Introduction

Game Theory

Types Of Predatory Strategies

US History

New Policies

Our Goals

Contact Us
America’s economic policy has been guided from colonial times to present by two principles. One is a respect for capitalism. The second is a belief that all men are created equal. It is the combination of these policies that has made America’s economic system unique for it’s time and successful over time. America’s egalitarian economic policies have encouraged the distribution of wealth and the rise of the middle class as much as the Industrial Revolution. In modern times this policy has been further optimized using the mathematical modeling of game theory. Game theory views economic activity as a game with players in categories defined as consumers, labor, investor and business. Each player takes on individual strategies to optimize their game performance. Game theory modeling proves the principle that equal economic players operating on a level playing field have the highest long term economic growth. Liberal Capitalism is the philosophy that government must be proactively involved to keep the playing field level, to act as an impartial referee if you will. Government’s goal is to keep the minority of players from pursuing predatory strategies with minimum interference with the majority of players’ normal competitive strategies.

There are two forces in America that are pulling this policy apart. From the right are policy makers arguing laissez faire policy, that the marketplace is a self leveling playing field. They believe there should be minimum government oversight. There is a partial truth to the markets being self balancing in a highly diverse marketplace, one with many players in each of the previously mentioned categories. But when any of the player categories has a consolidated or reduced quantity of players the time before a self balancing event occurs is proportionally longer to the reduction ratio. When reduced to one, a monopoly, the markets will never self balance. And when a self leveling event finally does take effect, it will typically be through a company’s or a market’s collapse. The economic damage and market instability from a self leveling event is also proportional to the amount of consolidation in the player count. Here is the great contradiction of laissez faire policy; the main advantage of an industrialized economic system is economy of scale which implies a consolidated or reduced player count. So as industrial economies progress laissez faire policy becomes less effective. In contrast Liberal Capitalism becomes more effective as the economy needs the government’s role as referee to continue improving efficiency.

In the period before a self leveling event or if the self leveling playing field fails to take effect, wealth will continue to accumulate to the players pursuing predatory strategies. Their continued accumulation will eventually cause economic stagnation from the other disadvantaged players’ loss of wealth. This problem has caused the political left to adopt a policy that tries to implement “social justice” by re-tilting the playing field towards the disadvantaged players. This comes with its own set of problems including excessive regulation, government’s forced redistribution of wealth or even having government take ownership of corporations (socialistic policies outside the US). Although idealistic, this is in fact an over reaction to the problem and will cause economic instability from a still unbalanced playing field. By pursuing a balanced policy of Liberal Capitalism wealth will be distributed based on each player’s utility they provide to society. Liberal Capitalism’s end results are what some may consider social justice by having all members of society a meaningful player in the economic game.

Game theory and Liberal Capitalism (LC)
LC is a particular application of the mathematics of economic game theory to government policy. LC views economic activity as a game between economic players which can be categorized as consumers, business, labor and investors. The averaging of all players’ retained wealth plus their continued consumption is how the score is kept. Government’s role is as an impartial referee of the economic game and should try to minimize the direct control of capital or the markets. Government’s main policy goal is to prevent players from pursuing predatory strategies that are detrimental to long term economic growth. The idea of a “predatory strategy” is broader than just outright fraud and includes many more subtle strategies. This includes any strategy that keeps material information from other players that they are going to engage in a transaction with.

A key concept of Liberal Capitalism is that the economic game is ideally a “perfect information” game. That is, a game where all players are fully aware of each other’s strategies and the rules of the game. Prefect information stipulates that all players are aware of the pros and cons of any economic decision. In reality the economic game has all sorts of misinformation and misunderstandings about such things as the fair market value and an economic transaction’s effectiveness for its intended purpose. When players make economic decisions with less then prefect information it is statistically probably that it will be a poorer decision then a prefect information decision. This is not to say that players cannot make irrational decisions with prefect information but over time players tend to make more rational decisions with better information. The difference in information between players engaged in an economic transaction is capitalism’s inefficiency. Since it is government’s strategy to maximize economic activity, it is their role to try to mitigate knowledge difference between players without disrupting the market’s dynamics.

Typically one of the players of an economic transaction is a professional and generally having superior information. LC policy is that the professional in a transaction needs to be held to a curtain duty of responsibility to facilitate the proper utilization of the transaction by the other player. A “Caveat Venditor” or sellers beware verses Adam Smith’s “Caveat Emptor” or buyers beware. This policy typically manifests itself by requiring a full disclosure, return policy, warranty or other guarantees by the professional player in the transaction.

