We Can’t Outsmart The System
This is part 1 of answering the question: Why can’t we make the economy do what we want?
One Takeaway
The economy runs on signals, not switches. The more we try to control outcomes from the top down, the more we distort the very signals that help people make good decisions from the ground up.
Messing With Signals Messes With the System
If you could push a button to raise your income, lower unemployment, or make your money worth more, wouldn’t that be nice?
That’s the promise a lot of economic policy tries to sell. Twist a few knobs, set some rates, pass the right bill and poof the economy will do what we want.
But the truth is, the economy isn’t a machine with levers and dials. It’s a system of people. And every person is acting, choosing, reacting, and adapting based on the signals around them.
Change those signals, and you change the choices.
This means the tools some choose to use to “manage the economy” (interest rates, inflation targets, stimulus packages) aren’t neutral. They shape behavior. And when used poorly, they mislead the very people the economy depends on.
Coordination Without a Conductor
Markets work not because anyone is in charge, but because everyone is adjusting to everyone else.
That’s the real beauty of systems without central control. You don’t need a master plan. You need clear signals. Prices tell us where things are scarce. Interest rates tell us whether people are saving or spending. Profits and losses tell us whether we’re creating value or wasting resources.
These aren’t just numbers. They’re information.
They help us answer essential questions: Should I invest now or wait? Should I hire more people or cut back? Should I move to this city, change careers, buy a home?
What Happens When The Signals Are Wrong?
In the early 2000s, families across the U.S. looked at the numbers and made what seemed like a smart decision. Interest rates were low. Housing values seemed to never stop climbing. Their monthly payment on a new home would barely be more than rent. Every signal said: buy now.
So they did. And so did millions of others.
But those signals were misleading. Interest rates weren’t low because Americans were saving more. They were low because the Federal Reserve had pushed them there. Housing prices weren’t climbing because of real demand. They were climbing because cheap credit flooded the market with buyers who couldn’t actually afford what they were purchasing.
When rates adjusted and the credit dried up, homes lost significant amounts of their value. Monthly payments jumped. Owners got stuck owing more than the house was worth.
These families didn’t make bad decisions. They made reasonable decisions based on bad information. That’s exactly what distorted signals do. They turn good judgment into bad outcomes across millions of people at once.
Why Some Try Anyway
So why do we keep trying to manage the system from the top?
Because it’s tempting. Big problems seem to call for big solutions. And aggregates like GDP, inflation, and unemployment give the illusion of control. They turn a messy, dynamic system into a scoreboard. And if you think you can move the score by adjusting a few settings, why not try?
But the scoreboard isn’t the game. When you focus too much on moving the numbers, you forget about the players. You forget about the incentives, the trade-offs, the limits, the local knowledge. You forget the stuff that actually makes the economy work.
Good Rules Beat Good Intentions
This doesn’t mean we throw up our hands and do nothing. But it means we focus on what can work.
We don’t need a better pilot. We need a better autopilot. That means:
Clear, stable rules people can rely on.
Honest money that holds its value over time.
Prices that reflect reality, not someone’s best guess.
Freedom to adjust, innovate, fail, and try again.
When we focus on those things, the system works surprisingly well and better than any other alternative. Not because we control it. But instead because we’ve stopped trying to.
The Bottom Line
The economy is made up of people, not equations. Every attempt to manage it from the top down risks distorting the signals people rely on to make good decisions. It’s true that you can’t manage something if you can’t measure it. But it’s also true that just because you can measure something does not automatically mean it needs to be managed.