The politics of the U.S. Congress can be harsh, but we do not usually associate it with the adversarial bargaining of international relations theory, much less with the tactics of “brinkmanship,” as Secretary of State John Foster Dulles used to call it. Times have changed. What we have been seeing in Washington these past few days is best described as brinkmanship or, in the terminology of game theory, the chicken game.
Mathematicians and economists began using “game theory” back in the 1940s to examine how the strategic decisions of different players interact to shape outcomes. Different situations and their incentive structures were represented as stylized “games.” In the 1960s economist Thomas Schelling popularized the application of game theory to international politics, especially in the realm of deterrence theory, in the books Strategy of Conflict (1960) and Arms and Influence (1966). In fact, his discussions were so insightful and led to the spread of game theory to so many different fields that he was awarded the Nobel Prize in Economics in 2005. But that is another story.
The chicken game was inspired by the supposed practice of 1950s youths of driving straight at each other in souped-up jalopies. Fans of old movies might recall the scene in Rebel without a Cause, but that was a modified chicken game in which both drove toward a cliff. In the movie, for purposes of plot development, they wanted an outcome in which one character died and the other survived. The key element of the classic chicken game, however, is that disaster is mutual. Everyone survives or no one survives. The key to winning is to convince the other driver that you will not swerve, thereby forcing him to swerve to avoid mutual disaster. Whoever swerves first is declared the loser. While both players prefer to win outright, a less-satisfactory but sometimes acceptable outcome is when both swerve simultaneously. The real problem, of course, comes when neither side swerves.
In the Cuban Missile Crisis, the threat of mutual disaster was the prospect of nuclear war, and the issue at hand was whether the Soviet Union could be forced to withdraw its missiles from Cuba. In the present clash, the threat is a potential default on the debt of the U.S. government. While less obviously a disaster than nuclear war, default could trigger numerous wide-ranging economic consequences. While it is difficult to predict all the consequences with precision, since the U.S. government has never been so foolish as to follow this route before (or at least not before 2011), the mere need to reduce spending suddenly to the level of revenues could have an economic impact comparable to that of the housing bust of 2008. Moreover, the inability to borrow would mean that government spending would have to continue falling as the economy (and hence government revenues) fell, generating a downward demand spiral. Aside from that, you cannot simply understand a U.S. default as comparable to the default of, say, Argentina, appropriately scaled up for the size of the economy. U.S. treasury bonds are a cornerstone of the global financial system. Many countries keep at least some of their foreign reserves in U.S. bonds, totaling about $5.4 trillion. A political decision not to make payments (there is no economic necessity forcing this decision) would throw global finances into turmoil. Recall the consequences five years ago when banks could not say with precision how many collateralized debt obligations they owned or how much of each CDO was based on bad mortgages. Now imagine a situation in which U.S. treasury bonds have become the “toxic asset.” Remember, too, that much of the world economy is already shaky or just beginning to recover from the last crisis. So far markets have refused to believe that it will happen, but a U.S. default, or even a serious suggestion of a default, could be a very serious matter, indeed.
The present stalemate in Congress, in a sense, is not about issues. It is a consequence of the previous chicken confrontation, in the summer of 2011. Like this one, that episode involved a threat to default on the debt of the U.S. government. That time, President Obama, after initial reluctance, agreed to negotiate with the Republicans in Congress.
That clash had two basic outcomes. The more direct policy outcome was $1.2 trillion in spending cuts over 10 years, followed by comparable cuts in the form of “the sequester.” The sequester—a system of automatic, across-the-boards spending cuts—was designed to be unacceptable to all sides so as to force a compromise in negotiations on the budget, but both sides eventually came to view the sequester as somewhat less onerous than the other side’s budget demands. In fact, the sequester is itself something of a budget disaster, albeit not comparable to a default. Beyond the arbitrary nature of these particular cuts (which nearly everyone recognizes as a problem), the entire notion of cutting spending during an economic downturn has a counterproductive impact on an already inadequate level of demand. First you need to revive the economy, and then you can afford to deal with the deficit. That, at least, is the Democratic perspective (shared by more than one Nobel Prize–winning economist). The Republicans, on the other hand, have insisted that the current deficit is an immediate threat and that spending must be cut regardless of economic circumstances.* As a result, the Republicans have now convinced themselves that the sequester was a policy victory. It is this fundamental difference in the understanding of what the current economic situation requires of the budget (and perhaps a subsequent belief that those on the other side could not possibly mean what they say) that has made budget negotiations so maddeningly unproductive.
The second, and perhaps more important, consequence of the 2011 clash was that it convinced at least some Republicans of the general usefulness of the chicken game in these circumstances. That is why I say the current crisis is not really about issues, it is about strategy, tactics, and the rules of government. As early as last spring, Republicans in Congress began debating what they should demand in return for not allowing the government to default when the debt ceiling came due in the fall. The decision for the strategy came first, and then followed the discussion of what the issue should be. To be sure, Republicans have been divided over the wisdom of this. Speaker Boehner, himself, advised against it months ago. The speaker, however, does not necessarily decide these things. He has a highly fractionated caucus, even though the factions divide more on tactics than on policy. (Tea Party Republicans are distinguished from other Republicans less by their policy preferences than by their disdain for politics and compromise.) It is in the nature of divided parties that they do not leave decisions in the hands of a single leader who might favor one faction over another. It is also in their nature that even small factions, being necessary to maintaining a majority, can have outsized influence. In this case, a relatively small but aggressive faction appears to have kidnapped the party and set it on a course that more experienced Republicans advised was unlikely to succeed. Once that course has been set, changes of direction are politically costly and difficult to undertake.
