Aggregate Healthiness

by Don Boudreaux on July 14, 2011

in Complexity & Emergence, Hubris and humility, Myths and Fallacies, Prices, Scientism, State of Macro

A team of the world’s finest physicians and pathologists combine to create a measure of “Gross Bodily Health” (GBH).  The higher is a person’s GBH, the healthier he or she is.

GBH is an aggregate measure made up of measures of heart health, digestive health, pulmonary health, blood-pressure health, and a few others.

The main determinant of GBH is called “aggregate healthiness” (AH).  Aggregate healthiness changes for any number of reasons – for example, a change in the frequency of a person’s exercise or a change in a person’s diet.  Higher AH, common sense tells us, causes higher GBH.

A diagnostic machine is developed to measure GBH.  The patient steps into the machine and, within seconds, that patient’s GBH figure is spit out to the attending physician.

Jones goes to his physician and finds that his GBH is dangerously low.  “What should I do?” Jones asks his doctor.

“Increase your AH – your aggregate healthiness” the doctor helpfully responds.

How?

“Oh, it doesn’t matter.  Jog, take blood-pressure medication if you think you have high blood-pressure, stop smoking if you smoke, exercise more.  Anything to raise your AH.  What’s important is that you get your AH up!”

But can you tell me WHY my GBH is so low?  Can you give me any details on just what I should do to improve my GBH?”

“No can do.  But not to worry, for it doesn’t matter.  The use of aggregates is methodologically justified in many cases.  GBH and AH are aggregates, and we physicians have determined that GBH and AH are indeed very useful aggregates.

“We understand that the specific values of these aggregates for each patient at each moment in time are determined by literally billions of different things going on in that patient’s body and with that person’s diet, exercise, stress, etc.  And there are other physicians – such as Drs. Alchoan, Demsitz, Hayuk, and Klang – who are great experts at looking at these more-detailed aspects of your body’s inner workings.  You can consult them, if you like.

“But be aware that the Best Expert Opinion among practioners of what we call the ‘New Medicine’ is that the phenomena studied by physicians such as Drs. Alchoan, Demsitz, Hayuk, and Klang – while important – are phenomena each so sufficiently distinct from AH that we can, and should, treat deficient AH separately from any ailments that might be diagnosed by the likes of Drs. Hayuk and Klang.

“Trust me.  Get your AH up and you’ll be fine.  Don’t bother yourself with just why your GBH is low.  Those details aren’t nearly as significant as is the fact that your GBH itself – for it’s kinda, sorta like a real phenomenon (it is measurable!) – is too low.”

But….!”

“Please calm yourself!  I’m a candidate to win a Nobel Prize in medicine.  I know what I’m doing.  Can you deny that a higher AH will result in a higher GBH?  Of course not!  Healthiness is the main determinant of GBH, so the trick to raising your GBH is really rather simple: increase your AH.”

“But suppose I take blood-pressure medication even though my blood-pressure is fine.  Won’t that hurt me?  And what if my GBH is low because of a lung disease.  How will I help myself by improving my diet?  Shouldn’t I know the details of what ails me?  And isn’t it the case that the specific causes of my low GBH should be treated individuallyIncreasing my ‘aggregate healthiness’ seems like a hamfisted way to go about improving my health.  I have SPECIFIC things wrong with me; what’s wrong with me isn’t helpfully described simply as inadequate ‘aggregage healthiness.’”

“Look.  I’m the expert.  I know what I’m talking about.”


UPDATE: From Mark Perry’s Carpe Diem.

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{ 50 comments }

Speedmaster July 14, 2011 at 11:10 am

Hehe, nicely done. ;-)

Steve S July 14, 2011 at 11:19 am

Holy cow, your analogies keep getting better…

Daniel Kuehn July 14, 2011 at 11:20 am

Thank goodness people who talk about why AD is low get a lot more specific than this doctor did about low AH!

