Static thinking is idiotic policy making

Most stupid policy ideas begin with the assumption that demand, supply, and prices are immutable. If the supply of goods is immutable, taxing producers or capping prices has no externalities and is, therefore, a no-brainer. Similarly, if the supply of crimes is immutable, enforcing the law has little benefit and is, therefore, immoral toward criminals.

This tendency toward static thinking was formally identified by Italian economist Sandro Brusco in his Superfix Model. But why is it so hard to think dynamically?

I believe that the root cause is our fixation on thinking about wealth in terms of dollars. You see, the moment we introduce dollars in the conversation, we start to anchor our thinking to existing prices. We believe that if a house costs $X, if we all have $X, we can all have a house – whereas in reality, if everyone has $X more, the price of houses rises, too. We believe that if a wealthy life requires $Y, if everyone had $Y, we would all be wealthy – but that's true only if the supply of goods and services increases, too – otherwise, there will still not be enough for everyone.

A better alternative

A better alternative to thinking in terms of dollars is to think in terms of goods and services.

Instead of asking ourselves how much a home should cost, let's ask ourselves how we can ensure we build enough homes for everyone. Instead of asking ourselves how much someone should earn to live a comfortable life, we should ask ourselves how we can produce enough goods and services so that everyone can have one (instead of having to bid money to access limited supplies).

If we started doing this, it would become evident which policies lead to poverty (those that disrupt the supply of goods and services) and which lead to prosperity (those that facilitate it).

Don't get me wrong. I am not naively assuming that wants are immutable. For example, even if we build enough homes to house everyone, people will complain that they cannot get a sea view. Nor am I saying we shouldn't think in terms of dollars – currencies are extremely valuable tools to facilitate trade, allocate scarce resources, and keep opportunity costs low. What I'm saying is that a large portion of the current public policy debate lacks a basic understanding of how the economy works – and with respect to that part of the discussion, forgetting about dollars and instead reasoning in terms of goods and services would produce much smarter policy-making.