Thursday, July 14, 2011

How it became Boehner's Dilemma

Business Times - 15 Jul 2011

How it became Boehner's Dilemma

Making a deal on the US debt ceiling is easier said than done as both parties play a game of political one-upmanship


ANYONE who has taken an introductory course in one of the social sciences is probably familiar with one of the major problems in the field of game theory: the so-called prisoner's dilemma.

It explains why two individuals (say, two suspects arrested by the police, who have insufficient evidence to convict either of them) tend to refrain from cooperating (by not betraying each other to the police) even if it is in their best interests to do so (since they will go free).

Welcome to Washington's 2011 Great American Debt Limit Negotiations!

Indeed, not unlike the two players in the game of the prisoner's dilemma, President Barack Obama and the leader of the Republican opposition in Congress, House Speaker John Boehner from Oklahoma, would be better off cooperating and reaching a budget deal that would allow the raising of the current US$14.3 trillion debt ceiling and avert a devastating default.

In fact, President Obama and Speaker Boehner, who have been conducting duelling press conferences in recent days, have made it clear that they and the people they represent (as well as consumers and businesses at home and abroad) would all be big losers if the White House and Congress fail to reach a budget deal in the next few days. The federal government will run out of money to pay its debts and trigger a national default that would bring a very weak economic recovery to a standstill and send shockwaves through the financial markets, and bring about a major increase in interest rates.

The American public may not be paying close attention to the ins and outs of the debate over the debt ceiling, Mr Obama said on Monday. 'They're worrying about their family, they're worrying about their jobs, they're worrying about their neighbourhood,' he explained. 'We're paid to worry about (the debt ceiling),' he added, implying that if the White House and Congress do not reach a budget deal by Aug 2, more US jobs would be lost.

'I want to do what I think is in the right interest, the best interest of the country,' Mr Boehner insisted also on Monday, stressing his commitment to maintain the solvency of the United States. But if President Obama and his Democratic allies are blaming the Republicans and their refusal to accept tax increases as part of the budget deal, Mr Boehner and the Republicans are countering that the rejection of more government spending cuts by the Democrats is the reason for the current deadlock.

'I don't see a path to a deal if they don't budge. Period,' Mr Obama said. 'But it takes two to tango,' Mr Boehner stressed. 'And they (the White House and the Democrats) are not there yet.'

In short, it sounds at times as though both President Obama and Speaker Boehner recognise that reaching a bipartisan budget deal is a no-brainer, a win-win for both sides.

But not unlike the two individuals in the prisoner's dilemma who are inclined to prefer defection (testifying against the other) over cooperation (not testifying), the President and the Speaker could end up pursuing a strategy of non-cooperation under which they - and the rest of us - would be worse off.

Since much of what takes place in politics is by nature a zero-sum game involving a lot of uncertainty - not to mention the fact that the main players do not always pay the costs - it is not surprising that it is more difficult to get politicians to make a deal and that they are willing to take more risks as part of an effort to protect their interests during the game.

At the same time, the political game in Washington, unlike the classic game of prisoner's dilemma, resembles what game theorists describe as an 'iterated' prisoner's dilemma. The political game is played repeatedly, and the players are provided with opportunities to observe each time what happens when they decide not to cooperate: they are punished. The form of that 'punishment' usually takes the form of an electoral defeat. The result is that the incentive not to cooperate is quite often overridden by the prospect of punishment.

 And budget negotiations, including against the deadline for extending a debt ceiling - has been a familiar game in Washington that has been played again and again for many years, and with many players.

That the current negotiations are taking place in the aftermath of the worst economic crisis since the Great Depression, on the eve of critical presidential and Congressional election campaigns and against the backdrop of growing economic and political instability abroad (in the eurozone and the Middle East), may explain why President Obama and Speaker Boehner were taking steps towards making a budget deal - or were at least being perceived by the American public as moving in that direction.

 Mr Obama seemed to exhibit more skills in playing that game. Public opinion polls have pointed out that most Americans are not familiar with the intricacies of the debate on the debt ceiling, and that those who follow the issue are split on the urgency of raising the debt ceiling. In fact, a recent Washington Post-Pew Research Center poll suggested that more Americans (51 per cent) are more worried about a rise in the debt limit that would lead to higher government spending than those (44 per cent) who are concerned about the possibility that not raising the debt limit would force the government into default.

So Mr Obama decided to transform the debt-ceiling negotiations into a debate on the budget deficit.

While the two played 16 holes of golf on a recent weekend, the President proposed to the Speaker that, instead of making a short-term deal involving a US$2 trillion cut in the deficit aimed at raising the debt ceiling and averting a default, they should reach a long-term bipartisan agreement that would lead to a cut of around US$4 trillion over the next 10 years and create the conditions for finally putting America's fiscal house in order.

Moreover, Mr Obama indicated that he would be willing to make major political concessions - making major cuts in government spending on top social-economic programmes, including the healthcare plan for the poor and the elderly, and restructuring the national insurance system (Social Security) - that were bound to violate some of the Democratic Party's core ideological tenets and antagonise some of its major constituencies.

 In return, the president demanded that the Republicans agree to increase the revenues of the federal government by ending the Bush-era tax cuts on the top-income earners and various corporate tax loopholes for corporations. In fact, according to the president's plan, US$3 trillion of the cuts in the deficit would involve slashing government spending (as the Republicans demand), and only US$1 trillion would require pursuing the Democratic agenda of increasing revenues by raising taxes on the wealthy.

 Mr Boehner seemed to be open to negotiating such a grand bargain. But conservative idealogues and Republican lawmakers who were elected in 2011 with the support of the populist and anti-government-spending Tea Party rejected the proposal out of hand. Under no condition would they be willing to accept any form of tax increases!

 The result was that Mr Obama emerged as a winner in the first round of the game, in stating that he was ready to move towards the political centre and even anger members of his 'base' in order to achieve the long-term goal of balancing the federal budget. Mr Boehner, on the other hand, was exposed as a political loser who failed in winning the support of his 'base' for what could have been a historic agreement that integrated many of the Republican demands.

 Now that the negotiations are focusing on a short-term contingency plan that would bring about US$2 trillion in deficit cuts and allow Washington to beat the Aug 2 deadline, Mr Boehner is finding himself in a lose-lose situation. Rejecting any form of tax increase would please the Tea Partiers - but would help paint the Republicans as right-wing radicals not open to compromise. That could produce a political backlash from independent voters who may punish the Republicans in the coming election. And that, in turn, could threaten them with the loss of control of the House of Representatives and ensure four more years of President Obama in the White House.

 On the other hand, agreeing to raise taxes would anger many Republican lawmakers who could be expected to vote against any increase in the debt ceiling while some Republican voters might punish their party by staying at home on Election Day.

That puts Speaker Boehner in an unenviable position as he leads his team into the next round of the game. He will soon have to figure out which of two strategies would provide him with more payoff: cooperation - making a deal with President Obama; or defection - rejecting any compromise with the White House.

And that is Boehner's Dilemma.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

1 comment:

Austin said...

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