Every negotiation is a lesson in game theory, and the current battle over the debt ceiling is no exception. In the current debt ceiling negotiations, Americans are currently observing a subset of brinkmanship known as madman theory. This is a negotiation strategy where one party intentionally appears irrational or unpredictable, to create a sense of fear or uncertainty in the other party and gain an advantage in negotiations.
Fresh off their brinkmanship victory in the Speaker nomination fight, the Freedom Caucus has gained significant leverage to demand concessions in the ongoing debt ceiling debate. There is a fundamental difference in the final goals of this battle and of previous battles. The players in previous debt ceiling negotiation games wished to avoid a default on the debt, as they were, for the most part, rational, optimizing actors, who would be severely hurt if a default were to actually occur.
But avoiding a default is no longer the final goal in this negotiation. The Freedom Caucus seems to be not only immune to scandal- rather, they seem to be fueled by it. The mantra to “own the libs” is the underlying philosophy of their voter base, and the foundation of their campaign funding. In the narratives of the right-wing media bubble, the members of the Freedom Caucus could possibly come out on top in the eyes of their supporters, even in the case of a default. It’s hard to tell how much of their interest in reducing the deficit is genuine, as the deficit hawk is a fickle animal. It seems to go through a pattern of hibernation or activity that, surely purely by coincidence, appears to line up perfectly with which party resides in the White House.
Brinkmanship is a fairly simple equation. One or more players create a situation where, if they do not reach a deal, something that would be very bad for everyone will occur. The best deal in this situation goes to the player most willing to walk away from the deal and let the bad thing happen- the player who will go right up to the brink. But now, we have an entirely different game. With players who are willing to trigger the default, or who at least seem unreasonable or ignorant enough to do so, the usual tools of negotiation break down. Unable to count on a mutual aversion to default, the reasonable players are left with no choice but to concede to the unreasonable players. From an economic and policy standpoint, there is nothing different about the current debt ceiling battle. But from a negotiation standpoint, Congress and the country are in a precarious situation.
Republican induced hysteria over a debt crisis relies on a fundamental misunderstanding of the national debt. The credit card debt of a private citizen and the debt of a government that has monetary sovereignty are entirely different things. The unfortunate fact that they are referred to by the same word may contribute to the confusion over the national debt’s implications. As Alan Greenspan himself acknowledged in 2011, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” While printing money to pay back the debt is not an ideal proposition, Greenspan, Buffet, and others have confirmed that the US cannot possibly default on its debt as long as it has the political will to avoid doing so. The same cannot be said of a mortgage or a business loan.
But the US also is not leaving the debt it accumulates to be paid off by future generations. These are the two differences between public and private debt that are overlooked in the current discourse: first, the US cannot default on its debt, and second, the US does not have to pay off its debt in full. A consumer saddled with credit card debt must eventually pay that debt, and if they do not have the money to do so, more will not appear out of thin air. Thus, that consumer sees being debt-free as a moral imperative and a reflection of personal responsibility. When that consumer looks at the US national debt, they may see the same situation, rather than a situation operating on entirely different and far more complex rules and consequences. That confusion is being exploited by debt hawks who are probably aware of the differences, but aim to keep voters in the dark for their own political gain.
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