Don Boudreaux July 14, 2011 at 11:24 am

No analogy is perfect, Daniel. I’m aware of the many imperfections in the one I draw here. But discussing deficient aggregate demand is still to discuss gigantic blobs of indistinguishable forces in ways that divert attention from the all-important microeconomic details – the details that cause and describe the failure of resource uses to be better coordinated in order to better meet consumer desires.

Daniel Kuehn July 14, 2011 at 11:29 am

I agree completely – which is why I said I’m glad that the prominent discussions of AD don’t gloss over the details.

Sean July 14, 2011 at 11:43 am

Daniel, could you give a couple sentences about the specifics, then? I dislike Don’s metaphor, but largely agree with his point that details matter.

I only really recall the AD discussions in terms What To Do in regards to fiscal stimulus, and which tax/state support/infrastructure spending would be most effective in light of it. And I’ve seen some of Scott Sumner’s discussions about how AD issues can be resolved with significant monetary stimulus.

I appreciate a lot of these macro models. But I also come from a physics and now finance background — I have seen how worthless models can be due to overgeneralizing details. Map is not the territory and all that. I just don’t see much of economists acknowledging this, but perhaps it is because my eyes gloss over in discussing much of it.

Daniel Kuehn July 14, 2011 at 12:04 pm

Most of the discussion of details has to do with balance sheet concerns, which if you are in finance you in all likelihood understand better than I do.

The point is the financial crisis, in causing a “balance sheet recession” lead to flight to quality and an increased demand for liquidity and money, and that’s precisely what translates these microeconomic balance sheet concerns into macroeconomic problems. But as Nick Rowe likes to say, money is the one good that is traded in every market so when increased, unaccomodated liquidity preference raises the value of money all markets are affected.

You would think that the price of money would just adjust and everything would go back to normal – but there are a couple problems with this. First, the adjustment of the price of money (either in actual deflation or simply lower-than-anticipated inflation) inhibits growth when there are large debt overhangs like we have now. The other problem that makes this recession worse than, say, 1981, is that interest rates are hitting a lower bound and therefore have trouble adjusting. There are other adjustment concerns that people have raised as well.

The point is this – yes, Keynesians do point to macro problems. As soon as money gets involved that makes it a macro problem because money is traded in all markets. This is precisely how Roger Garrison justifies Austrian macro (some think the very idea is an oxymoron) and why Garrison titles his book Time and Money.

Don’s problem is that Keynesians don’t talk about the micro antecedents to macro problems that he likes best (he mentioned the capital gains tax in the last post). I’m sorry, but the fact that I don’t think the capital gains tax or the minimum wage has much to do with the crisis simply doesn’t mean I ignore micro issues.

Don rarely talks about “balance sheet recessions” in the detail that Krugman, DeLong, and others do. In fact I’m not sure I’ve ever heard him to talk about it. That doesn’t give me license to accuse him of ignoring microeconomics, though.

Methinks1776 July 14, 2011 at 12:49 pm

If Sean is a typical quant (no offense Sean, I love our quants. You guys are great), he doesn’t have a background in finance. He creates financial models – all of which are pretty much mathematical models applied to finance with only the most minimal consideration for financial theory and good old common sense (like, for instance, assigning a zero probability of a nationwide decline in home prices in the model because that’s never happened before. All in the face of a nationwide rise in home prices – which never happened before either).

A lot like economic models, really.

Balance sheets are corporate finance and not something I’ve ever seen a quant model.

You once again wipe all the details out of what’s driving business decisions and bring it down to a simple explanation you can easily wrap your head around, Danny K.

Methinks1776 July 14, 2011 at 12:52 pm

“Scientism” is as prevalent in finance as it is in Macroeconomics. That’s why quant funds blew up left and right in 2007-2009.

Dan J July 14, 2011 at 8:21 pm

Those concerns of minimum wages and capital gains taxes, when raised during a recession does not help and is another weight tied to the ankle of an economy looking to remain afloat.

