Friday, August 12, 2011

Gaming the budget crisis, why hitting the wall is almost certain

Imagine, for a moment, that you're the leader of the Republicans in Congress.
Actually solving the problem, and balancing the budget, would require making rather massive cuts in Medicare/SS/Medicaid and Defense. If you make the cuts somehow, you will be blamed for making them, even by a neutral media (that doesn't exist). Since the cuts are here and now, and not an impending doom with an uncertain arrival time, you will get absolutely slaughtered in the next election. And guess what, because you got slaughtered and are in the wilderness for a generation, you probably won't even have your handiwork stay fixed. Your incentive is to try to box the other party into having to make the cuts.
If you're the Democrat leader in Congress, you've got a largely symmetric situation, except that the media is considerably friendlier to you in general. But that won't matter in this circumstance, you'll be beaten black and blue in the next election if you actually do the right thing, and what's more, you know it.
It is really a very ugly circumstance, one that ends when what can't go on forever eventually doesn't. The downgrade by S&P is an attempt to impose a little discipline on the process, but what you've got is a room where two guys who dislike the other are sitting, with a bottle of cyanide that unless one of them drinks it, poison gas will be pumped into the room at a time to be chosen by the studio audience. Expecting one of them to take one for the team is folly.


RS said...

I don't see why the two sides can't agree to cuts (real cuts - 'now' cuts) that will cause equal pain to each side.

I suspect the Dems simply don't want that. I think they may actually believe the economy is going to rebound in future - something I don't believe when I look at the illicit topics of racial change and dysgenics, plus the licit ones of oil and demographic aging. The Dems feel that there is more ambient dissatisfaction with their patronage machine than with the GOP machine - eg, Tea Party - so they might have more trouble re-expanding their machine later (when the economy rebounds, lol) than GOP might have.

Not to mention that Dem clients could riot if their patronage gets cut, damaging the party, whereas the middle class clients of GOP naturally will not.

In brief the Dems may think they are going to lose more at a 'deep' level than GOP, in a deal that looks even on the surface level. The GOP could offer a deal that is even on the deep level but looks slanted against themselves on the surface level, but this would make them look very weak in the eyes of whoever can see only the surface of things.

Of course, looking weak is just another sort of disadvantage. It should /still/ be possible to make a deal by balancing the advantages and disadvantages to the two sides. But having to deal with more kinds of advantages and disadvantages - on the levels of both appearance and reality - makes the whole thing more complex and unpredictable (in the sense of Knightian uncertainty to be precise). Absent a certain quotient of predictability, no one knows what is going to help them or not help them. I think this, plus of course the lack of solidarity including racial solidarity, is the true cause of the inaction.

England may not have significantly less Knightian uncertainty, but it has more racial solidarity. Hence austerity happened. It may also have more cultural unity ; it is a lot smaller, and it has been extensively bombed in wartime in living memory, and probably lost a much larger population fraction and wealth fraction in that war than we did. This is a natural cause of a lingering, if waning cultural solidarity.

Jehu said...

RS, to do that they'd have to be able to trust each other (they can't). They also have a definite difference in how their actions will be portrayed in the media or by their clients. That and the lack of any cultural solidarity argues against seeing any solution, compounded by the fact that this is the traditional failure mode of democracies.
In addition, there's the fact that neither party can guarantee that there won't be a third party erupting out of the discontent to take their place at the table.

My guess is what we're going to see is more QE until we can't kick the can any further down the road. The 2012 election is going to be a cursed prize for whoever wins it.