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The national bankruptcy game

By Daniel M. Ryan
web posted March 10, 2008

Optimization problems in social science can often be a fascinating study: game theory is chock-full of them. The baseline theorem comes right out of von Neumann and Morganstern's Theory of Games and Economic Behavior: the best move to make is the one with the averaged highest expected return, regardless of how the opponent(s) play. Often this is quantified, but it's still useful when not quantified. Unsurprisingly, the first large-scale use of game theory took place in Cold War strategizing.

The principles, whether quantified or not, are often of real use in geopolitics. One example explains why all aggressors on the world stage nevertheless insist that any war they launch is "defensive." Leaving aside the moral component, which speaks to the humanized component of our territorial impulse, the claim that any war, no matter how aggressive, is really "defensive" makes sense from a game-theoretic standpoint. It decreases the cost of losing. If a plain aggressor loses a war, then it loses – period. If, on the other hand, an aggressor loses a war in such a way that it's driven back to its original borders, then it can claim a partial victory if defensiveness is brought in. The invader defended itself, but so did we. We kept them away from our shores too. Thus, the war's ending can be fairly counted as a draw. We won't mess with them – and they sure as blazes aren't going to mess with us. So, in the overall strategic sense, we both won. Surely, it can be counted as a tie.

There's only one way to unambiguously lose given this particular set-up: if the aggressor loses a part of its original territory. Then, the defensive component of the war is clearly lost too.

There's only one kind of nation that can get away with this set of payoff conditions. If a nation has a tradition of fighting unambiguously defensive wars, and a noted lack of aggression on the world stage given its supply of "materiel in civilian hands" (otherwise known as the size of its economy), then it can get away with such a stance for a while. It only works, though, if the moral component is credibly complementary to the strategic objective. Nations that tend to push those two factors too far apart invite a blowback of outrage, of being pegged as a monster on the march. No-one can guess in advance where that particular line is crossed.

Yes, geopolitics isn't a field for the soft-hearted. Unfortunately, it's all moralizing in that arena – and yes, cynicism is the norm. Try watching the United Nations proceedings and you'll see it in spades. (Introductory course: the recent oil-for-food scandal. Try time-tracking the moralizing vis-à-vis the underhandedness from the players in question.) An example of the inner un-niceness of it is seen in an analysis of why democracies are less prone to go to war than other nations.  

The politey aspect of it points to the multiparty system of democracy, and the tendency for two sides of any great issue to develop peacefully in the public arena. One party becomes the War Party, and another sees a competitive advantage to becoming a Peace Party. When the general public tires of war, a change in government ensues from the War Party to the Peace Party, and the war is wound down. More to the point, whatever party serves as the Peace Party will stay the hand of any would-be War Party before any conflict emerges. This conclusion follows from the well-known business rule that an unhappy customer will lead to greater losses than a happy customer yields in gains: it applies to politics too. Hence, the risk-aversion of any governing party in a democracy. Since war is a risky undertaking, the natural risk-aversion which any party in power demonstrates will apply to starting a war too. The only exception occurs in democracies with a strong nationalistic undercurrent. This cultural characteristic is the most likely cause of a War Party being opposed by a sheepish Peace Party – or by a Warmonger Party. These exceptions are the ones that the critics of the above theory, such as this one, delight in pointing to. (The peace faction couching the case against war in nationalistic apologias is what to watch for.)

Unfortunately, democratic-rhetoric politesse obscures the grimy mechanism by which this peaceableness is carried out. Peace movements, or anti-war movements, don't grow from nowhere: they have to have a source. The source, sad to say, is from the people whom the War Party likes to cold-deck as – well, chickens, cowards, traitors, etc. The existence of "peace creeps" as a permanent subculture is absolutely necessary for a democracy to function in this way. I could defend the sub-thesis that skeptics of the pacific-democracy theory are the ones most prone to taking such aspersions seriously, but doing so would reveal an untoward cynicism on my part.

Another example of game theory comes from the observation that imperialism, money-wise, is like drawing to an inside straight. The evidence that suggests it doesn't is an illusion based upon the principal-agent problem manifesting itself, just as the inside straight illusion results from randomness fooling our pattern-recognition equipment. Conceivably, there are sound geostrategic reasons for acquiring an empire, but all of them carry net costs. So, "increasing prosperity" cannot be one of them: lucky jackpots are not effects but happy accidents.

