Where is the Tipping Point? – Barry Ritholtz/Big Picture
“I am not yet in the camp of those who believe Pax Americana has ended. But we must recognize that this worst-case scenario is certainly a realistic possibility…The recent actions from this administration are raising a variety of risks. I first mentioned the increasing probability of significant policy error back in February. Then again, after April 2nd (“Liberation day”). My question for readers today is: “Where is the tipping point?” At what point do the chosen economic and political policies put into place by the government become an avoidable error, a self-goal, accidentally pushing the United States into a recession?”
Crashing the Car of Pax Americana – Ben Hunt
In this analysis, Hunt uses game theory to describe how the Trump Administration has shifted the US from a cooperative to a competitive political economic strategy. By only considering its own interests to the exclusion of others, the US has lost the trust necessary to optimize trade and strategic interaction with other countries. To its detriment, he adds, the US is stuck in a “prisoner’s dilemma game” with our trading partners that is reducing economic gains for all. Referring to Hunt’s essay, Ritholtz is less sanguine but acknowledges that Trump’s bargaining style is increasing the risk of recession.
Both perspectives have merit. The bad outcomes in the prisoner’s dilemma result from the fact that they are prevented from communicating with each other. Their source of information is a prosecutor trying to jail both of them. The prisoners could work out a better deal if they were able to communicate and negotiate with one another. Provided that the loss of trust Trump is causing is not permanent, so too can countries. They have done so before.
