Asymmetrical Information - Megan McArdle

12.31.12

Does Anyone Actually Want to Make a Deal on the Fiscal Cliff?

Looking at behavior, I'm not so sure

Early this afternoon, President Obama called a press conference to announce that he and Republicans were close to a deal on the fiscal cliff.  But while he had us here, he wanted to take the opportunity to complain about Republicans and emphasize that they're wrong about pretty much everything.  

This was a rather extraordinary development.  This is the sort of thing you usually say in the conference call the day after you make a deal, to mollify the hard-liners on your own side who resent the need for compromise.  You usually don't do it in the middle of the negotiation because of course, you don't generally improve negotiations by making the other side angry at you.  I know, I know . . . we've all seen the Hollywood movie where the hero finally snaps and lays a whole 55-gallon drum of verbal whip-ass on some sneering buffoon who, properly humiliated, grovels and capitulates.  But we've also all seen the Hollywood movie where if you put an incredibly hot woman in glasses and a ponytail, she suddenly looks like a hobbit to all of the men around her, rather than an incredibly hot woman in glasses and a ponytail.   Grain of salt, folks, grain of salt.  

Liberals are complaining that the GOP would have to be a bunch of pathetic pantywaists to let this scuttle negotiations, a mental model of human behavior which makes me want to ask, "And did you get a chance to meet any human beings on your visit to our planet?"  No one has explained why our presumably more noble, generous, and sensible President would call a press conference for the express purpose of irritating the pathetic pantywaists he needs to vote for any compromise.  

The best explanation I've seen is that Democrats are getting ready to walk, and Obama would understandably prefer that the GOP get the blame.  But who knows?  "I guess I have to wonder – and the American people have to wonder – whether the president really wants this issue resolved, or is it to his short term political benefit for us to go over the cliff," said John McCain.  

Personally, I wonder if anyone actually wants to make a deal.  When there were rumors that the GOP was going to give up on tax increases in exchange for raising the age of eligibility for Medicare, I was skeptical that it would happen, because I'm far from clear that GOP legislators are all that enthusiastic about Medicare cuts.  Maybe they're for it in principle, but in practice, it's going to be hugely unpopular.  Anyone who votes for it is going to be deluged with angry phone calls and some very ugly attack ads come next campaign.  They want tax cuts in the abstract, but not the spending cuts that eventually have to go with them.

The Democrats at least have one genuinely politically popular priority: raising taxes on people who make more than $250,000 a year.  The problem is, then what?  You cannot pay for the government Democrats say they want by returning to the Clinton-era tax rates on people who make more than $250,000 a year; the math simply doesn't work.  But the taxes needed to pay for the spending are as politically unpalatable as the spending cuts needed to pay for GOP tax plans.  

Of course, those things don't have to be done right now.  But they do have to be done not long from now, at which point the voters will be just as mad.  At least if we go over the cliff, no individual congressman is on the record as voting for tax hikes or benefit cuts.

So maybe the ideal is going over the cliff and blaming the other side.  I don't mean to suggest that this is the actual strategy either side is following--but the choices may be so bad that at any given time, the cliff + blame strategy looks better to at least one side than the alternative of actually voting for something massively unpopular.