems that the trend has been to concentrate more on our own personal costs and benefits and ignore how our decisions effect others. Some would even try to deny that their decisions have any great impact on the world around them. Obviously this isn't true even if we don't see the effects our decisions have on others or other parts of our economy. Sometimes ignoring these collateral effects increases our personal costs in the future. Maybe if enough people bought shirts instead of spending their money at a vacation resort they might find there was no one there to serve them or to cook their food or to clean their rooms. This would be impossible to know at the moment you are buying a shirt, but if you could know it wouldn't you take it into consideration?

Economics as a subject of research and discussion is valuable for many reasons, but one of the primary reasons we value it is that it can help predict for us some of the unintended costs of our decisions. Because of this we can make better informed decisions. Well, we can make better informed decisions as long as we are willing to take the available information into consideration. No one can force anyone into considering anything more than their own, personal, short term, costs and benefits if they don't want to. I just hope they can see how it could be to their advantage to consider a broader range of information when it is available to them.