For reasons detailed well by Nate Silver and others, a meaningful portion of Congress responds to local incentives and selection processes. And in today's polarized America, these regional forces do not align well with national needs.
As much as the fiscal debate seems to be always forced into extreme-corner solutions -- revenue increases versus spending cuts -- the underlying issue is much more consequential. It relates to fundamentally different (and, in part, quite dogmatic) views about the role, scale and scope of government -- especially under present circumstances, where growth is sluggish, unemployment is high, safety nets are overly stretched, and income distribution has seriously deteriorated.
So every time the two parties come to the bargaining table, outcomes lack both content and momentum. Indeed, each round renders the next one even more difficult and contentious.
Here is the typical cycle: Responding to the "national call," the two parties' initial narratives trend towards "grand bargains" aimed at removing headwinds to growth, jobs, and prosperity. As differences prevail, this gets replaced by a "mini bargain," or one that would deliver some progress together with momentum for future success.
As this also proves elusive, negotiations get quite acrimonious. If and when an 11th-hour compromise emerges, it lacks both content and momentum: The majority of meaningful decisions are postponed, and both Democrats and Republicans emerge from the experience more bitter -- at each other, and also within their respective parties.
The imperfect last-minute deal on the fiscal cliff that was reached a couple of weeks ago -- and which, by the way, game theorists would have told you was the most likely outcome -- is a good example of this (though not a perfect one, as something beneficial did emerge for the county).
On the positive side, the deal took an important step to stop the multiyear worsening in income and wealth inequality. But it left a dysfunctional Congress the task of addressing three big issues in the next few weeks -- and a policy mistake on just one could be sufficient to push the country into a new recession.
To maintain the nation's growth and employment momentum, Congress must lift the debt ceiling, resolve the sequester and agree on a continuing resolution to keep the government running. Game theory provides three key insights on how all this is likely to evolve in the weeks ahead:
- First, do not expect the two parties to cooperate any better. Yet again, the best we can hope for is a last-minute deal that kicks the can down the road. There will be virtually no positive momentum to speak of.
- Second, Democrats have less bargaining power this time around. Unlike in December when President Obama prevailed in imposing higher taxes on the rich, Republicans do not find themselves in a corner, dreading national blame for total dysfunction. This time around, the blame would be more equally shared.
- Third, it is unlikely that an outside enforcement mechanism would force Congress into delivering a better outcome. In theory, this could come through either the creative use of exceptional powers granted by law, or some type of crisis that focuses minds and forces national priorities to overwhelm local ones. In practice, both are low probability events.