Tag Archive for: Economics

Does a Rising Tide Lift All Boats?

People are fond of analogies that help them
visualize concepts that are sometimes difficult to grasp. Steve Jobs was use one when he said, “Computers are like a bicycle for our minds.” Another common analogy is people describing the human brain as a computer.
One analogy that’s kicked around quite a bit
in politics is this, “A rising tide lifts all boats.” That’s easy to picture.
After all, when the tide rolls in all boats sit higher relative to the docks they’re
tied to or some other stationary object.
Politicians like to use the phrase when it
comes to the economy. If more tax cuts are given to the wealthiest people
they’ll spend their extra money creating jobs or buying more stuff. Either way,
more goods are sold which means more people are employed to produce and sell
those goods. Everyone is better off; all boats have been lifted.
But there’s a problem. The analogies we use
are just that – analogies. They’re merely comparisons to help us understand but
they’re not the actual thing. In one sense they’re like a map. A map can be a
helpful tool but it’s still a map and not the actual terrain. It can never
fully represent the real thing and the more diverse the terrain is, the less a
map can fully represent it.
People who use the rising tide analogy want us
to believe everyone is better off when the wealthiest among us do better. There’s
some truth to that however, it ignores a basic tenant of behavioral economics –
how we make comparisons and decisions.
You see, most people don’t simply look a their
situation relative to how they were at some point in the past. Rather, we have
a habit of comparing ourselves to others in the moment.
We see this publicly played out in sports all
the time. Let’s say an athlete has a great year and gets a huge raise because
he’s considered among the best in his sport. He’s happy! But the moment he
learns someone else just got more money, discontentment sets in. No longer does
he care that he’s making significantly more than he used to. Instead he feels
slighted compared to the other athlete he just learned about.
The same can be said of the average American.
While many may be a little better off than they were five or ten years ago based
solely on their income they don’t necessarily see it that way. That’s probably
because they’re not simply comparing their take home pay to prior paychecks. In fact, if inflation, medical bills or other
things that occur in life have eaten away at their take home pay, people tend
to feel they’re working harder than ever but have little or nothing to show for
Another comparison point comes when people
hear about senior executive compensation at large corporations. For example,
did you know back in 2005 the average CEO made 525 times more than the typical
American worker made? That pay differential took a significant dip due to the
recession but it’s trending back up and was 369 times more in 2012.
Can you see why someone might be disgruntled?
Most people have an innate sense of fairness, and of right and wrong, and when
that gets violated many people would rather get nothing just to see the other
person get nothing too. It doesn’t make economic sense because economically a
little bit of something is better than a lot of nothing.
Several years ago I conducted survey with my
blog readers. One question read: You’re playing a game and your partner was given $100 to share with you any way they see fit.
The two of you get to keep the $100 but only if you think you’ve been treated
fairly. What’s the least amount you would want in order to not reject the deal?
Just over two thirds of the respondents said
sharing $50 of the $100 would be fair. The average for all responses was
$41.88. Even though they’d have been better off even just getting a dollar, the
vast majority would reject the deal if the split wasn’t about equal.
It doesn’t make sense economically because if
you were given $30, $20, even $1 that’s better than nothing, and more than you
started with. But that’s not how most people typical think and behave. When people don’t feel
they’re being treated fairly they take action…even if those same actions might
hurt themselves in the end.
The tide may be rising but all the people in
the little boats stare at the luxury liners and perceive those ships are getting the
bigger lift and they don’t like it.
My fear is this; if our government in
conjunction with big business doesn’t come up with ways to make the average workers
feel like they’re being compensated in a more equitable way, the consequences
could be worse for all of us in the long run. Whether or not you agree with the
“We are the 99%” and March on Wall Street movements, they reflect what I’m
talking about here. People are unhappy and they’re starting to take action.
A take away for those of you who aspire to be
more effective persuaders would be this – whenever you use analogies to make a
point, make sure the analogies are appropriate for your audience or your best laid
plans could backfire on you.
Brian Ahearn, CMCT®
Chief Influence Officer


Helping You Learn to Hear “Yes”.