Monopoly sheds light on fiscal crisis

By TIM HARFORD

Comparisons between today’s banking crisis and the one that heralded the Great Depression in the 1930s are looking less strained by the day. So what better way to lighten the mood than by reviving everybody’s favorite Depression-era board game? Here are three reasons why a game of Monopoly isn’t so different from today’s financial mess:

Loose money: Monopoly players start out swimming in cash and spend it quickly as they make their way around the board, buying everything in sight. But then money floods the system again, courtesy of the mysterious banker who hands out cash to each player who passes “Go.” The game is one big real-estate boom funded by an overly generous central banker — not unlike the one that led to the subprime meltdown. Alan Greenspan, the Fed chairman who presided over that boom, was a young boy when Monopoly first cornered the board-game market. Did that all-powerful banker at its center provide the inspiration for Greenspan’s life’s work?

Vague and ever-evolving rules: Most enterprising kids play Monopoly the way enterprising investment bankers work the financial system, making up their own rules as they go along and striking deals on the side to insulate themselves from catastrophe. Today’s real-life side deals, called derivatives, now add up to a nerve-wracking $596 trillion, almost 40 times the size of the U.S. economy. Monopoly’s rules about buying unwanted assets at auction are also disturbingly undefined: The banker can run the auction as he or she sees fit. I’d bet Boardwalk that Treasury Secretary Henry Paulson, who now has $700 billion to spend in a similarly vague set of auctions, is another Monopoly fan.

The endgame: For all Monopoly’s merits, fans complain about the way it tends to end in a slow capitulation, with one player after another dropping out as ever greater sums of money slosh around unpredictably among an ever smaller group of people. Remind you of anything?

X Harford is a Financial Times columnist and the author of “The Logic of Life: The Rational Economics of an Irrational World.”