The Economy As Schrodinger's Cat

This post is lovingly dedicated to S.

Today, an oblique homage from the dismal science (economics) to Erwin Schrodinger, a real scientist. As you may recall, he was the quantum physicist who discovered the eponymous equation (simplified version below).

Schrodinger's Equation For A Single Particle In Three Dimensions

Are we having fun yet? Is this gibberish not what you signed up for when you clicked on Sudden Debt today? Do try to hold on, however, because Mr. Schrodinger most famously also devised the well-known cat-in-the-box thought experiment - and that's our topic today. (After a fashion, anyway...).



Just like the cat inside the box, is the US economy currently dead or alive? Does it follow quantum mechanics, meaning that the two states are superimposed and the economy is both dead and alive? Finally, does the mere act of observing the state of the economy affect the outcome?

Let's start from the latter: yes, observation does affect the economy - if the observer is a presumed expert like the Fed Chairman or the NBER, whose dicta carry considerable weight. (Well, not so much their actual looking at the economy as what they say about it - the analogy with quantum physics is not perfect, but you get the point.) More significant is the fact that they have to look at the economy and they have to pass judgment on its health. Unlike the physicist running the cat experiment, these experts are obligated to look inside the box and thus collapse the superimposed states into one.

Currently, every expert has quite apparently looked at the economy and pronounced it dead. In fact, the NBER just post-dated their death certificate and now says that the recession started a full year ago, in December 2007. Could it be that the dismal scientists are currently attempting to convince us that the worst is already behind us? I mean, how can one constantly observe a cat and only decide today that it died a year ago, hoping that the pronouncement will bring it to life tomorrow? The mind boggles... even quantum mechanics doesn't allow for such cavalier treatment of time.

For my money, the economy is still inside the box - it is still both dead and alive. Some dead sectors (finance, real estate) are superimposed upon some others that are very much alive (alternative energy, organic farming/food). Yet other sectors are both dead and alive at the same time, like the auto industry which is dead at the combustion engine end, while being reborn at the plug-in hybrid end.

There is opportunity around, that's for sure. Just make sure that your money's on the right cat.

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Note: People are asking for "cat" ideas in the comment section. There are plenty here:Hot, Flat, and Crowded: Why We Need a Green Revolution--and How It Can Renew America, Thomas Friedman's newest book. He may not be a scientist or engineer but he does speak with a lot of important and relevant people.