Frank33328 July 14, 2011 at 12:25 pm

To play the analogy in the other direction, if you went to Dr. Hayek, wouldn’t the advice be something like:

“Your body is complicated and ANY course of treatment could have unintended consequences that would leave you worse off than when you started. I don’t like the top-down approach of me, the doctor, dictating a course of action from above. We just have to let your body find it’s own balance and heal itself.”

I am a believer but the above somehow doesn’t sound any more appealing than the advice to boost Aggregate Health. What did I miss?

Slappy McFee July 14, 2011 at 12:33 pm

First – Do No Harm

A wise lesson for both Doctors and economic “experts”

vikingvista July 15, 2011 at 5:12 am

Economic interventionists don’t take the Hippocratic oath. They take the hypocritic oath.

Slappy McFee July 14, 2011 at 12:38 pm

and then feel free to listen to Russ and Arnold Kling discuss this:

http://www.econtalk.org/archives/2007/11/arnold_kling_on.html

Methinks1776 July 14, 2011 at 12:40 pm

The doctor and the patient try different treatments together, Frank. The patient gives the doctor feedback and treatments are adjusted. They are individualized. In doing so, “Dr. Hayuk” is not taking a top-down approach any more than an entrepreneur is taking a top down approach by offering a product into the market and adjusting his marketing and specifics of his product based on market feedback.

Frank33328 July 14, 2011 at 12:54 pm

After further consideration I am thinking the problem with my question is the analogy can’t go the other way. It’s the aggregators that see the economy as a whole (a patient), but to quote Dr. Robert’s video “there’s no IT at all” (there’s no patient).

Subhi Andrews July 14, 2011 at 1:40 pm

Frank,

You are right. Patient analogy is used to mirror Keynesian model. That analogy doesn’t work for Hayekian world view.

Greg July 14, 2011 at 3:27 pm

This is no less an idealization of the Hayek approach than Mr. Bodreaux’s post is a generalization of the Keynesian approach.

The obvious solution is that you need both a general doctor — to identify and account for the general symptoms of a problem — and a specialist — to identify and correct the etiology of the problem.

So why not skip the general doc altogether? Because, sometimes the specialist treatments take a long time, or have heavy side effects that might actually worsen your current symptoms. The general doc is there to control the symptoms for the time being, giving you time to go to a specialist next week.

Why not just suck up the symptoms then? Because the symptoms can cause new problems that could have been avoided if they were treated independently, instead of ignoring them to get after the etiology. These problems could be new specialty problems, or they could just be general weakness to the point where treating the initial condition is too risky.

I shouldn’t have to explain the metaphor point-for-point. Stabilize the patient — THEN go in for surgery.

Methinks1776 July 14, 2011 at 6:27 pm

Greg,

Here’s the problem with your analogy:

Many diseases share the similar symptoms. If you treat only symptoms you can make the disease worse – you can even kill the patient. If, for example, the generalist misdiagnoses Lupus (a fairly heinous auto-immune disorder and AI disease is not that easy to diagnose even for spe) and starts prescribing an immune suppression cocktail, he can land his patient in the hospital with a terminal infection.

If all you know is that your patient is unable to breathe and you treat his symptom with an inhaler when he’s actually have an anaphylactic reaction, you’ve pretty much just killed him.

That’s pretty analogous to what you and the Keynesians recommend. Treating symptons without no understanding of what’s causing the symptoms can and often is much worse than not treating until you have a diagnosis.

The only exception to “treat and ask questions later” is if the patient is about to croak. Since there’s nothing analogous to that in economics, I can’t think of a single reason to stomp in and start meddling with things you don’t understand in an effort to alleviate non-life threatening symptoms.

Methinks1776 July 14, 2011 at 6:29 pm

Sorry about the editing on that last post. The resulting grammatical mistakes are just Muirdiotesque in nature.

yet another Dave July 14, 2011 at 6:39 pm

Muirdiotesque

Great word! It got my wordistortion processor going and now I have a visual of Methinks dancing at the Muirdiscothèque!

Methinks1776 July 14, 2011 at 7:05 pm

YaDave,

If your imagined dancing Methinks looks like someone having a seizure, then you’ll have a pretty accurate image.

