White House Press Secretary Jay Carney just argued that, if the House Republicans won’t allow a default, why would they not give a longer extension of the debt ceiling, instead postponing another round of brinksmanship in 6 weeks, which—the argument goes—will merely lead to another extension, with arguably deleterious impact on the economy and financial markets.
I wanted to quickly point out that this appeal to subgame perfection—the game theoretic notion that equilibrium behavior should be based on credible threats—is intuitive, and arguably spot on…in a two player bargaining situation. But, this is a bargaining game between (to simplify) Obama and the House Republican Conference.
Arguably, tea party members can’t—for signaling reasons similar to those described in this post—vote for along-term extension of the debt ceiling. According to such an argument, this might be “the best that Boehner can get.” However, there’s another story that is more interesting. Suppose that Boehner and Obama each wish to achieve real reform, but both realize that any changes to the Affordable Care Act are a “no go.” (That is, suppose they wish to reach “a grand bargain” on entitlements and taxes.)
Suppose they need time—like, more than 7 days—to work this out. In order to get such a bargain approved without requiring Democratic support, Boehner has a problem without the debt ceiling as a “nuclear weapon in his back pocket.” In particular, Boehner can use the very real (in legal terms) threat of default to bring his conference into the fold on a vote bundling the grand bargain with a debt ceiling extension. Indeed, such a story would be a “win-win” for the GOP and Obama, who could presumably use the next couple of weeks to both take some credit for the bargaing and, arguably follow some strategy like the one I describe in this post.
The point is that the threat of breaching the debt ceiling can be useful to both Boehner and Obama in terms of keeping the rank-and-file in line on a substantive vote. Finally, note that, to the degree that some reelection-minded members actually don’t want to default or keep the government shut down, they would also prefer a short-term extension in this case, so as to simultaneously provide electoral cover for real reform.
With that simultaneously hopeful and cynical note, I leave you with this.