Cuts and Economics

Maybe because I'm from a country that has a debt GDP ratio of 200%, George Osborne insisting Britain (the ratio is a little above 70%) is at "the brink of bankruptcy" has always sounded a bit funny. Anyway, as everyone knows, he announced big budget cuts today. (by the way the chap is the Scottish Danny, Treasury secretary, not George)

I don't have a strong opinion about the likely consequences of the cuts (sorry!). But I find it amusing that what those Tory/LibDem politicians say sounds exactly like what a good third year economics undergrad would say about fiscal policy in his/her homework essay. It strikes me that those politicians do believe strongly in textbook economics and actually use it as THE justification for the cuts. I think, the politicians are, or must have been, good economics students (e.g. Danny and David were indeed PPEists: I don't know whether they did economics in their second and third years though).

On the other hand, I guess their teachers (we academic economists) have been less enthusiastic, perhaps because we tend to believe that the actual fiscal policy doesn't actually work like that. At least I used to think that, in any country, even when a big spending cut is deemed appropriate in theory, politicians favour tax increase or do nothing in practice. For instance, a large decrease in "G" seemed to me like a mere intellectual exercise, rather than anything practical.

So, to me, what the UK government is trying to do is a big policy experiment to test whether undergrad macroeconomics actually works in reality. The point is that, rather surprisingly, it doesn't seem to have been tested before. If it works, then I'll definitely have more faith in what I teach.

Are apes the real Homo Economicus?

A new academic year has started and it's about time for the Edinburgh Economics Blog to become active again. But first of all, we in the School of Economic would like to thank you readers for all your feedback and suggestions during last year.

And now, a brand new entry.

A good friend recently sent me a reference to a scientific article saying "Santi, I am sure you will like this". The featured article was a work by a team of three US anthropologists who have studied during 10 years the aggressive behaviour of chimpanzees at Kibale National Park in Uganda. In the paper they published this year in Current Biology John Mithani and co-authors describe how these chimpanzees formed coalitions in order to attack others chimpanzees, killing around 20 rivals in the process, and then seized and occupied the territory of the vanquished. Chimpanzees have been long suspected to display this very human type of behaviour and this study seems to provide definitive evidence of it. The authors attribute these aggressions to the desire of extending territories and obtain resources that winners later distribute rather cooperatively among them.

A second study, this one published in 2007 in Science, shows another instance of selfish and materialistic behaviour in chimpanzees. In a paper authored by Keith Jensen, Josep Call and Michael Tomasello, the authors show that, contrary to humans, these apes behave rationally in the Ultimatum Game. Rather than rejecting them, chimpanzees accept low offers, somehow demonstrating that fairness concerns and other-regarding preferences are what distinguish us humans from our primate cousins.

In recent times, the behavioural revolution within Economics has enriched our models of human preferences by incorporating inequality aversion, reciprocity and efficiency concerns. In the end, it seems, apes and not homo sapiens were the true homo economicus.