6 ms·

Why Greece and the EU aren't playing games

24 points by steve19 11y ago

Natsu 11y ago
This says we can't use game theory to analyze this situation, but the only argument given in support is that humans aren't rational. "Irrational" (or otherwise emotional) strategies are by no means outside of the analysis of game theory. It's well known that by "irrationally" eliminating one of your choices, you can push your opponent into different options. For example, take this infamous episode of split or steal: https://www.youtube.com/watch?v=S0qjK3TWZE8 https://www.youtube.com/watch?v=S0qjK3TWZE8 One side makes a choice to go with perhaps the most "irrational" choice. But if you think about it for a bit, it's obvious that they end up guaranteeing the better choice for both parties by being less greedy than they might be. Anyone interested in the topic of rationality as it pertains to game theory might also like reading this: http://www.dklevine.com/archive/refs4375.pdf http://www.dklevine.com/archive/refs4375.pdf
- bduerst 11y ago
  Well said - the point the article missed is that the politicians in the E.U. are still behaving rationally, even if the countries are not. If the politicians agree to an austere fiscal policy with the Euro, it will mean setting their economy back in a very visible manner and jeopardize their re-election chances. The countries in the E.U. are still very nationalized, and competing political incumbents will be able to spin the policies as sacrificing their own country for someone else's mistakes. The politicians are still acting within their best interests to keep their jobs, even if that means sinking the Euro.
- iofj 11y ago
  Game theory works fine. Tsipras simply blinked. The power of Greece's argument was that in a case of a Greek default, the EU could either do their current QE * 30 for a month or two, paying all of it to Greece's lenders (like they did in 2008), or face nearly all regional banks going bankrupt. Discussions weren't going well. The EU froze most of Greece's bank accounts, and ... then Tsipras simply gave in, seemingly getting very little in return.
com2kid 11y ago
The amount of money here seems so laughable. The EU is crippling Greece, removing their ability to ever restructure or become a healthy economy, over what is piddling amounts of money. Maybe I am just terrible at reading charts, but it seems to me that based on https://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state https://en.wikipedia.org/wiki/Federal_taxation_and_spending_... the US spends hundreds of billions of dollars per year supporting those states that aren't "profitable". The US would fall apart very quickly if the federal government insisted on handing out loans and forcing the cancellation of aid and welfare programs in states that needed help the most.
- computer 11y ago
  What's at stake is not just the debt of Greece, but also Italy, Spain, and possibly others. Forgiving Greece part of its debts sets a precedent for those countries, raising the stakes greatly.
  - com2kid 11y ago
    It is a hard problem. Forgiving the debt once is likely the right thing to do, but if you keep doing it, what is to prevent countries from just never paying at all? The sorts of restructuring plans that are put into place are designed to solve this problem, but I think whoever designed them is a sadist. It is said you cannot spend your way out of a recession (and I'd agree that one off projects that don't kick start a continued source of income don't work), but you also cannot make so many budget cuts that no one in the country has a job, or a house, or a support network of any kind. Zero tax revenue does not make for a stable government. (It does make for a really corrupt one though, and a much worse type of corruption than what Greece had before)
    - benmccann 11y ago
      If debt is forgiven or defaulted upon, then it becomes harder to borrow in the future (i.e. they must do so at higher interest rates to account for the risk). If countries never paid their debt then no one would loan to them or would loan only at astronomical interest rates.
powertower 11y ago
Its amazingly simple how entire countries can be taken over like this... Step 1. Bring foreign banks into country and proceed to make loans that are known obviously to be non-repayable. No one says "no" to free money. Step 2. Keep doing this until a debt crisis is reached. Step 3. Have the bank-and-currency related foreign country and/or entity create a "bailout" package that fixes the foreigner bank ledgers. It does nothing else, there is no relief except to the foreign banks. Step 4. You now own that country, its resources, and all the people in it. You just bought it.
- bpodgursky 11y ago
  Greece is a free country and free to default. They weighed the tradeoffs and decided it would end poorly, and a (so-called) "humiliating" deal was better than Euro exit. Nobody is threatening Greece with military action should they not pay their debts. The fact is, they got a free ride for a couple decades on free money. They can take it and set out on their own, or pay lip-service to those debts (realistically, it's not going to get paid back fully in any outcome). It is a sovereign nation and can choose what deals to make, without your help.
  - danharaj 11y ago
