A Beautiful Mind has it Right – the Nash Equilibrium shows the power of working together

The following post was written seven years ago, but holds true even more so today with the recently passed infrastructure bill as well as the need to work together in our global economy on trade, environmental, and human rights issues.

One of my favorite Russell Crowe movies is “A Beautiful Mind” directed by Ron Howard about the schizophrenic Ph.D. in economics, John Nash. If you saw the movie, you know that Nash won the Nobel Prize in Economic Science for his theory which became known as “Nash Equilibrium” that was used in game theory, economic development and other areas. In short it was all about maximizing everyone’s gain. From Wikipedia, this example might help define what Nash’s theory was all about:

“Stated simply, Amy and Will are in Nash equilibrium if Amy is making the best decision she can, taking into account Will’s decision, and Will is making the best decision he can, taking into account Amy’s decision. Likewise, a group of players are in Nash equilibrium if each one is making the best decision that he or she can, taking into account the decisions of the others in the game.”

The reason I raise is this is that we can all benefit more if we work with each other rather than against. If we all try to win the game, whatever that is, we will actually end up in a collective lesser state. This is a key reason why collaboration is vital to the success of most endeavors, including and especially politics. But, let me use a real example of how a region can benefit more economically through collective partnering under Nash Equilibrium.

In Charlotte, North Carolina, we have a terrific new “transmodal distribution facility” that is near the airport. The facility is adjacent to and incorporates railroad train tracks in the distribution process. It is also very conveniently located to three interstates (I-85, I-77 and I-485) and a fourth four lane highway (US 321) which connects to I-40 about forty miles away. If you know your North Carolina geography, you will know that Charlotte is right on the border with South Carolina and several towns in SC are actually included in the Metro Charlotte area.

A key reason for its success is more than the rail, highway and air access. Charlotte is also a convenient driving distance from ports in Charleston, South Carolina, Wilmington, North Carolina, Savannah, Georgia and Jacksonville, Florida. With the deepening of the Panama Canal set to be complete in 2015, bigger ships can sail from Asia-Pacific (China, Vietnam, Indonesia, Japan, etc.). Yet, unless these ports are dredged to become deeper, the bigger ships cannot enter the harbors there and will sail past. Activity has begun in various stages, but here is where Nash Equilibrium should come to fruition.

The states of North and South Carolina (and Florida and Georgia) should work collectively along with business and the Federal government to deepen all ports noted above. We will all benefit more greatly if we invest together. This would be true on other economic investments where we should work less at cross purposes and compete as a region. I recognize there have been pockets of success where this has been done, but to me, with the significant cost of dredging these harbors and the stalemate in fighting in Washington where Congress is moving money around to fund a very limited transportation budget for infrastructure, this a keen example of why we must work together to benefit more.

Former Transportation Secretary Ray LaHood and Former Pennsylvania Governor Ed Rendell have been promoting a bipartisan investment in our infrastructure, each representing the major political parties. LaHood said this is the best jobs program we could possibly have. And, as I have said before, borrowing money to invest in assets, is different from borrowing money for operations. This is where we need to spend our money as the collective return on investment is huge.

So, to the state legislatures and Congress, let’s get with it and work to invest in America’s ports and roads. As Rendell said, if we don’t deepen our ports, the ships will sail right by us to Canada. John Nash indeed had a beautiful mind. We should follow his direction to maximize our collective gain.

Ports, trade and jobs

In Steven Solomon’s book “Water: the Epic Struggle for Power, Wealth and Civilization” he notes two of the greatest water decisions that helped make America a global power are the building of the Erie Canal and Panama Canal. Both gave the US the ability to conduct trade more easily. I mention these decisions as many east coast US ports have dug deeper channels to permit larger ships to enter their harbors. And, non-port cities have developed trans-modal distribution facilities to get goods on and off planes, trains and trucks often going to or from ports.

The leaders of ports and these trans-modal facilities have concerns over the tariff wars that are beginning because of the short-sighted decision of the US President. While some industries will see job increases, peripheral and other industries will see job losses. But, the ones who see red flags are those who handle the distribution of goods.

