American Elephants


The Economy Is Not a Pie: It’s a Garden by The Elephant's Child

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The most common metaphor for debates about growth and income distribution is a pie chart picturing the economy as a pie. The usual argument is how to divide up the pie and distribute the slices. What is fair? But this is another misleading metaphor.

A pie has a defined size. Economic growth and efficiency are about making the pie bigger. Equality is about the size of the slices. Keith Hennessey, Director of the National Economic Center under President Bush, explains in an essay for the George W. Bush Presidential Center:

The pie metaphor for the economy is misleading and damaging, especially if you place a high priority on economic growth.

A pie has a predefined size. A central authority (probably the baker) cuts up the pie before serving any of it. It’s a single pie to be divided. Indeed the popular economic debate analyzes what “share of economic growth over the past X years has gone to the top (or bottom) Y percent,” as if income or income growth is a single quantity that is centrally allocated among a population, to be later reallocated by policymakers. Because the market allocation is increasingly unequal, some argue we can and should simply re-slice the new, bigger pie to produce more equitable pieces. Those who do usually ignore that their actions would make the economy smaller. The pie metaphor contributes to this view because one cuts the pie only after it has been baked, after its size has been centrally chosen.

A flower garden is a better metaphor for looking at economic growth and income distribution. A flower’s growth depends on the individual characteristics of that type of flower and that particular seed. It also depends on common factors shared with other flowers in the same garden (e.g., the local climate, pests, the skill and diligence of the gardener) as well as its particular advantages relative to other flowers (better sunlight, soil, and water in this part of the garden than that part over there).

The economic challenge is to maximize the growth potential of the whole garden, the gardener helps, but flowers grow naturally, with a little fertilizer, sun and water. Policymakers and elected officials do not “create jobs” nor do they “increase economic growth.” Wise policymakers create the policies under which the whole economy can grow. Think incentives and freedom: maximizing the potential for those struggling to succeed. When you have vigorous economic growth, the whole economy blooms and income distribution ceases to be a problem.

Efforts to control by those who do not understand the workings of business, regulation by those who do not understand the results of over-regulation. Far too many politicians have never worked in the private sector and do not grasp the effects of the regulations they choose to employ.

An example is the current outcry over restaurant menus, and the federal requirement to list every ingredient with its calorie count. Think about the big menu on a lighted sign behind the cashier in a pizza place, a Mexican restaurant or an Asian restaurant. For restaurant chains, the signage problem is immense and costly. Multiple studies have shown that adding calorie counts to a menu have no significant effect on menu choices. But you knew that. You don’t go to McDonalds to reduce. You go to McDonalds because you want a hamburger and french fries. It’s a regulation in search of a purpose.




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