The economy is not a machine.

But the whole idea of fixing, running, regulating, designing, or modeling an economy rests on the notion that, if the right smart guys are at the rheostats, the economy can be ordered by intelligent design. But the economy is no mechanism. There is no mission control. Government cannot swoop down like a deus ex machina to explain the inexplicable and fix the unfixable. Why? Because the knowledge required to grasp each of the billions of actions, transactions and interconnections would fry the neural circuitry of a thousand Ben Bernankes. This is what F. A. Hayek called the knowledge problem. Knowledge, Hayek reminded us, is not concentrated among a few central authorities but is dispersed around society. That’s why bad unintended consequences follow government interventions like black swans.

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Society as Ecosystem

So if not the machine metaphor, why an ecosystem? Economies, like ecosystems are complex adaptive systems. Nature, including the economy, can experience episodes of wild wobbles, fluxes and flows. But it almost always returns to a steadier state known as “ordered chaos.” That is, when it’s left alone. In clumsier but perhaps more familiar language—ecosystems tend towards equilibrium.

Both ecosystems and economies are distributed systems. In the former, billions of interdependent means-ends activities are a reflection of a billion preferences and choices. In the latter, species are dynamic and interwoven in a web of relationships. For both, the whole system is an ever-evolving cascade of change that is unfathomable to a single mind.

Taxes and regulation as pollution. I don’t know why this argument isn’t made more often with all this hyper-environmentalism. Some pollution is unavoidable. Too much, though, causes harm. I would think people who believe exposure secondhand smoke leads, inevitably, to lung cancer, might be more receptive to this idea.