Mechanism design is reverse game theory. Get the incentives right and you don't need a coercive authority overseeing matters. This is not to say that a 'Stationary Bandit' might not try to muscle in on this lucrative activity. But, it is important to understand, that the State, or property rights, or contract enforcement, is not essential for economic transactions to burgeon. It is just that these things are conducive to a bigger pooling equilibrium. Birds of a feather would flock together anyway- i.e. there would be separating equilibria. It is to extend these that the 'homonoia' of the Emperor or, the successor states to an Imperium- is enforced but only for a price.
On the other hand if the people are unproductive- and that includes being incapable of civil behavior- then no amount of laws and judges and police men will generate good economic consequences.
Kaushik Basu, takes a different view. Writing for Project Syndicate, he claims that 'legal behavior has economic consequences'. The problem is that if that behavior pre-existed the laws, then the legal set-up codifies acceptable behavior- perhaps for the benefit of new entrants or the incorrigibly stupid or sociopathic. Equally, merely passing laws regardless of actual behavior won't have any economic consequences at all. One may as well repeal the law of Gravity. Nothing material would be affected.
On the other hand, it is true that Basu experienced good economic consequences because his Mummy behaved towards him in a legal manner. It was not her practice to laugh heartily while chopping pieces of him. Basu may think this was because his Mummy was only seeking to comply with the relevant section of the Indian Criminal Code. He is wrong. Laws about what Mummies should not do were only written down tens or hundreds of thousands years after Mummies had shown no such laws were required. This does not mean that judges did not have to deal with some crazy or sociopathic ladies of this type.
The Economic Consequences of Legal Behavior
Many thriving societies, such as Germany and Japan, adhere closely to the letter of the law.
We say the Germans and the Japanese are disciplined and civic minded. No doubt, religion played a big part in this as did widespread conscription and a traditionally hierarchical society.
However, allowing for a certain degree of latitude for individual interpretation, as the United States has done throughout its history, can foster creativity, enhance efficiency, and stimulate economic growth.
Nineteenth Germany and Japan were both extremely creative. German music, philosophy, mathematics etc. achieved high prestige as did Japanese art towards the end of the century. Germany and Japan are still creative though it is true the German economy has overtaken Japan's However, there are geographic and demographic reasons for this. The US is a settler society which has received massive immigration over the centuries. It is foolish to compare it to 'Old World' countries.
NEW YORK – The way people navigate traffic can tell us a lot about their respective cultures.
No. They can tell us a lot about what level of traffic they are used to. This has nothing to do with 'culture'. In a country where traffic congestion is a relatively new phenomenon, older people may not know how to cross the road properly. When I was young, there was little traffic on the roads of New Delhi. Now, I sometimes hire a rickshaw to get across a broad highway so as to use the Metro. However, in London, I have no such difficulty. This does not mean I have two different cultures. Its just means that my 'reflexes' are not adapted to a Delhi which now has vastly more road traffic then it used to when I was a boy.
Recently, while walking to my office in midtown Manhattan, I stopped at a red light when an elderly woman with a walking stick caught my attention as she cautiously looked both left and right. When she saw that no car was close enough to hit her – assuming they adhered to New York’s speed-limit laws – she gave me a puzzled look and crossed the street. I must admit, I felt a bit foolish.
Basu is elderly himself. Anyway, as an absent minded Professor, it makes sense for him to wait for the green light at the pedestrian crossing.
Such an incident would be unthinkable in Japan. Years ago, on the first night of a weeklong visit to Tokyo, my young, jet-lagged children, who had lived only in India and the United States, were amazed by the law-abiding Japanese.
But the law-abiding Japanese also adhere to all sorts of norms and conventions which have no legal force. What Basu's kids were remarking was a country with an ancient culture in which the vast majority of the population was autochthonous.
Peering out of our apartment window at midnight, they observed a man standing alone at a crosswalk. Even with no cars in sight, he waited patiently for the light to turn green.
Japan was briefly occupied by the Americans but it has never been truly conquered. Its people feel that its norms and rules are indigenous. South Korea, which is even more creative and innovative and economically dynamic than Japan (its per capita GDP now exceeds that of its former colonial master) had a lot of traffic accidents because drivers and pedestrians ignored the rules. Apparently, the Government is using advanced technology to keep zombies engrossed in their smartphones safe when they cross the street.
While these normative differences may seem trivial, societal attitudes toward the law can significantly affect a country’s economic performance.
Not in this case. South Korea is more dynamic than Japan, yet its people are more anarchic. No doubt, this is because the ordinary Korean felt subjugated first by the Japanese and then a Military dictatorship. It appears there is greater resentment of the oligarchs and crony capitalists. It may be mentioned that, during the Raj, travelers often reported that people in the big British administered Cities were more rowdy and undisciplined than those in the Princely States.
