One thing this blogmaster knows from reading evaluations about the 2008 global economic crisis, it rubbished classical economic explanations. In fact the crisis served to popularized behavioural economics which is described as “an important link between economic and psychological sciences in the analysis of individual decisions especially combining psychological assumptions with economic decision-making analyzes, draws attention with its approach to the 2008 global crisis“. In simple terms the classical economic approach assumes individuals will be rational and consumed with self in decision making. Injecting behavioural economic considers psychological factors that serve to motivate people, force attitudes and create expectations. Using the theory of behavioural economics the conclusion was made that the 2008 global meltdown was more than a financial crisis, it was a crisis of confidence.
In recent years both political and NGO talking heads have been trotting out the message Barbadians should save in the credit unions because the movement is seen as more supportive to empowering Black and working class people based on its philosophy. They should challenge a risk averse mindset and use the billions in savings lodged in the banks to invest or buy equity stakes in businesses. In recent weeks the government has indicated a special arrangement will be established to attract citizen investment in renewable energy program. The government is on a mission to persuade risk averse Barbadians to INVEST.
There is an interesting inference to the 2008 global financial crisis and the austerity period Barbados has been navigating for the last eleven years. Although acknowledged there was a financial meltdown in 2008 in the USA – bear in mind the Barbados dollar is forever pegged to the US dollar – Barbadians ignored the failing economic indicators and maintained a lifestyle not reflective of the harsh economic environment. The irrational behaviour by Barbadians- including the government- has been responsible for the current perilous state of the economy.
In the book Stolen: How to save the world from fictionalization by Grace Blakeley, she wrote, “when people are uncertain about the future, they may behave in ways that seem irrational – for example, saving when they will receive little return for doing so, or spending far above what they can afford. This is because in the context of uncertainty, people prefer to hold liquid (easy-to-sell) assets – and they tend to prefer to hold the most liquid asset of all: CASH (blogmaster’s emphasis). Liquidity preference means that, the higher the levels of uncertainty, the more people save rather than spend“.
The same is true about business behaviour and how investment decisions are taken. Blakeley states, “this kind of uncertainty marks business’ behaviour even more than consumers’ and affects their investment decisions. If businesses’ confidence about the future turns, they are likely to stop investing. These lower levels of investment will result in lower revenues for suppliers, who may have to lay people off, who will reduce their spending, leading to a fall in economic activity“.
The point to be made is that it is not enough to expect Barbadians will behave rationally by answering the call to invest, there are underlying psychological reasons to consider. How does a government committed to transforming the way we do business understand the psychological factors at play in Barbados? Has this government with a bevy of communications people on payroll developed a strategy to counter the underlying psychological factors? So much learning from the 2008 meltdown but have we learned anything?
The blogmaster invites you to join the discussion.