Tuesday, January 1, 2013

The Multiple Political Selves Model of the "Fiscal Cliff"

Back in 2011, the deal for raising the debt ceiling was supposed to make Congress compromise on a budget before 2012. But why expect a more reasonable Congress to materialize just because a year has passed?

This reminds me of a model from the behavioral economics literature: multiple selves in intertemporal choice. Its purpose is to explain various anomalies in consumer choice. For example, why do people so often buy a gym membership, and then never attend? Why do various self-disciplining devices, like "Christmas clubs" or collaborative diet plans (e.g. Jenny Craig) exist?

Basically, the theory goes, people treat a future version of themselves as an entirely different person, a person which (typically) is much more far-sighted and self-restrained than the person they are today. This explains why procrastination is so common: present-me doesn't want to do the work, but certainly future-me will! Of course, when the future becomes the present, the exact same logic causes the unpleasant task to be shifted forward even more.

It seems that in American politics we suffer from a multiple political selves problem. Current Congress may be too divided to reach any reasonable deal, but surely future Congress will be wiser and more restrained... But it's not.

This is why the fiscal cliff "deal" involves a two-month delay on the funding cuts which have everyone so up in arms. Sadly, we'll still have all the same nincompoops in Congress when that deadline rolls around as well.

Personal procrastination is a bad habit, but political procrastination is even worse. There's a case to be made that Congress should just pass some budget deal, even if it's not the best one, just to quiet market uncertainty. Unfortunately, continued delay seems the most likely outcome. The year changes, the politicians still stay the same.

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