Before winning this year’s World Cup championship, Germany faced a dilemma during its qualifying match against the United States. Both teams could ensure their advancement in the tournament by colluding to do nothing. If they tied, both would advance. If one of them won, the other might not advance. However, neither could ensure that the other would cooperate. And as a result, they were both forced to compete.
This situation, known a “prisoner’s dilemma,” is one that manifests itself in all sorts of situations, frombusiness to politics to World Cup qualifying games.
It also helps explain where we find ourselves with the Export-Import Bank,or “Ex-Im,” a federal agency tasked with subsidizing U.S. exports. The bank’s charter is set to expire in a few months, and some are making the case that it should be reauthorized to help U.S. manufacturers “compete internationally” by“leveling the playing field.” This is simply another prisoner’s dilemma playing out in the real world.
That is my latest, coauthored with Chris Koopman, at US News.
Advocates of corporate welfare often claim that when governments privilege a handful of firms, the rest of the economy somehow benefits. This is how the Bush Administration sold the bank bailouts. It’s how the current Administration sold the auto bailouts. And it’s how the U.S. Chamber of Commerce is trying to sell the Export-Import Bank.
Mounting evidence, however, suggests the opposite is true: economies whose firms sink or swim based on political patronage grow slower and are less stable than those in which firm success depends on an ability to meet the market test.
That’s me, writing at Real Clear Markets. I’ve always thought that if there were any justice in the English language, “trickle-down economics” would not refer to general tax cuts, but would instead refer to any scheme to privilege particular firms or industries in hopes that their greater prosperity will somehow trickle down to the rest of the economy. I was glad that the editor took my suggestion for the title. Click here to read more.