What Planet do economists live on?

April 6, 2009 by
Filed under: General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ 

Hubby was reading an article in New Scientist yesterday (He’s a bit odd like that). It was all about money and how economists look at it and make their pronouncements on what is going to happen.

It appears that they generally think that “money” will always behave in a certain way. Basically – “The Market” is a standard formula that will always react the same way to the same event.

Apparently no-one explained to them that Human Beings are the ones that’s spend the money – and we don’t always react the way the way we are supposed to.

Is it any wonder that no one has the foggiest idea what is going on at the moment???

It specifically worries me at the moment that the New Zealand banks have managed to convince enough people to fix their interest rates for 5 years – causing rates to go up in an amazing show of “self fulfilling prophecy” and yet the economists that are being trotted out to explain this and for the most part justify it– work for the banks! Hmmm.

On the positive side – it seems from this article that some Economists are waking up to the fact that human beings are not always rational, and that sometimes (actually make that most of the time) we do not behave like robots.

Here’s an example:

How do you value $100?

It seems that if you have $100 in your hand in cash – it has more value to most people than a bank statement showing you have a balance of $100. If you save $100 off your monthly grocery bill, you would probably be a bit chuffed –but when buying a house you probably wouldn’t quibble over $100 on the price. And yet – the $100 is actually worth the same amount in every scenario – but as humans we tend to give the very same money a different value each time. This is one of the reasons that Credit Cards cause so much trouble: if you have to pay in cash for everything then you will actually see the money as real, rather than just extra numbers added to your credit card bill. Again – paying $100 in cash for a meal out is a lot harder for most people that handing over a credit card and adding an extra $100 onto the balance.

Hopefully economists will start taking this into account!

Related posts:

  1. Why are Credit Cards still charging such high interest rates in New Zealand?
  2. I’m a credit card tart and proud of it!
  3. And New Zealand Interest rates come down yet again.
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Comments

2 Comments on What Planet do economists live on?

  1. Susan Kishner on Mon, 6th Apr 2009 8:49 am

    2. Hi,

    I’m just getting started with my new blog. Would you want to exchange links on our blog-rolls?

    BTW – I’m up to about 100 visitors per day.

  2. admin on Mon, 6th Apr 2009 10:25 am

    3. That would be lovely :) I’ve added you. Thank you very much for asking :) Hxxx

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