All entries for December 2013

Why Exactly Did She Give Me That?

Writing about web page http://ideas.repec.org/s/eee/givchp.html

It's sometimes suggested that festivals of giving and receiving challenge the theoretical foundations of mainstream economics. Not so. Christmas is a challenge, but it isn't abstract or theoretical; it's empirical and deeply personal.

How would Christmas be a theoretical challenge to economics? Most economists build their models on rational actors that pursue self-interest. I give you a gift. If my giving benefits you at my own expense, does giving undermine the axioms of the model? Not really. There are many ways to interpret giving in terms of rational choice. Here's a few.

• Love. I love you, so my utility internalizes yours. If my gift makes you happy, I'm happy too.
• Commitment. I signal my commitment to you by giving you an expensive gift. If you accept my commitment, we can do things together (like rearing a family) that we couldn't do separately.
• Competition. I compete for your affection by displaying my surplus resources. By making you a gift more expensive than any my rivals can afford, I can win the contest.
• Signalling. By selecting particular gifts (or store vouchers), rather than money, we signal particular types of affective relationships. Some gifts are considered romantic, and other utilitarian. When exchanges match, your position in my world is confirmed; when they are discrepant (you give me perfume, I give you a scrubbing brush) it is undermined. Either way, I learn something useful.
• To create an obligation (as Sheldon says in The Big Bang Theory, "You haven't given me a gift, you've given me an obligation"). I make you a gift, in return for which I will call in a favour at a time of my choosing.

These are a few possible explanations of giving and receving in general. One might also want to explain festivals of giving and receiving when everyone does it together:

• Herding. I gain utility from doing what everyone else does. If everyone else is giving and receiving, I'm happy to feel part of it by doing the same. (Not everyone is like this; a minority will gain utility from standing aside.)
• Coordination. It's more fun if we all do it at the same time; also, devoting a few days each year to systematic giving may reduce the chances of anyone being left out of our circles of commitment and obligation by mistake.

In other words, relatively simple extensions of the basic economic model based on rational individual choice can easily support explanations of giving, including festivals of giving and receiving. So the challenge of Christmas is not theoretical; it's not hard to explain the general phenomenon. The challenge is to explain giving in particular: For any specific gift, which is it, of these (or many other) possible explanations that applies?

Christmas is a challenge for everyone, not just for economists. Tomorrow, as you sit amidst the wrapping paper, ask yourself: Now, why exactly did she give me that?

Merry Christmas!

Mark Harrison : 24 Dec 2013 12:37 |  Tags: Christmas Economics |  Comments (0) |  Close comments |  Report a problem

Nelson Mandela and Others: Reflections on Hard Choices

Writing about web page http://www.bbc.co.uk/news/world-africa-25249520

Nelson Mandela has died, aged 95. I was 15 when he was sentenced to life imprisonment for carrying out an armed struggle against apartheid. I felt instinctively that apartheid was morally wrong and that oppressed people had a right to struggle against oppression by using the means available to them. If political channels were denied to them, then other channels were justified.

The lead counsel for Mandela's defence was the Afrikaner lawyer Bram Fischer. A secret member of South Africa's underground communist party, Fischer was afterwards arrested and also sentenced to life imprisonment. Unlike Mandela, Fischer died in prison (of cancer).

Nelson Mandela was a source of inspiration. His cause was just. I was moved by his plight when he went to prison and by his leadership when he left it.

Bram Fischer, in contrast, was a source of aspiration. Fischer came from a background of wealth and privilege. Without making any particularly hard choices, he could have remained part of the white South African elite into which he was born. He rejected the easy choice and chose instead the immensely difficult, painful, and eventually killing path of solidarity with the oppressed people around him. His choice was to throw in his lot with the black people of South Africa -- people who had no choice, except to suffer in silence or struggle in secret.

If Fischer was a source of aspiration for me, I must admit right away that I did not take the aspiration very far. I was politically engaged for quite a long time but personally I never had to make any very hard choices. I lived above ground in a liberal democracy, not underground in a police state. All I can say is that remembering Mandela and Fischer helped me to keep in perspective the relatively trivial issues that I faced from time to time.

There were some uncomfortable conflicts within the struggle against apartheid. One was induced by the Cold War. The South African apartheid regime portrayed communism as the ultimate enemy. In turn, the Soviet Union made a major investment in the African National Congress. One result of Soviet support for the ANC was that anti-apartheid campaigners were often reluctant to criticize principles and methods of communist rule that were not dissimilar from those employed by South Africa's apartheid regime.

Both the Soviet Union and South Africa were based on discrimination. In one country, discrimination was by skin colour; in the other it was by social origin and past political action. Both relied on brutal police methods to maintain their power. There were also lots of differences, but in these aspects they were the same. When I would read memoirs of people imprisoned in South Africa, their interrogations, punishments, and systematic abuse, I had cause to reflect on the similar things that I had also found in the memoirs of survivors of the Soviet Union's secret police and labour camps.

I learned only this morning that Fischer toured rural Russia in 1932, at the height of the artificial famine induced by Stalin's policies: "In a letter to his parents during his trip, he noted similarities between the position of Russian farmers that he encountered along the Volga river and South African blacks." Most likely many people knew of these things, either at the time or later, but then found many reasons not to talk about it.

In the polarized world of the Cold War many people had to make hard choices, and many of them made choices that might look regrettable by the standards of a later era. It's sometimes said that a good motivation does not make a bad choice better. I can only agree. But this does not solve any of today's problems: not knowing the far distant consequences of the choices we make today, we still have to make them as best we can. Mandela and Fischer each made their choices as best they could, and there is much to admire in both examples.

Mark Harrison : 06 Dec 2013 09:33 |  Tags: Mandela |  Comments (0) |  Close comments |  Report a problem