How Political Brinkmanship Could Be Ruinous To The Economy, Stock Market, and Jobs
The Forbes article on the 2020 elections discusses how there is a dangerous game being played between two major political parties. These games have the potential to push both parties onto a reckless path of decision-making as the election gets closer. The first scenario discussed is that the stock market crashes on its own and would discredit Trump’s achievements which would result in a democratic win for the election. The second scenario discussed is that Trump continues to push the Fed to lower interest rates which will lead to two things: the government and consumers will benefit and more jobs can be created while those dependent on higher interest rates, such as banks and retirement funds, will be harmed. The third scenario would be that the stock market crashes and the ultra-wealthy democrats decide to sell their stock investments which can result in a recession. This scenario would be ruinous for everyone.
This article connects to course because it outlines a common game in game theory – the Hawk-Dove game. Here, the two players are Trump and the Democratic party. Their strategies are either to attack (Hawk strategy) or to just simply threat one another (Dove strategy). Attacking for Trump would be to push the Fed to lower interest rates and attacking for the Democrats would to sabotage the stock market. A simple threat for both parties would to just continue to campaign and not play with the market. The payoffs in this game represent what the general public would either gain or lose as a result from this political game – which helps when the candidates vote in the 2020 election.
Below, I outlined a game between Trump (Player 1) and the Democrats (Player 2). I assigned a value to their payoffs when choosing between whether to attack or simply threat. Here, when both players threat, nothing changes – thus assigning a (0,0) payoff. When both parties attack, it negatively affects everyone – thus assigning the worst payoff possible, (-10,-10). The player that attacks when the other threats will gain the largest payoff of 5 whereas the player that threats will get a payoff of -1. Therefore, the Nash Equilibrium in this scenario would be (TT, DA) and (TA,DT). This Nash Equilibrium represents the pair of strategies that are the best responses to each other. Since each player can yield the most payoff by attacking, there is a good chance that both players will choose to attack. This relates back to the article that states that politics has the potential to hurt everyone involved if this is the outcome.
