I generally don’t post on political topics, but this is a big one…
Today, as I’m sure it isn’t news to you anymore, the House of Representatives passed the Economic Stabilization Act of 2008 (H.R.1424), which includes $700 Billion to bailout the troubled financial institutions, plus aproximately $110 Billion in tax cuts.
Go read the bill or it’s summary here: http://financialservices.house.gov/
When I started writing this post I had this long post explaining reasons of why this bill is so bad. But, as I thought about it more, it became really clear that this solution just may work afterall.
I can thank the movie A Beautiful Mind (and more precisely John Nash and the Nash Equilibrium theory) for giving me the insight to this problem and solution. There is a scene in the movie where John and a few classmates are in a bar, and these girls walk in. One is a beautiful blonde and the others are just “average” girls. All the guys want to try for the blonde. But, then John has a revalation that if they all try for the blonde they will all ultimately fail. Once rejected by the blonde they will try for the others and get rejected as well, since no one likes to be second choice. But if they all go for the average girls, no one gets rejected and they all win. Or as they state in the movie, they “all get laid.”
What’s good for the individual isn’t always good for the group. But, what’s good for the group is generally good for the individual.
At first glance the bill doens’t make sense. We are rewarding those that are failing, and paying for it from those that aren’t. It’s almost like the failures are winning and those that aren’t failing become failures. But!…
If we apply the “Nash equilibrium” theory to this problem we get the following…
By bailing out the troubled financial intitutions we keep them from going bankrupt. And, by helping change the terms of people mortgages we keep them from getting foreclosed. By doing this week keep money flowing, and prevent the economy from crashing. Since we prevent it from crashing, everyone ultimately wins.
If we were to let them go bankrupt and foreclosed, which would be faire to do after all. All we would end up with is a failing economy in a downward spiral, and everyone would ultimately fail.
In the course of starting to write a rant and contemplating the failure of this bill, I’ve come full circle in the matter of minutes. Now, lets hope this is correct and this works.