Fischer Said to Be the Leading Candidate for Fed Vice Chairman
Economies Need the Visible Hand of a Gardener: Hanauer and Liu
Imagine if our understanding of geography was still based on a belief that the world is flat, or if the study of astronomy placed the Earth at the center of the universe. Now imagine the consequences if similarly antiquated and mistaken notions were guiding our understanding of the way the economy works.
In fact, that is precisely where we find ourselves, because we still look at the economy in the industrial terms of the 19th century . Consider the word “regulation,” which describes how we manage the economy. It has its origins in mechanics and has negative connotations, as in to limit or impede. Yet it is this concept that frames our ideas of how to organize our economy and society.
The machine metaphor comes from the revolution in science and industry of the Enlightenment, which explained the world in reductionist, mechanistic terms and still shapes how we see most complex systems.
This mindset fails to take into account the scientific revolution that has unfolded over the past 40 years, which has changed our understanding. This new science of complexity allows us to make sense of phenomena as diverse as earthquakes, the spread of disease, the rise of Facebook Inc. or the nature of economies.
It turns out these phenomena, and advanced economies in particular, aren’t simple, predictable and efficient like machines. They are complex, adaptive and effective like ecosystems. They are subject to the same feedback loops and evolutionary forces.
Applying this to our economic and social policies requires a deep shift in our thinking, from a 19th century “Machinebrain” to a 21st century “Gardenbrain.”
For example, in conceiving the role of government in the economy, we should no longer see policy makers as mechanics, who tinker with a self-sustaining machine by adjusting dials or pulling levers. Instead, we should look at government as a gardener who seeds, weeds, feeds and waters.
Embracing this Gardenbrain perspective would transform many of today’s most cherished ideas about regulation, taxes and spending.
REGULATION: The prevailing assumption in economics is that markets should be perfectly efficient and thus self-correcting. In this view, regulation is an unfortunate interference with a frictionless process of wealth creation. But an economy can no more self-correct than a garden can self-tend. Regulation should mean nurturing useful activities, weeding the harmful ones and helping the economic ecosystem adapt. Wise regulation is how societies turn jungles into prosperous gardens: Everywhere one finds successful private companies, there is also a highly regulated economy; where regulation is absent, poverty is endemic.
TAXES. Conventional wisdom and the efficient-market hypothesis hold that taxes are an extraction of resources from the jobs machine. This way of thinking regards taxation as not just separate from but also hostile to economic activity. In this view, to tax the rich is to punish the “job creators,” whose wealth would otherwise trickle down to everyone else.
In fact, a well-designed tax system -- in which everyone contributes and benefits -- circulates the basic nutrients of the economic garden and ensures healthy growth of the entire ecosystem. The parts of the garden where the fruit is growing most robustly should supply the most seed.
Gardenbrain exposes the fallacy of policies that drive down taxes for the richest Americans because they are “job creators.” Jobs are a consequence of an organic feedback loop between consumers and businesses. It’s a thriving middle class that can afford to buy goods that creates jobs, not more wealth for the wealthy.
SPENDING. The word “spending” means to “use up” or “extinguish value,” and that is what many Americans believe the government does with their tax dollars. Yet government spending shouldn’t be seen as a process that is destructive or wasteful. The reality is that it is part of a continuous feedback loop that circulates money. To spend tax dollars on education and health care and roads and research and development is the equivalent of dispersing nutrients throughout the garden.
This connection between regulation, spending, taxes and prosperity is hard to grasp if you’re relying on a Machinebrain to make sense of the world.
It makes perfect sense through the lens of Gardenbrain. This approach is strongly pro-capitalism and pro-growth. It simply acknowledges that an economy where anything goes is like a garden overrun by weeds. It is also a worldview that requires government to be far more adaptive and responsive than it is today.
We are gardeners, not mechanics. Untended markets, undertaxed wealth and unfunded governments can never create a fruitful and prosperous society. We need to govern our economy and ourselves as if we knew that.
(Nick Hanauer is a founder of Second Avenue Partners, a venture capital company in Seattle. Eric Liu is a writer and a former deputy domestic policy adviser to President Bill Clinton. They are co-authors of “The Gardens of Democracy.” The opinions expressed are their own.)
Read more opinion online from Bloomberg View.
To contact the writers of this article: Nick Hanauer at Nick@secondave.com; Eric Liu at firstname.lastname@example.org.
To contact the editor responsible for this article: Max Berley at email@example.com.