(SOUNDBITE OF ARCHIVED RECORDING)
ROB PORTMAN: This committee has been tasked with reducing the deficit by 1.5 trillion over the decade. And frankly, reductions of this level have never been done before. The truth is, this extraordinary committee exists because nothing else has worked.
(SOUNDBITE OF SONG, "EVERLASTING LIGHT")
THE BLACK KEYS: (Singing) Let me be your everlasting light. Sun where there is none.
ALEX BLUMBERG, HOST:
Hello, and welcome to PLANET MONEY. I'm Alex Blumberg.
ROBERT SMITH, HOST:
And I am Robert Smith. Today is Tuesday, September 13. And that was Senator Rob Portman from Ohio you heard at the top talking about the so-called supercommittee, the committee in charge of reducing the national deficit by $1.5 trillion over the next 10 years.
BLUMBERG: Today on the show, we talk about the supercommittee and how it just might be, if you asked me, an example of Congress doing its job perfectly.
R. SMITH: You said it, I did not. We will look at the politics, legislation, Congress and the supercommittee today through the cold, hard lens of game theory. That's in a minute. But first, the PLANET MONEY Indicator with Jacob Goldstein.
JACOB GOLDSTEIN, BYLINE: Today's PLANET MONEY Indicator - 49,445. The median income for U.S. households last year was $49,445. This is according to a big census report out today. And median household income actually fell last year. And, in fact, it was the third year in a row that median household income has fallen.
R. SMITH: This feels - this actually does feel really depressing to me because we're not talking about, oh, you know, we're always talking about the rich are these tiny little niches of income. This is the median household. You know, I picture this little house with a little yard in Ohio with the median family in there.
BLUMBERG: It's tough.
GOLDSTEIN: The statistical middle. This is like the - normal.
GOLDSTEIN: Just right down the middle.
R. SMITH: And the family in the middle, the Smiths, if you will, they are doing worse than they were last year and than they were the year before.
R. SMITH: But does this mean that, you know, that they're making less money, that each person's making less money? Individual wages are going down?
GOLDSTEIN: You know, actually, it doesn't. And that is one of the interesting things when you sort of dig into the numbers on this report. What you see is for people who have jobs, median earnings have basically been flat after you adjust for inflation. So people aren't doing better, but they aren't doing worse either. They're just sort of treading water. And this has been true for years. It was true long before the recession. And it has held true throughout the recession and after. So what we're seeing if we go back to this fall in median household income is, of course, during the recession, millions of jobs disappeared. For people who are working, they're doing basically the same. But a lot fewer people are working. So the median household, as a result, is doing worse.
R. SMITH: So that family in Ohio may just have fewer hours worked. Or, you know, maybe the wife or the husband's out of work or part time or something like that.
R. SMITH: That brings the median down.
R. SMITH: Thank you, Jacob.
BLUMBERG: Thanks, Jacob.
BLUMBERG: All right. Robert. Today, we delve deep into one of the strangest, most perplexing and mysterious institutions known to mankind. I speak, of course, of the U.S. Congress.
R. SMITH: Consider the evidence. Over the summer, this institution, Congress, entered into a long protracted debate about raising the debt ceiling. But the amazing thing about this debate was that a vast majority of Congress actually agreed that failing to raise the debt ceiling would lead to a national catastrophe. And not only that, they agreed that our national debt levels will become unsustainable in the future. And yet, even though most of them thought the exact same thing, there was political paralysis. They could not do their job.
BLUMBERG: And then it got even weirder. Their solution was this. We, Congress, can't come up with an answer so we're going to give the whole thing to a committee to solve. Not just any committee, of course, a supercommittee - six Democrats and six Republicans who are supposed to do what the Congress-at-large failed to do - find ways to reduce the deficit. So today, we investigate two questions. Why was it so hard for Congress to do something that pretty much everyone in Congress agrees needs to be done? And why would foisting the problem onto a supercommittee make any difference at all? What kind of games is Congress playing anyway?
R. SMITH: Well, funny you should mention that because we're going to tell you today exactly what kind of games Congress is playing because it turns out, to understand Congress, it helps to look at it from the perspectives of game theory.
BLUMBERG: It's like I set you up with my question.
R. SMITH: Certainly did. This is a branch of mathematics - game theory - which has been adopted in economics and political science. And it basically says that a lot of everyday human interactions resemble very simple games with simple rules that you can analyze mathematically. In other words, if you always said, oh, yeah, Congress, they're always playing has a bunch of games - well, actually, they are.
BLUMBERG: For example, you've got two players - the Democrats and the Republicans.
STEVEN SMITH: The two players play this game of chicken with each other.
R. SMITH: That's Steven Smith, who is a professor of political science at Washington University in St. Louis. And he says, yes, chicken is a technical term in game theory.
BLUMBERG: OK. So let's remember how chicken works. You've got two cars driving as fast as they can right at each other. And there are basically three options. I swerve and you don't. That means I lose. If you swerve before I do then I'm the winner. But if neither driver swerves?
