Photo: Flickr Dan Iggers
The first comment to my previous post asks a good question:Based on the argument that the Democrats will get everything they want if we default (Obama re-elected, more Democrats in Congress, higher taxes, more programs), why would they (Democrats) settle for anything less than default?
I think some version of this question is going through many conservative minds.
But it commits a fundamental error: it assumes that this is some sort of zero-sum game.
Republicans frequently accuse Democrats of behaving as if the economy is zero-sum, and economic output is a fixed pie. Now they’re committing the same error. What the people asking this question are missing is that the budget needn’t be zero-sum: It can be negative-sum.
It is possible for the Democrats to lose without the Republicans winning. Both sides can end up worse off. Leave aside the naive thoughts that Democrats might be trying to avoid default because they, like, care something about the honour of their nation. They might not be willing to suffer themselves just because doing so will make the GOP suffer even more.
No matter what you may have heard on the radio, spite and envy are not their sole political motivations. Of course, this might raise another question: shouldn’t the Democrats agree to 100% cuts rather than default, in a rational value-maximizing universe?
Sure, if you assume that people are rational-value maximizers, and this is a one-time game. But people aren’t rational value maximizers—they will punish people who offer them what they consider to be an unfair take-it-or-leave-it deal, even at substantial cost to themselves—and even when it’s a one-shot game where there is no chance that signaling your unwillingness to take a cheap deal will result in better offers in future rounds.
Moreover, this isn’t a one time deal; Democrats will rightly suspect that if they let the GOP dictate terms, in six months the GOP will be back with more non-negotiable demands.
So no, the fact that Democrats are trying to avoid default should not be taken as evidence that default is actually going to be good for the country, or the GOP. Nor should it be taken as evidence that the “no new tax revenues” strategy is going to succeed in forcing the Democrats to give the GOP everything they want.
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