Government and Game Theory

Game theory recognizes two basic types of games: finite and infinite. A finite game is one in which one player’s gain is another’s loss. This is also called a zero-sum game, because resources are neither created nor destroyed; they are simply shifted from one player to another. An infinite game is one in which the purpose is not victory, but to keep the game in play.

American government embodies elements of both types of games. In essence, it is both a finite and an infinite game.  However, the United States government is also another sort of “game” entirely, one which traditional game theory has never explored. In many respects, American government is a “negative sum game.” This term refers to a situation in which the government utilizes massive resources (read: our tax dollars) to create goods that are not desired by the public supposedly being served.

The Government as a Finite Game

In some rather obvious ways, the United States government resembles a zero sum game. This is certainly the case with the selection of the primary personnel in the legislative, executive, and judicial branches. Key players are either elected or appointed, and at the highest levels of power, the number that can be so chosen is limited. One individual’s ascension to power is therefore another’s loss.

The example of filling key positions is a rather surface element of the government. However, in many things that it does, the government behaves as though there are limited resources to allocate. Those who receive more are winners in this game, and those who receive less are losers.

The Finite Game in Action: The Sugar Subsidy

The periodically debated sugar subsidy is an example of legislative action that embodies the view that the government must elevate one player in the game at the expense of others. Americans pay up to 90% more for sugar than do citizens of other countries. This is a direct result of the sugar subsidy, which in effect guarantees the sugar industry profits in excess of what they could command in a free economic market. The sugar producers win, and the consumer loses. Actually, society at large loses because the resources of the sugar producers, which in a free market would be put to uses that the society demands, are now artificially locked into the production of sugar.

Banking Regulations as a Finite Game

The debate about banking regulations is another example of the finite game at work. Banks, which charge far higher fees than credit unions, have repeatedly tried to persuade Congress to limit the public’s ability to access credit unions. In denying the consumer free choice of monetary institutions, Congress would make banks winners, and credit unions and the consumers they serve losers.

The banking and sugar industry examples illustrate some key features of government as a finite game. In both cases, special interests wish to destroy the one societal feature that makes financial games “fair” – an open marketplace that allows the consumer free choice.

The Government as an Infinite Game

Sometimes, however, the government acts to create resources. Instead of dividing a pie among the players, as in the zero sum game, the government actually makes the entire pie bigger, so there are more resources for all.

This happens when the government creates a value that individuals could not create on their own. The government, because of its size, can take advantages of economies of scale that are simply not available to smaller groups of people.

The Infinite Game in Action: National Defense

National defense is an example of government acting as an infinite game. A centrally controlled military is efficient and capable, and poses a threat to antagonists. The very existence of such a military helps ensure that foreign powers do not attempt to invade the United States.

Individuals with arms, determined to protect their own homes and communities, would not pose the same threat to foreign powers. Therefore, the national defense makes every citizen safer in his person and possessions.

National Parks and Scientific Research as Infinite Games

The National Park System also illustrates the government engaging in an infinite game.  The system preserves the natural beauty of the American landscape and protects it from exploitation by profiteers. A resource is created in the form of expanses of wilderness that no individual could hope to protect on his own. Profiteers, of course, might consider themselves the losers in a zero sum situation, but since they have no inherent right to destroy private lands, that argument does not logically apply.

The government can also utilize economies of scale to play infinite games in the realm of scientific research. No single person could fund machines like the superconducting supercollider. Furthermore, because in infinite games the government does not have a profit motive, it can serve as a powerful overseer of private research. The FDA verifies that claims for new drugs are accurate. In this way, the government protects individuals from spurious claims. Individuals on their own do not have the resources to create the value that guaranteed drug therapies bring to their lives.

The Judicial System as an Infinite Game

Finally, the existence of criminal and civil courts exemplify the government as an infinite game. Although each case involves winners and losers, the system itself is a vast resource created by government for the benefit of its citizens. Without such a system, individuals would have no redress for wrongs save vigilante action, which lacks fairness and protections for the accused.

The Government as a Negative Game

Unfortunately, in many cases the government plays a negative game in which it acts to create goods that the public does not want. Sometimes, these laws benefit special interest groups. The negative game can also result from inefficiencies of scale.

Corporate Welfare

Archer Daniels Midlands, a food processor, receives tens of millions of dollars each year from the government. The purpose of the money is to fund ethanol, an automotive fuel derived from corn. Ethanol use decreases the production of smog. Nevertheless, government funding of the fuel is a negative game. There are far more efficient and guaranteed ways to reduce smog.

Instead of giving ADM vast sums, the government could use the money to replace old cars with new ones. The latter plan would result in much greater reduction of smog for the same dollar value. By choosing instead to give the money to ADM, the government is playing a negative game: mis-using tax dollars so that value is destroyed rather than created.

Rural Electrification

The Rural Electrification District is another example of the negative game. It once played an important role in expanding the availability of electrical service to rural areas. Now that all such areas are served, there is little reason for its existence. Yet it continues on, funded by tax dollars, providing a service that the public no longer needs.

Healthcare

The on-going debate over a the Affordable Care Act and other healthcare reform legislation can be thought of as a negative game, as well. A majority of Americans appear to support healthcare reform. There is no doubt that our health system has its flaws. Nevertheless, the way in which the government proposes such reform can serve to destroy value for the individual. By setting up nationwide rules about required coverage and services, the government will raise costs … costs that some people would prefer not to incur.

Some individuals may, for example, wish not to pay for treatments such as Viagra, which are lifestyle-enhancing but not lifesaving. A free market would allow such people to choose a plan that suits their interests and needs. Government regulation, however, will deny them that choice, therefore creating a good (uniform rules for all HMOs) that they would much prefer to live without.

Social Security

Fabulous inefficiencies of scale also result in a negative game. Social Security, on its surface, is zero-sum. Money is removed from certain persons and given to others. However, the amount of money taken is far in excess of that given away. Administration of the program costs untold millions, perhaps billions of dollars. Too, because today’s worker funds not his own retirement but the current benefits of today’s retirees, a shrinking population base produces a negative-sum result. According to U.S. News and World Report, those born in 1962 will receive in benefits a mere one-fourth of the value that has been taken from them.

Why Government Engages in Negative and Finite Games

Depending on the function under discussion, the American government has elements of many types of games. It can serve in finite, infinite, and negative capacities. Since finite and negative games both involve losers, one would hope that the government would engage in mostly infinite games: activities that promote the collective good, which produce a “larger pie” for everyone.

As a goal, the infinite game is laudable. However, it may not be feasible. A British philosopher, looking at the American system of government in its genesis, made a sage prediction that appears to be coming true in this generation. “Democracy,” he said, “can only survive until a majority of the people realize they can vote themselves largesse from the public treasury.” In other words, the population is learning how to use the government in order to force one group to devote its resources to others.

The tax code and other legislation demonstrate the truth of the philosopher’s prediction. The government takes money from those that have it, and gives it to those without. This happens with increasing frequency in American life. Those who work are forced to support and fund those who do not. Those who are not disabled or disadvantaged are forced to expend resources to allow access for those who are.

The Role of Special Interests

The government does not operate in a vacuum. Such programs are created at the demand of special interests, and those special interests view the government primarily as a finite game. The public, in essence, has figured out that it can vote itself largess from the government. Special interest groups are multiplying, pressuring the government to do their bidding. Those who object are often demonized in the press as not wanting to help the poor, the hungry, and the unfortunate. The scathing criticism silences opposition, giving government little alternative save to respond to the cries for action of the special interests.

Government works best when it plays an infinite game, when it utilizes economies of scale to create resources that individuals could not otherwise create on their own. However, public pressure acts to force legislation that is zero-sum in nature, creating instead classes of people who are winners and losers in the game. Until the public realizes that the treasury should be used for the benefit of all, and not just a few, American government is likely destined to remain, in large measure, a finite game.