Wednesday, April 20, 2005

Does Bush really hate Supranationalism?

Bush imposes huge steel tariffs, gives record farm subsidies, breaks the ABM treaty, circumvents the UN on Iraq, nominates a UN-basher as his ambassador to it, shoots down Kyoto and the ICC. He must have it in for the new world order.

Not so fast. Perhaps he and his team trying to teach the world textbook game theory.

There is no world government. National sovereigns are the highest level of organization which can coerce (using the economics definition of the term). Multilateral and supranational treaties and organizations operate under the premise of persuasion via voluntary participation. To plagiarize NYU professor Israel Kirschner, they "don't have the guns." The only way someone can be forced to abide by rules of these organizations is if powerful sovereigns voluntarily enforce them. Even NATO doesn't have a standing army of its own; forces are contributed voluntarily by member nations. Underpinning these supras, then, is the elegantly simple premise that those who participate agree with the rules; those who don't agree don't participate. This is critical because supras don't have a US-style system of checks-and-balances. Instead, they rely on this game theory-based equivalent which allows participating nations to exert their own persuasion (not coercion) through their participation. In line with game theory, there is no attempt at equality here. As game theory asserts, there should be no presumption that equality is optimal. Rather, the strength of each nation's persuasion should be commensurate with the net present value of all future contributions they can make, PLUS the (absolute value of the deeply negative) net present value of the damage they can cause by opting out.

    Consider the hypothetical Organization of Pig Excrement Countries where we have:
  • Cacastan and Crapola: big producers of excrement and and equally big consumers
  • The Poo: loves excrement, but can't make any
  • Dutyland: Full of crap but with a low tolerance for the stuff
  • Bovinia: Bullshit only please
  • Fartville: Doesn't give a shit
Bovinia and Fartville may be the biggest countries on the planet, with standing armies of 100 million souls each, but they have an NPV of zero to OPEC because they have nothing to contribute (or withold) and nothing to lose (or gain) when it comes to the lucrative pig excrement trade. As our logic gets more sophisticated, this will change, but for now Dutyland has a big positive NPV to OPEC since they make a ton of the stuff. The Poo doesn't contribute much, but, were they to strike a side agreement with a big producer, OPEC would be up shit creek without a paddle. Thus, they carry the potential for a big (negative) NPV. But Cacastan and Crapola are in the best position. They have two "levers" to play with: supply and demand. Thus, they are the kings of OPEC. Their desires carry a lot of weight and, where enforcement is needed, they have to step in. The rest could gang up on them, but they'd have to act as one to counterbalance these two shit superpowers.

If we move to a higher level game theory, we must consider the fact that Dutyland has only have one source of persuasion: restricting production. If we were to add probability math to our game theory computations, we might recognize that restricting production hurts themselves more than it hurts the rest of the world, and thus we would factor into our calculations the scant likelihood that they would use that lever. This would reduce their overall NPV to OPEC and thus their strength in the organization. On the other hand, if they were able to re-direct their resources into the equally lucrative pork chop industry, they might have very little to lose by restricting pig excrement production. This would give them a bigger sway in OPEC.

Enough of that crass example. How does pig crap relate to Bushcrap? The Bush administration's behavior relating to supras may appear disturbingly brash and erratic when viewed through the prism of European come-alongism and stagnation (see my earlier article on inaction). However, when viewed as a game theorist, Bush seems quite savvy and painstakingly consistent. At each turn, he reminds the other members of these supras that the US has the right not to participate. As game theory dictates, each member must anticipate the actions of the other members and design their own strategy for playing the game. As each member makes a move, the other members must re-engineer their strategy. Inherent in these strategies must be a recognition of the NPV each member carries, and thus the power they wield. If the US deems that we have more to lose than we gain with Kyoto, it is entirely rational (in fact expected) that we will opt out. This doesn't mean the other members can't carry on. It just means that they will have to re-design the thing before we feel that, on balance, it is in our interest to sign up. Those like Haiti with very little to contribute or gain from the treaty appropriately have very little say in how the thing is crafted.

So, does Bush hate the supras? Is he singlemindedly trying to kill them off in favor of a unilateralist world? Nope. He loves them. He's just playing the game!