Liberal Capitalism Policies in American History
LC’s concept of a level playing and distributed wealth has as it roots the principle that all players are to be treated as equals. This concept is more familiar to Americans as “All Men Are Created Equal” uttered by Thomas Jefferson in the Declaration of Independence. This egalitarian view of society came from both philosophical and economic reasons. The Enlightenment Philosophy of colonial America’s did not like European aristocracy, seen as a hold over from feudal times. But just as important were the economic reasons. With large amounts of land that needed to be settled, land grants were relatively easy to obtain if settlers were willing to accept the risks of frontier life. This caused the distribution of wealth among many economic players and continued for the next 150 years through Manifest Destiny and the Homestead Act. Even as new economic players migrated into the US they were effectually given a starting piece of the economic pie.
It is notable that the high quality of arable lands in northern states leads to more egalitarian societies. This has to do with smaller farms being economic viable with less labor requirements. The denser populations also lead to earlier industrialization. But egalitarian societies in and of themselves form industrialized economies faster. Pennsylvania arguably had the most egalitarian policies of the thirteen colonies under William Penn and sons. This was at least part of the reason that Philadelphia rose as the largest city in Colonial America, beating out the rigid social structures of Puritan New England and slavery economies of southern states.

The smaller land holding of American Colonies contrasted to Spanish colonies that gave large land grants to Conquistadors to form Rancheros and kept wealth in the hands of the few. This can be traced to modernity in Latin America, to their economic problems and relatively weak capital systems. Here again it can noted that the poorer quality of arable land in Latin America partially dictated larger farms.

The agrarian economy needed little government oversight beyond Common Law.
Major Liberal Capitalism Events in American History

1.    Colonial Land Grants –William Penn and Others.
Most of Colonial America gave/sold relatively small land grants for agricultural and commercial purposes. This effectively distributed wealth among many economic players setting the stage of equal opportunity in the American mindset.

2.    US Constitution –Thomas Jefferson 1787
Thomas Jefferson and Benjamin Franklin expoused Republican virtues of individual equality and egalitarian policy. Their philosophy set the framework of equal economic players.
Preamble to the US Constitution
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

3.    The Federalist Papers –Alexander Hamilton and Others, 1788
Hamilton and the Federalist expounded on a strong federal government active in the governance of commerce. Although bitter political enemies of Thomas Jefferson and the Republicans it is one of histories great ironies that the combination of their ideals formed a greater solution. It is the balanced merging between "Republican virtues" and Federalist policy that formed Liberal Capitalism policy in the United States.

4.    Homestead Act – Abraham Lincoln, 1862
This continued the policy of government distribution of land to many economic players and further solidifying American ideals of equal opportunity and distributed wealth.

 

5.    Progressivism – T. Roosevelt, W. Taft and W. Wilson
Antitrust enforcement, worker rights and consumer protection (Federal Trade Commission Act -1914). Liberal Capitalism and Progressivism share many of the same policies and goals. The differentiating aspects is that LC is mathematical derived to maximize economic activity were Progressivism was driven by social injustice. Therefore LC has a broader definition of a predatory strategy then what many would perceive as unethical. LC views the need for the forced redistribution of wealth as an indication of failed policy were Progressives view forced redistribution of wealth as a valid tool of economic policy.

 

 

6.    The New Deal – Franklin Roosevelt 1933 – 38
Although the New Deal policies were a mix of several policies including public works progams, LC policies included the creation of the SEC (investors), NLRA for Fair Labor Standards Act (labor) and FDIC/Glass-Steagall Act (banking). Public works programs are not associated with LC philosophy but are accepted for curtain situations.

Liberal Capitalism policy and its effect  (still in outline format)

A properly balanced economic playing field will have the affect of balanced wealth among players proportional to their economic utility or the utility to society. Disproportional wealth or government’s forced redistribution of wealth is an indication of failure of managing the playing field.

1.    The economic game is won only as long as it is being played. Disproportional wealth, wealth in excess to a player’s utility to other cooperative players, ultimately causes the economic game to stagnate. If wealth continues to accumulate to a few players, all other players are removed or marginalized from the game. If unchecked by social upheaval, this will continue until there is total economic collapse. The game of “Monopoly” is a simple and extreme example. Who wins the game? Nobody if economic activity stops when a single player accumulates all wealth.

2.    Although there is natural variability in economic markets. Many economic boom and bust cycles are the result of a mass of players pursuing predatory strategies. A level playing field from Liberal Capitalism will increase economic stability.

3.    Theoretically, if the rules of the game are perfectly balanced all economic gain is from increased efficiency in player’s strategies without detrimental effect to other cooperative players. Only less efficient competitive strategies will suffer.

4.    All players in the economic game will have strategies with other players that are simultaneously competitive and cooperative. The seller tries to price products as high as possible (competitive) while providing a product the buyer values higher than the price (cooperative). While competing sellers have obvious competitive strategies, they also have various cooperative strategies. One is avoiding unprofitable price competition, typically by not disclosing the price to third parties. Another is seeking advantageous government policy to their industry. While there are some legitimate cooperative strategies that normally competitive players can implement, industry standards for example, any cooperative strategies (among normally competitive players) need government oversight.

5.    Although short term economic gain maybe measured if predatory strategies are allowed as capital flows from one player to another. This causes several problems in the long term. One, the inefficient strategy prevents more efficient strategies from being implemented by other players .Second, the capital accumulated becomes disproportional. Finally, there is bust cycle causing economic disruption.

