A Broken Economy Is Not Like a Sick Body

Nearly everyone agrees that someone whose body is ill or injured experiences improved prospects of recovery if she is treated by a competent physician. Despite the fact that the human body is an astonishingly complex organism – one not designed by humans but evolved by nature – with interconnected organs and systems, there’s widespread agreement that intervention into this organism, when guided by modern knowledge of medicine, often improves its operation.

“And so given our justified confidence in modern medicine,” an inquisitive student recently asked me, “shouldn’t we intervene, guided by modern knowledge of economics, into the admittedly complex system called ‘the economy’ when it isn’t operating at peak health?”

No. The analogy is poor. Despite first appearances, the differences separating the human body and medical intervention from the economy and economic intervention are many.

Economies are Far More Complex than Human Bodies

One difference is that the human body, although more complex than a cardboard box or an amoeba, is much less complex than is the modern economy. Although made up of a multitude of distinct parts such as the heart, lungs, blood, and eyelashes, the number of parts of the human body is tiny in comparison to the number of parts of a modern economy.

Not only does the American economy contain hundreds of millions of people – all of whom are consumers and many of whom also are workers – the healthy operation of this economy also relies upon the productive use of billions of other inputs. Land in rural Iowa, land in downtown Chicago, magnesium, phosphate, lumber, iron ore, steel mills, commercial ovens, office buildings, bulldozers … this list, being practically endless, is far longer than is the list of all the distinct parts of the human body.

And unlike each part of the human body, no part of the economy is ordained by nature to perform whatever task it currently performs. Also unlike each part of the human body, almost every part of the economy has the potential to perform many different, alternative tasks. For the economy to perform well requires not merely that some part of it be used to produce something of value; that part must also be used to produce that particular something of value for which it is best suited economically.

A specific plot of land in Napa Valley can be used as the site of countless alternative ‘productive’ activities – a bicycle factory, a church, a theater, a prison, a vineyard; this list, too, is practically endless. But only one of these uses – vineyard – is currently the economically best. Yet absent competitively set market prices that enable and encourage entrepreneurs to compare the likely value of using this plot of land for growing grapes rather than for other purposes, it’s impossible to tell, just by knowing that it is arable land, what is its best use economically. Unlike human lungs and thumbs, this plot of land doesn’t reveal its proper function by its mere existence.

In short, any competent physician can tell merely by looking at a body organ what is that organ’s best use. No economist – and no politician, pundit, preacher, or person whomsoever – can tell merely by looking at an economic good what is that good’s best use. Such economic knowledge is revealed only by prices set in competitive markets.

Body Parts – Unlike Individuals – Aren’t Sentient

Here’s yet another reason why the intervention of the state into an economy is not at all comparable to the intervention of a physician into a human body. Other than the brain, no part of the human body is a thinking, sentient creature with its own independent preferences and desires. My heart, my lungs, and my ankles are all evolved to do specific tasks, the successful performance of which conduces to keep me alive and mobile. None of these body parts has either a will of its own or, as explained above, the option of performing any task that differs from the specific one that nature created it to perform.

In contrast, each individual in an economy – as a consumer, worker, entrepreneur, or asset owner – is a thinking being with a will of his or her own, as well as preferences that sometimes change and often conflict with the preferences of others.

A physician who sets a broken femur doesn’t worry that the femur might not want to be set, or that a ligament attached to the femur will decide that it prefers to be a bicep. But a government official who intervenes into an economy does indeed confront the real possibility that the individuals who that official envisions paying a certain amount of taxes, or as working diligently to achieve the efficient operation of a subsidized solar–panel manufacturing plant, will intentionally act differently than he expects. As Adam Smith famously explained in The Theory of Moral Sentiments,

The man of system … seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board. He does not consider that the pieces upon the chess–board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess–board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.

No Conflict Over Ends

Perhaps the biggest difference between a physician’s intervention into a human body and the state’s intervention into an economy is that, unlike with economic intervention, there is seldom any disagreement over the precise goal of medical intervention.

When you consult a physician for treatment of an ailment, you and the physician both agree on the goal: be cured. This goal is straightforward, uncontroversial, and the physician’s success at achieving it is reasonably easy even for you to verify. Of course, in many cases your physician will inform you of unavoidable trade–offs: this medication will rid you of hypertension but will also give you headaches. You are then free to accept or to reject this treatment, with no one else of any relevance having an opposing opinion about what your decision should be. Knowing the trade–off and knowing your own preferences, you can choose the correct – the ‘rational’ – course of action.

Economic intervention is fundamentally different. Even if – contrary to reality – every citizen knows the trade–offs involved for every proposed policy, there is no one single mind to decide which of these trade–offs to accept and which to reject. Americans might unanimously agree that raising the top marginal income–tax rate by ten percentage points will decrease some measure of after–tax income inequality by six percent, but only at the expense of reducing the average annual rate of economic growth by one percentage point.

Despite complete agreement about the trade–off’s ‘objective’ facts, there will almost certainly be deep disagreement about whether or not trading slower growth in exchange for greater income equality is acceptable. One group of people will judge it to be acceptable while another group judges otherwise. And as the work of economists such as Kenneth Arrow and Duncan Black reveals, there is simply no sure way of deciding which group’s preference should prevail.

And so unlike a physician intervening into a human body, government officials intervening into an economy cannot know even if a fully informed ‘patient’ – the collection of people in the economy – wants any particular treatment or not.

Analogies are indispensable both for furthering our understanding and for communicating our understanding to others. But analogies must be used with enormous care. Their careless use in economics risks inflicting great injury to the body politic.

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