Pursuit of Truthiness

my gut tells me I know economics

How is Regulation like a Snake-Eating Gorilla?

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People as diverse as Alfred Marshall, Thorstein Veblen, Freidrich Hayek, and Russ Roberts have said that economists try to be physicists when the subject really has more in common with biology. But while people have said this since at least the 1800’s, there are only a couple areas where biology and economics have blended- game theory, evolutionary economics, agent-based computational economics, and some shared statistical techniques. We are still, for the most part, aspiring physicists.

 
While the actual physics-lite techniques we use work well enough, I think biology is a much better source of metaphors to describe the economy. One I don’t recall having heard before is invasive species. Suppose a new invasive species enters an ecosystem, leading to bad results for the native species. People clamor for the government to “do something”. So the government releases a new invasive species in order to take out the old one. This does not go as planned. In an episode of the Simpsons (possibly discussed in Homer Economicus, which I still need to read), Springfield is threatened by invasive bird-eating Bolivian tree lizards. Principal Skinner suggests that the problem can be solved by importing a new invasive species, Chinese Needle Snakes, to eat the tree lizards. But what about the new Chinese Needle Snake infestation? Simple, just bring in snake-eating gorillas….

 
This is a great way of describing the unintended consequences of regulation. The government sees some problem out there in the economy, like expensive housing. In order to “do something” and try to solve the problem, they come up with a solution like rent control, without thinking of how their “solution” could end up being worse than the original problem (by reducing the quantity and quality of housing supplied by the market). Rather than admitting their mistake and reversing course, they act by introducing another solution into the market ecosystem to try to correct the problems stemming from their first “solution”- like requiring rooms to stay available for rent if they were ever rented out. Then developers are even more reluctant to take the risk of building new housing, or investing in the improvement of current apartments. A few more “solutions”, and we are well on our way to snake-eating gorillas terrorizing the countryside.

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Written by James Bailey

June 4, 2014 at 12:15 pm

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