The Border Wall: Government Shutdown Game 2.0
Earlier this year I had a blog post on the government shutdown and modeled it as a modified game of chicken with ensuing predictions that suggested a short lived government shutdown, the Democrats caving in, and the Republicans having their way. If you missed it, that is an interesting post and you sure want to read it, as what follows below is closely related to that analysis.
As of writing we are now at the one week mark of another government shutdown. President Trump has asked for $5 billion to finance a wall along the US southern border to be included in the government funding bill or he will not sign the bill. Since no agreement has been reached by both House and Senate leaders on this request, the government (approximately a quarter of it) has no funds to operate and has been shutdown.
Understanding the economics of policymaking provides insights into what we might expect from this latest political showdown and one of the tools we turn to is game theory.
As I do not intend to repeat the analysis on the game of chicken discussed in the older blog post which is still applicable to this situation, the question I raise here is two fold: First, is there anything different about the nature of the game this time around so as to lead to a different set of predictions than the last time? Second, and very much related to the first question, what really is the cost of a government shutdown?
Important parts of solving any game theoretic model requires understanding the strategies involved for the players in the game, any timing associated with the actions, whether the actions are taken under uncertainty, and what is known about the anticipated rewards (the payoffs) associated with choice combinations.
In what follows I dispense with the technicalities involved in formal modeling and provide an intuitive approach to the shutdown game which is modeled as a modified game of chicken. I keep things as simple as possible, allowing for just Democrats and Republicans as the only players, and "continue" (refuse to budge on their position) and "swerve" (compromise on their position) as strategy options available to either player. The discussion simply provides a rationale for their strategy choice and anticipated payoffs.
The Democrats strategy
Two significant differences exist between this shutdown scenario and the last, and these could potentially influence the game's outcome:
The first is the fact that the Democrats now have a majority in the House. (Even though this officially does not take effect until January 2019, whatever the House does between now and then can still be stalled in the Senate by a filibuster procedure that will likely be initiated by the Democrats).
The second is that unlike in the past two shutdown scenarios, the Republicans have no 'sweetners' to attach to the bill to fund the government. The only issue involved here is a $5 billion wall Trump wants, which clearly the Democrats are not thrilled about, and is in fact the raison d'etre for the present shutdown.
Having felt politically castrated by a Republican majority that ran roughshod over them with their preferred policies the past two years, this newfound power is something the Democrats want to showcase as being real in pulling their own weight to pass policy favorable to their constituents.
Further, it could be argued that the Democrats' base is really going to hate any compromise by their representatives in giving in to what President Trump will explicitly claim as a win for him. In other words with the Republican base well dug in and seemingly welded to Trump's policies, the Democrats are energized by the gains from the midterm elections to also dig in and score wins - which at this time may be in the form of blocking Trump's preferred policies.
Given the history of prior shutdowns we expect that government workers will still get their full pay whenever the shutdown comes to an end so there is no backlash going to come from them. On the one hand their pay is delayed, but on the other hand they get an extended holiday. Trump's recent depiction of these workers as being Democrats whether true or not means little. Further, while there are economic and monetary costs associated with the shutdown, the arguably important costs that voters may identify with are the "inconveniences" faced by those who have interactions with the government offices and services that are affected by the shutdown.
So the only real cost the Democrats see here is going to be in the form of how the public or specifically, independent voters think of the labels that will come with the shutdown.
Will the public see the Democrats as being unpatriotic and reckless on national security? I don't particularly see how any labels along this line will stick. From a historical policy perspective the Democrats are already perceived to be more sympathetic to the plight of illegal immigrants. Perceptions that Democrats are not patriotic are already held by those who would normally vote right, it is not clear that the Democrats can make converts out of these voters by supporting wholeheartedly the border wall plan.
Will the public see the $5 billion as being too trivial to warrant a shutdown compared to the size of government spending which is approximately $3.5 trillion? Maybe, but unlikely. Workers will still get paid and there is perhaps a fundamental ideological opposition to having a literal wall being built. By continuing to propose alternative security measures, including the offer made to provide $1.3 billion instead of $5 billion, and by pointing to what they believe to be the flaws in the border wall, they have perhaps hedged against that notion.
In the game theoretic parlance of the chicken game, "continue" is a dominant strategy for the Democrats.
What about the Republicans?
The Republican Strategy
The Republicans still control the Senate and the presidency. They have been used to getting their way in the past and so they clearly are spoiling for a fight - its now a week long - Here is a problem for the Republicans, Trump is very unlikely to sign any agreement that does not provide $5 billion for the wall. Any such agreement will be seen as a failure for him. He campaigned on building a wall, a beautiful wall, and he is intent on getting that wall built as a signature achievement.
Is there any cost to this position? Trump has owned the government shutdown, just as he has owned the trade war with China, welcoming both as being good and necessary in order to win the concessions that he believes are in the interest of the country, and specifically, that of his base. The cost here is if he is unable to spin any resulting fallout from the shutdown, possibly the monetary costs if very large, as being the fault of Congressional Democrats.
The blame game could go either way:
Republicans: 'The Democrats have put ideology ahead of national security and have taken up a position that costs the economy a lot or more than the 'mere $5 billion' needed to protect our borders'.
Democrats: 'The Republicans are willing to sacrifice the economy by being unwilling to compromise on the president's pet project and considering alternative border security options, even at huge cost to the economy'.
Unless the GOP lawmakers break with the President on this, it is unclear if there is an alternative to the hardline strategy of "continue" as well. Would they? Not likely in the short term. To accept a proposal that is not a border wall would seem antithetical to core Republican ideology at least from the perspective of the base which sees the wall as symbolic of American nationalism even if it is not effective in practice. The President can be expected to drum this up and remind any defecting Republican of this.
In game theoretic parlance, "continue" is also a dominant strategy for the Republicans to play in this game.
A one shot game would suggest that the outcome is a government shutdown that persists. In my prior analysis from earlier this year I noted that in practice the game is more fluid than the theoretical one shot situation. Costs are also asymmetric in practice, so the question then is who will likely cave in first since the costs of the shutdown increase the longer it lasts.
I predict the shutdown will last for long and that the Republicans will eventually "swerve". The border wall may not be the mountain that Republican lawmakers want to die on if the Democrats refuse to budge and the costs become larger. This is all the more likely as come January as the new Congress takes over, the continuation of any shutdown will be blamed on the GOP led Senate, as the House will likely pass whatever bills it needs on funding that will not include the President's level of funding for the wall.
As the costs of the shutdown become larger, the question will then become, what is really wrong with the alternative proposals? There is no apparent pressure on the side of the Democrats the longer the shutdown lasts as it is on the side of the Republicans. Finally, the reason it will last much longer is due to the fact that the President by having dug in deep will continue to hold out for as long as possible and will eventually blame GOP lawmakers for the failure to get his border wall funded at the level he desired.