Hot deficit potato!

I had originally wanted to share some really cool veto math today, but I’m really fascinated by the chicken endgame being played out — it has to be periodic and not simultaneous near the end. Vetoes will have to wait.

Deficit chicken is starting to look a lot like hot potato in these final days before August 2nd. Even though bank analysts believe the Treasury will be able to hold things together for a few days longer, it’s probably in everyone (in the District)’s interest to take the deadline seriously — better the deadline you know than the one you don’t.

Even if default and/or downgrade don’t happen, Congress is quite aware that the situation is FUBAR and that passing the blame is the name of the game. Whichever of the Dems, GOP, or Obama happens to say the last “no” via veto, filibuster, or downvoting by the time the deadline rolls around will be blamed for preventing legislation of any kind from passing. Whereas we have previously modeled the situation as a game of Chicken, by now we can pretty much count the number of days it will take to get anything through the legislature. Now, if you’re unfamiliar with the game, Hot Potato involves passing an object back and forth or in a circle while music plays. The loser is the player holding the potato when the music stops.

In our game, all parties know exactly when the music will stop, and if all threats to defeat, filibuster, and veto are actually carried out, one of the three players is going to have to say the last “no.”

This is why I don’t find Obama’s threat to veto House Speaker Boehner’s bill (if it passes in both houses) credible — if he vetoes, legislature is basically out of time to draft something else that will pass in both houses. Obama would almost certainly get stuck with the hot potato.

No wonder he’s upset — it’s a Catch-22 for him, since he’s already looking weak to the Democrats for offering such a steep compromise. But, “singlehandedly” causing a default would be much much worse for Obama, which is exactly what the Tea Party hobbits seems to want, according to Senator McCain.

So, why is Obama making this threat in the first place, if it’s not credible? If he makes it seem like vetoing the bill is on the equilibrium path for him, it saves the Senate Democrats some face if they kill Boehner’s bill if/when it arrives in Senate. Otherwise, if the bill is stopped in the Senate, the Democrats in Senate will be left holding the hot debt potato at the end of the game.

Meanwhile, Senator Reid is biding his time before putting his version of a compromise to vote in the Senate. If Boehner’s bill fails to pass today, Reid will have the upper hand because he figures there’s just enough time left to pass his bill in both houses. Obama is supportive, so there’s no threat of veto, and even if the Senate Republicans filibuster as they’ve threatened to do, the GOP will certainly be saddled with the blame, since filing for cloture will set Senate back at least a day or two[1]. If it passes in Senate, the House has little choice but to pass the bill, or be blamed. Unless, of course, they really believe there’s more time to continue tossing the potato, or that doing this might actually make Obama look bad.

Quote of the day, from Reid: “Magic things can happen here in Congress in a very short period of time under the right circumstances.” Right circumstances => Not when filibustering is involved.

A very simplified game tree follows:

As we can see, all current threats, if carried out, lead to someone’s becoming a scapegoat. Interestingly, even though it looks like Boehner might get the votes he needs today, the Senate Democrats are using some excellent commitment strategy, by leaking a letter signed by all 53 members (hey, it looks like they didn’t get Joe Lieberman the Independent on the bandwagon) stating that they do not support the Boehner bill.

Next time: how having veto-power can hurt your outcome.

[1] If the GOP decides to filibuster until the Fed defaults, it’s going to be pretty hard to pin this on Obama. Just saying.
[2] Fun infographic table thingy.


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