Friday, 4 April 2014

Ghosts, Ghouls, and Government Expenditure

Economics is silly. If you don’t believe this, either you haven’t studied it, or have studied far too much of it. It often makes a lot of assumptions, some of them frankly ridiculous. This is done because it simplifies things enormously, and we still get meaningful results relevant to theory. In models of the macroeconomy, for example, we often take a single representative agent that maximises their utility over an infinite time horizon. This is clearly unrealistic, but where economics comes in conflict with reality, economics wins.

Our representative agent is infinitely lived - a pitiless individual, without love, fear, and condemned to maximise their overall consumption with mindless determination for all eternity. We are talking about zombies here. Not only that, but our economically representative zombies are surprisingly rational, with a greater knowledge of economic theory than would be expected from the recently disinterred, and the ability to solve present value Hamiltonians in the time it takes to say ‘Braaaaaaiiiiins.’ Our economy, ladies and gentlemen, is represented by the infinitely hungry and infinitely lived zombie of Milton Friedman.

Despite his longevity not everything is smooth sailing for zombie Friedman. Although effectively immortal, zombies are not immune to the ravages of time, and they view their arm hanging by the thinnest rags of rotted flesh with the same pleasure as we do. So the zombie Friedman values his present consumption more than he values his consumption in the future, when it’s possible that he quite literally won’t have a leg to stand on, and will instead be so much cognisant mush of flesh and sentient bones. So, he places a discount rate on the future, and prefers to have his consumption now.

You might be tempted to ask, why does the zombie Friedman not smooth his consumption over his death-time? Surely there has to be a market in which he can buy insurance against the ravages of time; a brain bond to secure interest against his withering infinite life? The truth is that in our alive-ist society, it is very difficult for zombie Friedman to access these markets. It is hard to buy health insurance when the pre-existing condition of being dead is enough to send twittering actuaries scuttling over statistics with alarm; and while blood banks exist, these have been the well-established domain of vampires rather than zombies. It is difficult to make a living when society worries that you’re already dead.

Facing discrimination from all sides, and unable to access the free markets he fought so hard to establish, death for zombie Friedman continues much as it always has: a relentless maximization of consumption in all time periods, broken only by the occasional face-off with werewolf Keynes for territory, or when he kicks Headless Hayek in the nads.

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