The above reasoning implies that the "best" empire is the one acquired as cheaply as possible, so as to minimize the net costs. Doing so means accepting the loss of a territory phlegmatically, as well as using the "empires cost" principle as a consolation prize. The nation that has proven to be best at this stratagem is none other than Great Britain. Despite the madness of King George III, his son and heir was wise indeed when claiming that the United Kingdom was better off without the American colonies. In terms of prosperity, this proved to be the case.

As a side benefit, a cheap empire implies governing lightly: letting the natives do as they will except for a small list of command-post items. When the natives overrun the budget and manpower, the above phlegmatism helps in letting them go. Consequently, any disgruntlement at the consequent servitude will fade away – most likely with the passing away of the increasingly old folks who remember life under a "conqueror's boot" that left no permanent irritant behind. Like it or not, the Dark Ages did indicate that the roads and villas of Rome were seen as irritants at that time.

Let the record show that any current financial difficulties in the United Kingdom have resulted from political causes common to any OECD nation. World War 1 could be implicated, but so could the introduction of mass democracy…with the consequent break-in period required by franchise-holders lacking a tradition of responsible governance. The traditions and common sense they used came from their ancestors, who were part of the "voteless (and/or powerless) mob" until about a hundred years ago. The exceptional status of the United States has been diluted due to mass immigration from parts of the world that were not. Rather than democracy, there is another cause for the seemingly inevitable lurch towards national bankruptcy faced by many First World countries.

As you may expect, its identification is also found in game theory. It results from democracy interacting with a more primal concern. What makes a nation most vulnerable to conquest is the arising of a fifth column – a faction that is united by the opinion that conquest by a certain foreign power will make things better for them. Ordinary morals are often enough to restrain this impulse in ordinary times, but not during extraordinary times.

The best way to staunch any potential fifth column is, to put this point indelicately, pacify the citizenry to the point where they would feel and largely be helpless under another ruler. Since everyone votes with his/her stomach to some extent, this maneuver implies that the "you've never had it so good" stratagem is the optimal one. It isn't just de Tocqueville who has seen that prosperity followed by depression leads to frustration and anger, a state of mind often channeled into politics.

There are variations on this stratagem in the non-economic sphere, such as letting the kids run wild if conquest is feared. The more unruly the young'uns are, the more difficult it will be for a foreign power to keep them underfoot. Not for nothing does the slackers' "Boomer Boys" keep bringing up the anti-Communist ‘50s as an explanation for their conduct. (Truth be told, there was a lot of worry that America would be hijacked by Bolshevists back then.)

Democracies, though, tend to settle upon the economic means because they involve the use of the purse's power – the same power that a democratic legislature has wrested away from king and aristocrat. What better way to keep the citizenry "happy" (pacified) than to use the power of taxing and spending to diminish complaints from the complainers? In addition, the more subsidized an economy, the more potent the threat of cut-off becomes. By a hostile power, of course. (Any party that did so directly would be thrown right out of office unless such threats are confined to small subgroup of people already cold-decked as malcontents.)

This same process of, to be even more indelicate, strategic bribery can be undertaken by a non-democratic regime, but the necessity of continual contact with the electorate makes democratic rulers more adroit at it. Also, that tie between ruler and ruled minimizes the crueler option of open wing-clipping as a means of pacification. Fear, after all, tends to cover secret (if impotent) hatred, which may become potent once a credible band of "liberators" show up.   

Courting national bankruptcy goes along with the overall stratagem, of course. Children don't vote; nor do the unborn. An "unborn" that isn't a zygote doesn't even exist. Thus, swaddling "future generations" with a huge national debt is also optimal as a tactic, provided that it isn't done at such a rate as to bring malaise in the present. Pullbacks are indicated at that point. I need hardly add that currency debasement, under the same constraint, is optimal too.

Sad to say, but a tendency towards national bankruptcy makes a kind of political sense if the goal is to avoid domestic regime change. No wonder that a (usually foreign) scapegoat is sought out when the day of reckoning approach-eth. ESR

Daniel M. Ryan is a regular columnist for LewRockwell.com, and has an undamaged mail address here.





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