Contact Fellowship

RSA Fellowship Team

+44 (0)20 7451 6927

+44 (0)20 7451 6831

fellowship@rsa.org.uk

When a 19th-century machine metaphor shapes how we think about and explain economics, a new approach is needed, one that views the economy as a living garden that needs careful tending, suggests Nick Hanauer and Eric Liu

The economy 'fires on all cylinders', we say. It 'gains momentum' or it 'stalls' and 'sputters'. It may need some 'regulation' or 'pump-priming'. We want it to 'stay in equilibrium'. It 'cranks out jobs' when it's 'well oiled'. We do not want it to 'overheat'. We 'grease its gears'. It 'picks up steam'. It 'crashes'. It 'generates returns'. And so on.  

We have talked in this way about economic life since the advent of the industrial age. And there is indeed something intuitively satisfying about the machine metaphor: it conveys a sense of efficiency, perpetual motion, seamless action and the productive conversion of inputs into outputs.

But we now know with scientific certainty that this mode of thinking, which we call Machinebrain, is profoundly wrong. It has blinded us to the way people and institutions really behave. It has reinforced a 'trickle-down' ideology of laissez-faire market fundamentalism and economic orthodoxy that is accepted by both left and right.

In this Machinebrain view of the world, markets are assumed to be perfectly efficient, humans perfectly rational, incentives perfectly clear and outcomes perfectly appropriate. Since the market is always right, a series of other truths obtain mechanistic force. Regulation is inherently regrettable because it impedes the workings of the machine. Government fiscal stimulus is 'waste'. Both rich and poor deserve to be so. And, because of this, taxing rich people gums up the works of job creation.
This self-enclosed story of a self-correcting machine is the gospel of free marketeers everywhere. It is compelling as long as you avoid two things: evidence and a modern understanding of systems. There is simply no evidence, from any nation at any time, of a high-functioning, sustainable and prosperous economy that does not also have strong regulation, active government, and progressive taxation. There is certainly no evidence for the theory that markets are perfectly efficient. Indeed, all evidence points the other way. Empirically, trickle-down economics has failed. Tax cuts for the rich have never once yielded more net revenue for the country.

The 2008 crash and the Great Recession should have been irrefutable proof of markets' inefficiency and irrationality, of how unhinged from reality the elegant precepts of market fundamentalism are. When a befuddled Alan Greenspan confessed after the crisis to a 'flaw' in his worldview – namely, that the efficient-market model had assumed bankers and consumers were rational – Machinebrain thinking should have been emphatically and fatally discredited.

Yet it lives on, like a zombie ideology. Indeed, this story still shapes the language and unconscious assumptions of economic policy in legislatures, central banks and corporate boardrooms. Its US adherents, mainly Republicans, keep perpetuating it. But more puzzlingly, so do its erstwhile critics, mainly Democrats. They sell stimulus as a way to 'restore equilibrium'. They call small businesses 'the engines of job creation'. They concede the zero-sum premise that more regulation or taxation means less wealth, and debate only the amount of harm to inflict. The result is that progressives have failed utterly to capture the popular imagination even as Machinebrain thinking has been revealed to be bankrupt.

Enter the gardener

What we require now is a new framework for the economy, grounded in a modern understanding of how things actually work. Fortunately, a quiet scientific revolution that has unfolded over the past 40 years teaches us that economies are not simple, linear and predictable like machines. They are complex, nonlinear and adaptive like ecosystems, and subject to the same feedback loops and evolutionary dynamics. To be clear, the economy isn't just like an ecosystem, it actually is a type of ecosystem. And, as such, it is best thought of as a garden, not a machine. It can be fruitful if well tended, but will be overrun by noxious weeds if not.

In the Gardenbrain story, markets are not perfectly efficient, but they are effective if managed well. Humans are not perfectly rational, calculating and selfish; they are emotional, approximating and reciprocal. And outcomes are not just as they should be; rather, they reflect the kinds of compounding and feedback loops – virtuous circles or death spirals – that distort all complex systems.

Where Machinebrain justifies the belief that it's every man for himself, Gardenbrain recognises that we're all better off when we're all better off. Where Machinebrain treats inequality as the predictable result of unequally distributed talent and work ethic, Gardenbrain reveals it as the self reinforcing and compounding result of unequally distributed opportunity.

In thinking about the role of the state in economic life, then, don't imagine what a mechanic would do; imagine what a gardener would do. Government is not turning dials or pulling levers, or just getting out of the way; it is seeding, weeding, feeding and watering. Gardenbrain thinking challenges many of today's most cherished ideas on regulation, taxes and spending.

Consider regulation. The prevailing assumption in economics is that markets are perfectly efficient and thus self-correcting. On this view, regulation – which literally means 'to limit or impede' – is an unfortunate interruption of a frictionless process of wealth creation. And if it were true that the economy is mechanistic, regulation would indeed slow it down and Americans could rightly believe that less regulation will automatically lead to more prosperity.

But Gardenbrain allows us to see that an economy cannot self-correct any more than a garden can self-tend. Gardens require gardeners. And regulation – the creation of standards to raise the quality of economic life – is the work of seeding useful activity, weeding harmful activity and helping the economic ecosystem to grow and adapt.

Is it possible to garden clumsily and ineffectively? Of course. Wise regulation, however, is how human societies turn a useless jungle into a prosperous garden. It is how we convert selfishness within a group into pro-social teamwork that strengthens the group. This fact explains why, wherever one finds successful private companies one also finds a highly regulated (tended) economy, and where regulation is absent we find poverty.

Consider, too, the conventional wisdom on taxes. Under the efficient-market hypothesis, taxes are an extraction of resources from the jobs machine. Machinebrain necessitates this way of describing taxation: as not just separate from, but hostile to, economic activity. This is why most Americans believe that lighter taxes will automatically lead to more prosperity. To tax the rich is thus to punish the 'job creators' from whom wealth is to trickle down to everyone else. And yet, if there were a shred of truth to the proposition that jobs come from making the rich richer and lowering their tax rates, we would today be drowning in jobs and general prosperity.

Gardenbrain enables you instead to recognise taxes as basic nutrients that nourish the garden. A well-designed tax system – in which everyone contributes and benefits – ensures that nutrients are circulated widely to fertilise and foster growth. Gardenbrain exposes the folly of driving down taxes for the richest Americans because they are 'job creators'. Jobs are a consequence of an organic feedback loop between consumers and businesses. It is a thriving middle class that creates jobs, not more wealth for the wealthy. When too much wealth concentrates in a few hands, it is like all the seed clumping in the corner of a flowerbed. The problem with such a concentration of wealth and inequality is not that it is unfair, though it might be; it is that it destroys economic growth by killing the feedback loop between consumers and businesses.

Lastly, consider spending. The word spending means literally 'to use up or extinguish value', and most Americans believe that is exactly what government does with their tax dollars. But Gardenbrain forces us to see government spending not as a single-step transaction that burns money as an engine burns fuel, but as part of a continuous feedback loop that circulates money. To spend tax dollars on education, health, roads and R&D is to water the plants, to disperse the nutrients of taxation throughout the garden.

True, not all spending is equally useful. It needs to be strategic and judicious. And not every worthy idea for spending is affordable. But this perspective helps us understand why, among the nearly 200 nations on the planet, the most prosperous economies are those that tax and spend most, while the states that tax and spend least are failures. More importantly, it clarifies why more austerity cannot revive an already weak private economy and why more spending can.

Taxes and spending nourish economies. Regulation is how we turn a useless and inhospitable jungle into an abundant and productive garden. Employment is not created by corporate profits, much less by coddling the wealthy; it is a consequence of a 'circle of life' feedback loop that starts with consumer demand. The middle-class customer is the true job creator, not the wealthy capitalist.

Seeing the economy this way does not make you anti-capitalism. In fact, nothing could be more pro-capitalism, pro-business and pro-growth than a Gardenbrain approach. By focusing our attention on the long term over the short, on the difference between economic weeds and economic bounty, on the power of markets to yield evolutionary adaptations, and on the deep interdependence of every part with every other part of the whole, it gives us higher rates of growth and prosperity that are widely shared, sustained and self-reinforcing.

Our economic debates are often framed as a choice between regulating, taxing, spending or not. That's absurd. The global financial collapse, food-safety calamities in China and the absence of pre-earthquake building codes in Haiti are all instances of what happens when people think letting the system run itself is a real option. The economy is a garden and we have got to tend it. Start with this story and our debates will become far more fruitful.

Seeing the economy as a garden, and using the metaphors that this conception provides, creates new ways of seeing, both consciously and intuitively, that more accurately reflect the underlying realities and will more likely lead to better policy decisions and greater growth. The economy, like a garden, must be tended to flourish. Our democracy is like a gardener, making the decisions about what to plant, what to weed and what to feed. Our economy and the elements in it, like all organisms found in nature, must adapt to survive. The regulating, taxing and spending that we do as a nation are the tools we use to do that. Let's make the most of them.

So we don't regulate, we tend. We don't spend, we circulate. We don't tax, we water and fertilise. If the economy is an ecosystem, then we should be mindful of the fact that we humans don't do well in jungles. Eden was a garden. Working together, we can make our economy more like Eden than it is today.