Aesop Econ: The Grasshopper and the Ants

Here’s one I remember from childhood:

THE ANTS were spending a fine winter’s day drying grain collected in the summertime. A Grasshopper, perishing with famine, passed by and earnestly begged for a little food. The Ants inquired of him, “Why did you not treasure up food during the summer?” He replied, “I had not leisure enough. I passed the days in singing.” They then said in derision: “If you were foolish enough to sing all the summer, you must dance supperless to bed in the winter.”

Wow. There’s so much econ in this fable it’s hard to know where to start.

Obviously, we’re looking at a problem of intertemporal choice. The insects must decide how much effort to exert during an earlier period (summer) to prepare for a later period (winter). Exerting effort entails a present cost in terms of forgone leisure, but a future benefit in terms of consumption. The optimal choice depends on the magnitude of the subjective costs and benefits, as well as the chooser’s rate of time preference -- that is, how much he values the present relative to the future.

To a behavioral economist, the fable involves myopia or hyperbolic discounting. To simplify greatly, the grasshopper places too much weight on the present simply because it’s the present. If asked during the spring to choose his summer behavior, the grasshopper might plan to work harder. But then the lazy days of summer arrive, and suddenly he decides to kick back. This is known as time inconsistency, and it is often regarded as evidence of cognitive bias or irrationality.

To a neoclassical economist, however, this is clearly a fable about moral hazard -- the tendency to take greater risks when shielded against the consequences. No one knows whether the coming winter will be mild or harsh, and so they must choose between storing up food or taking a gamble. The grasshopper’s failure to work during summer might well be a rational response to the expected assistance of others in the event of a harsh winter.

And this raises the specter of the Samaritan’s Dilemma. People of a kind and decent disposition don’t wish to allow others to suffer, especially if helping them would be a small sacrifice. But providing charity may foment moral hazard, thereby leading to more people needing help.

The Samaritan’s Dilemma featured prominently in the most recent Republican presidential debate, in which Wolf Blitzer posed a tough question to Ron Paul:

A healthy 30-year-old young man has a good job, makes a good living, but decides: “You know what? I’m not going to spend $200 or $300 a month for health insurance because I’m healthy, I don’t need it.” But something terrible happens all of a sudden, he needs it. Who’s going to pay if he goes into a coma, for example? Who pays for that?

This 30-year-old man is the grasshopper, and we are the ants. Aesop’s ants take the position of Ron Paul: “Well, in a society that you [sic] accept welfarism and socialism, he expects the government to take care of him. … But what he should do is whatever he wants to do, and assume responsibility for himself.” I find it interesting that so many people -- who presumably heard this fable in their childhood and thought it wise – found Paul’s answer reprehensible.

Paul also advocated private charity as an alternative to government. Yet private charity, too, creates the potential for free-riding by the irresponsible. So there is a tension in Paul’s position. John Goodman explains how the tension can be resolved:

[P]rivate sector charitable activities are never run like government entitlements. If you are away from home and lose your wallet, the local Salvation Army will give you a meal and a place to sleep and maybe even some cash. But they will not do this day after day, night after night. It’s probably fair to say that all private charities seek to give aid without encouraging dependency.

Aesop’s ants follow a similar policy; they do not refuse the grasshopper aid outright, but instead inquire as to how the grasshopper’s situation arose. Of course, charitable discretion is not a perfect answer. There is always the risk of denying help to the deserving, and also the risk of giving help to the undeserving (what if the grasshopper had lied?). But if you grasp the Samaritan’s Dilemma, you realize there is no perfect answer; that’s why it’s called a dilemma.

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Aesop Econ: Hercules and the Wagoner

A CARTER was driving a wagon along a country lane, when the wheels sank down deep into a rut. The rustic driver, stupefied and aghast, stood looking at the wagon, and did nothing but utter loud cries to Hercules to come and help him. Hercules, it is said, appeared and thus addressed him: “Put your shoulders to the wheels, my man. Goad on your bullocks, and never more pray to me for help, until you have done your best to help yourself, or depend upon it you will henceforth pray in vain.”

Self-help is the best help.

This might be a story of simple laziness (or in economic terms, a strong preference for leisure over effort). But here’s what I wonder: what made the carter think Hercules might come and help? What led to such an odd expectation? I suspect the carter, or people he knows, must have tried this strategy before -- and with success. Hercules’ words lend some support to this hypothesis: never more pray for help without first trying yourself, or henceforth pray in vain. Though it’s not entirely clear, it sounds like Hercules might be known for lending a hand in situations like this.

