The Shutdown Wasn’t Pointless. It Revealed Information.

Edit: I have since included a more detailed version of this post in my book Game Theory 101: Bargaining.

In the 24 hours since Congress reached a deal to reopen the United States Government, many reactions have been along the lines of “this shutdown was pointless–the deal they reached could have also been reached 16 days ago.” And while it is true that an identical deal could have been made 16 days ago and everyone would been better off, I think it is a huge leap to say that the shutdown was pointless. Rather, the shutdown conveyed information to moderate Republicans that they could not have received without the shutdown. This new information information made the deal palatable yesterday even though it was unpalatable two weeks ago.

I go into further detail in the video below, but here is the simple version. Neither Democrats nor moderate Republicans preferred a shutdown to some deal that kept the government going. However, based on the PR blitzes both parties went on during the shutdown, it seems reasonable that there were conflicting viewpoints on how the public would react. Republicans thought Democrats would shoulder most of the blame; Democrats thought Republicans would shoulder most of the blame. Consequently, both stood firm.

Sixteen days later, it became clear that the public was blaming the Republicans. Polling on this had been consistent for a solid two-week period. It would have been incredibly difficult for Republicans to stage a comeback at that point. And waiting any further risked a default, which would have been even more costly. So the Republicans agreed to the deal. The shutdown made this possible–the costly delay taught the Republicans that a shutdown was a losing battle, which in turn made them more amenable to a deal. From a welfare perspective, this sucks. But that is also the nature of bargaining under uncertainty.

Perhaps an analogy to war is useful. War is stupid–you could always take the result of the war, implement it without fighting, and leave everyone better off. But sometimes a weak party believes it is stronger than it really is. This makes it overly optimistic in bargaining, leading to a breakdown and war. However, the process of fighting reveals the weakness, in turn making the weak side willing to sit down at the bargaining table. The Republicans are the weak side. The Democrats are the strong side. The costs of war are the costs of the shutdown.

Overall, it is easy to blame the shutdown on partisan politics. And while extreme polarization makes the costs of bargaining breakdown appear smaller, partisanship alone gives a poor explanation for the shutdown. There needs to be some sort of bargaining friction, and I think uncertainty over who will receive the blame makes a convincing story.