How often do we hear the words “in my experience” and then get a bombarded with someone’s opinion stated as if it is fact.
I hear this often when I’m speaking as the topics I cover are confronting and a challenge to preconceived ideas that our upbringing and other life experiences have conditioned us to believe are a reflection of what is true. Albert Einstein made many very true observations among them;
“Reality is merely an illusion, albeit a very persistent one.”
The challenge in an economic debate is that there cannot be a scientific trial to determine who is right and who is wrong. The economy does not have any example where we can establish a control. Every aspect of the economy is inextricably intertwined; this is the main problem with macro policy…
Without a control there is nothing against which to measure the effect of decisions and influences placed or created in an economy. Also, an intention to influence the whole economy cannot be implemented. Any one of the 150 politicians or even the Departments under ministers portfolios in Canberra cannot fully understand the impact on 24 million Australians in their every day lives.
This is the reality of the economy; it exists in every consumers take on the value they receive when they make a purchase.
So why am I right then…
Truth is, I know I’m not! Seeing we are in the mode of throwing out famous quotations today, here’s one I like from Winston Churchill;
“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all wise. Indeed it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.…”
A free market protected from unfair or abuse of competitive advantage where government has minimal to no influence on the market but high responsibility for the protection of freedoms i.e. capitalism, is the same as democracy. It has flaws and inequities in outcomes but the truth is that it is most certainly the reason why mankind is where we are today.
You can interpret that comment negatively looking around the world at the problems which exist today but macro data, the closest we can get to a true scientific study of economics clearly shows that globally man is better off today than at any other time in recorded history.
The Simplest explanation is the usually right
Occam’s razor is a problem solving principle, which states that in the absence of proven fact, the theory with the least amount of assumptions will usually be the correct interpretation of reality.
This is the problem with economic theory and why I take issue with so many academics. They interpret a micro-sample, which they think tends to confirm their opinions and present conclusions as facts. Often, when you look at their analysis you will find an inordinate amount of assumptions, which can be challenged, and this is the basis on which I apply Occam’s razor to economics.
When we allow consumers to determine what they want to buy based only on determination of value at the margins and not on the basis of government policy skewing what products or services are available on the market we have the least amount of assumptions at play in the economy and the best chance of creating an economy which can flourish now and more importantly be able to cope with external negative influence in the future.
Another example of being fully informed
Alternate medicine is another example of where being fully informed and the least amount of assumptions should also apply. Personably I believe that there is a lot we can learn from alternate treatments; we should not however ignore scientific fact and put blind faith in them.
The Economist magazines, Why homeopathy is nonsense article is good reading and looks at the importance of knowledge in decision making and not making outrageous assumptions.
“VISIT any health shop and you are likely to see them: packages of homeopathic remedies claiming to cure whatever ails you, from coughs and fever to insomnia and asthma. Flip the package of medicine, however, and you may be confused by the listed ingredients. Some claim to contain crushed bees, stinging nettles and even arsenic, as well as sugars such as lactose and sucrose. Americans spend some $3 billion a year on homeopathic medicines. What are they thinking?
The history of homeopathy—literally, “similar suffering”—dates to the late 18th century. Samuel Hahnemann, a German doctor, was unimpressed by contemporary medicine, with good reason. Doctors used leeches to let blood and hot plasters to bring on blisters, which were then drained. In 1790 Hahnemann developed a fever that transformed his career. After swallowing powder from the bark of a cinchona tree, he saw his temperature rise. Cinchona bark contains quinine, which was already known to treat malaria. Hahnemann considered the facts: cinchona seemed to give him a fever; fever is a symptom of malaria; and cinchona treats malaria.
He then made an acrobatic leap of logic: medicines bring on the same symptoms in healthy people as they cure in sick ones. Find a substance that induces an illness and it might treat that illness in another…
The full article and a few more from The Economist
Why homeopathy is nonsense (March 2014)
Do you have an experience to share
The least amount of regulation, the least amount of government involvement, the least amount of bureaucracy, the least amount of announcement and decisions by politicians is what my understanding of the best way to set conditions that lead to success is.
On this basis, mistakes that are made are made at the coalface, in the margins where the person making them suffers the consequence and changes their behaviour. In the example of alternate medicine it is usually the indivdial not society as a whole that suffers if they chose a different path to conventional wisdom. As a generalisation, better decisions are made when the individual feels the pain responsible for the decision that is why I believe it is a better economic model.
Have you come across an example where someone has blind faith in their opinions based on assumptions that you know are flawed or are so difficult to achieve that they couldn’t possibly be happen?
Let me know if you do…
Yours in Successful Small Businesses…