John Nash and Political Game Theory

One of my favorite movies of all time is A Beautiful Mind, the semi-biographical retelling of the life of John Nash. Nash – who is still alive as of this posting – is one of the foremost mathematicians in the world, especially in the world of game theory. According to Wikipedia his work has been applied to everything from market economics to computing as well as evolutionary biology, artificial intelligence, accounting, politics and military theory.

There is one particular scene in the film that I’d like to focus on for this post’s purposes. In that scene he is with four of his male friends at a bar. In walks a blonde and four brunettes. It becomes apparent that the blonde is the most desirable of the women. His friends come to him and begin discussing Adam Smith’s theory of competition – that “individual ambition serves the common good”. In other words, each of the friends would compete for the blonde and the losers would be left with the brunettes, their “second choice”. Nash, however, identifies something new:

“Adam Smith needs revision. If we all go for the blonde, we block each other. Not a single one of us is going to get her. So then we go for her friends but they will all give us the cold shoulder because nobody likes to be second choice. But what if no one goes for the blonde? We don’t get in each other’s way and we don’t insult the other girls. It’s the only way we win.”

He continues:

“Adam Smith said the best result comes from everyone in the group doing what’s best for himself, right? That’s what he said, right? Incomplete. Incomplete! Okay? Because the best result would come from everyone in the group doing what’s best for himself and the group.”

 

It’s a fascinating line of thought, and one that runs contrary to the classical capitalist belief that says individuals are better off chasing their own success instead of worrying about the success of others. And it’s quite different than the opposing view of socialism which tells us that individuals must be forced to worry about the success of the whole group instead of their own. Nash has shown us a means whereby individuals can voluntarily seek out strategies that will ensure a good result for themselves and the whole group. It doesn’t necessarily mean that an individual will reach the best result – remember, the best result in the original example would have been getting the blonde – but I’m sure that none of them minded their successes with the brunettes!

What can we learn from this? That there’s a third alternative to the left-right, Democrat-Republican, Liberal-Conservative, capitalist-socialist problems that our nation is dealing with. I’ll give you an example…a business owner who uses local foods to produce healthier meals for his or her customers. The local foods cost more to procure, thereby lowering his profits, but his customers are happier and healthier. And possibly more likely to return. That’s a win-win situation!

What are your thoughts? Feel free to share them in the comments are below!

My Letter to Congressman Platts

Representative Platts,

In light of the recent announcement of your retirement, I want to thank you for your service to me, my family, and the people of the 19th Congressional District. I may not always have agreed with you, but I always received letters in return that were more than just a canned response. I know that you have served many of your constituents personally. You can be proud of your twelve years in office, and I hope that we can find a replacement who will be able to fill at least one of your shoes.

I’d also like to take a minute, since you do still represent me until next year, to voice my opposition to the internet censorship bills being considered by the Congress. Commonly referred to as SOPA and PIPA, these bills would greatly hinder the ability of online organizations and companies to further the responsible use of technology. While I understand that there is great harm being done by those who choose to be irresponsible in the virtual domain, I feel that an excessive curtailment of our online rights is not an appropriate response. Please do what you can to ensure that SOPA and PIPA do not become law.

If you have any questions, feel free to call, email, or contact me by mail. I’d be happy to discuss these controversial bills further.

Thank you once again for your service!

Regards,

Doug Walters
Codorus Township

Krugman, Debt, and Different Rules

I think that by now, we’ve all seen an explanation of our national debt that compares it to a typical American family’s debt, so as to emphasize the vast amount of money that the USA has borrowed. It goes something like this:

The federal government will take in $2.173 trillion in 2011. That’s their income, and it sounds pretty good. Until, that is, you factor in that the federal government will spend $3.818 trillion during the year. So, just like many families, the government’s outgo exceeds their income—to the tune of $1.645 trillion in overspending. That’s called the deficit. Altogether, the government has $14.2 trillion in debt.

What would happen if John Q. Public and his wife called my show with these kinds of numbers? Here’s how their financial situation would stack up:

If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!

A couple days ago I read a really interesting piece by Paul Krugman about debt. While I don’t always agree with him, his perspective is fascinating. And in this instance, his article helped me to understand a different viewpoint considering our national debt.

Some highlights:

…”when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.”

“Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.”

I was really shocked by what Krugman wrote, but after a lot of reflection and contemplation I realized that frankly, he’s right.

Comparing the United States’ debt to some random American household’s debt is putting apples next to oranges. If I were to take out a mortgage that I couldn’t possibly afford, I’d lose my house. But when the United States goes borrowing money, we’re also lending money to other countries and creating more of our own money as we need to. That’s the beauty – and the evil, in my eyes – of central banking: if you need to borrow money, go ahead because what army is going to show up to collect? You and I operate under a different set of rules than governments and central banks do. That’s a reality that we have to understand before we can have a real discussion of how to proceed.

Now, I do have to disagree with Krugman in part. While his description of how the national debt works is 100% accurate, it’s certainly not a sustainable system. Our currency, through inflation of the money supply and the elimination of the gold standard, is worthless. It’s just paper. And when people realize that we’re going to see an economic collapse unlike anything else in history. The real value of our currency was stolen a long time ago. This adds to the meaninglessness of American politics – two sides bickering over how to protect their money while they stand in front of the open, empty vault.