There are no solutions. There are only trade-offs. This is a sentiment expressed by the American economist Thomas Sowell, which informed his approach to difficult social and economic policy decisions. When faced with complicated issues, there are no perfect solutions, only trade-offs between different outcomes. The reserve bank faces trade-offs when setting the repo rate. Executives face trade-offs when driving growth and profitability. Every day, we face trade-offs when we decide what to prioritise. Important and complicated decisions don’t have easy choices, and often, because there is no perfect solution, no decision is made at all. This is related to the concept of “wicked problems”. One of the key attributes of wicked problems is that different stakeholders have different interests, and reasonable people will disagree on the best course of action. In a world where trade-offs are inescapable, the ability to navigate them becomes a powerful skill. As the comedian Stephan Wright...
Instant gratification We all like instant gratification. Why wait, when I can have it now? Economists have always known that we prefer to consume now rather than later, and it's part of the reason investors require a return on their investment – not only is a return required to compensate for risk, but also to compensate the investor for not being able to spend now. This is a rational time preference. However, rational consumers don't disproportionately prefer consumption right now compared to future consumption. A rational consumer will save enough for retirement so that they can afford to live in their old age. They will also not borrow extensively on their credit cards to consume now and deal with the consequences later. In reality, however, many people have a lot of debt and don't save enough for retirement. Unfortunately, we are not rational as economists of old liked to think. We are willing to give up future consumption and comfort fo...