    Greece is a country with large government problems. And the government is not what pays the price for this structured deal. The people do. It is very convenient to assert that Greece is a free country where the people are in charge. If you want to blame someone for their misfortune, interpret past events so that it looks like they inflicted it on themselves. > Nobody is threatening Greece with military action should they not pay their debts. It should be quite obvious in 2015 that military action is not the only way nations can destroy other nations. For example, forcing them via a corrupt and disconnected government to pay into an unsustainable financial settlement until they are bled dry and peeled down to the bone is one way you can destroy a country. Why do we equivocate governments, states, and countries? The country of Greece suffers for the sins of its state, executed by its corrupt and inept government.
    - 11y ago
wmil 11y ago
A Greek exit was the right solution in 2005, in 2010, and again in 2015. It won't happen so presumably we'll be talking about this again in 2020. It's amazing how correct the UK "No" campaign was.
- bduerst 11y ago
  It was impossible for Greece to exit, because the politicians elected at the time were campaigning on using the lower interest rates of the Euro to fuel government funded jobs and projects. The more conservative politicians, who would have maybe had the foresight to leave, were elected out of office by the people.
aikah 11y ago
> Game theory can't explain the Greek crisis - the entire euro project is now in the hands of fate The euro(the money) isn't born out of any necessity, it's purely an ideological project. So it's no surprise it is destined to fail. The only question now is, will it fail peacefully or not?
- bduerst 11y ago
  The euro is necessary for the E.U. to remain economically competitive internationally. The problem lay in the implementation, and not mandating a fiscal policy for membership (e.g. something similar the austerity measures). "Game Theory" in the context of this article is assuming that all countries on the Euro will rationally avoid mutual destruction. To do that, they all need to agree to the fiscal policies that would have prevented Greece and others from getting to the point that they're at now. But that's not happening - there doesn't appear to be a universal fiscal policy for the Euro in sight and they're heading for mutual destruction (i.e. the countries are not behaving rationally and game theory doesn't apply).
  - natrius 11y ago
    The euro does come with a mandate for fiscal policy. It just isn't enforced since so few countries have been able to abide by it. https://en.wikipedia.org/wiki/Maastricht_Treaty#The_Maastricht_criteria https://en.wikipedia.org/wiki/Maastricht_Treaty#The_Maastric... What would you suggest as the enforcement mechanism for such a mandate? You can't kick a country out of the currency.
  - aikah 11y ago
    > The euro is necessary for the E.U. to remain economically competitive internationally That's bull. Norway, UK and others are doing pretty fine and they do not have the euro. France,Spain,Italy,and Greece are a complete disaster,only Germany is doing really well and it's clear it has nothing to do with the euro. > The problem lay in the implementation, and not mandating a fiscal policy for membership (e.g. something similar the austerity measures). Oh yeah, Euro is broken , so what do when need? more Europe, more power in the hands of a few ... no we need to get rid of that stuff asap and less concentrated powers. There was no need for a monetary union. At all. It didn't bring back all the industries, it didn't create jobs (10% unemployment in my country,...) , it served no purpose at all.
gull 11y ago
The euro is one such project. It was known in advance that it couldn't work. Isn't it a bit extreme and possibly false to claim this? Was there a study that the euro could not work, followed by a conscious decision to pursue it nonetheless?
- igravious 11y ago
  That's hardly the only sentence of that type in the article. In fact, I disagree with quite a number of his starting premisses in the article. For a philosopher he fails pretty hard at argument construction. One may ask oneself why such failure. Sloppiness? Carelessness? Being agenda-driven? Ignorance? Hmm, none very pleasant. The whole article is far too simplistic, lacking in nuance, far too reductive. It would benefit from attention to detail. But then it couldn't be quite as dramatic, excitable and voluble. Some, such as the UK, doubted the € was workable -- but as the project is still in progress, as can be attested by the denominations of the accounts and coin of many a person, we still have to wait and see. Whereas some said that the conditions for entry mitigated the risks of failure. As things stand, the UK is right, the project will not succeed -- given the current conditions and economic trajectories. But, and it's a big but (hmm, never thought I'd write that clichéd phrase), maybe the conditions for the project to work shall be put in place. I, for one, certainly hope so.
- ars 11y ago
  Yes actually. When the Euro was first proposed I read tons of analytical articles showing how historically unified currencies never worked. Then others said "But Euro is different" never making it clear what's different about it. I bet if you searched old newspapers and magazines you would find plenty of articles.

