We’re Naturally Blind

In 12 Rules for Life, Jordan Peterson gets to a point that is paramount for healthy living:

“That’s how you deal with the overwhelming complexity of the world: you ignore it, while you concentrate minutely on your private concerns. You see things that facilitate your movement forward, toward your desired goals. You detect obstacles, when they pop up in your path. You’re blind to everything else (and there’s a lot of everything else—so you’re very blind). And it has to be that way, because there is much more of the world than there is of you. You must shepherd your limited resources carefully. Seeing is very difficult, so you must choose what to see, and let the rest go.”

In economics, this point is indispensable. It goes back to F. A. Hayek’s “The Use of Knowledge in Society.” To Bastiat’s “That Which is Seen and That Which is Not Seen.” In these essays, the authors highlight the point that our breadth of knowledge is limited (like, by a lot) and everything we “see” has a slew of stuff in the background that we can’t see.

Often, we want policymakers to “referee” markets like healthcare, financial markets, and education, to solve the inadequacies. We want them to implement and enforce regulations to protect consumers from abuse or “unfair” outcomes.

However, if Peterson brings to light how important (and natural) it is to be “blind to everything else” how can we possibly think government officials are not “blind to everything else” when advocating to intervene a market in the economy? Especially, when they are not solely concerned for their own lives, but the lives of millions?

Even the expert economist is subject to the rampant “blindness” of human beings. When economists lay out their models of how the world works, they must assume stuff about the state of the world and of human behavior. They often set boundaries to their models based on some idealized theory, or “law” of the world. Hence, we see the rise of “behavioral economics” which pins its research on the deviations from standard models of rationality in economics.

Despite their claims of uncovering some juicy behavioral biases and heuristics, behavioral economists also find themselves blind. Rationality is ecological. Thus, markets are ecological. On top of that, markets are not bounded, but dynamic and ever-changing.

Gerd Gigerenzer explains that rationality is ecological by highlighting that though it may seem people are violating standard rationality—making decisions that appear to be going against the person’s best interest—they may be acting rationally if we consider the environment in which the decisions are being made. Imagine someone is dangerously speeding down a local road. Without context, we would say that person is crazy and a threat to society! After the fact, we find out that the driver’s passenger was having a heart attack and was racing him to the hospital. Context and environment matters! Unfortunately, context and environment are often beyond our limited knowledge and is unseen.

The ecology of markets became crystal clear after talking to a paramedic friend of mine. He told me about how paramedics had to change up their dispensing process of a drug due to the hurricanes in Puerto Rico that shut down some manufacturing plants. The drug shortage has caused rippling effects throughout the United States. Drugs are now sent in bulk, instead of as one-time use packages that are easy to administer in emergency situations. What’s more is that he informed me drug shortages are usual. Paramedics are continually having to adjust their drug-dispensing procedures as a result of the dynamic drug market. And, this is merely talking about paramedics! Think about the doctors, hospitals, other manufacturing plants, the substitute drugs, the complement drugs, the delivery process, and importantly, the patients.

In all these markets, people have to adjust to the shortage, often based on the increase in price. Hayek called this aspect of the price mechanism “a marvel.” Bastiat calls it “that which is not seen.”

As much as we like to think of them as necessary, it’s important to consider the shortcomings of regulators “refereeing” markets. Not only are they naturally blind to the dynamics of markets, but the distortions created redirect resources that cause inadequacies elsewhere. So, it becomes a never-ending cycle of regulation. Consequently, we get this:

TotalPagesCodeFedReg

Despite the added controls, there continue to be inadequacies. Poverty fails to be cured. Problems in heavily regulated markets fail to be solved. The role of the economist is not to solve these problems, (because they can’t), but to explain things we can see by pointing out what we can’t. Highlighting the ecology of rationality and markets won’t solve all the problems but can help us make better decisions in an ever-changing world.

3 thoughts on “We’re Naturally Blind

  1. It is the economics of our own limited resources as we go about working on our personal dreams… As well as, life is not a spectator sport, we deal with situations as they confront us directly…

  2. It is not so much that we need to ignore all the other aspects of life due to the overwhelming complexity, but there is a natural tendency to create order out of disorder… You see it in nature; streams that all converge towards a single river, the concentration of urbanism versus the spatial spreading out of suburban lifestyles… It is as if ‘Chaos is the source of its own demise’…

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