Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, September 06, 2005

Are Sharing, Caring Societies Less Likely to Have High Growth Rates?

Bryan Caplan says they are.

As is often the case in rural Latin America, there is strong social pressure on the most economically successful villagers to take a turn at the helm. During his term, the leader is expected to basically burn up his personal fortune to pay for public services. If he persistently refuses, he loses a lot of respect... and maybe more. (Insert thinly veiled threats here).

This set-up is known as the
cargo system. As one website explains:

In the context of the religious system that the descendants of the Mayan Indians practice the word "cargo" refers to a burden. These burdens are offices held by individuals within a community that consist of civil-religious duties that are to be carried out by the office holder. Office holders are required to use their own money to cover the expenses involved in carrying out these various duties, and often use all their savings in order to complete their terms.

If you want to avoid this burden in Oapan, Tyler [Cowen] explains that there are several common escape routes:
1. Avoid success. Those who have no money to spare aren't pressured to lead.
2. Be a drunk.
3. Convert away from Catholicism.

Now think about how bad these incentives are. Any villager who wants to get ahead knows that if he does, he will have to either give away most of what he earns, or become a pariah, an apostate, or a drunk. Despite the low level of formal taxation, the effective marginal tax rate in Oapan is probably above Swedish levels.
I'm not an anthropologist, and I'm not much of a historian. Which came first: the cargo system or poorly developed capital markets? If there were well-developed capital markets, the incentive to break free from the cargo system would have been (and would be) greatly enhanced.

Update: The Gods of the Copybook Headings thinks well-developed capital markets wouldn't have much effect on the system. It's an interesting piece, well worth reading.
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