For a long time, I have been fascinated by the parallels in the study of equilibrium across academic disciplines. Biology, chemistry, and physics represent a short list of disciplines where the study of equilibrium can benefit our understanding of equilibrium in economics. Given economists general interest in baseball, I’ll make my first “equilibrium” post have to do with steroids.
A properly functioning human body engages in homeostasis. Homeostasis is the ability or tendency of an organism or cell to maintain internal equilibrium by adjusting its physiological processes. Organisms routinely face exogenous shocks which require they use their natural self-correcting mechanisms to return to equilibrium.
Now, let’s say that a pro athlete isn’t content with his body’s equilibrium home run production. By taking anabolic steroids, testosterone levels can be raised above their natural state which in turn can improve home run production. One of the many downsides of anabolic steroid use, however, is that the human body in an effort to balance the exogenous shock either lowers or completely stops natural testosterone production. In the short term, then, the athlete becomes dependent upon anabolic steroids to maintain the needed testosterone to perform at their expected level. Normal testosterone production may return to steroid users after a lengthy abstinence from steroid use.
Now let’s say that politicians aren’t content with the current equilibrium employment. Their solution is to create employment by creating new government jobs. One of the many downsides of government job creation, however, is that economic actors (either existing or potential) in an effort to balance this exogenous shock either lower or completely stop natural job creation. Normal job production may return to the economy after a lengthy abstinence from stimulus use.
Every government job has to be funded from somewhere. If it is funded through increased taxation on current economic activity, then producers won’t be able to afford to hire as many non government workers. The existence of tax wedges (dead weight loss) insure that the money collected for the government jobs is less than the money lost from private employers. So if the government tries to pay for their new jobs, net job loss results. This is why economic stimulus packages are funded by long term debt.
Long term steroid use carries with it serious physical consequences, but any short term reduction in steroid use will lead to a period of time with depressed hormone production until the body retools to restart hormone production. At least most athletes have an off season.
Once the economic actors get used to government job creation replacing private sector job creation, they become dependent upon the government stimulus. Here is where economic actors get caught in the same catch 22 as do doping athletes. Increased long term borrowing brings on slower long term economic growth, but to withdraw economic stimulus in the short term will cause employment to fall until the self-correcting mechanisms of the economy restart private job creation.
The moral of the story: Sammy Sosa entertained some people in the short run, but will never get into the MLB Hall of Fame.
Prediction: Posterity won’t look kindly on “government job creators”