How Economic Thinking Can Benefit Consumers, Managers, and Entrepreneurs | Part 2: Progress Is Not A Foregone Conclusion

Barry L. Linetsky

An irony of launching ourselves into actions to remove obstacles to our well-being is that often the decisions and actions we take to lead us closer to the achievement of our goals and fulfillment of our desires actually lead us in the opposite direction – further away from our goals, not closer to them.

The same is true in a business context. We develop and implement new plans geared towards positive economic performance, often based on annual business planning and budgeting processes. And experience shows that people work on those plans and continue to do so even when they are highly certain that the timelines or justifying reasons for undertaking the investment of resources are no longer valid and extremely unlikely to be achieved. (See my Ivey Business Journal article “The Project Management Paradox.”)

There is no shortage of documented examples to demonstrate that in our attempt to fix things beyond our foresight and understanding, our actions often make matters worse as measured by the objectives and results we have set out to achieve. In cases dealing with unique and unprecedented situations that are common to knowledge workers, it is impossible to fully know ahead of time the appropriate scope and dimensions of what should be taken into consideration. We can only rely on our best judgment and those of other experts in imagining, anticipating, thinking, planning, and trying to account for the facts and frictions we are going to have to face as the actions we initiated unfold in the world around us. As well, our resources in terms of capital, labour, information and time are always limited.

For example, the immediate impacts of rent control, minimum wage requirements, monetary easing to achieve lower interest rates, government subsidies for alternative non-carbon-generating energy sources such as the New Green Deal, pay incentive and bonus programs to encourage productivity, e-cash, and myriad other “desired” outcomes (i.e., outcomes imagined at the time of action) may each have the appearance of net positive benefits, which are put forth as justifications to pursue some plan of action.

But over time it may turn out that despite the best intentions, the execution of our plans may result in more harm than good. For example, rent controls tend to reduce the number of available lower cost rental units over time making it harder for people to find affordable housing; higher minimum wages tend to eliminate jobs not just for the less productive, but for all employees, as marginal businesses that can’t cope with higher costs and investments in innovative labour-saving technologies shut down, thereby resulting in fewer jobs for unskilled labour; higher prices to bolster corporate profits can disaffect consumer purchasing behaviour and reduce the availability of cash to be reinvested in productive capital assets that serve consumer desires; layoffs can reduce morale and affect worker productivity and customer satisfaction, precluding the intended result of increasing the bottom line; high personal indebtedness can lead to stress, illness, and mental dysfunction, that may lead to higher health costs and a propensity to domestic or workplace violence, etc. 

The ripple effects of all actions are real and may go unseen if nobody cares to anticipate them in terms of cause and effect, but that doesn’t mean they are unforeseeable with the additional effort of higher-level thinking. Long-range thinking about actions and consequences requires greater integration across concepts and is more likely to result in thinking in principles.

The more clearly we understand these dynamics through our knowledge of economics and the application of the principles of human action revealed by social science and applied logic, the more attuned we are to the foreseeable impediments to our desired outcomes, the more effective we will be at achieving the outcomes we desire.

Further Learning:

 “The Streets of San Francisco,” Wall Street Journal

“California’s Dark Ages,” Wall Street Journal

“Long Work Hours are Mostly Useless – And Kill People,” Jeffrey Pfeffer

“The Unintended Consequences of Raising Minimum Wage to $15,” Jack Kelly, Forbes

“The $15 Minimum Wage Is Turning Hard Workers Into Black Market Lawbreakers,” ReasonTV, YouTube

“They Clapped: Can Price-Gouging Laws Limit Scarcity?” Michael Munger

“The Good Intentions that Will Kill Your Business,” Fortune Magazine

“Retail is in a Death Spiral of its Own Making,” Jeffery Pfeffer

“’Big Bad Trusts’ are a Progressive Myth,” Phil Gramm & Jerry Ellig, Wall Street Journal

© 2019, Barry L. Linetsky. All Rights Reserved. 

Barry Linetsky is a Partner with The Strategic Planning Group in Toronto, Canada, where he and his colleagues have been helping executives and owners align their business purpose with customer values since 1994. Barry is the author of the acclaimed book The Business of Walt Disney and the Nine Principles of His Success (Theme Park Press), and an Honorary Disney History Institute Historian. Barry is also a writer, photographer, researcher, and business strategy enabler. Read his blog and learn more at barrylinetsky.com. Follow him on Twitter @BizPhilosopher.