Fairytale economics

 Are you sitting comfortably? It’s time for a Five Minute Economist Christmas special: in an unusual fit of whimsy not unconnected to the festive season, economists discuss their take on a selection of fairytales. Enjoy, and see you in the New Year, for Five Minute Economist’s guide to keeping New Year resolutions.

"Fee-fi-fo-fum, I smell the blood of an E...

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Jack and the beanstalk
Jack is sent off to market to sell a cow. On the way, he meets a man who convinces him to swap the cow for magic beans. Jack’s mum is unimpressed and throws the beans out of the window. Overnight, a beanstalk grows in the garden. Jack climbs the beanstalk, meets a giant. Fee fi fo fum etc. Jack steals gold and various other items of value from the giant, and cuts the beanstalk to stop the giant climbing down after him.

Mr In Fo: A big problem here is information asymmetry between Jack and the man who sells him the beans. Jack has no idea whether the beans are magic or not, and naively does not even consider that the seller has an incentive to exaggerate the magic quality of the beans. Luckily for Naive Jack in this instance the seller is on the wrong end of the asymmetry, not realising how valuable the magic beans really are.

Ms Yoosta Bea Banker: You haven’t thought about the ex-ante risk. I suggest that the seller knew all about the power of the magic beans, but when taking into account the high cost and risk of failure, decided they were only worth as much as the cow. God knows what Jack was thinking at the time. This is risk-seeking behaviour, of the like I’ve never seen since the Lehmans Brothers 2006 Christmas party.

Dr Roolo Flaw: This story does not have a fairytale ending. What I see here is the complete disregard for the enforcement of property rights. Where is the incentive for giants to engage in productive behaviour if idiot bean swappers are allowed to come along and steal hard-earned profits? “Jack and the Beanstalk” is anti-capitalist propaganda, and it’s shocking that we’ve been feeding our kids this nonsense for so long.

Cinderella - Prince Charming & Cinderella

Poor Cinderella lives with ugly stepsisters and an evil stepmother. Her fairy godmother takes pity on her and says Cinderella will go to the Ball. The fairy godmother ingeniously makes a carriage out of a pumpkin, and turns Cinderella’s rags into a beautiful gown and glass slippers. The catch is that Cinderella must get back before midnight, when the magic wears off. Cinderella meets the prince, but has to rush off, leaving her slipper behind. The prince uses the glass slipper to find his Cinderella among all the ladies of the land. 

Mr Ogre Nised: Cinderella has a classic overconfidence problem, thinking that she had enough time to speak to the Prince, get a proposal in the bag, and leave before midnight.  Luckily for her all turned out well, although after much costly fuss which could have been avoided if she had planned enough time to have a proper conversation with the Prince about who she was. But then studies have shown that we’re all over-confident, apart from people who are clinically depressed. So that’s something for Cinderella to be pleased about.

English: "The Miller's Daughter". He...

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A miller tries to impress the King by telling him his daughter can spin straw into gold. King shuts miller’s daughter in room and demands she spins straw into gold. Rumpelstiltskin appears and offers to help in return for the girl’s first-born child. King is happy and marries girl. The new queen gets out of her promise to Rumpelstiltskin by guessing his name.

Ms D’Emmo Crassey: What is so surprising about this case study is that the media and public have never been particularly interested in the amoral behaviour of the father. This type of lobbying behaviour has clear parallels to our current problems, when we have powerful companies promising Governments all sorts of things in return for special treatment. The King was right to try to test out this lobbyist’s claims: too many politicians today accept all sorts of unevidenced assertions from companies at face-value.  

Mr Sent Ralbank: That is slightly surprising. But not as surprising as the fact that, having discovered a technology for turning straw into gold, the King did nothing about it. I would have expected him to attempt to drastically raise gold production. Of course, in a country where gold was the basis of currency, this would have simply increased the money supply and inflation without actually increasing economic growth. But it would have been a way for an unscrupulous King to pay his debts. This King shows remarkable self-restraint and infinite wisdom for this period in history. It’s possible he may have been an early economist.

Want more economics posts with a Chrsitmassy feel? Check out Five Minute Economist’s Guide to a utility maximising Christmas

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