The Economics Of Deciding In An Uncertain World

[Editor’s Note: The following was written by economist Robert Cavazos]

How do people make decisions? How do we make sense of the world?

Per our policymakers, grounded upon the whispers of economists and political scientists, people are rational and make decisions based on facts. People in marketing appeal frequently to emotions, tribal affiliations, image, the reptile brain which informs you that you become more attractive to the opposite sex if you use a fragrance or wear some branded item. Political consultants will tell you all sorts of things and are as consistent in their advice and results as are marriage counselors. The media keeps us abreast of all matters of importance affecting our lives. As many abuelitas used to tell us in Laredo — if it’s on TV, it’s important.

Political activists and some of their brethren in academe tell us that all can be understood through the prisms of race, ethnicity, gender or class. Free marketers tell us it is all about people making free choices in the market. Fashion editors: it’s all about the look you portray. Readers of self-help and mystical hokum tell us it’s about attitude and your inner iguana. Some have told me life unfolds as my astrological signs dictates. A guy in Miami once told me that for $150 he would kill a few chickens, do some spells and I would become an international jet-setter and playboy. Not bad for $150.00 and a couple of chickens…

Arguably, a priority shared by most people is making a living to support themselves and their families with some dignity and comfort and with some confidence that their prospects will improve over time and ultimately for their children. To do so people must find a job, buy a home, save, chose a college major, chose an occupation, a city, a car and make literally thousands of decisions to achieve a modicum of success. As the world is complex and life busy people rely on “experts” and “common knowledge” to make their decisions. And now the problems begin. If you want a good laugh, see what all the experts were saying about housing back in 2007.

Now, hardly a day goes by without hearing of the speeding or slowing economic recovery and the rest of us guffawing at such nonsense. We had 190,000 jobs created in February announces the Bureau of Labor Statistics! Yay — but wait. Those are the result of computer estimates run by people who work in small cubicles in a basement and has nothing to do with reality. Of course, if we look at reality we have 9 million fewer jobs than we did in 2007 and a few more million people hanging about. So if by some miracle the BLS is correct and indeed those jobs were created at that rate we can recover to 2007 level job numbers by Fall of 2015. There is also the matter of the quality of these alleged jobs: most of them are service sector jobs, lots of bartenders and home health aid jobs.

What to do? Go back to our roots. For the most part relatives and friends living in Mexico and other Spanish speaking countries are a skeptical bunch. They have little faith in government and often laugh at the pronouncements of government leaders. There is a cottage industry in Mexico and in the Americas of ribald and cutting jokes featuring “el presidente.” When a person is slow witted the common refrain is “mira mucha televisión”. People in Argentina and Mexico guffaw at the pronouncements of government on the state of the economy, but not us.

What is truly a paradox is that once people cross that border, they begin to believe all sorts of nonsense and take politicians seriously. Skepticism is something we should not give up as we cross the border.