G.R.R. Martin’s fictional universe in A Game of Thrones evokes a number of economic phenomena found in many modern day economies. Specifically, the Seven Kingdoms (regions south of ‘The Wall’) is characterised by a dual economy, significant urban-rural wage differentials, widespread poverty and unemployment, underdeveloped infrastructure, low national savings, high debt, civil war and fiscal irresponsibility.
Collectively, these characteristics mirror many of the factors that constrain economic growth and productivity in contemporary developing economies.
Westeros is almost universally characterised by insufficient infrastructure, resources and capital stock—which are critical determinants of economic growth.These deficits emerge in the second season when Gregor Clegane (‘the Mountain’) resorts to terrorising and destroying villages along the Riverland in his search for members of the Brotherhood. Crops are burned, stables, roads and houses are destroyed and horses and livestock are killed. In short, this decreases available infrastructure, resources and capital stock and thereby reduces the ability of the workers within the Riverlands to produce agricultural goods (see graph below).The implications of the graph are clear—the adverse supply shock (in the form of Clegane’s raids) interferes with the productivity of the Riverlands. For any given quantity of rural labour the agricultural output that can be produced falls. In addition to the fall in output, the flattening of the red production function implies a decrease in the marginal product of rural labour (the output derived from each additional worker). Destroying villages might form part of the Lannister’s broader ploy to intimidate peasants and stifle revolt—but the long-term consequences imply decreased productive capacity.
A similar (forthcoming) adverse supply shock is reflected in the series’ mantra ‘winter is coming.’ Given agrarian economies are highly sensitive to weather conditions, the imminence of winter implies strong negative prospects for future growth levels. When winter materialises, a similar supply shock to that above—albeit on a wider scale—will likely impact on the economy; further decreasing output.
One would think that these bleak growth prospects would influence the fiscal policy directives of the King, his hand, and the Small Council. However, a history of fiscal recklessness and royal excess has characterised the Small Council’s expenditure. Royal jousts and weddings divert valuable funds from expenditure that should raise productivity to short term festivities that flaunt the Monarchy’s ostensible wealth and propagate the King’s power.
This lack of fiscal stimulus is counterbalanced by a superficial sort of expansionary monetary policy implemented by the Master of the Coin, Petyr Baelish (‘Littlefinger’). As Tyrion’s assessment reveals, Littlefinger has a ‘gift for rubbing two gold dragons together and breeding a third.’ Baelish engages in ‘coin clipping’ (shaving precious metal off the coin and re-minting to make more currency) to increase the flow of currency in circulation. However, aggressive expansionary monetary policy inevitably translates into higher levels of inflation—diminishing long-term growth prospects.
Importantly, Littlefinger’s expansion of the money supply is encouraged by the Lannisters—at least in part—to finance their lavish expenditures. This reflects an important fact, namely, that the Master of the Coin (analogous to a central bank) is not politically independent. Central bank autonomy provides immunity from political pressure that could adversely influence the long-term direction of the economy. The fact that Littlefinger is complicit in the Lannisters’ plans undermines this desired independence. Critically, a short-term political orientation and desire to appease the populace (through lavish tournaments and weddings) fails to accord due weight to the long term implications of an expanded money supply—higher levels of inflation.
Put simply then, the economy is in disarray. Cersei and her clan urgently need to consider ways to increase economic growth.
Firstly, the Lannisters must improve rural productivity. Rural workers can increase their productivity and income if provided with access to productive resources, especially land. In developing countries, there is an empirically observed inverse relationship between the size of a farming plot and labour productivity. More generally, economic growth is negatively correlated to inequitable land distribution. In Westeros, land distribution is inherently unequal. The feudal hierarchy results in land ownership exclusively confined to the King, nobility (i.e. Freys, Starks, Boltons etc.) and knights—peasants merely work the land without corresponding ownership interests. By conferring additional ownership interests in land through more equitable land distribution policies, farmers will have greater incentives to innovate and work harder—raising productivity.
Secondly, it is necessary to address the rural-urban migration trends. We can infer an rural-urban wage differential from the fact that the prostitute Ros relocates from the outskirts of Winterfell to Littlefinger’s brothel in King’s Landing. Left unchecked, the relatively higher urban wage has induced excess rural-urban migration. Again, we can infer this effect from the pervasive urban poverty that is evidenced in Flea Bottom (on the periphery of King’s Landing). The rapid build up of urban unemployment in response to a higher urban wage implies that increased urban investment is necessary to expand urban production and employment, and thereby offset the increased migration patterns. Rather than taxing wealthy businesses (including Tywin’s tax increases on brothels), the Lannisters should consider tax cuts and other incentives to stimulate urban investment and expansion.
As these fundamental issues are addressed and incomes are increased, rural and urban workers will begin to accumulate savings. In turn, the implementation of a banking system to channel funds from savers to investors will further stimulate productive investments and additional growth. Moreover, the creation of a Lannister bank would decrease the royal family’s reliance on the Iron Bank of Braavos. This would lower default risk, given the Iron Bank’s notorious reputation for backing the enemies of borrowers who default: ‘one way or another, they [the bank] always get their gold,’ (Tyrion Lannister).
Ultimately, the economy of the Seven Kingdoms demands swift intervention. Unless the Lannisters drastically change the direction of their policy orientation, the real threat to their sovereignty may by the crippling effects of economic stagnation.
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