24 points by steve19 11y ago

Natsu 11y ago

This says we can't use game theory to analyze this situation, but the only argument given in support is that humans aren't rational. "Irrational" (or otherwise emotional) strategies are by no means outside of the analysis of game theory. It's well known that by "irrationally" eliminating one of your choices, you can push your opponent into different options. For example, take this infamous episode of split or steal: https://www.youtube.com/watch?v=S0qjK3TWZE8 https://www.youtube.com/watch?v=S0qjK3TWZE8 One side makes a choice to go with perhaps the most "irrational" choice. But if you think about it for a bit, it's obvious that they end up guaranteeing the better choice for both parties by being less greedy than they might be. Anyone interested in the topic of rationality as it pertains to game theory might also like reading this: http://www.dklevine.com/archive/refs4375.pdf http://www.dklevine.com/archive/refs4375.pdf

bduerst 11y ago
Well said - the point the article missed is that the politicians in the E.U. are still behaving rationally, even if the countries are not. If the politicians agree to an austere fiscal policy with the Euro, it will mean setting their economy back in a very visible manner and jeopardize their re-election chances. The countries in the E.U. are still very nationalized, and competing political incumbents will be able to spin the policies as sacrificing their own country for someone else's mistakes. The politicians are still acting within their best interests to keep their jobs, even if that means sinking the Euro.
iofj 11y ago
Game theory works fine. Tsipras simply blinked. The power of Greece's argument was that in a case of a Greek default, the EU could either do their current QE * 30 for a month or two, paying all of it to Greece's lenders (like they did in 2008), or face nearly all regional banks going bankrupt. Discussions weren't going well. The EU froze most of Greece's bank accounts, and ... then Tsipras simply gave in, seemingly getting very little in return.

com2kid 11y ago

The amount of money here seems so laughable. The EU is crippling Greece, removing their ability to ever restructure or become a healthy economy, over what is piddling amounts of money. Maybe I am just terrible at reading charts, but it seems to me that based on https://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state https://en.wikipedia.org/wiki/Federal_taxation_and_spending_... the US spends hundreds of billions of dollars per year supporting those states that aren't "profitable". The US would fall apart very quickly if the federal government insisted on handing out loans and forcing the cancellation of aid and welfare programs in states that needed help the most.

computer 11y ago
What's at stake is not just the debt of Greece, but also Italy, Spain, and possibly others. Forgiving Greece part of its debts sets a precedent for those countries, raising the stakes greatly.
- com2kid 11y ago
  It is a hard problem. Forgiving the debt once is likely the right thing to do, but if you keep doing it, what is to prevent countries from just never paying at all? The sorts of restructuring plans that are put into place are designed to solve this problem, but I think whoever designed them is a sadist. It is said you cannot spend your way out of a recession (and I'd agree that one off projects that don't kick start a continued source of income don't work), but you also cannot make so many budget cuts that no one in the country has a job, or a house, or a support network of any kind. Zero tax revenue does not make for a stable government. (It does make for a really corrupt one though, and a much worse type of corruption than what Greece had before)
  - benmccann 11y ago
    If debt is forgiven or defaulted upon, then it becomes harder to borrow in the future (i.e. they must do so at higher interest rates to account for the risk). If countries never paid their debt then no one would loan to them or would loan only at astronomical interest rates.

powertower 11y ago

Its amazingly simple how entire countries can be taken over like this... Step 1. Bring foreign banks into country and proceed to make loans that are known obviously to be non-repayable. No one says "no" to free money. Step 2. Keep doing this until a debt crisis is reached. Step 3. Have the bank-and-currency related foreign country and/or entity create a "bailout" package that fixes the foreigner bank ledgers. It does nothing else, there is no relief except to the foreign banks. Step 4. You now own that country, its resources, and all the people in it. You just bought it.

