Budget Politics and Chicken Game Theory

Night car accident
Think of budget politics as a game of chicken. In chicken, the player most willing to accept the consequence of not veering off is the player who will win -- every time. In other words, the one most willing to destroy themselves is the one most certain to win. In budget politics, this has been Republicans. They've been willing to drive the nation off a cliff rather than accept compromise, while Democrats have been unwilling to let disaster happen. So dems caved to Republicans every time.

The problem for Republicans is that this strategy has burned them once. They have destroyed themselves. Crack up like they did with the debt ceiling and you start to lose your nerve. "All or nothing" doesn't seem as smart after you've learned that the alternative to all is nothing plus a busted nose. Party discipline begins to fray and those who question the wisdom of kamikaze politics begin to break ranks. Meanwhile, the other player becomes emboldened.

[Washington Post:]

Democrats are making increasingly explicit threats about their willingness to let nearly $600 billion worth of tax hikes and spending cuts take effect in January unless Republicans drop their opposition to higher taxes for the nation’s wealthiest households.

Emboldened by signs that GOP resistance to new taxes may be weakening, senior Democrats say they are prepared to weather a fiscal event that could plunge the nation back into recession if the new year arrives without an acceptable compromise.

In a speech Monday, Sen. Patty Murray (Wash.), the Senate’s No. 4 Democrat and the leader of the caucus’s campaign arm, plans to make the clearest case yet for going over what some have called the “fiscal cliff.”

“If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013,” Murray plans to say, according to excerpts of the speech provided to
The Washington Post.

"The speech comes less than a week after Obama assured Hill Democrats during a White House meeting that he would veto any attempt to maintain the Bush tax cuts on income over $250,000 a year, according to several people present," the report goes on. "It also echoes the dismissive response by Senate Majority Leader Harry M. Reid (D-Nev.) to Republicans seeking to undo scheduled reductions in Pentagon spending that even Defense Secretary Leon E. Panetta has said would be “devastating” to national security."

It also comes after President Obama basically threw in the towel on his efforts to bridge the partisan divide in Washington. "Washington feels as broken as it did four years ago," he told CBS This Morning. When I saw the story yesterday, I took it as a minor gaffe -- now I see it as a declaration that bipartisan efforts have ended. "You can work with me or you can fight me," the President might as well have said. "And trust me, you don't want to fight me."

The result of this messaging and wrangling:

Given the stakes, some Republicans are rethinking their opposition to higher taxes. In recent days, Sen. John McCain (Ariz.) and other GOP defense hawks have been talking with Democrats about raising cash by “closing loopholes” to replace scheduled military cuts.

“If you said ‘John McCain, are you for increasing taxes?’ the answer is still no,” McCain said, pointing to federal subsidies for ethanol as an example of a loophole that could be closed without “raising taxes.” He added, “We get into such semantics.”

Democrats have shown little interest in a deal, however, preferring to keep the spending cuts in place as an additional point of leverage for the post-election fight.

Keep both hands on the wheel, eyes dead ahead, and do not swerve.


[image credit: from a photo by SpecMode, via Flickr]

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