Avatar – Some Economic Observations

Avatar is an exceptional movie – it is the culmination of 5 years of work on the part of director James Cameron and it features new filming techniques including 3D Fusion Camera System as well as “Full performance capture” as the actors in the Na’vi sequences had to wear hoods which allowed computers to simulate the facial features and movement of the actors.

The first thing that struck me was the fact that ultimately a foreign culture and what appeared to be a hostile environment came to dominate and vanquish the alliance of a quasi US military and money. Strictly speaking Cameron made it very clear in the movie that this wasn’t the US military, but it bore a remarkable resemblance to what one might expect the US military to look like sometime in the future. In essence the traditional American heroes with all their technology lost, and the winners here were the foreigners who spoke a different language, had strange beliefs and customs, and looked odd to us humans. What went through my mind towards the end of the movie was that perhaps this marks a turning point in the American view of it’s military and foreign cultures? Or maybe Cameron is just part of an enlightened minority? The movie did put a disabled (and retired?) marine who crossed over to the Na’vi in the hero’s role underlining that it’s the people in the military who matter, not the institution itself. Nevertheless, given the above, I can quite understand why Cameron found it hard to get funding for this movie!

Setting aside all the technical wizardry involved in the film-making, there are quite a few themes and noteworthy aspects of the movie that made this economist sit up and think. Of course there were the small things like expressing all distances in kilometers – clearly by whenever this is supposed to be in the future, the implication is that we will have agreed to use the metric system to measure distances rather than miles ( - obviously a concession that America is going to have to make at some point in the future), and there was also the greed aspect to the movie which pitted culture and tradition of foreign peoples against the generation of corporate profits.

I hope I don’t spoil things here for people that haven’t seen it, but the environmental and international economics implications of the movie were to me quite stark, whether intentional or not. The fact that the Na’vi win in the end implies that although technology and military muscle are formidable obstacles to preserving cultures and the environment, they will not necessarily prevail. It also implies that as we continue to exploit the Earth’s resources we need to always try to ascertain the damage done on foreign cultures and the environment so as to take these concerns into account, otherwise they will come back to haunt us. What the film says is that this requires us trying to put ourselves in the situation of others before acting, and to get to understand what is important to these foreign cultures, and how to best negotiate and dialogue with them. Notice that this also plays into the “short run” vs “long run” distinction in economics, as it implies that in the short run if we’re too concerned with quarterly profits and possession of resources we could end up destroying cultures and the environment and in a much worse situation than we started in. Yes, it’s a variation on “time inconsistency” again!!

Lastly, watching the final credits ( - a monumental list of people and organizations) after most people had already left the movie theater, I quickly realized that this movie was clearly a global effort in terms of farming out the work to many many different countries, with much of the filming in New Zealand, but a sizeable part of the special effects done in France, and of course the US heavily involved. The film premiered in London, England and has a lead actor from Australia. So I guess the movie industry is finally getting around to adopting the principle of comparative advantage - well at least this film did!

The Economics of New Years Resolutions

Most people wouldn’t connect making New Year’s resolutions and economics. But in fact economists talk a lot about commitment and the circumstances in which commitment doesn’t happen and the circumstances when it does. In particular, in macroeconomics commitment comes up in terms of what economists call “credibility” and how commitment mechanisms can enhance credibility.


So what insights can we gain from economics regarding New Year’s resolutions? First, the concept of “time inconsistency” is an important contribution that economics can make here. What “time inconsistency” (or what is sometimes called “dynamic inconsistency”) says is that what seems like a good thing in the long term might not seem such a good thing in the short term, so you decide not to do what is best in the long term to get short term gains when you know that what matters is the long term and not the short term. Once you succumb to the short term benefits you’re back at square one, and not getting the long term benefits.

A great example of this is quitting smoking. In the long term you know that quitting smoking is good for you – it extends your life and reduces your chances of getting all sorts of life-threatening medical conditions, plus costs quite a bit of money when you add up the costs of cigarettes over time. In the short term though having that one smoke will give you short term benefits that you think will outweigh the costs, but of course this is inconsistent with your long term goals and obvious benefits. This is a perfect example of “time inconsistency”. There are other very obvious examples of “time inconsistency” likely in all our New Years resolutions – things like losing weight, getting fit, and saving more money.

The nearest analogy to the “time inconsistency” problem of quitting smoking or losing weight for an economist is for an inflation-prone central bank to quit printing or creating money when they’ve been used to doing this, perhaps for political reasons. The solution in economics is to create inflation targets, which act as a commitment mechanism, make the central bank independent of the political process and/or to appoint a central banker who is extremely conservative.

So what are the analogous solutions an economist would suggest for quitting smoking or losing weight? Commitment mechanisms are rules that cause you to commit to doing certain things – for example, having rules to avoid triggers to smoke ( - cut down on coffee or drink tea instead) or to avoid bars or things that are complimentary to cigarettes. The analogous action to making the central bank independent of government might be to only associate with other people who don’t smoke, as this will also likely increase the likelihood of quitting for good. There is no direct equivalent for appointing a conservative central banker, but I would suggest that the nearest equivalent would be to continue to focus on the long-term gains and try and remove any thought of the short-term pleasure of smoking, so here perhaps make a log for each day that you’re still on track to meet your long term goals. Of course there are also those anti-smoking drugs such as Xyban or Chantix which can help if taken for a period of time.

But in fact the best way to actually achieve whatever your New Year’s resolutions are is to keep on reminding yourself of the long-term benefits of what you’re trying to achieve. Write your resolutions on a sticky note and put them on your bathroom mirror, and keep on reminding yourself of the logic that you laid out when originally making those resolutions. That way you remind yourself of the long term gains and are less tempted to be derailed by the short term temptations.

At any rate good luck on those resolutions!!