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A Diseased Economy Awaits the Correct Diagnosis
"America's debt is not its biggest problem." So reads the headline of an article in The Washington Post by Bill Gross, renowned head of the world's largest bond fund, PIMCO. Here's what Mr. Gross thinks America's "biggest problem" is:
Gross advises: "It is critical for politicians and investors alike to distinguish between cause and effect, disease and symptom." But it is Gross who has mistaken cause for effect, disease for symptom. Surely, the symptom of the underlying disease that afflicts our economy is the recession -- the contraction, flagging sales, and unemployment.
This confusion in explaining the bad economy is due to the infelicitous use of metaphor. For immediately after Gross identifies debt as a symptom, he calls it an antidote. How can something be both symptom and antidote? More troubling: Gross's antidote has been used to "sustain" the disease!
A more precise (and more illuminating) use of the disease metaphor appeared recently in "Why the U.S. economy is stuck in neutral," a commentary in The Kansas City Star by guest columnist Callom B. Jones, a Kansas investment advisor:
Mr. Jones has the disease metaphor exactly right. Take the dot-com bubble: The disease didn't start in early 2000 when the NASDAQ imploded; it began years earlier when the speculation psychoses set in, when prices soared for Internet startups that made no profits. It was in the run-up to 2000 that the economy was sick. And yet, we think of those years before we got our collective comeuppance as the glory years. (Maybe they were, if you were smart enough to have gotten out of the stock market before 2000.)
Jones's disease metaphor similarly applies to the real estate bubble. The disease didn't start in September 2008, it began in the preceding years when folks thought home prices could only go up and speculators were having a jolly old time. Indeed, the roots of the crisis went back decades.
Since the economy is still suffering from symptoms, we are still arguing about what medication is indicated. It's been the debate for the last three years. The progressives' diagnosis is that the economy needs more government intervention in the form of stimulus and electroshock therapy (the metaphorical jumpstart).
But if symptoms are due to the economy trying to heal itself, as Jones contends, are we interfering with that "natural" healing with stimulus? Perhaps we're only treating the symptoms and not the underlying disease. Indeed, what is the underlying disease? Is it really "a lack of aggregate demand," as Gross contends? We may need to probe deeper to discover the true etiology of America's economic illness.
Rather than the heroic medicine that progressives are so keen on, perhaps the economy would have responded better to just a little bed rest. After all, back pain, colds and even depression often get better on their own, when we do nothing -- why not the economy? The first rule of medicine is to "do no harm." Can we really say that the heroic medicine begun in 2009 did no harm to the economy? The economy seems to be suffering from iatrogenic complications -- the doctor is making the patient sicker.
Despite its enormous costs, the "government cure" is one of palliatives that only mask symptoms. The economy has gotten hooked on government methadone and now needs to go cold turkey. Had America taken the "do-nothing cure" one thing is sure, we wouldn't have racked up so many trillions in new debt. And that new debt will put a drag on recovery. That is, if America ever has a real recovery.
If real health is all about homeostasis (equilibrium), then our economy's cycle of boom and bust is disease-ridden. Perhaps sectors of our diseased economy need to lie fallow for a while, like a farmer's overworked field.
Sometimes difficulty in understanding isn't just due to the thorniness of the problems themselves, but to the misuse of the conceptual devices and models we employ to explain them. Folks can spend more effort trying to make their metaphors work properly than in trying to understand their problems directly. Metaphors can clarify, but they can also cloud. Sometimes metaphor is a lens, but at other times it is a disease. (Hey, I just used a metaphor to describe metaphor itself. Is that legal?)
Although our complex economy's prognosis is dire, the prescription may actually be quite simple -- diet and exercise. That, and to take more care with our metaphors.
Jon N. Hall is a programmer/analyst from Kansas City.
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