Down Economy Business Advice

Economic Tragedy of the Commons

Have you always wanted to be a hero? In this economy, heroes are those who spend and those who hire. These brave souls are working to defeat an economic tragedy of the commons that threatens us all.

The "tragedy of the commons" is a phenomenon in which individuals who are independently acting in their own self-interest can collectively destroy a shared resource even where it is clear that it is not in anyone's long term interest for this to happen.

In this difficult economy, the rational thing to do is to cut spending. However, if we all cut our spending the economy gets worse.

Yet many of us are choosing to cut spending. For example, in my own small business, I am sad to say that I will not be attending Pubcon, a favorite trade show of mine in Las Vegas this month. Last year, three of us attended. This year, nobody from my company is going.

It's not that we cannot afford to attend the trade show. But we view it as a non-essential expenditure. In these troubling economic times, we are watching our spend very closely. The business is doing fine right now, but the future seems very uncertain.

The net result of our rational decision not to attend a trade show is that the economy as a whole gets worse.

We are not buying plane tickets. We are not purchasing a hotel stay. We are not buying several meals out. The Las Vegas taxi drivers are not getting our taxi fares. The tradeshow organizer has fewer attendees and less revenue as a result.

That immediate negative impact on the economy then ripples through the rest of the economy.

The airline company will lay off employees because fewer people are traveling to trade shows. The taxi driver will not spend as much on his daughter's birthday present. You get the idea, and as you can imagine this ripple effect has its own ripples, cascading the economy in an accelerating pace into a downward spiral...all because individuals are behaving rationally and being frugal.

As another example, we have a friend who proudly announced that she was forgoing her weekly massage because of the bad economy. My wife explained to her that the result of that decision was likely that her masseuse would go out of business, particularly if all of the masseuse's clients did the rational thing and cut back on spending.

In the orginal tragedy of the commons, as defined by ecologist Garrett Hardin in 1968, the scenario described is about a parcel of land. Herders act in self-interest by letting their cows graze on the land. Self-interest leads them to have as many of their cows as possible eat the grass in the common area. Eventually, the grass is all gone, and the value of the common area is destroyed.

That is exactly what happens to an economy when everybody acts in their own self-interest and starts to cut back on personal and business expenses.

The solution to this particular problem is not an easy one. Should I attend the trade show and potentially put my cash flow at risk if the economy truly starts to tank? Doing so would benefit the common good, but it goes against my own self-interest.

The answer to this particular variation of the tragedy of the commons lies in selective volunteerism and in the promotion of optimistic thinking.

Selective volunteerism means simply that those who can easily afford to spend should spend now. In fact, if they can afford it, they should increase their spending.

While it may not be in their self-interest to do so, they are in effect the only ones who can turn things around and stop the bleeding. If you are well off at this moment, please spend your money. In the long run, it will benefit you more than you know...and it will benefit many others in a way that is disproportionately greater than the impact you might have in a robust and growing economy.

The second solution, the promotion of optimistic thinking, simply acknowledges that when it comes to economic behaviour, perception is nine-tenths of reality. If we all start singing "Happy days are here again" and trick ourselves into believing that the worst of this economic crisis is over, it will in fact be over.

While this economic crisis is certainly a result of some systemic problems, this is not a cancerous growth that we have no awareness of or control over. The economy is what we want it to be. If we all agree that the economy is good, it will be a good economy. If we all agree that the economy is bad, it will be a bad economy.

Hence, this is a time for inspirational leadership that promotes optimistic thinking...and gets us back in the mode of believing in ourselves and believing in our economy.

As is always the case, we control our own destiny. When we forget that basic fact, we lose control and we head to bottom. Now is the time for the heroes among us to take control back. In this economy, even something as simple as buying a massage can be a heroic gesture.

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