Thursday, April 29, 2010

Earth magnetism and the crisis

I sometimes come across papers, in general from India, that describe how the world could be saved by humanity becoming aware of some philosophical aspect of life, by printing money, or by having a new economic system. Rarely are the writers economists, and rarely do they have functional notions of Economics. But for once, I found a paper that is way off the broken path, yet written by economist and is based on actual science.

Ligia Melo makes the observation that economic outcomes are based on human behavior, and that the latter can be influence by external circumstances. Think about working in extreme climates, where priorities (consumption, comfort, saving) are different from temperate climates. Also, we start to learn from neuroscience, and in particular neuroeconomics, how decision are taken in the brain, and how they may be influenced by external factors.

Melo observes that the magnetic activity of the Earth has markedly decreased, by about 10% in close to two centuries, and the movement of the magnetic poles has increased, currently 41km a year. This is leading to speculations that the magnetic poles could reverse in the foreseeable future. Why would this matter for economic behavior? Magnetic activity has been linked to suicide, mental illness and depression rates. Also, studying human history, people have observed that there has become stronger awareness of individuals (vs. collectivity) in times of low magnetic activity.

Why could this be important? Because most of our decisions are based on expectations, and there is plenty of evidence of self-fulfilling expectations, that is, people for no particular reason expect something to happen, and then it happens. Bubbles, for example. Also, risk-taking behavior is influenced by health, in particular mental health. Melo shows that there is a positive relationship between a country' magnetic field intensity and its GDP. One would want to control with climate factors, but it is intriguing as distance from the equator has consistently been shown as an important factor in growth regressions, even including climate variables.


Agent Continuum said...

>> "I sometimes come across papers, in general from India"

Now, now, Italy and China are pulling their fair share of this stuff!

>> "distance from the equator has consistently been shown as an important factor in growth regressions"

But presumably that's because it's a proxy for migration patterns, which are most often East-West or West-East?

AfricaForEver said...

Distance from the equator is a proxy for many things that correlate with the Africa dummy. It is difficult to argue on theoretical grounds that the distance from the equator really matters. Unless one comes up with stories about earth magnetism...