Wednesday, January 20, 2016

analysis | Stocks fall as oil prices slide amidst investor gloom on China and world economy. Here’s why.

Stock markets around the world have fallen sharply today, after nervous investors triggered a rout following a slide in oil prices and continued contractions in the Chinese economy. The panic was exacerbated by lingering market jitters over a weak start to the new year. The basic explanation is quite simple: oil, China, and fear.

Wednesday, January 13, 2016

analysis | The Korean Conundrum: why the peninsula remains intractable

It’s a routine that would verge on the comical if so many lives weren’t at stake. North Korea threatens nuclear destruction in the hopes of extracting concessions out of its neighbors, forcing them to ignore, react to, or placate the pariah state. Last Wednesday, North Korea announced it had detonated its first hydrogen bomb in its fourth nuclear test, and while this claim has been disputed by U.S. officials, the blast—whatever it used—was powerful enough to register as a magnitude 5.1 seismic event. But amidst the sorties, calls for sanctions, and saber speaker rattling, the world by and large shrugged its shoulders.

Kim Jong Un might be a lot of things, says the world. But he’s not crazy enough to provoke a war he knows he’ll lose. The theory of Mutually Assured Destruction proves it: two countries find themselves in an intractable situation. Each wants to achieve its desired outcome, but neither country wants to go to war because they have the power to utterly destroy each other. Any other action would leave the countries in a worse state than before. (This is called a Nash equilibrium.) The upshot of all this is that neither side would be incentivized to start a conflict as it would be irrational.

Thing is, MAD rests on a few assumptions: neither party wants to back down, both parties have things to lose, and both parties implicitly wish to survive.