If I possessed even modest talent at painting, I’d paint a picture to convey some sense of the modern economy’s inconceivable complexity, dynamism, and vastness.
As I imagine it, my picture would give the viewer the impression of looking at the surface of an ocean at eye-level. That which is above the surface would be visible to anyone, but that which is below the surface would be invisible to all but the privileged viewer of the picture.
Above the surface teems a cornucopia of goods and services – goods and services the existence of which is made possible only by what is beneath the surface. The goods and services above the surface, available in abundance for ordinary people to consume, are all connected in intricate ways to the materials, machines, efforts, and processes – financial and ‘real’ – that churn beneath the surface. Although the quantity of goods and services above the surface is immense, its size is minuscule compared to the colossal amount of economic inputs and activities beneath the surface – inputs and activities, including creative entrepreneurship and risk-taking and on-the-spot problem-solving – connected, in an unfathomable number of combinations, to each other and to the goods and services above the surface. This web of connections is so complex as to be inconceivable to the human mind.
The human eye can very easily see that which in reality is, so to speak, above the economy’s surface. In plain sight are the huge amounts of food, drink, and other household goods that are always available in every supermarket throughout the modern world – the automobiles whizzing along boulevards and autobahns – the seemingly endless menu of choices at retailers such as Amazon and Walmart – the army of oncologists, cardiologists, neurologists, podiatrists, obstetricians, pediatricians, gastroenterologists, pediatric gastroenterologists, and other medical specialists – the blogs, books, movies, streaming music, movies-on-demand, guided tours, and sports-league television networks to entertain or challenge your mind – the jetliners that carry you away for holidays or home from job assignments – the high and rising life-expectancy – the infants not dying (nor their mothers), the parents not grieving – the artificially cooled indoor air during the summer and artificially heated indoor air during the winter – the new app for smartphones – smartphones! – goods and services galore, from the gaudy to the glorious and each and every one the fruit of this inconceivably complex and spontaneously ordered web of economic relationships and processes, a mix of peaceful competition and cooperation, that works so silently and invisibly that almost no one knows of its existence.
In contrast, the human eye cannot see the full extent of the productive processes that make this cornucopia a reality. Indeed, this massive, ‘below-the-surface’ market activity is easy to deny or to trivialize. And it’s therefore tempting for those who are unhappy with what they see on the surface to demand that the surface phenomena be rearranged to be more pleasing to the unhappy complainers’ eyes.
But these unhappy complainers don’t realize that to knowingly meddle with that which is on the surface is to unknowingly meddle with far more; it’s to unknowingly yank on an uncountably large number of cords by which the surface phenomena are connected to the Everest of market processes beneath the surface.
Meddling with the surface phenomena causes these unseen cords to pull, twist, and rearrange in unpredictable ways many beneath-the-surface economic arrangements and processes. Among the simplest examples of such unseen pulling, twisting, and rearranging involves raising tariffs on imported steel in order to protect the jobs of today’s steelworkers or to better ensure supplies of a critical military input. Seems simple; and, indeed, it’s likely that such tariffs work – at least for a time – to ensure that more steel is produced domestically and, hence, to protect some steelworker jobs that would otherwise be made redundant by imports.
But peer beneath the surface. The higher tariffs on steel artificially raise the costs to other domestic producers of supplying the likes of precision tools, automobiles, home appliances, and office buildings. These producers of goods made with metal react with some combination of reduced outputs, lowered quality, and greater use of aluminum and other substitutes for steel. Buyers pay higher prices for these goods, thus generally leaving them less to spend to buy other goods and services – such as health care, restaurant meals, nights out at movie theaters, and vacations to Disney World. Employment in these other industries falls, thus offsetting any tariff-engendered gains in the employment of steelworkers.
The unseen consequences continue. As more aluminum is used domestically to produce (say) home appliances, the price of aluminum rises. The cost of supplying some military hardware thus also rises, both because of the higher prices of steel and because of the higher prices of aluminum. The defense budget grows, causing either taxes to rise today or – through debt issuance today – taxes to rise tomorrow. The need to pay these higher taxes reduces consumer spending and business investment in ways unforeseeable, thus causing contractions in the size of some industries. As these industries contract, they employ fewer workers and buy fewer inputs from suppliers.
Yet because the consequences of tariffs play out over large numbers of economic relationships in space and time, no one can trace out their details. We know – chiefly through economic theory – that these consequences are real and generally worse than what would prevail absent any tariffs. But out of sight, out of mind. If the surface economic phenomena can be manhandled in ways that give it a better appearance to those who mistake the surface for the entire economy, then that’s that. The manhandling of the surface phenomena is mistakenly thought to work.
“See! Steel tariffs ensure that we produce more steel!” boasts the protectionist. The economist is left to verbally insist – quite correctly – that this visible ‘success’ comes at too hefty a price paid in the form of invisible distortions now infecting the vast subsurface web of market processes.
I wish (oh how I wish!) that I had artistic talent enough to paint such a picture! How I wish that I could make more visible – literally visible – to the eye the economy’s teeming, streaming, pulsing, gargantuan – yet almost completely invisible and silent – interconnectedness and complexity. The person who paints such a picture would provide a great service to humankind.