Whereas the New Yorker’s actions could be interpreted as aligning with the spirit of the law, the Tokyo pedestrian adhered to its letter.
One might simply say that norms and expectations are different in the two countries. As a matter of fact 'jaywalking' can be quite a serious offence in parts of the US whereas it generally isn't in Japan. They have a saying ' 赤信号皆で渡れば怖くない- it isn't scary to cross the road when there is a red light, if everybody is doing it. Indeed, that is what happens in many countries. Britain doesn't have a jaywalking offence but I tend to be cautious. Still if others are crossing against the light, I do too.
A system that emphasizes the spirit of the law gives individuals discretionary power, leading to potential misuse or abuse.
All legal systems are the same. You can have your day in court and explain why you think you adhered to the 'spirit of the law'. The fact is, there is a permissible element of discretion in the enforcement, not the interpretation, of the law.
When individuals have latitude to decide how to behave,
everybody has latitude in this respect. It is a different matter that we won't break the law if there is a heavy fine and, because of CCTV evidence, it would be difficult for us to deny the charge brought against us.
they might, for example, choose to disrupt traffic.
But they may simply be people who habitually behave in an undisciplined and disruptive way.
This is evident in the streets of New York
No one has ever suggested that New Yorkers are docile and civic minded.
and, to a greater extent, in my hometown of Kolkata (formerly Calcutta).
Kolkata has gotten a lot better. Instead of burning buses, young people earn good money producing useful goods and services.
While the city is gradually adopting the Western model, during my youth Kolkata was a pedestrian’s paradise, where crossing the street required no more than a simple hand gesture.
Back then, India produced few cars and trucks. Traffic was lighter.
It is crucial to understand the strengths and weaknesses of both systems. Japan’s remarkable transformation from a low-income economy to one of the world’s richest countries can be partly attributed to its law-abiding culture.
No. It can be attributed to the fact that them Japs are smart and work their asses off. That's also why the Koreans and the Taiwanese and Singaporeans and lots of Indians working in IT rose and are still rising.
Adherence to the letter of the law fosters better organization, which fuels economic growth
Not if the laws are stupid. The law-abiding Indian bureaucrat strangled the Indian economy. Economic growth is about being more productive not about following the rules more blindly yet.
and overall development.
Development arises where productivity rises. This has nothing to do with either the letter or the spirit or the heart or the soul or the vociferous farts of the law.
Consider, for example, an orchestra: without a conductor to guide them, the musicians onstage may still make music, but it would not be the Salzburg Opera.
A leader solves coordination and concurrency problems. This can raise productivity. It has nothing to do with the law.
The same is true for many other aspects of daily life. In a 2002 paper I co-authored with Jörgen Weibull, we argued that punctuality is not a genetic trait
this is because our genes don't cause us to have a smart-watch inside our head
but a behavior cultivated through coordination.
No. It is behavior which is 'reinforced' by penalties and rewards. If you keep getting fired because you turn up late for work you either find ways to become punctual or decide that maybe being a homeless bum might be a life-style choice.
Sticking to a fixed schedule becomes valuable when everyone is expected to do so.
No. All that matters is whether you gain by it. I once lived in a Student's Hostel were nobody was expected to turn up for meals at the stipulated times. Since I couldn't afford to eat out, I soon learned to be punctual.
It is reminiscent of the stag hunt game described by Jean-Jacques Rousseau in his Discourse on Inequality, in which two hunters could kill a stag by cooperating but only a hare if they go it alone.
Very true. The two hunters could make an appointment with the stag. If either of them failed to turn up, the stag would express displeasure and refuse to be killed. Hares were less punctilious in these matters.
Contemporary Japan is known for its fastidious culture of punctuality.
So is Germany.
What is overlooked is that, barely a hundred years ago, Japan was known for its sloppiness with respect to time.
This is because there were multiple systems of keeping time and, in any case, the country was transitioning from agriculture.
Japan’s ascent coincided with normative transformation from tardiness to punctuality.
Italy, too, ascended though its people claim to be unpunctual. What can't be doubted is that they are worth waiting for.
Sociologists have emphasized the crucial role of social and institutional embeddedness in driving economic development.
Sociologists are as stupid as shit. What drives development is mimetics to raise productivity. Japan is very different from Germany. Yet both rose as industrial powers. China has very different 'social and institutional embeddedness'. Yet, it has in certain economic areas it is as developed as the US. Much of this has been achieved in the last three decades. Meanwhile, India has had 'Chief Economic Advisers' like Basu and Rajan who witter on about Polanyi type embedding.
