So I was sitting at the gym [watching my future Olympian :)] and listening to the live broadcast of NPR’s Marketplace and low and behold there is a piece on appropriate analogies to use as models for an economy. In the last two years, I have spent some time reading, researching, and writing my braynstorms about this subject and I was pleased to hear something on NPR address the issue. For some time, I have been almost obsessed with the basic philosophy of our economy and understanding why it seems so hard for so many smart people to get a handle on it. So, let’s take this opportunity to express my thoughts (once more) on the subject.
In this piece, they looked at ecosystems, gardens, and machines. These are all good, but not great. As a systems engineer, it is natural for me to compare it to complex systems of machines, but it has always been incomplete. In their piece, the comparison to a garden or ecosystem also seemed incomplete. This is because these metaphors do not have perfect matches in the economic system.
The most appropriate analogy/metaphor is that of a system, but the best fitting one in my mind is that of the human body or any other complex living organism. The problem with using a machine as an analogy is that no one designed an economy – economies just started – organically. Also, an economy of a state or country, as a whole, is a system of systems – just like the human body. Each organ can represent an industry or sector, but what they all have in common is the need for exchange of something. They need nutrients, water, and exchange of oxygen/carbon dioxide. To accomplish this, the body uses blood as a medium of exchange. Blood, in and of itself, has no value, but it serves as the medium of exchange of every other necessary element that the human cells need in various organs. It can not be overstated that this analogy is perfect to understanding how an economy works and how to best “manage it”.
In an economy, the medium of exchange is money. Money, in and of itself, has no value, but it is the common medium of exchange within an economy that enables exchange of real value for the industries and sectors within it. And just like blood, it enables transfer between economies. We may not be able to transplant organs with relative ease, but blood donation is readily available and readily accepted with relative simplicity. Similarly, transplanting manufacturing and other production capability is time and labor intensive, but using money to perform the exchange enables efficient use of resources where they exist.
The fallacy of our current economic metaphors is that they lead to two false extremes – leave it alone – or completely control and manage it. The first assumes it is all natural and needs no regulation. The second assumes it needs complete control by a central system. Neither is true. Economies need to be scalable by principles and tailored to their function based on their available resources. Economies, like the human organs, work best when they have minimal reliance on the central control system. Most of the body functions involuntarily, leaving the brain to dream, invent, relate to other bodies and lifeforms. These can be the local governments or corporations or industries within an economy. They need to be mostly self governing for the benefit of the economy as a whole. When one or more organs go out of whack, the focus of the brain becomes on mere survival and no dreaming or innovation or relaxation can occur. What’s worse, is that while the brain is focused on healing those organs, other organs and systems may come under duress or be stifled,strangled and/or harmed by the activities being used to save the critical organs which are failing.
So – if we use the human body as a metaphor, what principles would we use to best describe the functions of the components of the body? I submit to the reader that our current system is designed to conclude that quantity of money or its rate should be used to regulate the growth of the economy. If we use the body analogy, that is like saying speeding up our heart rate or thinning our blood is the best way to grow our body. This method of control hasn’t worked, because we have not quite understood the importance of this metaphor of money as blood. Increasing the heart rate stresses the body and can only be sustained so long. What we had in the 2000′s was an economy (body) that was on amphetamines in order to increase the heart rate and the resources could not continue to sustain the growth. This amphetamines came in the form of cheap debt – easy access to money and quickly flowing through the body. Complete sectors were at max capacity and began to overload. Both the US and Chinese economies were on hyperdrive competing for the same resources. As the markets and economy began to adjust, the blood makers sought to inject more blood into the system along with more additives to heal specific organs. This occurred over the course of three decades. Add to that the removal of certain organs from the body and moved to other locations (e.g. NAFTA – consider this as using someone else’s kidney to process your waste) and our economy becomes a sick body with failed organs from excessive blood, and numerous organs which were removed in the past and as such are unable to aid in the body’s healing. We are still an economy in recovery – an athlete experiencing the the results of overuse of performance enhancers and not enough rest. However, this president seems hell bent on doing what past presidents have done by driving more blood into the system rather than restoring the fundamental elements for growth. In addition to manipulating the money supply, centralization of infrastructure and industries is also occurring through regulation, taxation, and development of entire new agencies. The fallacy of this thinking is that the quantity of the blood or the heart rate are not the drivers of body growth and the quantity of money and its rate of circulation cannot be the drivers of economic growth. We need a better understanding of the role of money and the role of government in that money system.
If we understand money as blood then we understand that we cannot make a baby grow faster by injecting twice as much blood as his body needs. We know we will kill him when we do this. We also know that we should not give the baby drugs to speed up his heart rate nor can we remove blood too quickly. We know that a child that is growing will produce the blood necessary to meet that growth. This is the role of money in an economy – simply be produced at the rate of production that is organically driven by the industries and no more. Also, when industries and an economy slow through organic means of supply and demand, then money should be removed from the system to keep the total in balance. Today, we remove money when it is growing and pump in blood when it is slowing. A better system of money would produce to meet the need not drive need.
And what about war and natural disasters? Again – our economic system and its four basic needs – water, food, energy, and money – will be at their optimum security and sustainability when they are scalable systems and are allowed to grow at their natural rates and save for their posterity. When an enemy attacks – the body should defend itself. It is another country, then violence is necessary for defense. But if it is over natural resources, then perhaps we can show how the two bodies can both be fed rather than go to war over the limited resources. If it is over ideology and tyranny, then war must happen. A healthy economy enables a healthy defense. When you are not ill, you are better equipped to defend from an attacker. Regarding natural disasters, we will assume they are diseases to the body. When a tornado outbreak occurs, it is like a disease in the liver. Resources are used and recovery is hastened when the rest of the body is healthy and not likely to be infected by the same disease. Therefore, a healthy economy enables more efficient recovery from natural disasters. A healthy economy via healthy monetary and fiscal policy minimizes these events and enables quick use of saved resources to restore the damaged areas faster than if we are relying on artificial stimulation via blood pumping. Of course, we should consider that the wars and natural disasters can all happen simultaneously and deplete our resources. That is why it is good to have allies – friends and family who can donate blood and maybe a liver, lung, or kidney to help you recover.
As we have seen over the last two hundred and fifty years in America, attempting to control growth of the money or changing the form of money have all caused major economic disruptions, often taking decades to recover. Perhaps we are now ready to consider a better alternative and seek real change in our economic and political systems to enable prosperity in its natural and organic form. Perhaps now, we can consider the proper role of government to prevent cancerous rogue citizens from attacking the peaceful free citizens (justice department) and protect the body from harmful attackers (defense department) and properly produce the amount of blood necessary for natural growth of the human body rather than driving hemorrhaging or organ failure (treasury department). These are the simple, yet critical, roles of governments for nations of free people. By studying an appropriate metaphor for the economy, perhaps we can understand the roles and functions of the economic components and produce a stable, growing, and truly sustainable development for mankind.
Our country and our economy are sick. We need the right metaphor to understand the right solutions to begin healing. For that, we need to understand them and elect people to office who understand them, and then are brave enough to enact policies which can restore our system back to health and reduce the chances of future visits to the emergency and operating rooms.
This should be the debate of this election – what is the model of an economy that best fits a free society and how will we move our political system in the direction necessary to achieve that model?