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An Essential Rule For Not Being A Fool

08 Feb

Engineers know that measured data points require context to be meaningful. For example, the total miles that a car can travel on a tank of fuel is not economically useful knowledge, unless you also know how many gallons of fuel the tank holds, and the cost of the fuel per gallon. If you know all this, you get a meaningful metric: miles traveled per dollar spent. In addition, there can be supplementary but important considerations such as safety, pollution, styling, and reliability. Therefore, to properly evaluate economic alternatives, all important factors must be converted to a baseline of total benefits per dollar.

GOOD DATA = BENEFITS per $ SPENT

FOOL’S DATA = $ SPENT

Here are some examples of meaningless data that are commonly used to try to fool people:

Dollars spent per pupil. (The important metric is how much a student learns per dollar spent.)

“On Sale” dollars spent for a car, lipstick, sports equipment, or any consumer purchase. (The important question to ask is, “What benefit will I get from spending the dollars?” rather than concluding, “Wow, the on-sale price is much less than the normal price therefore it must be a good deal.”)

Benefits of taxing the rich 1% on behalf of the 99%: (This example is a case where both benefits and dollars spent (extracted from the rich) are difficult to properly define and determine. For example, how do you define “rich”? Is this a person or a corporation? How much money = rich? Is that earned income, or investment income, or total assets, or a combination? And should everyone who is in the 1% group be taxed more? Why not 2% or 1/2% or some other %? Also, since rich people often become poor, and the poor often become rich, how long does one have to be rich before you would say they are truly rich? Or what about someone who invents something that benefits society? What about someone who’s been poor and wins the lottery? How about an athlete who’s paid a lot of money for their physical talent? Even assuming you can arrive at a rational and moral definition for “rich 1%,” the proper question becomes: what benefits are obtained for every dollar extracted from those folks? This is a complex question not easily answered by the simplistic 1% versus 99% “fool’s chatter” that one typically hears.)

Government dollars “invested” in green energy (or education, or bridges, or whatever). (The important metric is the benefit provided per taxpayer dollar spent, where the benefit to all of the taxpayers is honestly defined and measured.)

AN ESSENTIAL RULE FOR NOT BEING A FOOL:

Don’t Make Decisions or Listen to Arguments Based Only On $ Spent

A useful corollary to the above is: don’t make decisions or listen to arguments where benefits and expenditures are not clearly defined, or are distorted by appeals to envy or other emotions.

-Ed Walker

 

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