6.    Require a curtain amount of visibility for economic transactions (commercial) to make it difficult for players to implement predatory strategies.

7.    Government proactively addressing minor as well major infractions of economic players with a timely and proportional response. To maximize economic activity, a quickly imposed “penalty” or even a warning is better than lengthy criminal action as long as it stops the predatory strategy.

8.    It is better for government to have a clear rulings of permissible strategies even if they are less then optimal then vague rules were players are unsure of games rules.

9.    Policy should be directed at preventing predatory economic strategies by all players.  Government should not be picking winner or loser economic players.

10.  Government should not attempt to manipulate the capital markets directly via taxes, tariffs or price controls unless there is proven lack of compliance by players, typically foreign.

11.       Free trade (low/no tariffs) with foreign intities is good but requires trading countries to adopt similar games rules for an international level playing field. Less developed countries can be handicapped but the government must be implementing the policy of Liberal Capitalism.

12.      It is human greed for economic players to pursue predatory strategies

13.       Capital markets are maximized when players avoid predatory strategies

14.        It is in the interest of players to tilt government policy in their favor, thus allowing predatory strategies. This is detrimental to overall economic activity but may create short term economic activity as players react to the “opportunity”.

15.      LC tries to minimize government’s direct ownership of capital but LC is neutral on public works projects based on the projects specific public interests

16.       Theoretically a progressive tax system is not needed or at least flatter if;

              a) We had a minimalist government budget.

                  b) A balanced playing field with distributed wealth.

                  c) A simple economic system.

      In practice, the US is none of these. The progressive tax is needed in an industrialized economy as commercial players have a higher overhead of oversight and need of protection (police and military) then say agrarian economies. That is, industrial players have higher expense to government and they need to pay their share. In addition industrial players tend to benefit from government expenditures.

Liberal Capitalism verses Mercantilism verses Free Trade

Mercantilism is a government’s policy of the use of tariffs and subsidies to promote economic policy. LC views tariffs as means to leveling the playing field between nations with differing rules. Tariff rates should set as an incentive for the trading nation to implement LC policy (equals economic rules) and should be constantly adjusted as the trading nation implements new policy. Tariffs can be removed once both nations obey the same rules of the game.  Weaker economies should be allowed latitude for lower minimum wages and other rules including environmental and worker safety and healthcare as long the government is making progress in implementing policy.


LC contrast to modern free trade advocates in that free trade can only be implemented after an international level playing field has been established. Were as free trade advocates believe it can be implemented before the level playing field has been established and that free trade will allow marketplace forces to create the level field. This rarely works in industrialized economies due to the consolidated player count that weakens marketplace forces. Another issue is the political philosophy of differing countries may not have the leveling of the playing field as a high priority thereby making it’s implementation all but impossible i.e. China.

LC views subsidies with much skepticism. It is a form of redistribution of wealth and should only be used as a temporary fix in extreme situations.  

Proposed Liberal Capitalism Economic Policy (still in outline form)

1.    Require ALL communications between normally competitive players to be public to prevent collusion strategies.

2.    Require ALL communications between players and government to be public (i.e. lobbying).

3.    Higher Minimum Wage. The minimum wage is the most important labor policy to insure the largest number of players has enough income for playing in the game.

4.    Fixed packaging of consumer commodities. To prevent companies from implementing overly complex pricing strategies to confuse consumers, large market consumer commodities items would have predefined packaging. For example, cell phone calling plans would regulated for predefined package configurations. This will allow consumers to learn simpler, consistent plans for comparison shopping with no hidden pricing. The price itself is unregulated and market driven.

5.    Mandatory Warranty Periods for durable consumer goods. 2 years for items under $500, 5 years for items over $500, 10 years/100,000 miles for automobiles and 5 years for new homes. This would better define the Total Cost of Ownership (TCO) for consumers and lower their TCO costs. Over the long term this would increase the quality of goods sold. Currently, extended warranties can cost 20 - 30% of the purchased price while a mandatory warranty would cost an additional 5 - 10% of the current price.

6.    Purchasing Consumer Reports Inc by the Federal Government and turning into a quasi federal agency funded by tax revenue but free to all Americans. Federal funding would vastly increase quantity of items reviewed as well as increase depth of coverage. This would raise the knowledge level of consumers for better purchasing decisions.

7.    Socialized medicine goes against LC policy. But clearly there is fundamental structural problems in the US medical industry. LC views the major issues as a lack of visibility within the medical industry marketplace. LC policy in reforming the healthcare industry recommends the following;

     A) Require public disclosure by doctors, hospitals, medical services and pharmacies of their pricing (Including negotiated deals with insurance companies). B) Fixed packaging of common medical procedures by medical providers predefined by the goverment.

     C) Public disclosure by insurance companies of their claim refusal rate.
D) Government funded semi-annual medical exam to all citizens as preventive care and to lower net costs. A form of minimum healthcare.

8.    You have to play to win. Keeping eager economic players on the sidelines is unacceptable policy by either government neglect or by subsidizing the non-activity with welfare. The subsidizing of poor players must have a plan to incorporate them into the game