Time for Democrats to Cut Their Losses?

I have enormous respect for Jonathan Cohn, and for many of the other commentators on the left who have echoed some version of this opinion:

I know, I know--it's politics, not policy, that would determine how Congress reacts to a Coakley loss. But Democrats from both ideological sides ought to consider whether voting against it now really spares them political blow-back. All of them have already voted for a health care bill. And that means they can expect one of the following two advertisements this fall:

Candidate X is an out-of-touch liberal who voted for the horrible health care reform bill that passed.

Candidate X is an out-of-touch liberal who voted for the horrible health care reform bill that almost passed.

It seems to me the two ads would be equally effective, unless Democrats can counter it by touting the benefits of reform--by reminding voters that, in the future, they won't have to worry that insurance will run out when they get sick, that they'll be able to have a binding appeal when insurers deny coverage, that they'll be guaranteed emergency room coverage without prior approval, that they'll be able to change jobs worrying about losing insurance, and so on.

But the only way to make that argument is to pass health care reform. No matter what happens on Tuesday.

Maybe I am the one more in error here, but this seems like a classic logical error known to economics as the Sunk Costs Fallacy.  A sunk cost is spent capital that you can't recover--money sunk into R&D, say, or two years spent in law school.  Despite the fact that this money is unrecoverable, people often embark on massive new spending in order to justify the money they've already spent.  In folk parlance, this is known as "throwing good money after bad". 

The sunk cost fallacy is distressingly common, and has sunk more than one business.  Once the capital is truly gone, you should forget about it--not double down in an attempt to "get your money back". (Something more plaintiffs would do well to understand). 

Now, the capital you've already invested may mean that you have a chance to get an attractive gain for very little additional investment.  But the potential payoff has to be big enough to justify that additional investment on its own.  To complete the gambling analogy, if you're somehow in a position where you have the edge over the casino, it may well make sense to gamble.  But if the odds are still in favor of the house, doubling down is more likely to make things worse than to make you whole.

But emotionally, we are usually unable to handle this decision.  When we've just suffered a big loss, we are panicking and desperate for some way to undo it.  Walking away means acknowledging the loss.  As long as we're still pouring more capital in, we can tell ourselves that there's still some way to at least get back to the break even point.

How does that apply to this situation?  Cohn is right that the damage is done.  But as he points out, a lot of damage has been done either way, and cannot now be undone . . . which means that you have to consider the "investment" represented by passing a bill on its own terms, not in terms of getting back some of the political capital you've lost.  It's gone.  It's not coming back.  It is very likely that Obama will never again enjoy the approval ratings he had at the beginning of his first term, and Democrats have probably seen the high water mark of their power to pass legislation.  Y'all spent your political capital on the stimulus and an unpopular health care bill.  Maybe that was a good idea, maybe not, but either way, the thing is done.

So now in the short term, here's the payoff matrix: 

A:  you look like a doofus because you voted for a bill that didn't pass

B:  you look like someone who has
 

    • Concrete benefits you can talk up in the next election
    • Concrete drawbacks that your opponent can talk up in the next election
    • Sent a very clear message (in most districts) that when considering what bills to vote for, you give a very low priority to the opinions of your constituents


Cohn and others are arguing that Payoff A is clearly, unequivocally better than Payoff B.  But opinion polls provide pretty strong evidence that most Americans find those concrete benefits insufficiently attractive to outweigh the concrete costs, so this is not exactly the most obvious, or plausible, reading of the situation.

In the long term, possibly everyone loves HCR and is grateful to the Democrats.  On the other hand, memories are short.  Moreover, there's at least some risk that the cost side blows up like a Japanese puffer fish, and Republicans convincingly manage to pin the whole thing on you.  Maybe it's a political win.  But it's at best highly arguable.

Of course, one could say that the political argument is cold and inhuman, and that's not how politicians should be making this decision.  Perhaps so.  But Cohn is arguing that this is a politically savvy mood--not that Blue Dogs should go on a suicide mission for the benefit of posterity.  Probably because he, likes me, suspects that suicide missions don't get many volunteers outside of World War II propaganda movies.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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