Ultimately, the House Republicans—urged on by Ted Cruz and Mike Lee in the Senate—decided to demand the “defunding” of Obamacare, thus attempting a de facto repeal of a law that they did not have the strength to repeal by constitutional means. Yet, when push came to shove and success appeared unlikely, they were just as happy to switch goals to budgetary issues. As their bargaining chip, they initially relied on a refusal to fund the government after the expiration of a continuing resolution on October 1, but with the need to raise the debt ceiling by October 17, the question of default immediately became part of the bargaining.
For the Democrats in Congress and the administration, the issue could not be simpler. For them, the objective is to stop the emerging Republican strategy of instigating artificial crises to achieve goals that they cannot reach by constitutional means. Democrats believe that the president’s willingness to negotiate to prevent default in 2011 led directly to the present challenge. They do not want to repeat that mistake.
Thus in the current confrontation, default is the mutual disaster to be avoided. If default occurs, the consequences will gravely injure all parties to the argument and nonparties as well. The tactics are to convince the other side that you are not going to do anything to prevent default, and therefore the other side must make the concessions needed to avoid the predictable outcome. The other side must swerve.
For the Democrats, giving in to Republican demands would be “swerving” on the specific issue, but making any meaningful concession at all risks being interpreted as “swerving” on the underlying strategic question of putting up with extortion. The Democratic tactic has been simply not to negotiate. They certainly should not agree to negotiate too quickly or on major aspects of policy, nor should they accept the premise that avoiding mutual disaster is somehow a concession to the administration. Preferably, they should not negotiate at all. To negotiate, to make concessions on policy, is to swerve and allow the other side to win, and it will be followed by further demands—further artificial crises—in the future. In the background lies the prospect that if Democrats did negotiate, they could make their own demands, including a partial or full dismantling of the sequester.
For the Republicans, “swerving” means dropping their demands. Republican tactics have included a repeated insistence that negotiations under such circumstances are perfectly normal, thus trying to create an impression among voters and the media that the Democrats are being unreasonable. They have offered to fund parts of the government that “both sides agree on” as a concession, even though that is the same as their original demand, which was not to fund the part they did not agree on. They have also treated the changing configuration of their demands (such as switching from Obamacare to budget demands) as a concession that must be reciprocated. Most important, even vital to their strategy, however, is the refusal to admit that the threat of mutual disaster is real. If you can convince the other side that you do not believe default would be so bad, then you leave it to the other side to do what is necessary to avoid the disaster. Hence, we hear a litany of arguments about how the administration could avoid any negative consequences if it wanted to, how a failure to raise the debt ceiling might not even result in default, and even how default could have a stabilizing effect on stock markets. Some of the people making these arguments may believe them and others may not, but that does not matter. The arguments do not need to be credible or viable; in fact, convincing the other side that the arguments were true would be counterproductive. The purpose of the arguments is to convince the other side that Republicans are not going to swerve to prevent the disaster. Unfortunately for the Republicans, they are not completely irresponsible. Boehner has said that he cannot allow a default to occur. These remarks were made in private, although they did not remain private, and were presumably intended to prevent panic in the stock markets. It is probably to counter that admission—to rebuild the bargaining leverage lost—that some of the more outlandish statements regarding the benign consequences of a default have been made.
The real problem comes when the cars are closing in, the moment of impact is nigh, and no one is swerving. Both sides having tied their political fortunes (and, they may believe, the good of the country) to a particular strategy, their reluctance to swerve and their belief that the other side will fold in the end could last too long.
One possibility is for the side that is winning to offer a symbolic concession to the losing side to lighten the costs of failure and make swerving less painful (to make it appear a bit more like both sides are swerving simultaneously). For instance, if the Republicans decide that they have lost and that it would not pay to resort to the chicken strategy again in the future, then it would be beneficial to Democrats (not to mention the rest of society) to throw them a bone and allow them to back down gracefully. Disaster must be avoided, and humiliating the other side needlessly can come back to haunt you. On the other hand, if they have not come to that conclusion, then easing their exit could be counterproductive. Determining which situation is true will be a problem that may be resolvable only through quiet backroom contacts with a good admixture of lucky guessing. The fractionated nature of today’s GOP makes the problem harder because there are some members who always thought the idea was stupid, there are others who will never be convinced, and the size of a faction does not necessarily constrain its ability to determine party strategy. Thus a less than perfect victory may well be necessary to avoid disaster. As always, the inevitable loose ends will have to be dealt with later.
*The Republicans generally fail to acknowledge that the deficit has been falling steadily and is now about half of what it was in 2009. The decrease is in large part a predictable consequence of recovery, inadequate as that recovery has been, since rising economic activity generates higher tax revenues and reduces the need for emergency outlays. It is also worth noting that the Republicans were less concerned about deficits and debts when they were in the White House. While the debt has increased by about 70 percent under Barack Obama (under economic conditions in which deficits are beneficial), it tripled under Ronald Reagan and doubled again under George W. Bush, both of whom ran deficits in good times and bad.