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How a Skating Rink is Like the Economy

Dec 8, 2013 • Economic Growth, Economic Thinkers, Entertainment, Government, Health Care, International Trade and Finance, Macroeconomic Measurement, Sports • 284 Views    No Comments

Driving around Columbus Circle in NYC, sometimes I wonder why so many drivers do what they are supposed to do.

Spontaneous order in a traffic rotary.

Columbus Circle.
From: tenfourmagazine.com.

 

Economist Dan Klein gave me an answer in “Rinkonomics.”

He asks that we imagine for a moment that we have never seen nor heard of an ice skating rink when an acquaintance describes a business opportunity:

“I’ll build a huge arena with a smooth hard wooden floor and around the perimeter a naked iron hand-rail. I’ll invite people to come down to the arena and strap wheels onto their feet and skate round n’ round the arena floor. They won’t be equipped with helmets, shoulder-pads, or knee-pads. I won’t test their skating competence, nor separate skaters into lanes. Speedsters will intermingle with toddlers and grandparents, all together they will just skate just as they please. They’ll have great fun. And they’ll pay me richly for it!”

You can see where Dr. Klein is taking us. For some reason, sometimes, told nothing about how to coordinate, large numbers of people work together productively. Called spontaneous order by economist Friedrich Hayek, the key is a mutual benefit. All skaters share the incentive to avoid careening into each other, to go in the same direction, to maintain a similar pace. As a result, their communal skating is rather orderly.

In this video, journalist John Stossel demonstrates the impact that an experienced skater and a novice each have on ice skaters when each one gives rather logical instructions designed to maintain order. (example starts at 00.49)

Isn’t the ice skating rink rather like the traffic flow in a rotary? And, maybe both remind us of the spontaneous order in a market system.

Sources and resources: Although his paper is gated, Dan Klein has a “Rinkonomics” article available at econlib. You can also hear him in a wonderful Freakonomics podcast that also discusses the absence of referees in ultimate frisbee.

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