A useful way to approach a problem is to start at the extremes.
When Oaktree Capital’s Howard Marks was asked about the potential inflationary effects of America’s $1,200 stimulus checks, he proposed a thought experiment: What if the government gave every American one million dollars? Would there be inflation?
Seems like a silly question at first. Naturally, there would be inflation if every American suddenly received a million dollars.
But there are several reasons why the question isn’t silly at all:
Extremes are more likely to have obvious answers. Would distributing $1,200 to every American move the needle on inflation? Hard to say. How about $1MM? Unquestionably. Starting with the obvious gets the ball rolling.
Extremes establish a finite set of solutions. If we can say that a million per American would cause inflation, we can also rule out all larger numbers up to, and including, “no amount of helicopter money would lead to inflation”. Bounding a problem increases its manageability.
Extremes spark creativity. We tend to limit our consideration to plausible outcomes. Our perception of what is realistic forms a box that constrains our thinking. Starting with extremes breaks the likeliness constraint. We are more creative when we avoid constraints in our thinking.
Extremes have a disproportionate impact. Would receiving $1,200 change your life? How about $1,000,000? It’s beneficial to consider anything, even if briefly, that would have a drastic impact.
Warning: A lot of extreme positions are socially unacceptable. It’s prudent to warn any new discussion partners, lest they mistake your thought experiment for actual beliefs. This is especially important if the problem at hand has moral qualities. It’s one thing for people to think you want to cut every American a nine figure check; it’s another thing entirely to be associated with “Hitler did nothing wrong”.
Of course, there is still a lot of mental work to be done after considering the extremes. Acknowledging that million-per-American would lead to inflation doesn’t tell us whether 1,200-per-American would or what inflationary impact a further round of stimulus might have.
But Marks proposed that extreme hypothetical as a starting point, and extremes are a good place to start.
Thanks to VF for proofreading.