Budget Policy as a(n Increasingly) Nested Game

1.Politics and policymaking consists of multiple games being played simultaneously—e.g., Elections game “permanent campaign” of party brand- building Budget game Sectoral agenda-setting and agenda control games Sectoral legislative enactment games With distinct but overlapping players, rules, norms and timeframes

2.These games are becoming increasingly (though imperfectly) integrated

As players who have different objectives and play by different rules and norms seek outcomes that are Pareto optimal for them across multiple games

3.Permanent austerity (and other developments) has changed the nature of these games toward blame-generating

The Policy/Political Calculus: 1.Politicians are boundedly-rational actors who have both electoral and policy objectives: 2.Politicians have three basic strategies to win support from voters: A.Claim credit B. Avoid or deflect blame—which mostly gives voters a reason not to vote against you C.Generate blame against opponents

“Politics of permanent austerity” leads to: Fewer credit-claiming opportunities to propose new programs with broad benefits Fewer opportunities to offer budgetary “side payments to secure cooperation in policymaking

more blame-generating ”opportunities” as governments face pressure to reduce spending

Impacts of blame-focused politics in the U.S.: Keeps politically difficult reforms off the agenda for long periods

Inhibits compromise, because politicians fear attacks from their own political base

Keeps politicians from being “first movers” for loss-imposing actions

Causes reform initiatives to be withdrawn, especially as elections near

4. Changing the default (what happens if there is no agreement) matters)— but not necessarily in a good way

1.Disaster default—e.g., government shutdown or Social Security default is supposed to motivate politicians to compromise by fear of incurring blame for unpopular outcome Two types of defaults:

...but it only works if politicians think that they can’t deflect blame to someone else

...and it can have a lot of collateral damage

2.Stealth defaults—changes in expenditures or taxes that are politically unpopular but occur with low visibility and “clean hands” for politicians—e.g., Automatic Stabilizing Mechanisms (ASMs) in Notional Defined Contribution pension systems

ASM Outcomes So Far: Sweden- Sustained but partially evaded Germany 1- Repealed Germany 2- Partially and temporarily suspended

Sustainability Patterns of ASMs: ASMs are prone to reversal (Kohl reform in Germany) after party change when enacted without opposition party support Continued party cartel-like behavior can help to prevent threats to ASMs from reaching the agenda High volatility ASMs in Sweden and Germany were successfully challenged in run-up to elections

5.Any change in budget rules will have unintended consequences

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know.” -Donald Rumsfeld But unintended is not the same as unanticipable

There are multiple ”equilibrium” levels of blame-generating, and they can change over time within a system Norms can constrain blame- generating—but maybe just in Sweden Some room for hope:

And only if participants perceive a reason to change

Political science and budget reform: 1.Politics and policymaking consists of multiple games being played simultaneously 2.These games are increasingly (though imperfectly) integrated 3.Permanent austerity has changed the nature of these games toward blame-generating 4.Changing the default matters—sort of 5.Unintended consequences are: –Inevitable –Not the same as unanticipable consequences