There is a situation in chess called zugzwang in which any legal move leaves the player worse off (in other words, he’d be better off to pass his turn). Oftentimes, in fact, the zugzwang is mutual: both players would rather that the other one move next. A typical situation — black’s only legal move would lead to a loss, but white’s only legal moves would turn an advantageous position into a draw — is illustrated below.
If this sounds oddly familiar, it may be because it greatly resembles the debate over the federal budget. Try to find a winning move given this set of constraints imposed by public opinion:
The public overwhelmingly thinks the deficit is a very serious problem and requires immediate action, but most polls also suggest they think job creation — which arguably benefits from deficit spending in the near-term — is an even greater priority. In the abstract, people prefer cutting spending to raising taxes. However, although it’s hard to find a tax increase that polls well (raising taxes on the rich is probably one exception), it’s even harder to find a spending program that the public would like to see cut. The public is especially protective of entitlement programs (about two-thirds of people would rather raise taxes than reduce Medicare benefits), which represent three or four times as much federal spending as all non-defense discretionary spending. Nevertheless, a majority of the public also feels that it will not be necessary to raise taxes on “people like them” in order to reduce the deficit. Most of the exceptions to the above rules would not go terribly far toward solving the deficit; rolling back the Bush tax cuts for the rich alone would only remedy one-twelfth of the projected debt in 2030; cutting foreign aid in half would address only one-eightieth of it.
This is not to suggest that some strategies don’t make for better politics than others, or that some solutions aren’t better as a matter of policy. But in general, almost any detailed proposal that a politician might make is going to be received poorly. The budget that President Obama unveiled earlier this week, which received harsh critiques from the left, right, and center, was certainly no exception.
Other than meet their legal obligations, then (the president is required by law to propose a budget; the Congress is required to pass one), what we’re basically going to see transpire over the next weeks and months is a lot of passive-aggressiveness: efforts to force the other side to make the next (unpopular) move. There are going to be several rounds of this and it is going to be quite tedious.
What differentiates the budgetary process from something like chess, however, is that it is not truly a zero-sum game. Even if politicians don’t give a rip about the effects that their actions would ultimately have upon the welfare of the country, they still have an interest in re-election. And in this regard, the interests of President Obama and the Republican Congress are not mutually exclusive.
We have been through three political cycles in which one party essentially ran the table, but there have been plenty of others (2004 and 1996 are two recent examples) in which almost all the incumbents won. Yes, Republicans would much rather see a President Romney or a President Pawlenty than a President Obama — and Mr. Obama would much rather see his side regain control of the House and secure control of the Senate. But Mr. Obama and the Republicans also have some shared interest in their own electoral prospects, and in this sort of game, a mutual interest of a small magnitude may sometimes triumph over a conflict of interest of a larger one.
In seeking an equilibrium solution, then, we might look for the answer to the following problem: what resolution to the budgetary process would tend to maximize the chance of the scenario in which both President Obama and the Republicans in Congress are re-elected?
The answer to this question is far from obvious, but here’s one hypothesis: it’s a solution that avoids any major disruption to the economy but also gives it enough of a handicap that extremely robust short-term growth is unlikely. Right now, according to the forecasting model produced by Yale’s Ray C. Fair, which assumes modest economic growth, President Obama would receive between 52 and 53 percent of the vote (meaning that he would almost certainly be re-elected) but Republicans would receive 52 percent of the vote for the U.S. House (meaning that at most a few of them would lose their seats and they’d very probably retain their majority).
That, arguably, is pretty close to the optimum: if growth gets too “hot” in Mr. Fair’s model, then President Obama wins, but the Democrats also take back a lot of seats in Congress (meaning it would be a bad deal for Republicans). But if it’s too sluggish, then Democrats get swept, meaning that it’s a bad deal for the president. (By the way, it doesn’t matter that, in the real world, the effects of the budget compromise on near-term growth are liable to be fairly small as compared with the intrinsic unpredictability in the system. All that matters is that politicians perceive it as having a larger impact.)
That means something like a failure to raise the debt limit, which could result in a downgrade to the United States’ credit rating, would probably be avoided. But there would certainly not be any further stimulus; instead, the deal might be mildly anti-stimulative — which would be accomplished by modest cuts in government spending — although not to a considerably larger degree than markets are anticipating.
Another outcome, not necessarily mutually exclusive with this, is that Republicans could give President Obama a win on style points (meaning that, after a few rounds of zugzwang, they’d play relatively nice and permit him some credit for having forged a bipartisan compromise) whereas they took more than their fair share on substance (meaning that Mr. Obama actually did compromise quite a bit). A situation in which, for instance, Mr. Obama gained some stature with independents but also somewhat discouraged his liberal base might help his electoral fortunes but probably not those of Democratic candidates for Congress.
But I wouldn’t necessarily expect any “grand bargain” involving major changes to the tax code or to entitlement programs — too unpredictable the effects of that for incumbents seeking re-election.