Joseph K July 14, 2011 at 11:28 am

“Just take three doses of this new medicine we’ve got call QE, and it’ll solve all your problems. It’s proven to be 10% more effective than a placebo at least 20% of the time”

Methinks1776 July 14, 2011 at 1:00 pm

Bernanke’s testifying before our overlords in congress yesterday and today: To QE3 or not to QE3, that is the question! The market is pouting. It wants the heroin.

morganovich July 14, 2011 at 1:41 pm

methinks-

that testimony seemed more like “i am laying the groundwork for an inevitable QE3, what flavor would you like?” to me.

the first 2 have failed, but third time’s a charm, right?

this just seems like bigger hammer theory to me.

bernake has all the sophistication of a 17th century physician who keeps killing his patients by bleeding them and decides that their repeated deaths mean he is not bleeding them enough.

i do not like the way this is shaping up.

Methinks1776 July 14, 2011 at 2:07 pm

I fear you are correct, Morganovich. And that means I lost a bet!

Mesa Econoguy July 14, 2011 at 4:44 pm

I thought we were already on to QE4 or QE5.

Didn’t those start yesterday?

vikingvista July 14, 2011 at 11:40 am

Beautiful! And one of the interventions to increase AH is to transfuse blood from the right arm to the left arm, through a leaky catheter.

jcpederson July 14, 2011 at 11:42 am

I think about this whenever I see a published poll result asking if people think America is on the right track.

gregworrel July 14, 2011 at 12:28 pm

Yes, because as we all know there are only two possible tracks, the Republican track and the Democratic track. No matter that both tracks go in approximately the same direction. On one, the trains lean to the left, the other, the trains lean to the right.

wweeks July 14, 2011 at 12:09 pm

This was an excellent post.

vidyohs July 14, 2011 at 12:09 pm

““Look. I’m the expert. I know what I’m talking about.”

LOL, in my branch of the navy we used to say that the way to become an “expert” is to travel 50 miles away from your home base and carry a briefcase.

Beware the experts.

Slappy McFee July 14, 2011 at 2:03 pm
Methinks1776 July 14, 2011 at 12:33 pm

BRAVO, Don!

Thoroughly enjoyed that. I love the analogy even more because the human body is sufficiently complicated that two patients with the same illness are in no way guaranteed to react the same way to the same treatment.

Mark Bahner July 14, 2011 at 12:55 pm

“But suppose I take blood-pressure medication even though my blood-pressure is fine. Won’t that hurt me?”

What kind of doctor advises his/her patient, “…take blood-pressure medication if you think you have high blood-pressure,…”?

:-)

vidyohs July 14, 2011 at 1:02 pm

A bureaucratic doctor who is convinced his solution is correct regardless of the problem, and who doesn’t care about the cure but cares only that he can prove he offered a solution. Kind of like a typical government bureaucrat elected, appointed, or hired.

Sam Grove July 14, 2011 at 12:57 pm

The witch doctor performs a balancing act with leeches, too many leeches and the patient will weaken, insufficient leeches, and the treatment won’t work.
‘The patient’s body adjusts to the presence of leeches, making more blood to compensate and increasing the patient’s appetite for iron rich foods.
If all the leeches are suddenly removed, there will be an adjustment period and perhaps some discomfort.

Aren’t we generally better off without leeches feeding on our bodies in the first place?

Sam Grove July 14, 2011 at 12:59 pm

The problem with our economy now is that leeches attached to the body economic have become the accepted norm and so many people are unable to imagine it any other way.

Of course, the economic witch doctors are invested in leeching.

Observer Guy1 July 14, 2011 at 1:11 pm

Awesome post. Your ability to present such a timely and appropriate analogy is unmatched.

Add this to the book!