The port leaders are concerned the return on the investment to dig deeper ports may be watered down. But, less trade also means fewer truck drivers, rail workers, dock workers and distribution handlers. This is on top of industries specifically hit by tariffs.

Nick Hanauer, a venture capitalist spoke on a Ted Talk about his frustration that business leaders called themselves job creators. He asked “Do you know who creates jobs? Customers.” It should be noted the first and third Presidents who witnessed the most jobs were Bill Clinton (22.9 million) and Ronald Reagan (16.1 million). Per David Smick, an economist who worked for both, this was in large part due to their emphasis on free trade.

Tariffs hurt the wrong people. They may help some targeted industries, but they end up hurting far more employees than they help.They do hurt business owners, but in the end, they reduce the number of customers. And, fewer customers cause fewer jobs. The math is that simple. Any decision that adds to customers is job accretive, while the converse is also true. And, one thing is certain – we cannot shrink our customer base to greatness.

A Beautiful Mind Had it Right – Nash’s Theory still applies today

One of my favorite Russell Crowe movies is “A Beautiful Mind” directed by Ron Howard about the schizophrenic Ph.D. in economics, John Nash. If you saw the movie, you know that Nash won the Nobel Prize in Economic Science for his theory which became known as “Nash Equilibrium” that was used in game theory, economic development and other areas. In short it was all about maximizing everyone’s gain. From Wikipedia, this example might help define what Nash’s theory was all about:

“Stated simply, Amy and Will are in Nash equilibrium if Amy is making the best decision she can, taking into account Will’s decision, and Will is making the best decision he can, taking into account Amy’s decision. Likewise, a group of players are in Nash equilibrium if each one is making the best decision that he or she can, taking into account the decisions of the others in the game.”

The reason I raise is this is that we can all benefit more if we work with each other rather than against. If we all try to win the game, whatever that is, we will actually end up in a collective lesser state. This is a key reason why collaboration is vital to the success of most endeavors, including and especially politics. But, let me use a real example of how a region can benefit more economically through collective partnering under Nash Equilibrium.

In Charlotte, North Carolina, we have a terrific new “transmodal distribution facility” that is near the airport. The facility is adjacent to and incorporates railroad train tracks in the distribution process. It is also very conveniently located to three interstates (I-85, I-77 and I-485) and a fourth four lane highway (US 321) which connects to I-40 about forty miles away. If you know your North Carolina geography, you will know that Charlotte is right on the border with South Carolina and several towns in SC are actually included in the Metro Charlotte area.

A key reason for its success is more than the rail, highway and air access. Charlotte is also a convenient driving distance from ports in Charleston, South Carolina, Wilmington, North Carolina, Savannah, Georgia and Jacksonville, Florida. With the deepening of the Panama Canal set to be complete in 2015, bigger ships can sail from Asia-Pacific (China, Vietnam, Indonesia, Japan, etc.). Yet, unless these ports are dredged to become deeper, the bigger ships cannot enter the harbors there and will sail past. Activity has begun in various stages, but here is where Nash Equilibrium should come to fruition.

The states of North and South Carolina (and Florida and Georgia) should work collectively along with business and the Federal government to deepen all ports noted above. We will all benefit more greatly if we invest together. This would be true on other economic investments where we should work less at cross purposes and compete as a region. I recognize there have been pockets of success where this has been done, but to me, with the significant cost of dredging these harbors and the stalemate in fighting in Washington where Congress is moving money around to fund a very limited transportation budget for infrastructure, this a keen example of why we must work together to benefit more.

Former Transportation Secretary Ray LaHood and Former Pennsylvania Governor Ed Rendell have been promoting a bipartisan investment in our infrastructure, each representing the major political parties. LaHood said this is the best jobs program we could possibly have. And, as I have said before, borrowing money to invest in assets, is different from borrowing money for operations. This is where we need to spend our money as the collective return on investment is huge.

So, to the state legislatures and Congress, let’s get with it and work to invest in America’s ports and roads. As Rendell said, if we don’t deepen our ports, the ships will sail right by us to Canada. John Nash indeed had a beautiful mind. We should follow his direction to maximize our collective gain.