Government Shutdowns and Models of Rationality

As a positive (not normative) account of the government shutdown beginning today, I think it’s hard to do better than Tyler Cowen in telling the “strategic irrationality” story:

The House GOP has voted to repeal Obamacare 41 times, as of last count, but that link is from Sept.12 and maybe by now the number is higher yet.  One can thus conclude that the GOP sees advantage in staking out a public position against Obamacare, whether this be with voters, donors, primary opponents, whatever.

By threatening a government shutdown over Obamacare defunding, the GOP is again staking out a public position against the law.  Such a statement is more focal, and generates more publicity, than a 42nd vote for repeal.  Everyone is talking about it, even me (sorry people).  If you’ve voted 41 times for repeal, you will like the fact that everyone is concerned with this new dispute.

If the GOP lets the government actually shut down, people will talk about their Obamacare stance even more.  But the party, and its representatives, will bear costs from being associated with the shutdown, which is inconvenient, hurts the economy, and lowers our international status.  We don’t know whether they will cross this threshold, but either way it is a purely political calculation and not especially mysterious or “irrational.”

I would note that Mancur Olson would disagree with the “strategic irrationality” viewpoint, seeing this as a collective action problem.  Namely, political entrepreneurs like Ted Cruz see great advantage from forcing a shutdown in terms of publicity, donations, position within the party, and so on.  This is causing the entrepreneurs to act in their own best interest, to the detriment of the party as a whole.  In this story, the devolution of funding power from party organizations to third-party funding like SuperPACs has destroyed the coercive element necessary for the party to act in its own best interest.  In a neat little irony, the GOP’s relentless attacks on campaign finance ultimately hampered their ability to do pretty much anything.  Let’s call this “group irrationality“.  Perhaps the Democrats should be glad that their superPAC infrastructure is so much less developed.

However, neither of these explanations suggest the GOP achieving their goal of ending Obamacare.  In Cowen’s, the strategic payoff is in electoral returns in 2014…they keep the shutdown going until the perceived costs outweigh the perceived goals, and then they fold as efficiently as possible.  In Olson’s, the payoff starts off negative…the shutdown continues until enough actors defect and they ally with the House Democrats to end the standoff.  In either case, the incentive for the Democrats is to hold fast – basically no individual Democrat gains from defecting.  Either explanation suggests an eventual fold by the GOP with no policy gains.

Also worth noting is the consequences for default, which unlike government funding has a drop-dead date.  If the GOP is strategically irrational, the debt ceiling is nothing to worry about.  If the GOP is group-irrational, then panic might be appropriate.

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