Economics Explained by Social Phenomena

Compelled by my last post, I began to consider the social phenomena studied through behavioral economics. Behavioral economics attempts to explain why we do the things we do and how it affects the economy. It looks at how we think basing decisions on a rule of thumb or how the information is framed. While there is difficulty in explaining and measuring our behavior, we can see its impact on the economy. It explains why we hold out on making purchases during deflation and further devalue the dollar and how we assume our past decisions were right and hence we continue to make those decisions. Many times we rely on intuition and act irrationally…so we continue down a destructive path.
A crisis arises because humans are social beings—the cause of irrationality. Our behavior is contagious; in our minds, something that is so widespread and under mass consideration could not be wrong. While the US is not a collective society, there is still a tendency to think and act collectively. And hence there is a domino effect, rather, a downward spiral where information is passed, believed, and followed. In the case of the economic crisis and burst of the housing bubble, such observations were disastrous. Many believed the boom would last forever and housing prices would only appreciate. Being surrounded by ideas that the boom would continue, how could citizens believe otherwise? In response to the housing boom, Robert Shiller, author of “The Subprime Solution,” compared the social epidemic to disease. He explains how the media even had its influence in the bursting bubble and the subsequent collapse of the economy. If our source of information is wrong and widespread, it can cause short and long term consequences…some of which may even be beyond repair. Think of things such as the Milgram experiment where people unethically abided by a social influencer—in this case and authoritative figure. Jim Jones, The Holocaust, and the list of horrendous acts due to mass consideration carries on. While we may be suffering economically from this social phenomenon, this should be yet another opportunity to learn from a historic event…and this time take actions to prevent further tragedy. We should no longer allow our speculations—our belief in the collective—to become our detriment.

Contributing to National Debt...Relief

Most thought that the good times would last forever. Many spent like the well would never dry up. All of us are paying for it. These are the times where few are ashamed to say “I can’t afford this now” or “I lost my job;” it is a sad, but common occurrence. The excessive use of credit spiraled out of control and a gluttonous society could do little to obstruct its destructive path; the consequences were recognized too late. Headlines displaying stimulus packages, housing bubble, unemployment rates, foreclosures, declining value of the dollar, and inflated oil prices were widespread. It was experienced by every economic class—all of the people that had a false sense of security. A trillion dollars, while an incomprehensible number, was effortlessly reached in debt. Today I watched the national debt clock as it grew continuously.

Recession. Now what do we do? How do we respond to the consequences of consumerism and arrogance? We respond with panic. If only recession was just a word, a mere imagined phenomena. Instead, it represents dread for all of us, while some have become unresponsive. What do we do, how do we fix it? Many are discouraged and dizzied by seemingly impossible solutions; consumer’s confidence has sunk. Without an answer people try to ignore it, but the dread never goes away. The mistakes that were made continue to loom over us unrelentingly. But we can do something about it—we can take action. We can contribute money to relieve our national debt. Of course, not everyone is responsible for causing the recession, but all of us are affected, so why not help? If you are interested, fill out this form and donate!

Too Little, Too Late? Responding Through Corporate Social Responsibility

As I sat in class, another student walked in and my eyes were drawn to his bare feet. Immediately I thought of how peculiar it was and how dirty campus is with all of the foot traffic. But then I realized, he was supporting a cause “One Day Without Shoes” for the company Tom’s. Their point is that many citizens in emerging countries are without shoes and end up with illnesses which could easily be prevented. Now while this may seem to be a promotion with contradictions since Tom’s sells shoes, it works. Tom’s donates a pair of shoes to developing countries for each one they sell… very noble, but could be detrimental to their bottom line. So, why does it work? Well, for the same reasons it works for any other company—because, if you are like me, you care.


If I have an option, I will opt for the substitute product that is promoting charitable deeds. Recently I chose my Earthbound Organic lettuce based on the fact they were giving money back for a cause. We like causes…it makes us feel like we are good citizens. But is it too little, too late? Only one person I noticed was wearing no shoes today, so perhaps there is not enough awareness. Participation was low; I would like to think it was because we live in MI, with the temperatures fluctuating constantly. One can say that it is never too late, but maybe from a consumer perspective it is too little.

There is only so much one individual can do, so organizations have decided to step in with their resources offering more power. Companies in developed countries are beginning to change, stand for a cause, and make a difference. Many corporations are jumping on the social responsibility band wagon, seizing the opportunities offered by the market (Stoneyfield Farms, Trader Joe’s, Ben & Jerry’s, and Starbucks to name a few). They turn these opportunities into strategies.
Are their intentions good or is their main focus based on profitability? For companies that are conscious about their surroundings, holding ethical standards and morals has been an important way of securing not only customer satisfaction, but employee acquisition and retention, all translating into an increased revenues. It is obvious that companies are being ambitious in their attempt to get publicity, but I suppose it does not matter. Companies are recognizing consumer’s desires to support a cause and if there is an opportunity within the market, there has been change for the better. Society has been demanding these changes and companies have been forced to react or act proactively.

While change may be for the wrong reasons from a consumer perspective, and while it may not be enough to reverse damage already done, there is still an effort to change and any amount counts. Companies further altering consumer behavior and shifting the general thinking will only increase effectiveness. Right now, the easiest way is the small actions and if the only way consumers can act is through company’s socially responsible policies, then consumers are advocating a revolution. I do not care why companies are socially responsible, their actions are the only thing that matters.