What would you do if you were driving a delivery van down a one lane gravel road in the middle of a forest, and you saw a similar truck coming at you from the other direction? As you are looking at the other truck you can see that he begins to accelerate, so you accelerate as well. You immediately become engulfed in a classic game of chicken!And, as you get closer, you can see that the driver is Vladimir Putin, and you both accelerate again. As you are barreling down the dirt road full speed in a roaring cloud of dust you begin to think “. This is my chance to see what Putin is really made of !” Then as you look up again you see Vladimir reach into the car and throw the steering wheel out of the window.

I recently had a chance to interview Mike Verge, author of the newly published book, ‘Global Deflation, and the Next Great American Decade to Come’. He says that sometimes economic theories are not enough to explain why things happen. In situations where a smaller number of people affect important global decisions (like oil prices, or nuclear war) it is very helpful to know the participants intimately and then try to predict their decisions as if you were in a poker game. That is called Game Theory. For example, if I tell Vladimir that I will cut my oil production, what will he do? And then, when he responded,would he bluffing, or telling the truth? With Game Theory, it is often better to prepare a list of possible outcomes that to develop a mathematical formulae. Verge has his own theory. “Never trust what they say. Simply watch what they do”.

What would you do if oil and gas were free?

Sometimes when outcomes are so outlandish, it is hard to get your mind around the possible outcomes, let alone profit from them. In cases like this, Verge says it is often helpful to go to the extreme scenario and work backwards. Instead of trying to predict the winners and losers at a specific price for oil, say $40 per barrel, try to predict winners and losers if oil and gas were free. After you have done that, then you can reverse your thoughts at higher prices. That way your mind will expand and be open to ideas that you might otherwise think as frivolous. For example, if oil and gas were free, would you invest in gas generation companies or solar companies? Or, would you invest in Ford or Tesla?

To fully understand the global economic situation, Verge says that we all must understand how deflation works on a global basis.In his book, he creates unique new visual models like game theory, to explain complex economic concepts. He likens these models to ‘Deflation Sunglasses’.You put them on and all these economic complexities become clear. In his book, you will see a counter-intuitive world where oil prices drop, retailers are reduced to “Showrooms and phones”, banks are formed where nobody pays, and asset taxes replaces income taxes. To explain all of this, he depends on three key principles:

1. 1.      The forces of inflation and deflation are always in a “tug of war”.
2. 2.      Deflation can only be fully understood from a global perspective, and always in U.S. dollars.                 
3. 3.      The internet is the “Silent Killer”. It is the greatest deflationary force of all time. By instantaneously sharing information globally, it increases the number of potential competitors in any market to infinity, thus reducing prices and profits forever. 

In his book Verge does suggest some disturbing economic scenarios. Game Theory is a key factor in all of them. We should be preparing ourselves accordingly.