"How did you go bankrupt?" Bill asked.Many economists will recognize this as a version of an apercu offered a number of times over the years by the prominent macroeconomist Rudiger Dornbusch, who liked to say (for example, in this interview about Mexico's economic crisis in the 1990s):
"Two ways," Mike said. "Gradually and then suddenly."
"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought."What I am dubbing the Hemingway Law of Motion clearly has wide applicability. It's when the creaking of your back porch doesn't matter much, until the day you put a foot through the floor. It's when the cracks and rust on the bridge don't seem to matter, until the day the bridge goes down. It's the concern that you can see signs that the risk of a financial crisis or a stock market run, but little action is taken until the crisis is upon us. It's the concern that the costs and risks of climate change may look quite reasonable, until something large and perhaps irreversible happens all at once.
The Hemingway Law of Motion is simultaneously a useful reminder in some cases and a rhetorical trick in other cases. It's a useful reminder that the world often isn't smooth and linear. Instead, the world full of tipping points and thresholds. When warning signs exist, they may not steadily rise to a predictably timed crescendo. Instead, those who interpret the warning signs correctly and take action will often look like alarmists, because if they act in time, the negative event never actually materializes--and so was it really necessary for them to make such a fuss in the first place?
But the dynamic of "gradually, then suddenly" can also be an excuse for acting when evidence doesn't yet exist. It's almost always possible to identify some reason for concern, and if you leap from "some reason " to a definitive conclusion, there is a real chance of error. This reaction is related to various logical fallacies, like the "hasty generalization" fallacy of moving from a small piece of evidence to a sweeping conclusion, or the "argument from ignorance" fallacy which holds that because we don't yet know enough, a preferred argument must be treated as correct. Thus, one needs some structure of theory and evidence to evaluate whether the Hemingway Law of Motion is likely to be in effect. Recognizing this point doesn't make controversies evaporate, of course, but at least it channels the controversy toward theory and evidence, rather than grandstanding and assertion.
Homage: I was once a big fan of The Sun Also Rises, although I haven't revisited the book for years. But I saw the snippet of Hemingway dialogue quoted in by Kevin M. Warsh in "Chapter 4: Rethinking Macro: Reassessing Micro-foundations," which appears in the recent book Across the Great Divide: New Perspectives on the Financial Crisis, edited by Martin Neil Baily and John B. Taylor, which triggered the thoughts here.