Why Economics Is More Like Spaghetti Than Physics

Economics isn’t a neat equation — it’s more like a bowl of tangled spaghetti. Learn why predictions so often miss the mark and how a strong financial plan helps you navigate uncertainty.

We Treat Economics as Science

We are daily bombarded with economic numbers, and our brains want them to work like inputs in a physics equation. But economics does not work that way. Physics tells us that if we push down on a lever with a certain amount of force, our lever will exert an exact amount of force somewhere else, and that force in turn will have a quantifiable effect on whatever is attached to the other end of the lever. If we measure the force, know the length and position of the lever, we can say with certainty what will happen.

 When we hear that an economic input has changed, whether it is interest rate policy, unemployment claims, or consumer sentiment, we want to be able to calculate what that means, and quantify how gross domestic product will adjust or, better yet, how the stock market will react. We want to hear that if the Federal Reserve lowers the federal funds rate by 0.25%, then gross domestic product will rise by 0.10% over the next year and the markets will react with a 2% increase in the Standard and Poor’s 500. 

Economics is not Physics

Economics appears to have laws, but, beyond the basics of supply and demand, they are best thought of as a loose association of suggestions. When one input changes, we can expect there will be an effect somewhere down the line, but there is no certainty what that effect will be, and it can’t be measured or predicted with certainty beforehand. We know that lower interest rates should stimulate the economy, but by how much, and when, cannot be calculated with any precision. We also know that lower interest rates may lead to inflation, but the details cannot be predicted.

 Macroeconomics Is Like Spaghetti

My favorite analogy is to ignore the idea of linked levers and gears, the machinery of physics, and instead think about pasta. Macroeconomics is more like a big bowl of cooked spaghetti than any mechanical construction. If you tug on a strand of cooked spaghetti, you know your action will have an effect, but your ability to predict that effect is vague at best.  Your tug will likely cause something in the bowl to move, but your strand is wound around other strands, all with flexibility and give. You can ask people their opinions of what will happen, but the best they can do is guess. That’s true whether the opinion comes from an award-winning chef, a food critic, or just your everyday pasta lover.

Nobody Really Knows

Next time you’re watching the financial news, and a bunch of so-called experts are arguing about what the day’s economic statistics will mean, remember they are really arguing about something that they cannot predict. When we invest, we must accept that nobody really knows what the daily flow of information will mean for the economy or the markets. That is not easy – we want predictability and certainty. Our brains are programmed to look for patterns and predict danger. We want the equation that spits out an answer, not some vague idea or hint. 

When You Don’t Have a Plan

A solid financial plan that you can trust, one that encompasses both good economic times and bad, goes a long way toward allowing you to ignore the day-to-day ebbs and flows of the news. The unpredictable doesn’t seem as scary when you’re properly prepared and know your plan envisions a wide range of possibilities. If you don’t have a plan and find yourself worried about how your finances stand up to the bowl of pasta that is the modern global economy, find a financial planner and get to work.

About Shotwell Rutter Baer
At Shotwell Rutter Baer, we believe retirement planning should feel simple and personal. As independent, fee-only financial advisors, our priority is you. We are not paid by commissions or product sales. Instead, our advice is focused on helping you make clear decisions about your money, your retirement, and your future.

We are proud to serve individuals and families who want practical guidance, a reliable strategy, and a trusted partner for every stage of life. Whether you are just beginning to think about retirement or you want to fine tune your income plan, we are here with straightforward advice and a plan that reflects your goals.

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