Simply put, in addition to its trade, fiscal, and monetary policies, Japan’s remarkable rise over the past century has been facilitated by a social transformation which enabled its economy to grow at an unprecedented rate.
No. Japan started raising productivity. This caused some social transformation in specific sectors of Japanese life. This is because there was 'reinforcement'. Those enterprises which were run in a shitty manner and those employees who were unpunctual and undisciplined were weeded out.
It is a different matter than a particular 'Marshallian industrial district' may gain external economies of scope and scale of a type which can innovate and move up the value chain. We may speak of a localized culture of innovation and enterprise and we may associate this with a particular religious sect or ethnicity. But this isn't the type of 'embedding' Polanyi was talking about. Moreover, it has nothing to do with the law. After all, organized crime can be very fucking innovative.
Nevertheless, the New York model, where individuals are given leeway to interpret the law, has its merits.
There is no such leeway. Jaywalking is illegal. The motorist has the right of way. Still, you could sue a driver who knocked you down even if you were jaywalking provided he too was negligent.
After all, pedestrian traffic lights are designed to facilitate the smooth flow of traffic and occasionally allow pedestrians to cross. When the road is empty, ignoring the red light does not run counter to the law’s purpose.
You can still get a ticket for jaywalking. However, so long as you yield to the motorist where he has right of way and don't cut across diagonally, you may have a defense in law.
It facilitates what economists refer to as a Pareto improvement, whereby some people are better off without hurting anybody else’s well-being.
Sadly, we can never know whether a thing is a Pareto improvement or not. When ever we do stupid shit we always say 'But I didn't think anybody would get hurt!'
While enacting laws that accommodate every individual’s unique circumstances and preferences is not feasible, leaving laws open to some degree of individual interpretation can encourage creativity and enhance efficiency.
Basu has confused guidelines with laws. The former are more similar to helpful suggestions. The latter must be 'bright-line' or else they add noise to signal. Economic activity is eased when the behavior of concerned parties is consistent and predictable.
This approach, which cultivates a culture conducive to technological and artistic innovation, has enabled the United States to become the world’s growth engine and magnet for talent.
American Judges and legislators strive to ensure that the rules are 'bright-line' not ambiguous. There may also be 'best practice' or other such guidelines in contexts where no law has been made.
The US is a magnet for such talent as can be most productive there. But American talent may find itself more productively employed setting up enterprises elsewhere.
To be sure, attempting to bring about a normative transition from adherence to the letter of the law to realizing its spirit could backfire,
Why not just attempt to bring about a normative transition such that everybody becomes very nice and sweet and thinks only pure thoughts?
producing cacophony in the proverbial orchestra pit.
Also cats may start sodomizing dogs.
Economists and legal scholars can play a crucial role in facilitating such a shift while mitigating potential risks.
Not if they are as stupid as shit. But the smart economists would actually be economizing on the use of scarce resources- thus permitting everybody to be better off. As for 'legal scholars', if they are any good they will be too busy making money.
This cannot be achieved through precise policy prescription –
Yes it can. At any given time, there is some policy prescription better than any other. The guy who can supply it should be rewarded. Others should be told to fuck off.
that would in fact be self-contradictory.
Nope. If you want to achieve something, there is a precise prescription which you can follow. I want to control my Diabetes. That is why I follow the precise prescription my Doctor gives me.
The key to achieving this is in the realm of ideas that John Maynard Keynes emphasized.
Were they ideas connected to sodomy? Probably.
We need to be aware of the two distinct modes of law enforcement,
We are all aware that the police might let us off with a warning for a misdemeanor.
and, despite the risks, the surprising advantages of moving from following the letter of the law to the spirit.
Most people set themselves a standard higher than the law requires. After all, crimes and torts are exceptional occurrences. Still, it is true that economic development can accelerate if people in one country voluntarily choose to abide by the more exacting laws and regulations of a more advanced country.
As the British conductor Charles Hazlewood observed, for good music you need individual musicians to follow the conductor’s instructions exactly.
Symphonic music- maybe. Jazz can be quite good. I'm kidding. It's fucking horrible.
Great music, however, relies on “trust” and “personal freedom for the members of the orchestra.” They need space for judgment and creativity.
Orchestras need subsidies. Currently, none are financially viable. Basu thinks economic activity is stuff which makes a loss. Spirit of the law consoles it by saying 'pimp out your kids so as to get the money to keep playing shite snobs have to pretend to find sublime'. This will cause lots of innovation and economic development in a Galaxy far far away. Also cats will sodomize dogs even though letter of the law is weeping and wailing and pleading with pussy to spare their Doberman.
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