The Fixed Shmoo Theory

The Fixed Shmoo Theory is the belief that we can treat a diverse set of things as a homogeneous blob or “shmoo”. Robert Solow adopted the concept of “shmoo” from the Lil’ Abner comic where shmoos are identical creatures shaped like bowling pins with legs (see cute banner image above).

A shmoo is interchangeable with another shmoo, not having any unique properties. Shmoos are convenient because the only question one must ask is how much shmoo to apply to fix a particular problem, leaving out the questions of which ones, why, and how. Believing in the heterogeneity of things requires that we ask questions about the quality and function of things, but we need not waste time on such matters if we believe the world is made up of homogeneous blobs. When Fixed Shmoo Theory is applied to “education”, “spending”, “capital”, and “labor”, one is saved from having to think critically about the true heterogeneity of these categories. 

The Education Shmoo

The “education” shmoo is a common one today. When Americans say “get an education” or describe someone as being “educated”, they mean having a college degree. If educated means having a college degree in the general vernacular, then we take mental shortcuts where anyone without a college degree is “uneducated” and those with advanced degrees are the “most educated”.  The practice of learning has been equated to the obtaining of formal degrees through an institution that has been granted the identification of being a “college”.  This mental shortcut, when left unquestioned, can lead to more harm than help in our decision-making.

In reality, education – the process of  learning, the acquisition of knowledge, and the development of intelligence – are certainly not confined to a college institution. The “education” shmoo gets away with not defining what education means, for who, and for what. Does a high school student who acquires skills from using free online resources not educating himself? Is someone who picks up interpersonal and technical skills at her workplace not educating herself? Is someone who did not get a degree in Business unable to run a business? Are people unable to educate themselves from the many experiences they acquire along their journey called life? It’s true that certain highly specialized knowledge can be most easily accessed by attending college, but it is also true that the vast diversity of knowledge is obtainable without an expensive formal degree. Certain kinds of education are not available in college as well. In the field of social sciences and humanities, colleges may lean toward certain biased views that serve as the main transfer of “education” to students who do not look outside those bubbles.

In reality, Education comes in various forms, is received in various ways, and can be used for various purposes, and therefore must be acquired thoughtfully and continuously. There is an infinite amount of knowledge we can learn and an infinite number of uses of knowledge.  The Fixed Shmoo Theory applied to education leads to people equating learning with things like college degrees without asking the more important questions – what is it you want to learn, why does that matter to you, and how can you learn it?

The Money Shmoo

The money shmoo is a popular one where money is perceived as a blob of goodness. The shmooer equates having more money to mean having a more satisfying life.

But money in itself has no value unless it can be applied thoughtfully in order to live a life according to one’s values.  Having more money simply means having greater purchasing power; you can have money but not do work you enjoy, not have relationships you value, and not be able to spend time the way you want. Your life does not improve just by watching it stack up higher and higher in a bank vault. Money is, however, one resource that must be combined with others – skills, knowledge, time, relationships – and organized creatively in order to bring satisfaction to your life.

The Fixed Schmoo Theory applied to money can lead to people working hard for money without first asking how they believe earning money will eventually contribute to their well-being. It can also lead to people without money demonizing those who do have it, believing that money is the root source of their own suffering and another’s happiness. It certainly helps, but it is one of many resources we must apply to create a meaningful life of freedom.

Shmoos in Business

There are two common shmoos in businesses – “capital” and “labor”. In the Fixed Shmoo world where all capital assets are interchangeable, it wouldn’t matter what machines or equipment a business uses to make its products. Owners wouldn’t need to make decisions about how to manage finances – how much to save, how much to reinvest in the operations, how much to spend on hiring and training staff. In a competitive business environment, owners must be willing to make experiments in order to test hypotheses about new ways of doing things. Business owners must adapt to the dynamic external environment filled with opportunistic competitors and the whims of customer preferences. These complex decisions are often unseen by the time customers set their eyes on the final product. Just inject more money and profits will magically appear. In reality, business owners must put in effort and discernment to organize the heterogeneous mix of capital assets effectively. Failure to do so, as is the case with the majority of businesses, leads to bankruptcy (unless the business owner has politicians friends).

In the Fixed Shmoo world where labor is homogeneous, every one within an occupation is interchangeable. A psychologist is a psychologist is a psychologist. A teacher is a teacher is a teacher. Even worse, labor is labor is labor – as is often the case in economic models. But there are significant differences in personality, competence, and reliability from one person to the next. Those factors translate to the quality of the work or service that’s provided. Effective managers have the challenging task of making hiring and firing decisions, developing skills of their team, and matching employee talents with tasks that need to be done in order for the business to provide its services.