bpodgursky 11y ago
Greece is a free country and free to default. They weighed the tradeoffs and decided it would end poorly, and a (so-called) "humiliating" deal was better than Euro exit. Nobody is threatening Greece with military action should they not pay their debts. The fact is, they got a free ride for a couple decades on free money. They can take it and set out on their own, or pay lip-service to those debts (realistically, it's not going to get paid back fully in any outcome). It is a sovereign nation and can choose what deals to make, without your help.
- danharaj 11y ago
  Greece is a country with large government problems. And the government is not what pays the price for this structured deal. The people do. It is very convenient to assert that Greece is a free country where the people are in charge. If you want to blame someone for their misfortune, interpret past events so that it looks like they inflicted it on themselves. > Nobody is threatening Greece with military action should they not pay their debts. It should be quite obvious in 2015 that military action is not the only way nations can destroy other nations. For example, forcing them via a corrupt and disconnected government to pay into an unsustainable financial settlement until they are bled dry and peeled down to the bone is one way you can destroy a country. Why do we equivocate governments, states, and countries? The country of Greece suffers for the sins of its state, executed by its corrupt and inept government.
  - 11y ago

wmil 11y ago

A Greek exit was the right solution in 2005, in 2010, and again in 2015. It won't happen so presumably we'll be talking about this again in 2020. It's amazing how correct the UK "No" campaign was.

bduerst 11y ago
It was impossible for Greece to exit, because the politicians elected at the time were campaigning on using the lower interest rates of the Euro to fuel government funded jobs and projects. The more conservative politicians, who would have maybe had the foresight to leave, were elected out of office by the people.

aikah 11y ago

> Game theory can't explain the Greek crisis - the entire euro project is now in the hands of fate The euro(the money) isn't born out of any necessity, it's purely an ideological project. So it's no surprise it is destined to fail. The only question now is, will it fail peacefully or not?

bduerst 11y ago
The euro is necessary for the E.U. to remain economically competitive internationally. The problem lay in the implementation, and not mandating a fiscal policy for membership (e.g. something similar the austerity measures). "Game Theory" in the context of this article is assuming that all countries on the Euro will rationally avoid mutual destruction. To do that, they all need to agree to the fiscal policies that would have prevented Greece and others from getting to the point that they're at now. But that's not happening - there doesn't appear to be a universal fiscal policy for the Euro in sight and they're heading for mutual destruction (i.e. the countries are not behaving rationally and game theory doesn't apply).
- natrius 11y ago
  The euro does come with a mandate for fiscal policy. It just isn't enforced since so few countries have been able to abide by it. https://en.wikipedia.org/wiki/Maastricht_Treaty#The_Maastricht_criteria https://en.wikipedia.org/wiki/Maastricht_Treaty#The_Maastric... What would you suggest as the enforcement mechanism for such a mandate? You can't kick a country out of the currency.
- aikah 11y ago
  > The euro is necessary for the E.U. to remain economically competitive internationally That's bull. Norway, UK and others are doing pretty fine and they do not have the euro. France,Spain,Italy,and Greece are a complete disaster,only Germany is doing really well and it's clear it has nothing to do with the euro. > The problem lay in the implementation, and not mandating a fiscal policy for membership (e.g. something similar the austerity measures). Oh yeah, Euro is broken , so what do when need? more Europe, more power in the hands of a few ... no we need to get rid of that stuff asap and less concentrated powers. There was no need for a monetary union. At all. It didn't bring back all the industries, it didn't create jobs (10% unemployment in my country,...) , it served no purpose at all.

gull 11y ago

The euro is one such project. It was known in advance that it couldn't work. Isn't it a bit extreme and possibly false to claim this? Was there a study that the euro could not work, followed by a conscious decision to pursue it nonetheless?

igravious 11y ago
That's hardly the only sentence of that type in the article. In fact, I disagree with quite a number of his starting premisses in the article. For a philosopher he fails pretty hard at argument construction. One may ask oneself why such failure. Sloppiness? Carelessness? Being agenda-driven? Ignorance? Hmm, none very pleasant. The whole article is far too simplistic, lacking in nuance, far too reductive. It would benefit from attention to detail. But then it couldn't be quite as dramatic, excitable and voluble. Some, such as the UK, doubted the € was workable -- but as the project is still in progress, as can be attested by the denominations of the accounts and coin of many a person, we still have to wait and see. Whereas some said that the conditions for entry mitigated the risks of failure. As things stand, the UK is right, the project will not succeed -- given the current conditions and economic trajectories. But, and it's a big but (hmm, never thought I'd write that clichéd phrase), maybe the conditions for the project to work shall be put in place. I, for one, certainly hope so.
ars 11y ago
Yes actually. When the Euro was first proposed I read tons of analytical articles showing how historically unified currencies never worked. Then others said "But Euro is different" never making it clear what's different about it. I bet if you searched old newspapers and magazines you would find plenty of articles.