Thanks for adding your insights.

I did hear this morning that a major topic at the Economic Summit in Davos, Switzerland is “trust”. How interesting because at the core of the “prisoner’s dilemma” is that very concept.

In the first piece the writer seems to parse the WSJ review of the Chinese tactics used to manage their currency valuation. For what it is worth the Chinese did allow the yuan to increase 20% in value vs the U.S. dollar in 2005. Our government and others believe that it should be allowed to float to fair value wherever that is. This challenge is an issue in dealing with a Communist government that is trying to promote the benefits of a free market economy. While the Chinese are trying to walk that balance beam it does impact our economy and markets. I guess the question that we should ask is would we rather that the Chinese close their markets and their country altogether or leave it the situation as is. I certainly do not expect that China will fully open their markets and change to a democratic government anytime soon. Thus, the price for us in dealing with China is that we can trade with them and have them provide significant levels of financing for us but it is going to cost us in terms of a weak yuan.

In regard to the second article that piece nails the essence of the dilemma facing us. If we play so hard that the Chinese sell our government bonds or merely fail to buy new bonds, our rates will likely move up substantially and quickly. The “Prisoner’s Dilemma” is a real quandary when the depth of relationships do not run so deep that it becomes second nature to cooperate.

What a world. I am glad that you feel like you are learning. So am I.

thats very true. Instead of opening up and promoting prosperity and wealth with the south american nations, improving security and stability in the continent and reducing the immigration pressures, the US just antagonized and marginalized them as unimportant ugly poor neighbors and preferred to move jobs to China. Now the latin nations are gravitating towards the brazilian influence or the venezuelan demagogue, while the dems continue to stupidly refuse to approve the trade agreement with ally Colombia.

We can bring back savings stamps, and call them something like H&C (Hope and Change) Savings Stamps. We will collect them in little books (the design on each stamp could be the Obama logo). Our “Patriot Points” would be issued in the form of H&C stamps, and we would have fun licking them and pasting them in our H&C books. Moreover, H&C stamps would be issued with every retail purchase (pre-included in the price, maybe 10% or so, but totally invisible and hence not a tax). We could appoint an H&C Czar to oversee the process!

he can put the touch on his donors to help him out again

I like this idea. Of course, in donating to the US Treasury, there will be no restrictions on the amount any individual or corporation can contribute, so the coffers will fill all the more quickly. Incentives? I suggest “Patriot Points” rewarded for dollars contributed (something like ‘frequent flyer miles’). Special privileges can be enjoyed by cashing in “patriot points” (a night in the Lincoln bedroom? lunch with Michelle? a Congressional Medal of Honor?). Let’s get serious about bringing down the deficit!

LD.
You wrote:

Without going into extensive economic analysis on this “dilemma,” in short it represents the choices a partner has, not knowing exactly how the other partner will act. While the partners would mutually benefit through cooperation, if one partner chooses to act in his own self-interest, the other partner is penalized if he does not also act in his self-interest. As a result, both partners are worse off by acting selfishly. Welcome to the world of global trade in 2009

Yes, partners can benefit, IMO, through cooperation however, some think that oil-a fixed amount resource- necessitates a ‘Prisoner’s Dilemma-type int’l trade environment.

Who will have the courage to ‘blink’ first?

Who will step off the treadmill and say “enough is enough”- let’s focus on alternative sources of fuel and energy?

Until this can happen, IMO, international trade will continue to dominated by many (especially those in the private sector who have great influence over governments)using a Prisoner’s Dilemma strategy which, in the end- may make the trading partners worse off than if they had cooperated at the start.

This, of course, is how the real-world applications of this scenario are played out–with millions of people deciding what will serve themselves best (and sometimes considering how their own behavior will affect others). Research has shown that in multi-trial versions of the game, a “tit-for-tat” strategy tends to emerge, where if a player acts in a selfish manner and the other player loses, the second player tends to retaliate in the same manner on the next round. Same thing occurs with cooperative behavior.

Most social dilemmas are multi-participant, multi-trial, even going on into perpetuity. I very much liked your application of this theory to the situation with China. Well stated!