Two-Period Model

One of the most useful (if sometimes overapplied) lessons of economics is to think in terms of two-period models: sometimes people’s actions are better explained by their expectations of Period 2 (the future) than their observations of Period 1 (the present). Sometimes, this is even useful in understanding the behavior of economists; for example, did Peter Orszag (PhD, London School of Economics) know that he would receive a $10 million payday from Citibank in Period 2 when he argued against the temporary nationalization of major banks in Period 1 when he was the head of the Office of Management and Budget? A perspicacious question. If he did not, does Citibank still expect future politicians to observe this pattern of events and adjust their expectations accordingly? It seems more likely still.

Considering expectations about the future is important in judging voting behavior as well. Neither Republican panic about immigration nor Democratic raging against white privilege might be fully explained by a current moment of relative prosperity, declining net immigration, and (until recently) considerable optimism about the economy and society among non-whites. But both Republicans and Democrats incorporate expectations about the future into their assessment of the present as well as try to manipulate those expectations among potential voters. The right-winger stockpiling weapons and the left-winger crusading for the confiscation of property in Period 1 perhaps foresee the same dark day in Period 2, with each on opposite sides of a future I never hope to see come to pass.

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