Playing With Our Debt
http://www.businessweek.com/magazine/the-debt-ceiling-deal-the-case-for-caving-08032011.html
This article reflects on one of the United States’ hot topics this summer – the national debt ceiling crisis. We all witnessed the political game of the chess that persisted throughout the months leading up to the August 2nd deadline for debt reduction. While this event greatly showcased the deep divide between our two political parties, it also serves as a great application of game theory.
Like most game theory examples we use in economics, there were two parties involved in this game, both hoping for separate ideal outcomes, but knowing that, without compromise, both parties would ultimately lose. However, a third party – the Tea Party – held a different philosophy. They began a game of “chicken,” making it clear that they would be ok with a US default. The author writes about how this “game” was originally perceived as cooperative, but in truth, was non-cooperative. Democrats and the Republicans (more so the Tea Party) were heading towards each other on a single-lane road and neither were swerving to the side.
This issue with politics is that at the end of the day, everyone is playing their own game called election. Individuals are so focused on securing votes that they are unable to compromise effectively. In the case of the debt ceiling crisis, it came down to the last possible moment before President Obama caved in and created a solution that neither party was particularly pleased with.
According to game theory, this issue revolving around the US debt and its politics could not have ended any other way.