An Introduction to It’s a Wonderful Loaf
Understanding Emergent Order in Our Daily Lives
We have desires we achieve through taking action.
Cleaning the dishes. Raking the leaves. Writing that email to a colleague. Preparing dinner. Visiting our parents. None of these take place without our intention and action. They don’t happen on their own. These parts of our lives are more or less under our control. Sure, some plans fail. Sometimes our desires go unfulfilled. Sometimes there are unintended consequences — things happen that we did not intend. But a good chunk of our life is about making things happen that we desire to see happen.
Then there are things that are out of our control but that happen on their own through a natural process no human being intends or designs. Breathing. The healing of a paper cut. Staying attached to the earth rather than floating off into space. We don’t have to lean into the curve as we go around the sun to keep the earth on orbit. No human being is in charge of making sure the sun comes up tomorrow. When it rains, we may be frustrated if we had hoped to go on a picnic in the park but there is no one to blame. And if it’s an especially beautiful day, we may thank God or simply be glad to be alive. But there is no person we owe thanks to.
There is order sprinkled liberally throughout the chaotic nature of nature. The planets orbit the sun. Birds of a feather flock together. Fish make schools of fish. Ants create colonies. No ant is in charge of the ant colony, yet an order emerges from the actions of the individual ants that no one of them intends. The colony and the bee hive seems to have a mind of their own that can respond to challenges and change, independent of any of its members.
We humans create emergent order as well — order that is the product of human action but not human design. It looks like someone is in charge yet no one and no group intends these outcomes we observe and experience. These parts of our lives are incredibly orderly and reliable. They look as if someone or a group of people have convened to take action together. It looks like someone is steering the system to achieve certain goals. But no single human being is in charge or intending what actually occurs.
These kind of phenomena are all the more impressive because we don’t even notice them.
Late on a Saturday night, you decide suddenly to throw a brunch the next morning for a few friends. You wake up on Sunday with a plan to buy a dozen bagels — either at your grocery or a coffee shop or bakery or maybe a specialty bagel shop. You actually don’t just want a dozen bagels. There’s a particular mix you’re planning to buy — three poppy, three sesame, three plain and then a few less popular flavors — one onion, a jalapeño, and an everything bagel.
At the bakery, you tell the person behind the counter what you want and add a pumpernickel bagel to your baker’s dozen. You buy cream cheese and butter. You stop for smoked fish and fruit and a dozen eggs at another store and head for home.
On Saturday night, when you had the idea of throwing a brunch, you never worried that your bakery might not have bagels the next day. You never worried that they would not have the different flavors you wanted. On Sunday morning, you didn’t call ahead to tell them you were coming or to make sure your choices were in stock. It’s possible you’ve never been disappointed before in your choices at your local bakery. Why would you have to call ahead?
If I asked you to notice that your bakery met your desires, you would probably have to concede that you had never thought about it but when you do think about it, is it really that impressive? You would tell me that the bakery wants to stay in business. They pay attention to what their customers want to buy and order enough ingredients to make sure they can meet those desires. They make a little extra of everything just in case someone wants to throw a brunch. They would probably prefer to have too many bagels on a Sunday morning than too few.
And that’s all true. As an economist I would only add two things. The bakery does indeed prefer to have too many bagels than too few. That preference comes at a cost that is almost certainly passed on to the customer. But it is your preferences that drive that difference — you would prefer to pay a little extra to be sure that bagels are available than to make an extra trip or two to find the bagels you want. A bagel shop or bakery that is inexpensive but occasionally out of bagels will struggle to keep its customers in a competitive world in a place where time is fairly valuable and where the customers are relatively well off.
My second thought would be that catering to the preferences of consumers is the result of competition. If you have only have one place nearby that sells bagels, you are unlikely to find it as diligent in serving you as you would in a town or city where there are numerous places to find bagels.
So what’s the big deal that your spontaneous desire to throw a brunch was executed as planned — that the bagels you desired were there waiting for you when you showed up?
To appreciate why this is impressive, you might start by considering who decides how many retail outlets a city will have for bread and bagels. When your bakery opened in the place where it is now, it just as easily could have been a florist or a shoe store or a bike shop or a liquor store or a hair salon that rented that space. Who makes sure that bakeries have enough locations around the city so that it’s convenient for you to find bread? There is no such person. There is no bakery czar who looks out for bread lovers.
But if there is no bakery czar, then who makes sure that there are enough places to buy bread in a large city, so that no one has to go very far to find bread? Yet somehow, the process seems to work fairly well. You might love fresh baked bread but have no interest in bikes. But there seem to be a decent number of both bakeries and bike shops — the bread lover and the bike rider peacefully co-exist.
But if there is no one in charge of making sure that all the things that are pleasant to have nearby — the things we want to access with some degree of regularity — how is that there is a decent mix of retail outlets scattered throughout the city? The answer is that there are feedback loops of profit and loss that steer the allocation of real estate to various purposes.
If there is no bakery in your neighborhood and people in your neighborhood are willing to pay for fresh-baked bread, a bakery will be able to make a decent profit by renting a space that comes up for rent. And there may even be room for two bakeries fairly close together if enough people are willing to pay the premium that bakery-baked-bread needs to command over and above pre-packaged bread to cover the cost of a stand-alone retail outlet. Or a bakery near a convenience store that sells a few kinds of sandwich bread near a grocery that has a rich selection of breads, pre-packaged and freshly baked.
Who decides if that second bakery nearby is a good idea? You might think that decision is in the hands of the baker who rents the space.
But that isn’t exactly right. A baker who tries to open a competing shop near an existing one will either make a profit or a loss. If a profit, then a second bakery can persist. If a loss, then it will eventually close. It’s a pretty blunt feedback loop. A second bakery might be a good idea but the baker who opens up a competing shop just might not be that good at running a bakery. That baker might fail even though there is plenty of demand. And a second bakery might persist on reputation, making a profit even though their product is not what it once was.
In short, no one and no committee decides how many bakeries there are in a city or florist shops or anything else. The owner of a vacant lot or vacant storefront sets a price and sees who steps up to buy or rent. A mistake would be a tenant who loses money and can’t cover the rent. A success is a tenant that thrives — a bakery for example that after paying its employees and enduring the costs of flour and other ingredients and ovens and mixers, generates enough money from bread sales that it can cover the rent.
The signals of profit and loss do not work in a vacuum. I doubt there’s a city anywhere in the world that lets the real estate market play out totally on its own. There might be zoning. There might be a limit on the heights of buildings and the ability to mix stores and residences within a building. The streets around the property might be full of potholes or in good condition. There are courts to enforce the agreement between the owner and the renter. The police might do a good job preserving safety and security or they might do a poor job. There can be safety regulations and inspections. These might be more easily born by some industries than others. They might work to make customers more trusting and content. Or they might be structured to make it harder for a new-comer to challenge an existing business. All of these and a thousand additional aspects of government will affect the profitability of retail real estate and in turn affect the mix of retail outlets in a city.
So when I say that no one is charge of deciding how many bakeries there are in a great city, I don’t mean to suggest that there is nothing government does that affects that decision for good or for ill. Or that there is some inevitability to the number of bakeries in a city regardless of what policy rules are in place. Or that the number of bakeries in Cleveland, say, is some pure free market outcome. Of course it isn’t. But what I do mean is that when you walk by an empty store front near your house or apartment and wonder whether it will end up as a bakery or a bike shop or an Italian restaurant or an office or a florist, there is no one coordinating the desires of bread lovers and bikers. Yet in most cities, it works out pretty well.
The owner of a parcel of land is surely in charge of getting that property ready for sale. And the purchaser or renter of that property is surely in charge of figuring out to do with it. If it’s a bakery, the baker is in charge of figuring out what kinds of bread to offer for sale and how that bread should be producer — what kinds of ovens, the number of employees and so on.
But no one is charge of the price that land will rent for. The owner appears to set the price but that is an illusion. The price is set through a complex set of interactions between dozens if not hundreds of other parcels of land and dozens if not hundreds of potential renters or purchasers.
Here’s the craziest part of the process. When a bakery outbids a bike shop for that new storefront, it looks like the baker made the decision to open a bakery. It appears to be a phenomenon like doing the dishes — you want clean dishes and so you set about the task of washing them. The baker wants to open a bakery so he rents the space. But if you start to think about who influences that decision, you realize it’s nothing like your decision to do the dishes.
If there is not enough demand for baked goods, the baker will fail. If a bike shop can outbid the baker — because there are enough people nearby who want a place to buy bikes and have them repaired, the bakery will not open or if it does, it may not last very long. You see the baker signing a lease from the owner and you are fooled into thinking that the two of them have come to a decision together. But a myriad of customers of bread and bikes and others influenced that decision. The image of the baker signing the lease is the last frame of a much more complex story.
That same baker orders flour regularly to fill the shelves with the baked goods that you and others desire. When placing those orders, the baker never worries that the supplier of flour will be out of flour on a particular day. The baker takes the on-going relentless availability of flour as a given — a reality that is as reliable as the force of gravity. The baker goes to bed at night unworried that the earth is going to spin out of orbit. And unworried about the availability of flour.
But who is in charge of the supply of flour around the country and the world?
A bunch of farmers around the world decide independently of each other how much wheat to plant. No one is in charge of the total number of acres of wheat which will be planted or harvested this year. No one is in charge of how much of the resulting flour should go to pasta vs. scones vs. whiskey vs. pizza vs. bread. Yet somehow, even when pizza becomes a world-wide craze around the world, there is still sandwich bread. Even on Super Bowl Sunday—the biggest pizza day of the year — when Domino’s alone will sell about 12 million slices and its drivers will log 4 million miles bringing those pizzas to football fans, the most die-hard hater of football will find plenty to choose from at the local bakery.
Who coordinates the competition for flour between pizza lovers and the lovers of bagels on Super Bowl Sunday? There is no coordinator. There is no one you have to lobby to make sure that croissants or baguettes or bagels are available the week before or the week after or the day of the Super Bowl. You don’t have to call ahead. It’s all there waiting for you.
Our plans fit together without anyone coordinating them from the top down. The process is unmanaged. Yet it turns out fairly well.
This process works so well, we do not notice it.
And we do not notice the bakers who rise early every morning to make sure we have fresh bread. They get satisfaction from providing bread to strangers but that is not usually enough to get people up at 4 am. Something else is going on, something more powerful than a memo decreeing that the bakers rise early. The bakers rise early almost everywhere as if there were someone in charge orchestrating their mornings. But there is no conductor of that harmony.
This order emerges from the bottom up and not the top down.
Order that involves incredible coordination across millions of individuals most of whom are strangers to each other without direct communication.
The process is held together by a series of feedback loops — profit and loss and prices and competition.
Understanding those feedback loops — what sustains them and what can destroy them — can take a semester or longer.
Understanding and appreciating emergent order, and understanding when it works well and when it doesn’t and it does not always work well, is for me, the essence of economics and the deepest idea that we economists can contribute to helping normal human beings understand the world around us.
Economists call the interaction between buyers and sellers of bread a “market,” but our charts of supply and demand, while often very powerful, don’t get at the richness of how we as human beings manage to cooperate without top-down coordination and do it so peacefully.
My novel, The Price of Everything, explores these ideas. But not everyone gets excited about reading a 250-page book these days, even when it’s a novel.
So I wrote a poem to capture what is wondrous about what we humans create unintentionally as buyers and sellers of bread:
The annotated text of the poem is here.
For lots more related reading and video and audio related to these ideas, go here.
One viewer of the poem asked if I “really believed this fairy tale.” Good question. I believe that in most of the cities of the world bread of decent quality is available at decent prices every day of the year without a bread czar or a flour czar or a truck czar or a bakery czar. This happens in somewhat free-market America and somewhat more regulated France. Where it does not happen right now is in Caracas Venezuela where the government has destroyed the feedback loops that coordinate the desires of bread lovers with the desires of bakers. And there are neighborhoods in New York and I presume in Paris where bread is not available nearby. In places where crime is rampant or where zoning is strict, you will have to travel farther to get fresh delicious bread at reasonable prices.
The process isn’t perfect. A bakery with a great reputation can cut corners for a while and still get customers for a while. There are poor people in the world and there is suffering. There is nothing about It’s a Wonderful Loaf that says everything is great if you just leave it alone. Or that you don’t need government to play a crucial role in providing things that won’t take care of themselves very well, like roads or enforcing contracts.
It’s also not the case that anything that emerges from human action without design, is ideal — that all emergent order is to be celebrated. All languages are emergent. Silent letters like the “b” in debt are annoying and make life difficult for non-native speakers. Walked is a contraction of walk and did. That’s an improvement. Walkd would probably be better but it doesn’t happen. Rush hour traffic is predictable as the sunrise and much less pleasant. Racism is emergent and it’s evil.
In all of these examples, and the bread example in the poem, there are feedback loops that sustain the order and that accommodate change. When more people move into a city, the traffic tends to get worse even when the city government builds more roads. When more people move into a city, you get more bread and more bakeries. Why the difference? The feedback loops of profit and loss work for bakeries are not the same as the feedback loops of traffic. When more people want to go gluten-free, people can make a profit or get a competitive edge serving that desire. When more people want to ride their bicycles to work, bike lanes eventually get established but it doesn’t work as smoothly. This isn’t just a question of government being more or less responsive than an emergent system like the market for bread — the physical demands of travel — that it takes place in space, probably constrains how effectively transportation options can respond to changes in attitude.
Someone or some office is probably in charge of bike lanes in the mayor’s office. But there isn’t a particularly effective feedback loop to convey information to that decision-maker. The incentives facing that decision-maker are more complicated and blunter than those facing a person renting out a storefront in a strip mall.
And as an aside, larger scale government decisions like zoning regulations or safety regulations for businesses aren’t run by a single decision-maker. Political decisions are also emergent. But that is a subject for a different essay.
What the poem is trying to say is that there are aspects of our lives under no one’s control that work remarkably well, driven by processes we do not notice or understand and whose workings don’t require our noticing or understanding. Even more bizarre, they can work better than if someone were trying to achieve the same set of results deliberately.
The ant that trundles along a path carrying a crumb of bread and unintentionally signals the availability of more crumbs to the rest of the colony does not understand what the colony knows as a whole. There is a similar mystery in human interaction. What I’ve hoped to do with It’s a Wonderful Loaf is begin to open the door to that mystery for you.
A huge part of our life is left to its own devices and we sleep peacefully, unworried that what we want to buy tomorrow will be there, waiting for us.
There is harmony between the bikers and the bread lovers.
Between the lovers of bagels and the lovers of pizza.
Between the lovers of sesame bagels and the lovers of poppy bagels. It’s a huge part of our daily lives and it works so well we never notice it. Look around. There is wonder in the world that we create together that no one of us intends.