A favourite family treat at Christmas-time is a trip to one of the skating rinks that now pop up across London at this time of year. The jolly occasion is a delight for skaters and spectators alike. It is also a joy to right-thinking economists everywhere.
A skating rink has to be seen to be believed. Dozens of skaters hurtle around the ring while others, inexperienced, teeter precariously on sharp-bladed skates. Nobody has been checked for competence, there are no lanes, speed limits, rights-of-way or traffic signals. And yet the rink works perfectly, everybody skates around in the same direction and at their own pace, and little fingers and toes rarely get sliced off.
As Daniel Klein, a professor at George Mason University, observed - in an essay with the regrettable title of “Rinkonomics” - the skating rink is an example of what Friedrich Hayek would have called “spontaneous order”. A central planner, charged with getting everyone to skate in an orderly fashion, wouldn’t know where to start. Instead, the skaters work it out for themselves, given what they know about their situation, abilities and preferences.
As Klein rightly observes, a key to success here is that collisions are mutual. If you crash into me, then I crash into you, so your efforts to avoid me and my efforts to avoid you tend to work in harmony.
Those with a pessimistic outlook might observe that there is little mutuality in the dog-eat-dog world of a capitalist economy. That isn’t true. Yes, when I buy a Christmas hotdog at the side of the rink, I want the kiosk-owner’s hotdogs and he wants my money. There is nothing mutual about that. What is mutual is that because I want his hotdogs more than he does, both of us want to make a deal. Capitalism is less a case of dog-eat-dog than Harford-eat-hotdog.
Unfortunately, while mutuality and spontaneous order are more common than one might think, they are far from universal. Even at the skating rink, there are conflicts of interest. As a parent of a toddler, I prefer slower speeds and more toddlers on the rink so that people are aware of the danger. The leggy, graceful 20-year-old trying to impress the boys has different priorities. This conflict of interest could, in principle, be turned into a mutually beneficial transaction if one of us paid the other to go away. But it’s unlikely.
Thomas Schelling, who shared last year’s Nobel prize for economics, was analysing these partial conflicts of interest back in the 1950s. He later applied that thinking to the behaviour of crowds in his book, Micromotives and Macrobehavior, which has recently been republished.
Some crowds, like the skaters, organise things happily by themselves. But many others do not, as Schelling showed by looking at traffic jams, racial segregation and even Christmas card lists. The trick is to find the smallest tinkering possible to get the crowd organising itself in the right way. Schelling once taught in a classroom accessible by two congested staircases. As an experiment, he started asking his 10am class to arrive by the front and leave by the rear staircase. The 9am and 11am classes caught on almost immediately.
In more serious examples, taxes can do the trick. Consider the problem of climate change: a centralised regulatory approach here would be a catastrophe, lashing out at easy political targets such as SUVs or cheap airline travel. But pure laissez-faire will not save the planet either. A predictable tax on carbon would unleash a lot of world-saving creativity at minimum cost. And soon, please: I want the skating rinks to stay frozen long enough for my toddler to start some showing off of her own.
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