From the Fiscal Cliff to the “Terrorism of Exceptions”

A Bridge to Nowhere; image by Martin Burns (flickr)

A Bridge to Nowhere; image by Martin Burns (flickr)

In my earlier blog on how the EU manages to have itself over a pork-barrel, I promised to follow on with the example of the US Fiscal Cliff. It is instructive of two things

(1) How ultimatums put to oneself may or may not work

(2) How pork-barrels, or the terrorism of the exceptions, can prevent political processes from reaching sustainable outcomes

Over-simplified somewhat, here is what happened in the US to the debt ceiling, the fiscal cliff, and sequestration:

To avoid running into the (self-imposed!) debt ceiling, Congress raised it without remedial measures like tax increases or spending cuts at the time. Nobody agreed that this was the right thing, so Congress agreed automatic tax rises and spending cuts further down the line that were meant to be so large that everyone would be forced to negotiate something better before the time was up.

Stripped down to the abstract essentials, as if analyzing it game-theoretically, this process reads like this:

(1) We don’t want A (“debt goes above X”) to happen. So we outlaw A. (and call it a “debt ceiling”)

(2) It is entirely predictable that — and even when —  A must happen.

(3) The alternative to A (sovereign default) is inconceivable.

(4) We do nothing until it is too late.

(5) On the fateful day, we allow A to happen, and — it being to late to agree anything else — we only set another ultimatum: Unless we agree something else (A’), a condition B which definitely no-one wants (large tax rises and large spending cuts) comes automatically into effect at a fixed time in the future. We hope that this will force us to find some A’ better than A. (something, we clearly didn’t find first time round).

The problem with this is two-fold: (a) Taking hostages doesn’t work if you are known to waive self-imposed ultimatums, and (b) it is unreasonable to believe and A’ better than A will be found. Having failed to find it the first time, and the second time, you have to hope to find A’ in the third round. Plus, A’ has to be agreeable unconditionally, lest the game needs to be repeated with yet another ultimatum, losing time (and in the national debt debate, time is crucial).

If there were Congressmen and -women who thought all along that budget cuts and tax rises were necessary but didn’t want to say so publically, I say a hearty “well-played!”, but I am not sure such individuals existed in significant numbers.

Now that B is happening, the pork-barrels start rolling: They creep into the well-meant and smart process of sequestration, which was meant to keep a hard lid on total government spending before any money is handed over to the departments, a wise thing and something surely everyone was able to agree on. But as soon as members started to suggest particular exceptions, including big ticket items like Social Security and items of the defense budget, no-one wanted to be seen to shoot down these individual items. In the end, this makes sequestration unworkable, as the non-excepted items get hit debilitatingly hard.

So sequestration, in itself a sound policy to apply to everyone across the board, became diluted by exceptions which, once they were voted on in isolation, were impossible to vote down.

The trick to getting your pork is thus easy and always the same: Name a specific group of your choice and ask for them to be singled out favorably. It is astonishing how effective this tactic is in hindering the political management of our fiscal, demographic, and social constraints.

But what makes the US National Debt debate a really poignant example is the fact that — according the none other than the Federal Reserve estimaes (http://www.usdebtclock.org/) — on a present-value basis, the Social Security liability is in itself as large as the national debt, and the Medicare/Medicaid liabilites are approximately 5 times larger than that. The “exceptions” are ultimately larger than the problem which forced the discussion in the first place!

If our political framework is to aid sustainability, we need to find a way to eliminate the “terrorism of the small exceptions” when attacking any of the big problems: The debt burden in the developing world, over-use of non-renewable resources, reduction of biodiversity, pollution, economic pressures caused by increased longevity, the causes of climate change, …

Any ideas on how to spoil the pork-barrel game? We really can’t afford it.

2 responses to “From the Fiscal Cliff to the “Terrorism of Exceptions”

  1. Pingback: Cyprus Blunders On | The Sustainability Report·

  2. Pingback: Game Theory and the Debt Ceiling | The Sustainability Report·

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