S. SMITH: They both die. And so in a typical game of chicken, what you want to do is either on the basis of previous knowledge or in your behavior there on the road is to show you're the most crazy. You're willing to take the greatest risk. You're willing to die. And you're counting on the other guy to be weak-kneed, and in the end, to give in before the crash occurs. And so in politics, we oftentimes see two sides in a bargaining game showing the same thing, with one party trying to persuade the other party that it's willing to walk away from the table even if that risks disaster. And so in this case, we've got, you know, Republicans with respect to the debt limit saying they're willing to allow the debt limit to be exceeded and suffer whatever the consequences are. And they basically said, we don't believe the Democrats are willing to do that. They're in power, after all. Maybe they have more at stake politically. So we're just going to hold out.
BLUMBERG: Now, chicken might seem pretty simple, but mathematically, it's kind of complicated because it's all about how your preferences are ranked in order and how that order changes over time.
R. SMITH: OK. Let's do it.
BLUMBERG: All right. So we're playing chicken, right? Before we begin, here are my preferences in order. We haven't started driving towards each other. We're in our cars. Our engines are revving but we're not moving. My first choice is to win.
R. SMITH: You want me to swerve away and look like a chicken and you are the winner.
BLUMBERG: Glory to me and my family. My second choice would be to swerve. And then, of course, my last choice - my least-desirable choice - would be to die in a fiery crash.
R. SMITH: So the ranking is win, lose, die?
BLUMBERG: Exactly. As we drive towards each other, however, those preferences might start to change. Here we are. We're rushing towards each other.
R. SMITH: I can see the whites of your eyes.
BLUMBERG: Exactly. My last choice - dying - becomes more and more likely. All of a sudden, that choice that didn't seem so good - swerving - all of a sudden that's my top choice. Same thing in Congress.
S. SMITH: The first priority for the Democrats might be to protect entitlements and a high level of government services. And the revenues could go with them. The first order outcome for the Republicans would be tax cuts and a lower level of services. So they have conflicting first order priorities. Their second order priority is doing something about the deficit. And, of course, the third order priority would be a disaster. Nothing gets done. Deadlock.
R. SMITH: So let me recap. The Democrats and Republicans do not agree on their first choices. In fact, they hate each other's first choices. The second choices, they do agree on - deficit reduction. And the third choice is disaster, is defaulting on the debt and ruining the United States economy. So in theory, the closer they get to that third option to disaster, to default, the better that second option looks, cutting the budget. In fact, that will become their first choice.
BLUMBERG: But what happens if one side doesn't think they're playing a game of chicken, that they don't agree that crashing is actually a disaster? Steven Smith says that's why the Tea Party was so resistant to making a deal.
S. SMITH: What the Tea Party types were saying is that, look, our argument that we need no agreement here is very credible because we don't think that a crash is all that harmful. And we think both cars are made out of rubber. We have experts who tell us that the cars are made out of rubber and that we'll survive this just fine. So it's more important that we stick to our guns and plow straight ahead than it is to, you know, cave in on the basis of these threats. That was kind of the argument. I don't think it was an argument that mainstream Republicans or the Republican leadership really accepted.
BLUMBERG: I have this image of my mind - in my mind of like, you know, somebody more from the Tea Party who is making the argument that there isn't anything disastrous that's going to happen if we don't raise the debt limit, sort of driving the car. And then, a more moderate Republican like John Boehner sort of in the back seat being like, I think there - we could crash. We could crash here. And sort of like the argument is between those two people in the car a little bit, right?
S. SMITH: Well, it's more like two people having a hand on the steering wheel and they're tugging against each other with somewhat different interpretations of what the consequences of continuing on straight will be.
R. SMITH: So what happened last month during the whole debt ceiling thing was that both sides swerved at the very last minute. And then both sides claim that, oh, no, we didn't swerve at all. We're the winners of chicken. And then everybody declared victory for the moment.
BLUMBERG: And this, Robert, if I could say, is where the true genius of Congress comes shining through.
R. SMITH: True genius of Congress. I've never heard that before.
BLUMBERG: Like sunshine through the clouds.
R. SMITH: But go on. I would love to hear this.
BLUMBERG: The leaders of Congress knew that they are being shaped by forces beyond their control. They're but pawns in this cosmic game of chicken. And in order to change the outcome, to actually make progress on deficit reduction, they had to change the stakes of the game.
S. SMITH: They put in place a process for the fall that restarts the game of chicken. But they've done something different. This time, they've decided to up the ante. They've decided that not only, you know, will the driver die, but the driver and his family's going to die.
R. SMITH: And those two cars filled with families, filled with beautiful children hurdling toward each other? Those two cars are now known as the supercommittee.
