Wednesday, January 22, 2014

Noah Smith is an Austrian Economist

Which of the following statements is true?
  1. Absence makes the heart grow fonder.
  2. Out of sight, out of mind.
Both of these are common aphorisms, and I'd wager that you, my esteemed reader, have found more than one occasion to deploy each one, and with nothing but the utmost sincerity. Context matters, obviously. Whether you sit in your FSU dorm room pining for your beloved back home in Pensacola, or if you're hitting the Panama City beach looking for some brief company depends heavily on the nature of the underlying relationship. On the game, if you will.

I'd like to close out the S&T series by exploring the one remaining game type: the non-cooperative, asymmetric game. Here's a sample one-shot game matrix: P1 (the Sovereign) chooses between Oppression (O) and Liberty (L). P2 (the constituent) chooses between Comply (C) and Revolt (R). This gives us the first two elements in the game, all that's left is the hard stuff. Stuff like modeling payoffs. Try this one to start with.


Here, there's a unique Nash Equilibrium, for the purposes of illustrating the game. The NE is (Oppress, Comply). But the payoffs are not symmetrical. The sovereign gets more than the constituent. More what? It's standard practice in economics to hand-wave that question away as unanswerable. More perks of power, more wealth, more status, more access to mating opportunities, more whatever it is that slakes the inscrutable desires of elites' hearts. NB: some of the payoff split is rivalrous, some isn't. Positional goods and status rankings are axiomatically aspirational only*.

In lay terms, what we have here is a dictator's dilemma: as Sovereign, I want to preserve (or improve) this NE for the repeated version of the game, which could mean a few things. It could mean promoting productive capacity, it could mean (as in Cheung's example) intertemporally sharing the role of Sovereign, or it could mean throwing enough meat to the clerisy that they refrain from meaningful jawboning in their papers and pamphlets.

So in this post, Noah makes what amounts to a praxeological observation: a system's longevity alone lends us insufficient information to know whether the stresses in the game above are enough for an equilibrium shift. To know whether the Lindy effect has any analytical bite, you need a better model of the underlying game. Generalize that matrix up there, find the comparative statics, and then compare stabilizing forces with destabilizing forces. Do that, and then you can use the institution's longevity as a guide to its expected durability. Is America's GINI coefficient destructive? How about the growing police state? Interminable wars? Ideological rifts? Will these overpower patriotic sentiment?

Too early to tell.

post scriptum
I hope that this series of posts, casual as they are, helps you think about how constitutions are, um, constituted. Thinking about the differences in payoff structures and ex post enforcement have helped me understand under what circumstances the "social contract" might actually be a valid, useful concept. It also helps illuminate the deep, central role of rhetoric in ordering society. The comparative statics in this sucker are handy for grasping the roots of regime change, and of upstream rents, like education or law enforcement. If you're interested in tackling Buchanan's challenge to public choice scholars, you could probably do worse than thinking more carefully about some of these issues and including them in your work.


*You almost have to admire the moral cojones of nationalistic egalitarians. By advocating for both immigration restrictions and in-country wealth distribution, they forward the moral position that Americans' ability to access the luxury goods market is more important than Haitians' ability to access the supermarket. 

1 comment:

  1. I thought "praxeology" was where you just scoop up any available handfuls of Mises Pieces and chomp them down like you're in an eating contest with E.T.

    Look, we all know that history doesn't have good enough data to be a quantitative science. "Austrians" don't get a monopoly on that observation.


Do you have suggestions on where we could find more examples of this phenomenon?