Yet some organizations treat employees like homogeneous blobs where promotion decisions are made based on number of years of blob experience on the job. Someone blobbing for five years is assumed to be better than someone who’s blobbed for four. Someone with a degree is assumed to be better than someone without. Someone who’s published a paper is better than someone who has not. While all these scenarios may be true, one must first ask what are the skill qualifications for the task that must be done. Years of experience, number of degrees, and number of publications are mental shortcuts that do not replace the critical assessment of each person’s fit for a particular job.

Management consultant Peter Drucker emphasized the challenging job of management and the heterogeneity of people in the workplace. “People are time-consumers”, he said, and “most are time-wasters.” To get anything done with people, they require information, discussion, and instruction, all of which take varying amounts of time depending on the person, the task, and the relationship.

“People were not created as resources for organization. They don’t come in the proper size and shape for the tasks to be done. They are not machines.” – Peter Drucker

Fixed Shmoo Experts

Many economics and system dynamics models (see causal loop diagram) build their models by creating aggregate categories, often called variables, which necessarily homogenizes a heterogeneous group. We might have groups like “businesses”, “the poor”, and “investment” since there are certain incentives and properties that actors within these groups share. But no two businesses are exactly the same and certainly there are good investments and bad ones. The differences within the category are simplified to afford people the ability to analyze something far too complex. While this is a powerful starting point, it can also be a barrier to clear thinking. What’s dangerous is that the less we have experience with something, the more likely we are to generalize and homogenize things that fall outside of our boundaries of understanding.

When we interact with heterogeneous parts, we receive significantly more information about the unique characteristics of what’s in front of us. But when we understand from afar and at a large scale, the parts become abstract things, that we understand through theories, spreadsheets, and stats. Imagine if the new coach for a basketball team is given box score statistics rather than video footage of the past 10 games; he would not be able to see all the interactions on the court, the patterns of ball movement, and the unique talents of each player.

Nicolai Foss and Peter Klein point out how the Fixed Shmoo Theory impeded thinking of many economic experts during the U.S. Subprime Mortgage Crisis of 2009. Macroeconomics experts gave the following narrative:

The macroeconomic problem, we are told, is that  “banks” made unwise investments, and now aren’t “lending” enough. “Businesses” and “consumers” can’t get “loans.” “Firms” have too many “bad assets” on their books.

The key question, though, is which ones?

Which banks aren’t lending to which customers? Which firms have made poor investments? The relevant question, in analyzing the credit mess, is which loans aren’t being made, to whom, and why?  The critical issues are the composition of lending, not the amount. Total lending, total liquidity, average equity prices, and the like obscure the key questions about how resources are being allocated across sectors, firms, and individuals, whether bad investments are being liquidated, and so on. Such aggregate notions homogenize — and in doing so, suppress critical information about relative prices. The main function of capital markets, after all, is not to moderate the total amount of financial capital, but to allocate capital across activities.

Shmoo-y Central Planners

When The Fixed Shmoo Theory is combined with The Knowledge Delusion (the belief that one has all the information), it leads to false beliefs that one can fix complex problems by simply spending more money.  Apply more money and get more results. If the results don’t come, it’s because not enough money was applied. Social and economic problems can be solved by an expert authority allocating the right amount of resources to the problem. But resources – in the form of capital, labor, and knowledge – are embodied in industry-specific, company-specific, people-specific capabilities. It would be nice if solving problems were as easy as identifying what blobs to measure and throwing money to advance the blob mountain. But we live in a complex world where people and resources are heterogeneous.

Escaping Shmoo

We can only escape the “shmoo” trap by exercising our own ability to subjectively perceive the unique characteristics and attributes of otherwise homogeneous groups. Uniqueness is not given, but created or discovered, by those who are willing to see what’s unseen.

Effective entrepreneurs discover how to combine “capital assets” and “labor” to create something useful that did not exist before. Effective teachers discover how to combine the interests, abilities, and fears of “students” to create a learning experience that engages their imagination so that they hunger for knowledge. Good friends understand your odd quirks and personality patterns gathered from a rich history of interacting with you.

Only in seeing the heterogeneity can we unlock dormant potential and avoid falling into the trap of seeing a world of shmoos.

Further Reading: