When I hear terms like “quantitative easing” (aka, printing money), I reach for Douglas Adams. I find insight (though not great comfort, it must be admitted) in his definitive if metaphorical theory of economic bubbles – the Shoe Event Horizon.
Years ago, when Margaret Thatcher was getting stuck into tearing up the post-war social-economic consensus in Britain and before Ronald Reagan was elected US President and launched reaganomics, but in that very year of his election (1980), the then proud publishing house of Pan Books produced The Restaurant at the End of the Universe by Adams, sequel to The Hitch-Hiker’s Guide to the Galaxy and re-tagged later as the second instalment of ‘a trilogy in five parts’. It is in Restaurant that we encounter the Shoe Event Horizon.
The key passage is, like everything the i-Sage of Cambridge* wrote, brief, cogent, and rich in imagery, allegory and wisdom. It is a passage that all budding finance ministers, would-be heads of financial regulatory authorities and arbiters of economic taste should commit to memory.
To remind you, the explanation takes place on the second planet in the Frogstar system – Frogstar World B – whither the galactic president has been taken against his will. The details of his captivity and personality need not detain us; suffice it to say that although the other Frogstar worlds are quite delightful – excellent fishing is to be found on World C, for example – Frogstar World B is a place of dank desolation on which nobody willingly sets foot. Its only inhabitants are large, somewhat human-looking, extremely depressed birds, of whom more later. Its few visitors are limited to those poor souls destined to be fed into the Total Perspective Vortex, to learn their place in the universe, and the Vortex’s disembodied custodian, Gargravarr. He it is who outlines to the galactic president the basis of the Adams theory of economic bubbles by telling him the story of that dismal world:
“Many years ago, this was a thriving, happy planet – people, cities, shops, a normal world. Except that on the high streets of these cities there were slightly more shoe shops than one might have thought necessary. And slowly, insidiously, the numbers of these shoe shops were increasing. It’s a well known economic phenomenon but tragic to see it in operation, for the more shoe shops there were, the more shoes they had to make and the worse and more unwearable they became. And the worse they were to wear, the more people had to buy to keep themselves shod, and the more the shops proliferated until the whole economy of the place passed what I believe is the termed the Shoe Event Horizon, and it became no longer economically possible to build anything other than shoe shops. Result – collapse, ruin and famine. Most of the population died out. Those few who had the right kind of genetic instability mutated into birds – you’ve seen one of them – who cursed their feet, cursed the ground, and vowed that none should walk on it again. Unhappy lot.”
And there you have it in less than 200 words – a universal (albeit, to repeat, metaphorical) theory of economic short-termism, one-eyedness and macro-cack-handedness. It starts with an initially small imbalance in the economy, that feeds on a basic need and triggers an unexpected addiction, that leads to over-investment in ultimately unproductive economic activity, causing disaster followed by a belated and therefore exaggerated correction, consisting of an extreme swing in the opposite direction – “unhappy lot.” What more is there to say?
* Douglas N. Adams, born in Cambridge the year before the code of DNA was interpreted, was one of the first British owners of the very first Apple Macintosh computers, the version that went on sale in 1984 and had an active memory of 128 kilobytes (not kidding). He wrote a review of it for the first issue of Apple’s promo magazine, MacWorld, in which he complained that if you left the Caps Lock key on and didn’t look at the screen often enough, you could end up with a full page of block capitals that you had to re-type laboriously, so couldn’t someone come up with a gizmo that would transform caps to regular text, please. I have always assumed that was the origin of the now ubiquitous “Change Case” function that lets you do exactly what Adams asked for.