A Modern Fable
None of us … errr … at least I think none of us, would choose to run headlong into a wall. Our survival instincts rebel at the thought. But something weird happens when we flip the proposition around. We repeatedly run into walls — and with great gusto and determination — as long as we don’t see them.
What invisible walls am I talking about? Here is an example. Why is Greece in such a mess? “That’s easy.” You might say. “Thy ran up too much government debt.” And sure enough, that is what we see from the media. That the Greek problem arises from the inability of the Greek government to pay back the loans that it took to finance public expenditures over the years. And it is easy to understand the demands for austerity — to cut back on spending. “After all”, I heard a very bright young lawyer in Tallinn say, “One must not aspire to live beyond one’s means!” BTW, easy to say when you have no money problems yourself. Yes, it may be painful, but the poor Greeks will just have to accept living like paupers. They must learn the virtue of thrift! Translating this into my model, suspect morals and excessive debt comprise the wall that we see and reducing expenditures is the way around it. Or so it seems.
But ask yourself this question. Why did the Greek government do this? Were they just stupid? I don’t think so. But isn’t it strange that the media offers us very little cogent thinking about the reasons why Greek public debt got out of control?
The reason is rather simple — revenues available to the Greek government failed to keep up with spending needs. But why was there a revenue shortfall? What if something was holding the Greek economy back? Something invisible? As it turns out there is something invisible that held the Greek economy back and holds it backs still. It is ludicrously excessive regulation of business. The Economist reports on this.
And so, a wall that no one sees endangers all of Europe. The austerity demands impose hardship — as running into a wall tends to do (and as Krugman points out, are counterproductive because of the liquidity trap problem). But they distract attention from the barrier that needs to be overcome. We simply ignore the devil — or wall — that we don’t see. And so we “Stay the course!” Translation - we keep on running into the wall.
It is a bit odd, don’t you think?
FOLLOW - Jeff Bezos calls these invisible walls “kluge”. Things that we accept but actually could overcome if we saw the problems in light of resources that are available to address them. I think Jeff is right to identify this as a capacity problem. We build capacity to do lots of things, but not necessarily to see things more clearly. As Bruce Schneier points out, because we rely so heavily on prefab models, it is not a surprise that we lag in building a model for better modeling.
2d FOLLOW - The human cost of the Greek policy mess is startling. Consider that more young people in Greece are now unemployed than employed — and this will get worse. Atlantic reports.