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Ants are fascinating creatures. Far more than a simple picnic pest or inspiring hero moving a rubber tree plant, ants are complex creatures that demonstrate the value of teamwork, networks and cooperation. Scientists are only now starting to learn just how complex an ant colony really is and how incredibly intricate and mysterious ant communication is.
And the ant colony is a perfect metaphor for what humans call “the economy.”
Unfortunately, when most of us refer to the economy, we refer to it as a single, monolithic creature — almost like it has a central decision-making mechanism and a single state of being. We talk about the economy being in good or bad shape. We use terms like bull and bear in reference to stock markets. Academics refer to the desired state of the economy being “in equilibrium.” All of these are poor ways to think about the economy because the economy is not one single thing.
Human economic activity involves hundreds of millions of independent actions made each second
Rather, the economy is far more like an ant colony, where thousands of ants act both independently yet collectively at the same time. Human economic activity is even larger, involving hundreds of millions of independent actions made each second by businesses, governments and individual consumers. The economy is the result of what happens in the aggregate, and it’s never the same from one minute to the next.
Understanding this is key to understanding how policies will affect — or not affect — the result of the millions of economic decisions each minute. And when we think about the efficacy of governments’ economic policies, it’s important to keep in mind a few main principles of how ants — oops, I mean humans — make decisions.
Three critical decision-making principles
The first is that no economic decision is made in a vacuum. The current environment in which businesses and consumers find themselves will shape and influence decisions. No example is clearer and more timely than the Covid-19 pandemic. But other examples such as prevailing interest rates, climate-change realities and geo-political backdrops come to mind as well.
The second is that the past informs the present. Choices are influenced by historical, cultural and institutional contexts, and these contexts vary widely even across single national economies. In the United States, for example, what shapes a good economic decision will differ between Savannah and Seattle, given these two cities’ very different historical and cultural lenses. What is logical in one setting is very different from another. Unlike what neoclassical economists might have assumed, human decision-makers are anything but predictable and rational.
The third principle is the future and our expectations of what is to come. These too can vary tremendously between businesses and individual consumers and are shaped by media, governments and public institutions. If we expect interest rates to rise, for example, we alter our borrowing decisions in the present. This is where fear and uncertainty can hinder good decision-making, especially when that fear morphs into anger.
Good public policy should create better, safer and more sustainable jobs
This brings us back to the efficacy of public policy to shape and direct the economy in a desirable direction. I’ve always believed we give governments both too much credit and too much blame for the results we see in the economy. Generally speaking, no government policy in any modern democratically governed nation is likely to single-handedly save or destroy an economy. (Even extreme actions, such as the BREXIT in the U.K., can be disruptive, but for the most part, the lives of Britons today are not fundamentally different than they were pre-referendum).
This doesn’t mean the role of public policy is unimportant. But rather than thinking about policy as a means of dictating an outcome, good policy makers need to understand their role is one of influencing, even seducing, the collective decision-making process in a desirable direction.
The goal of good policy should be to create better, safer and more sustainable jobs. It’s also to ensure our collective ant hill (aka the economy) is one that affords good opportunities for all. But these goals can only be achieved if policy makers understand the nature of the ever-changing, morphing and mutating economy.