Gambling, economic growth and imagination By Spengler
America's homeowners feel like busted gamblers after a bender in Vegas. They wagered not only the nest egg, but the nest, with the abandon of tulip-bulb traders in 17th century Holland. Americans are hard put to explain how the American dream turned into a chip on the craps table. The focal point of speculation was the asset one usually associates with secure domesticity. What happened to the risk-averse Economic Man of textbooks?
The textbook was misleading to begin with: we are all gamblers and always have been, argues Reuven Brenner, the Repap Professor of Business at McGill University. In a series of books beginning in 1983 with History: The Human Gamble and culminating with his latest volume, A World of Chance: Betting on Religion, Games, Wall Street [1], Brenner yanks economics
inside-out by placing risky behavior at the center of the economic model.
Conventional economics describes an artificial world of slight deviations from equilibrium; Brenner presents the real world, in all its danger and uncertainty. Man lives not only by the sweat of his brow, but by the fortitude of his intestines, for survival demands that we take mortal leaps of a kind that are unknown to the conventional model. Men who would prefer to be timid risk everything to leapfrog their peers before they themselves are left behind.
Rather than award yet another Nobel Prize to an economist who put bells and whistles on the conventional model (Princeton University Professor Paul Krugman was honored this past weekend ''for his analysis of trade patterns and location of economic activity",) the Swedish Academy should have honored Brenner, who gives us a model that makes sense in the real world of tumult and uncertainty - 2008 should have been Brenner's year, given the cataclysmic breakdown of the conventional model. Only a few months ago, the governments of the world went about their business as if nothing unusual was at work; now they are lurching from one emergency plan to another and warning of a new Great Depression.
This sort of thing isn't supposed to happen in the imaginary world of the consensus economic model. Radical changes, though, are the underlying premises of Brenner's approach, which "deals with jumps - relatively large changes. The traditional economic models can deal with small changes, where people adapt passively but do not bet on any new idea," he writes. People take risks because they know that gambling may be the only survival strategy under given circumstances.
The textbook was misleading to begin with: we are all gamblers and always have been, argues Reuven Brenner, the Repap Professor of Business at McGill University. In a series of books beginning in 1983 with History: The Human Gamble and culminating with his latest volume, A World of Chance: Betting on Religion, Games, Wall Street [1], Brenner yanks economics
inside-out by placing risky behavior at the center of the economic model.
Conventional economics describes an artificial world of slight deviations from equilibrium; Brenner presents the real world, in all its danger and uncertainty. Man lives not only by the sweat of his brow, but by the fortitude of his intestines, for survival demands that we take mortal leaps of a kind that are unknown to the conventional model. Men who would prefer to be timid risk everything to leapfrog their peers before they themselves are left behind.
Rather than award yet another Nobel Prize to an economist who put bells and whistles on the conventional model (Princeton University Professor Paul Krugman was honored this past weekend ''for his analysis of trade patterns and location of economic activity",) the Swedish Academy should have honored Brenner, who gives us a model that makes sense in the real world of tumult and uncertainty - 2008 should have been Brenner's year, given the cataclysmic breakdown of the conventional model. Only a few months ago, the governments of the world went about their business as if nothing unusual was at work; now they are lurching from one emergency plan to another and warning of a new Great Depression.
This sort of thing isn't supposed to happen in the imaginary world of the consensus economic model. Radical changes, though, are the underlying premises of Brenner's approach, which "deals with jumps - relatively large changes. The traditional economic models can deal with small changes, where people adapt passively but do not bet on any new idea," he writes. People take risks because they know that gambling may be the only survival strategy under given circumstances.
posted by temporal at 10/14/2008
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