“Think of the economy as being more like a cat than a washing machine.”
– Nassim Nicholas Taleb, author of The Black Swan
Most people tend to think of the economy as big organizations — General Motors, Microsoft, Exxon Mobil, the federal government — and major decisions — opening or closing a plant, hiring or firing hundreds of people, raising or lowering tax rates.
This formulation is akin to physicists thinking about matter in terms of molecules and atoms rather than electrons, protons, neutrons and quarks.
It’s easy to visualize, but rather crude and clunky, and not terribly useful when trying to understand and explain current knowledge about what is “really” going on.
Similarly in economics, it is becoming more useful to think in terms of smaller, more fluid concepts — not corporations, but sales; not jobs, but hours worked; not tax rates, but expectations, incentives and decisions.
Nowhere is this need to move from robotic, formulaic, mechanistic explanations to more flexible, fluid, even feline, modes of thinking than in the area of estimating economic impact.
How much, the economist is asked, will the deficit be reduced if we raise taxes on “the rich?”
How many jobs will be “created” if a new big box store opens in town?
What is the “impact” of the tourism industry on the state of Maine?
The very fact of asking such questions — never mind the cheek of some to offer definitive responses — reinforces the misconception that there is “an” answer.
Most citizens want to believe that “an expert,” by digging deeply enough and lining up the facts carefully enough, like Hercule Poirot before a coach full of confused passengers on the Orient Express, can solve the mystery and let everyone get back to sleep peacefully for the remainder of the journey.
For most public policy decisions, there is no such clear-cut answer.
Indeed, dozing off to sleep thinking that the mystery has been solved is precisely what gets us into trouble, as the unintended consequences of policies designed for yesterday’s mysteries create today’s problems.
Think zoning ordinances designed to eliminate the overcrowded tenements of a century ago creating massive sprawl.
Think subsidies designed to make housing affordable to all spawning a worldwide financial collapse and enormous job losses.
The problem is not that zoning or affordable housing were “wrong,” that we made a policy “mistake.” It’s that no policy works forever, or in isolation from other policies.
The economy is not a train on a fixed route whose only challenge is getting a driver who watches for curves and maintains a prudent speed.
Today’s economy is more like a high-speed, high-tech ocean racing vessel. Its success depends on constant attention, not just by the captain, but by all on board to a myriad of complex interactions — to wind speed and direction, to wave location and height, to the position and movement of other vessels, to the set of sails and the rudder and on and on.
Yes, the big box store may “create” 100 jobs.
But if 20 of those jobs are filled by people who leave other jobs, and another 40 by part-time workers who now have two jobs, the impact is far less clear than is implied by the initial announcement.
Yes, tax collections will rise if higher rates are applied to the current number of millionaires.
But if, because of migration, changing work patterns and movement of assets to tax-free bonds designed to finance affordable housing, the number of millionaires drops, the impact of higher rates will be far less than initial assumptions indicated.
Yes, tourism is Maine’s largest industry, generating billions in sales and employing tens of thousands of people.
But if thousands of those workers are immigrants, here only for the duration of the hours their work is required, the impact of those jobs is less than is implied by the common conception of a “job” as comprising 40 hours per week and 52 weeks per year.
None of this is to say that big box stores, tax increases or tourism are “wrong.”
It is, rather, to say that we are better served to think about our economy and the policies we choose to direct it in more detailed, subtle and constantly evolving ways.
Charles Lawton is chief economist for Planning Decisions Inc. He can be reached at: