Nash, Lichauco, and Steering a Post-EDSA Economy

by James Matthew Miraflor

Deaths of great intellectuals diminish us all, but more so the scholars who are the main conduits of their work. In a span of a few days, students of the Philippine economy are shocked by the demise of two important paragons of the field – first, nationalist economist Alejandro Lichauco, and then game theory pioneer John Nash. The loss is simply incalculable.

Separated by miles and interests, the two celebrated economists used their Ivy League training to interpret and shape a world in conflict. Both are products of the Cold War, yet their ideas have persisted in a modern age of computer-driven, high-volume stock trading and post-WTO regional trade partnerships. While Nash is known mostly in microeconomics textbooks and Lichauco via word-of-mouth stories of Marcos dictatorship survivors, both have made their in impact in the minds of the Filipinos who keenly follow the country’s economic development.

Anyone interested in Philippine’s escape from the so-called “Middle Income trap” cannot afford to ignore the lives and contributions of these two illustrious economists. It is now more than ever – in a world of uncertainty, hegemonic overtures, and political machinations – that we should review the lessons of Nash and Lichauco. Game theory and nationalist economics are indispensable items in our toolbox as we chart the Philippine’s economic future amid multidimensional issues of China’s territorial expansionism, the Mindanao conflict amid ASEAN geopolitics (read this, and this), and America’s seductive offer for trans-Pacific trade.

Games, Politics, and Society

Should Syria continue its costly war against terrorism? Did Myanmar's junta make a good choice in letting Aung San Suu Kyi campaign for a parliament seat? Why did Ahmadinejad decide to disclose new nuclear projects amid apparent opposition of the US and NATO countries on its nuclear program? How will the Philippine Senate vote on the impeachment case of the Supreme Court Justice given the President's obvious preference?

The political arena is defined by such decisions on conflict and cooperation involving civilians, political parties, religious groups, social movements, corporations, and even revolutionary groups. The process with which one can arrive at a rational, well-thought-of decision in politics seems to be overwhelming, given the complexity of individual and social behavior. Several variables have to analyzed, and possible scenarios have to be completely scanned. To make things worse, the cost of wrong decisions can take a toll on lives, properties, and positioning. With all the complexity involved, is there a tool one can actually use to make political decision making easier?

Here comes "Game Theory" - a subfield in applied mathematics that deals with modelling "strategic situations" i.e. situations wherein an individual's success in making choices depends on the choices of others (Myerson, 1991). Emerging from the field of economics, game theory has been increasingly applied to analysis of political situations - gaining prominence during the Cold War between the United States and Soviet Union.

But game theory's application is not just limited in political science or economics. In fact, social morality and ethics may have evolved from social conventions that are, as will be explained later, "Nash equilibrium". For starters, check out the Saturday Morning Breakfast Cereal (SMBC) comic below: