Thread by @besttrousers

The justice-first strategy that #GreenNewDeal advocates are pursuing makes a lot of sense. But the social-justice inspired language makes it hard for economists to follow. We need to put it in terms econs can understand.

It's time for some game theory. /1

https://twitter.com/rgunns/status/1098238192233398272

Think of policy as a sequential game taking place between "neoliberals" and "progressives" ("conservatives" just vote everything down). You're trying to design a policy package that both sides will support. /2

For example, in 1992, Clinton was able to get progressives to support entering NAFTA (pleasing the neoliberals) because he promised to pivot to universal healthcare, which would redistribute the benefits of free trade. /3

But what ended up happening (as @RBReich describes in "Locked In The Cabinet") is that the Clinton administration couldn't get support for universal healthcare, and the main domestic policy achievement ended up being welfare reform. /4

We can model this as a two stage game between progressives and neoliberals. First, progressive choose whether to support NAFTA. Then, neoliberals decide whether to pursue healthcare or welfare reform. /5

(I'm not going to try to explain how to read this on twitter, en.wikipedia.org/wiki/Extensive… gives an overview. Happy to answer questions.) /6

What the progressives should have realized is that Clinton's promise to pursue health reform wasn't credible. No matter what progressives did in round 1, neoliberals would choose WR in round 2 (10>6, 5>4). /7

Skip ahead to the 2010s. Now, policymakers like @GovInslee are advocating for a carbon tax, and they are promising to redistribute the benefits of the tax to everyone. /8

Canny progressives (burned before) recognize that this is the same game as in the 1990s, and that the neoliberals' promise of redistribution is not credible. /9

Since NLs will pursue debt reduction no matter what, Progressives' best response is to vote against the carbon tax. We end up at the far right (3, 5) outcome (the Nash equilibrium) /10

This is not a good outcome! If Neoliberals were able to credibly commit to pursue redistribution, we'd end up at the far left (6, 6) outcome. Both Neoliberals and Progressives would be better off! /11

So you need to change the game. /12

The #GreenNewDeal makes Neoliberals move first (say, on a Job Guarantee) and the Progressives move second (on a carbon tax). /13

The payoffs haven't changed, but changing *who moves first* changes the Nash Equilibrium. /14

Progressives will support a carbon tax if a job guarantee is passed (6>4), but will oppose it without one (3>2). /15

The neoliberals see this and (being experts in game theory), know that they are effectively choosing between the (6, 6) outcome on the left, and the (5, 3) outcome on the right. /16

(note that Neoliberals are now the first mover, so their payoff is listed first)

Since 6>5, the Neoliberals will support the JG. And the Progressives will now support the carbon tax in the second stage. /17

You can quibble about whether a job guarantee is the best mechanism for redistribution, but the overall justice-first strategy makes sense in terms of building the coalition to pass something that can effectively stop climate change. /END