Philo July 14, 2011 at 1:24 pm

The government doesn’t know anywhere enough about the details of how the economy works to deal with those specifics. But it has taken upon itself to control the money supply, which affects the workings of every sector of the economy. By this lever it can determine the economic aggregates, principally GDP. If it set the money supply properly (a responsibility it has unwisely taken upon itself) it could then leave specific details to individual agents. Unfortunately, it has been ineffective in controlling the money supply, and so has not achieved stability in the aggregate (GDP); but that–not fine-tuning specific aspects of the economy–was its responsibility.

morganovich July 14, 2011 at 1:25 pm

that’s an ironic choice of acronym given that in the UK, GBH (grievous bodily harm) is a felony.

i can see this leading to confusion.

Justin P July 14, 2011 at 1:32 pm

“Look. I’m the expert. I know what I’m talking about.”

At which point any sane person should run for their lives.

dsylexic July 14, 2011 at 1:55 pm

if ever a book consisting of cafehayek posts were to be made,this one would be a shoo in

dsylexic July 14, 2011 at 1:59 pm

what balance sheet recession? balance sheets consisting of marktomodel fantasies simply have to now acknowledge the mistakes they made during the boom.all recessions hit company balance sheets .there is a lot of meaningless hoopla about this being a special type of recession.
au contraire,it was predictable and played just as predicted by many austrian econs

Methinks1776 July 14, 2011 at 3:24 pm

You mean to tell us that if you overpay for an asset, your balance sheet might take a hit and go into “recession”? Gasp. So, the macro-economic problem that only the least informed among is in the government are able to fix is there is a lot that sort of thing going on. Right.

Is there anything else going on? Is the increase in choking regulation written and yet to be written a factor? “Nah”, says Krugnuts, “That’s just people trying to bash the Obamessiah.” The ‘stimulus’ spending to expand virtually every regulatory body in the United states, Dudd-Frank, Obamascare, the army of appointed Ceasars and income tax hikes do not result in any paralyzing regime uncertainty at all. So say all of the politically neutral surveys of Government Sachs, GM and AIG. No, it’s an aggregate demand and depressed balance sheet problem. I mean, once government paralyzed everyone by bailing out foreign banks and our biggest losers and punished everyone who isn’t a total (but politically connected!) disaster with promises of more of the same in the future, what else could happen? So, obviously, this is going to lead to a few “adjustment problems”. But, Danny and his friends aren’t interested in taking the wrench out of the gears of the economy to allow it to fix the adjustment problem. No, that would mean minimal role for anyone aspiring to a Ph.D. and considering himself an elite member of society.

Dr. T July 14, 2011 at 6:29 pm

I liked the analogy, though it struck close to home. The approaches of the physicians and pathologists in the analogy too closely mimic those of the epidemiologists and public health “experts” who spew streams of recommendations and proscriptions for the general public to improve the aggregate health of the nation. Thus, we get a food pyramid diet that’s harmful to half the population, sodium intake advice that’s worthless for 90% of people and harmful to at least 10%, cholesterol reduction protocols with costs that far outweigh benefits, an immunization program that harms our children and has no benefits (hepatitis B vaccination of newborns), alcohol avoidance advice that increases the prevalence of atherosclerosis without reducing the prevalence of alcoholism, saturated fats avoidance that result in consumption of the more harmful trans fats, etc.

Both medicine and economics fail when only aggregate measures are assessed.

– A Clinical Pathologist

Stone Glasgow July 14, 2011 at 8:26 pm

Like.

Methinks1776 July 15, 2011 at 1:50 am

ditto.

Dan J July 14, 2011 at 8:17 pm

More wealth transfer, directly from what value we thought we had to the govt and WS.

Jim Edmondson July 15, 2011 at 10:32 am

I think the initial analogy perhaps unintentionally makes the case for part of Obamacare. The aggregate stat suggests that general public health across the entire spectrum can be improved by steps taken in the aggregate. Get more people into the health care system, and the GBH will improve. That will increase the chances that a “right doc” will identify the “right steps” for an individual to improve his AH. Getting more people into the system thru health care coverage that is more broadly available is surely one of the goals of the new law. Whether it is cost-effective is another question. I hope so.

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