Lessons we can learn from a prison economy
as they relied heavily on oil for their energy, and the result eventually was stagflation. This combination of recessive growth and inflation was not desirable, especially in the old UK climate (CPI inflation 1979: 13.35%). 16 However, when the authorities saw a falling real GDP, they pursued an expansionary fiscal policy to maintain full employment. However, the spending from the government led to a huge rise in inflation (25% by 1979). These inflation rates damaged the economy and contributed to the recession in 1980. 17 Therefore, the prison recession can teach us how to react to recessions in larger economies. While it is easy to say this with hindsight, if the government had looked at an example like the prisoner of war camp, they may have realized that they were suffering from a classical recession and intervention was not the solution. Instead, their intervention helped cause the 1980s recession. The previous point discussed macroeconomic issues. However, a prison can also teach us a lot about microeconomics. In an environment like a prison, inmates will often use their limited resources to assemble certain g oods. In Radford’s experience, he stated that; ‘the discovery that raisins and sugar could be turned into an alcoholic liquor . . . reacted permanently on the dried fruit market’ : 18 this is an excellent example of joint demand. While this is commonly observed in the outside economy, the prison has a much more volatile price change so it can make it much easier to see changes in buying preferences. In this instance, as the price of dried fruits increased in the prison, the demand for sugar decreased. Therefore, we can calculate that complementary goods have a negative cross elasticity of demand. While this concept is not new to economics, the prison provides a great microscopic market for economists to observe the laws of supply and demand. Another aspect of the prison economy which is evident is herd behaviour. This behavioural economics term is a phenomenon in which individuals act collectively as part of a group, often making decisions they would not make as an individual. 19 In 2017 Hammill, Ogden and Glorney interviewed 71 male prisoners across 4 UK prisons. They questioned them about their involvement in the informal economy, their reasons and how they regarded the risks they were taking. They found that two-thirds had participated in the informal economy directly and about half said that they felt impacted by the informal economy. After the interview process, they noted their findings in this way: ‘The informal economy was seen as inevitable and described as “ fundamental ” and “ a way of life. ”’ 20 Their findings indicate that, over time, inmates adhere to the social pressure and herd-like behaviour because enough inmates participate in the informal economy: they feel they have to as well. Furthermore, it has become such a prevalent aspect of their lives that they have built a habit of trading in the informal economy. Both of these behaviours suggest that prisoners are irrational in their thinking as they may make a different decision without the pressure from other inmates or without relying on their system 1 thinking when building these habits of trading over time. Overall, the prison provides economists with a great insight into how behavioural economics affects people’s decisions, especially in a very s ocially pressured environment.
16 Inflationeu. 17 Pettinger 2012. 18 Radford 1945. 19 Rook 2006. 20 Hammill, Ogden and Glorney 2017.
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