Why a second-best economic approach might work in the short-term
Last week New York Times’ columnist, and author of the bestselling book “Too Big To Fail”, Andrew Ross Sorkin made an interesting comment and proposal about weapon regulation in the US, as a reaction to the terrible shooting of Parkland.
His proposal is not a call for regulation, in a time in which Washington has little interest in regulating the gun ownership. The disinterest is well explained by the lobbying efforts of NRA: to give a sense to Europeans of the proportion of this phenomenon, I would like to quote Fortune magazine.
“In the 2016 election, the NRA spent $11,438,118 to support Donald Trump and another $19,756,346 to oppose Hillary Clinton. That’s over $31 million spent on one presidential race.”
This amount of money can give us a glimpse of why President Trump is proposing to arm teachers, an idea that looks illogical and offensive probably to himself as well, but money speaks another language. And the lobbying investments must generate revenues in turn, so it does make perfect (although inconceivably horrible) sense. These numbers might also help us put into perspective the sudden move back that Trump did today on regulation.
Seeing regulation as impossible, in the short-term, mr Sorkin argued for an economic solution:
“Here’s an idea.
What if the finance industry — credit card companies like Visa, Mastercard and American Express; credit card processors like First Data; and banks like JPMorgan Chase and Wells Fargo — were to effectively set new rules for the sales of guns in America?
Collectively, they have more leverage over the gun industry than any lawmaker. And it wouldn’t be hard for them to take a stand.
PayPal, Square, Stripe and Apple Pay announced years ago that they would not allow their services to be used for the sale of firearms.”
Sorkin is no dreamer, his idea come from many private conversations with CEOs, which would not go on the record, but would be in favor of this.
After this shooting, as many of us, I started following the reaction of the students and the birth of the #neveragain movement.
I believe their efforts could be very effective, if directed not only towards Washington, but also in the direction suggested by mr Sorkin.
From an economic standpoint, and given the insider information quoted in the New York Times’ column, the credit card companies’ situation resembles a Game Theory basic scenario, that of the Prisoners’ Dilemma, obviously in a more complex form.
The dilemma states that prisoners can either confess a crime or stay silent. This table shows the payoffs, in terms of years of prisons, that each player gets, given the behavior.
From standard Game Theory we know that the two players will end up in the scenario where they both betray, because they are assumed to be perfectly rational and self-interested. This is a called a Nash Equilibrium, and reflects the dominant strategy, given the assumptions.
But there are two types of equilibria in this game: if they both stay silent, everybody is better off. This is a Pareto equilibrium, where no better single result is possible, without hurting the other player.
Let’s connect this to Sorkin’s proposal. The situation of the credit card industry can resemble that of the Nash equilibrium, where Visa, Mastercard etc are all players. Everybody keeps doing the bad thing, given that they expect the other players to do so.
Even though there might be an ethical incentive to change behavior (i.e. to stop making business with weapon firms), no company would move from there, because of the forgone earnings on sales.
However, this ethical incentive is not backed by an economic incentive. The numbers on that little table are not changing.
This takes us to a keyword: corporate social responsibility. If the public put enough pressure on the companies, and there is already an informal opening by the CEOs, it means that the forgone profits might be matched with the increasing unrest of public opinion.
What if the pressure of millennials gets redirected to bypass government and focused on the pipes that nourish the engine?
Would it be possible to move from a Nash equilibrium to a Pareto equilibrium, at least for the short-term? I obviously don’t have a straight answer and the problem is way more complex than Game Theory, but I believe it is worth trying, given the circumstances of public debate.
There is a momentum emerging, you can see it from this picture, that must be exploited.
While the #metoo movement is proving itself to be game-changer, I am deeply hopeful that it can be the right time for the #neveragain supporters to achieve, one way or another, change.