Thursday, August 28, 2008

Legal Definitions vs quantitative definition

I will discuss two examples private(isation) definition and Democracy definition.
Privatisation vs Nationalisation of utilities etc. which I had discussed here is a case in point where with the legal definition is a Yes/No answer as to whether the legal owner of the utility is the government or a private entity. When analysing the effects of whether a utility is private or not the legal definition is a big hindrance to analysing whether having something private or nationalised is better or worse. This is because something can be privatised but have publicly controlled prices and be heavily subsidised by the government (or conversely be public, but so reliant on private consultants and subcontractors, and be competing with other utilities that it is essentially in private hands). There is nothing marconomically relevant in who owns something, but the score on the continuum is very relevant. What needs to happen is (even very roughly) a public/private score be placed on utilites etc. before jumping to conclusions as to whether policy should change to move the score along one way or the other.

Democracy has a similar problem. There is clearly cases where there can be too much democracy (proportional democracy often doesn't let new or unpopular ideas take their turn) or too little democracy (leaders can keep themselves in power indefinitely). The definition of democracy that indicates that the Soviet Union was Democratic and apartheid in South Africa was not, may be of some use in the moral sense but of no practical marconomic use. The democracy score I would give would (even roughly) judge how responsive government policy is to popular opinion. I would give Italy (too) high democratic marconomic score for democracy as popular opinion tends to stop almost every attempt to update taxation policy etc. Freedomhouse has a democracy score that with little tweaking, could give a quantitative answer of an ideal amount of democracy. Even decades ago, I would have given a very low democratic score to Zimbabwe, as there were few checks and balances to ensure polls accurately reflected the peoples wishes.

Saturday, August 23, 2008

Nash Equilibria in geopolitics

From principle 6, most geopolitical issues should be analysed via game theory, since there are few enough units to contend with and most issues can be modelled via various strategic games. Whereas most game theory proponents have strict guidelines to test whether Nash equilibrium is possible, marconomics starts with geopolitical situations which have been at a stalemate for an extended period of time, and surmises that it can only be due to Nash Equilibria. If any player was using sub-optimal strategies, they would have "lost" by now. Equally, if the situation was out of equilibrium the stalemate would break until it found a new equilibrium down the track.

As an example, I have modelled the Israel-Palestine Conflict to give an idea as to why it is so intractable in the long run.

The Cold War is another clear-cut case of a Nash Equilibrium. I would argue that the stalemate broke down only because finances eventually disabled Russia from following its optimal strategies. The New World Order (NWO) since the fall of the Berlin Wall and the breakup of the USSR, has been demonstrably not in equilibrium. Due to the fact that "the rules" (which in the case of the cold war is the structure of the UN) have remained unchanged a new equilibrium (which invokes the threat of Mutually Assured Destruction as the only ultimate check on misbehaviour of one or another of the veto wielding members) is entirely possible. Thus as an example, if Russia threatens Poland with nuclear strike, the main deterrent is the possibility of a disproportionate response by the US, etc.