May 15th, 2006

eyes black and white

The Eyes in the Swiss Cheese

Take Swiss Cheese, the variety that comes with holes (technically known as eyes). There is a clear correlation between holes and cheese: the more cheese there is, the more holes there are. If you purchase twice as much cheese, you'll get a volume of holes twice as big. Since correlations are symmetrical, this also means the more holes there are, the more cheese there is. If you purchase enough cheese to double the volume of holes, then you have purchased twice as much cheese. Thus, a static mind satisfied with correlations may conclude that a good way to increase the total quantity of cheese is to increase the total volume of holes — which may be achieved quite simply by drilling holes in the given supply of cheese. Of course, this means fails, because it changes the proportion of holes to cheese, whereas the measured correlation upon which the reasoning stands crucially depends on this proportion or multiplier being a constant. Yet that's exactly how macroeconomic regulation by government works: find some existing correlation between some kind of wasteful government spending and a measure of general welfare, and then forcefully increase the spending in the hope to increase welfare...

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