For that reason, I read this as a story about disincentives to work. Such disincentives come in four primary forms: punishments for working; reduced rewards for working; rewards for not working; and reduced punishments for not working. The last of these is what’s in play here. Knowing that help from Herc is forthcoming, people become less inclined to exert effort themselves.

Work disincentives are a common topic in current policy debates. One example is unemployment insurance. The purpose of such insurance is to help those who cannot find jobs. The worry is that unemployment payments discourage people from seeking and taking jobs. Of course, the claim is not that all unemployed people, or even a great number of them, fall into this category -- only that some unknown number do. (I personally know at least three people who fit the bill and have told me so.) And then the question is whether the gain from helping those who genuinely need help outweighs the loss from those who don’t.

Getting back to Hercules, the question is what policy he should adopt. If he helps everyone who seems to need help, he will encourage dependency by some. If he refuses to help anyone, then some poor souls may be stuck in ruts indefinitely. So Hercules adopts the intermediate policy of demanding people try self-help first before begging his assistance. And then the question will become: how many of those he helps are really trying?

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Aesop Econ: The Two Dogs

A MAN had two dogs: a Hound, trained to assist him in his sports, and a Housedog, taught to watch the house. When he returned home after a good day’s sport, he always gave the Housedog a large share of his spoil. The Hound, feeling much aggrieved at this, reproached his companion, saying, “It is very hard to have all this labor, while you, who do not assist in the chase, luxuriate on the fruits of my exertions.” The Housedog replied, “Do not blame me, my friend, but find fault with the master, who has not taught me to labor, but to depend for subsistence on the labor of others.”

Children are not to be blamed for the faults of their parents.

Aesop takes this for a story about parental duty, but I see a story about specialization according to comparative advantage.

Both hunting and house-watching are valuable activities. Now, it may well be that the Hound could guard the house as well as the Housedog. But that doesn’t mean the Housedog is useless. On the contrary, his presence allows the Hound more time to go hunting, thereby increasing the household’s overall productivity.

Imagine what would happen if the Hound and Housedog split their time between the two activities, perhaps by swapping places at lunch. Suppose the Hound can catch ten game birds per day versus the Housedog’s four, and they are equally good at guarding the house. By splitting their time, they would catch a total of seven birds per day, i.e., five from the Hound’s half-day plus two from the Housedog’s half-day. But by specializing according to their respective comparative advantages (the Hound in hunting, the Housedog in guarding), they get ten birds, for a gain of three. The Housedog enables that gain by guarding the house; does he not also deserve a share of the spoils?

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Aesop Econ: The Charcoal-Burner and the Fuller

My Amazon Kindle app came with a free copy of Aesop’s Fables (translation by George Fyler Townsend), which I began reading a few days ago. Aside from being charmed by their brevity and deceptive simplicity, I was also struck by how many of the stories involved economic concepts -- some obviously, others subtly. So I thought it might be fun to do a series of blog posts analyzing Aesop’s Fables from an economic perspective.

To start, here’s a fable called “The Charcoal-Burner and the Fuller.”

A CHARCOAL-BURNER carried on his trade in his own house. One day he met a friend, a Fuller, and entreated him to come and live with him, saying that they should be far better neighbors and that their housekeeping expenses would be lessened. The Fuller replied, “The arrangement is impossible as far as I am concerned, for whatever I should whiten, you would immediately blacken again with your charcoal.”

Like will draw like.

This is a story about negative externalities. Were the charcoal-burner and fuller to move in together, the charcoal-burner’s trade would impose unwanted costs on the fuller’s. How might this problem be addressed?

In a traditional Pigovian analysis of the situation, the coal-burning’s harmful side effects might be regarded as justifying a correction. Perhaps the government ought to impose a tax on burning charcoal; the optimal tax would be set equal to the marginal external cost in terms of blackened garments. That would induce the charcoal-burner to consider the full costs of his choices, and therefore to reduce his charcoal-burning to the efficient level.

But Aesop’s story presages a more sophisticated Coasean analysis. As Ronald Coase observed, externalities are reciprocal in nature. To permit the burning of coal would harm the fuller -- but to restrict the burning of coal would harm the coal-burner. The presence of both activities is necessary for the externality to exist. And this draws our attention to the possibility of averting the harm by means other than reducing coal-burning. According to the least-cost avoider principle, an externality should be reduced or prevented by the party who can do so at the lowest cost. In the case at hand, the fuller can avoid the externality by not moving in with the charcoal-burner in the first place.

In most modern externality analysis, the story begins with two parties or activities that are already in conflict. But Aesop properly chooses to start his story before the conflict comes to be. Moreover, Aesop (like Coase) reminds us that externality problems can, at least sometimes, be solved or avoided by the interested parties themselves.

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