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American Focus > Blog > Economy > On Models – Econlib
Economy

On Models – Econlib

Last updated: June 6, 2025 7:15 am
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On Models – Econlib
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Models are not just helpful; they are essential. The world around us is an intricate web of interactions, too complex for any one person to fully grasp. Instead of attempting the impossible task of mapping every nuance, we distill reality into key causal variables that guide our predictions and decisions.

However, not all models are created equal. The utility of a model depends entirely on the context in which it is employed.

To illustrate, consider two different representations of Nicholls State University in Thibodaux, LA, my place of employment. The first is the campus map available on our website, while the second is a topographical map of the same area. If your goal is to find your way to Powell Hall, which map would you choose? Clearly, the campus map is the practical option, as the topographical map, despite its merits, is ill-suited for campus navigation. Conversely, if you are planning a hike in Thibodaux, the campus map would be next to useless.

Relying on the wrong model can lead to catastrophic outcomes.

A striking example is the US invasion of Grenada in 1983. The military did not utilize proper military maps for planning; instead, they relied on tourist maps with military grids hastily superimposed, procured that very day from a shop in Fayetteville, NC. The consequences were dire: four SEALs lost their lives due to unmarked water hazards, and a lack of coordination between troops and air support arose from differing maps. The situation nearly escalated into a disaster on par with the Iran Hostage Crisis—all because the military opted for an inappropriate model.

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The economic models used during the second Trump Administration offer another cautionary tale. Their trade models have proven to be disastrous, with a cascade of negative outcomes: rising interest rates, retaliatory actions from other countries, a weakening dollar, imminent price increases as stockpiles deplete, layoffs and hiring freezes among American firms, canceled factory plans, a plummeting stock market, and increased Chinese encroachment into American markets. The situation has deteriorated to the extent that the president and his advisors have conceded that prosperity is no longer an attainable goal (but not to worry, because apparently, prosperity is overrated). These tariffs were projected to rake in nearly $60 billion monthly. However, in April, the actual tariff revenue (inflated due to stockpiling) was a mere $17 billion.

When the Trump Administration presents its models, they often resemble using a tourist map for a military invasion or navigating a college campus with a topographical map. Their models are riddled with unrealistic, often contradictory assumptions. As a result, the American populace bears the brunt of these misguided approaches.

It is crucial to recognize that while many models exhibit mathematical coherence, such cohesion does not guarantee their practical utility. A model’s effectiveness is determined not merely by its mathematical complexity but by its applicability and the insights it yields. A model that incorporates numerous elements of reality may be rendered useless if it fails to provide accurate or meaningful insights when compared to a simpler, less “realistic” model. Science is not just about manipulating numbers; it fundamentally involves the knowledge to select the right model for the task at hand.

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