Suppose there are ten people on a desert island. One, named Able Abel, is extremely able. With a hard day’s work, Able can produce enough to feed all ten people on the island. Eight islanders are marginally able. With a hard day’s work, each can produce enough to feed one person. The last person, Hapless Harry, is extremely unable. Harry can’t produce any food at all.
He then goes on to the obvious conclusion that forcing Abel to work is not fair just because the others can’t fend for themselves.
Here’s the problem: what does this have to do with income distribution in a modern capitalist economy? The answer is as follows: nothing. Absolutely nothing. In this island there is no state; people do not cooperate (actually they appear not to have any relationship whatsoever); there is no injustice; there is not even trade. So the thought experiment is worthless.
But the fact is that analogies are generally pretty awful, for the simple reason that they aren’t, by definition, the same as whatever they are purported to represent. They are often said to illuminate a few important aspects of a situation, but this is an illusion. I will demonstrate it by offering two oft-used and reasonable sounding analogies for the economy, one suggesting that monetary policy is impotent at the zero bound, one suggesting that it isn’t:
(2) Money is like a hot potato that people pass around until the supply matches the demand.
All these analogies help us do is come to the conclusions that we already had in mind. When building analogies people sift through various images until they find one that satisfies the story they wanted to tell. There are an infinite number of feasible sounding metaphors that can go either way: maybe the economy is like a car, and fiscal stimulus is a push from a few friendly passers by; maybe it’s a dog race and the fed sets the speed of the rabbit; maybe it’s a babysitting coop. Or maybe it’s none of those things.
This has important implications for economics. In her 1986 book ‘The Rhetoric of Economics‘, Deirdre Mckloskey argues, among other things, that economic models are basically just metaphors. This is true. As economists like to point out, they seem to care little about whether a model adequately represents the structural mechanics of a system and instead they (supposedly) look at its conclusions. In other words, we don’t have a model of the economy – we’ve got a metaphor for what the economy could look like if it were something different. This is not useful.
P.S. The blogging hiatus didn’t last