BLUMBERG: All right. So the supercommittee, you may remember, takes all the fighting from this summer and puts it in a tiny room with 12 members of Congress. They have to cut $1.5 trillion from the deficit before Thanksgiving. And if they don't - and here's what makes this game different - if they don't, then automatic cuts go into effect.
R. SMITH: And not just any cuts. These cuts target the favorite programs of the two different sides. If the committee does not decide on $1.5 trillion, then half the cuts will come from something the Republicans usually support - military spending, the Pentagon. And the other half of the cuts will come from something that Democrats love to defend - Medicare and domestic programs.
S. SMITH: The Republicans presumably do not want the defense budget cut. And Democrats don't want the domestic discretionary programs cut in such a mindless way. And across the board deep way with pretty serious policy consequences, they'll consider this to be such a serious problem that they will work their way through to an agreement.
BLUMBERG: All right, Robert. Now allow me to present one more reason the supercommittee might actually work - might actually be a sophisticated work of legislative genius.
R. SMITH: (Laughter).
BLUMBERG: All right, ready? It might work because it might actually create a scenario in which people on the committee might actually change their minds. They might be open to reasoned, persuasive argument. Now, this might not sound like a controversial statement, but this is actually a huge battle in the social sciences.
S. SMITH: Yeah, between economists and psychologists. Because economists and psychologists view politics very differently. There's a professor from UCLA, Kathleen Bawn, and she talks about this. We watched a video of hers on the Internet. It was great.
BLUMBERG: Yes. And at 64. It's fantastic.
S. SMITH: The psychological view of politics is that you can change people's minds if you just give a good enough speech or if you have an ad that's persuasive and slick enough. If you play your cards right, the psychologist can argue, then people will start to agree with you.
BLUMBERG: But then there's this whole other force within the social sciences - economics. And they have a different point of view. The economists say people - they don't really change their minds that much. Their preferences are fixed. They want what they want, and whether they get it or not is not about moral suasion or persuasion. It's about, how do you set up rules and strategy? And we actually talked to this one game theory expert, Charles Stewart at MIT. And he actually said, yeah, we all believe this. But then there's this one little footnote - actually a literal footnote. He said that there's this famous book by Mancur Olson. It's called "The Logic Of Collective Action," and it sort of lays out this view that behavior in most situations is fixed.
S. SMITH: But then he has this kind of little footnote, a little paragraph along the edge where he says, but, you know, none of this applies in small groups. You know, when you get to a small group, dynamics are different. And so the other thing I would say is that yes, I generally fall down on the side that preferences don't change a whole lot. But when you create a small group, there are ways that, you know, individuals interact when they're facing each other as human beings. And again, in their heart of hearts, their preferences might not change, but they are willing to bargain in a different way.
So I would say another way in which the supercommittee is different is that it is a group of 12. It's not a group of 535 or, you know, however large just the party caucuses are. You know, it's a smaller group, and these people know each other. And, you know, so there's both just the human interaction plus the local knowledge of what it might take to move someone in a particular direction, given, you know, things they've said in the past or coalitions that they've joined with in the past that are hard to rely on when you're trying to bargain just anonymously in a huge caucus.
R. SMITH: So you seem to be saying that the supercommittee isn't a whole new game. It's just a simpler game.
S. SMITH: Oh, absolutely. It's a simpler game played by a group of people who, by either their history or their institutional position, are more, quote-unquote, "patient," in the terms that we've been using.
R. SMITH: They play better with others.
S. SMITH: They play better with others. They hold positions of power. And, you know, while they are ideologically committed, they have all in their various ways shown success in getting along with people who aren't like them, which is unlike some of the people who have been making it hard to reach an agreement thus far.
BLUMBERG: So, Robert, I hope I've convinced you that the supercommittee is a brilliant and elegant solution to this problem. It works on a psychological level. It works on an economic level. What is not to love?
R. SMITH: Yeah, it's strange how no one seems to love it. I mean, the problem with the supercommittee is, first of all, it does appear as if Congress is not actually doing its job - that it is subcontracting its work to 12 guys in a room that they should do themselves. But setting that aside, there is a problem with this, which is, when we talk here about compromise, when we talk about adults talking in a room seriously, for a lot of members of both parties, this looks like your members are selling you out.
So for the Democrats, some of them actually want more spending right now. And yet, they've set up a game, the supercommittee, where the only rules are how much can you cut. So the very rules of the game offend a lot of Democrats who say in a recession, or close to a recession, we should be spending more. And then, of course, you have the Tea Party Republicans. When they see the rules of the game - $1.5 trillion over 10 years - they say that's nothing. That is nothing. Your rules of your little game have already sold us down the river.
BLUMBERG: And then there's this one other thing that Steven Smith told us.
R. SMITH: Yeah, a little catch.
BLUMBERG: (Laughter) He says sure, Congress has to play by these rules that it sets up. But they also write the rules, right? So right now, they've designed a system where they've put each other in these cars that are filled with their family. They're screaming towards each other. If it works, compromise will emerge - some sort of compromise bill will emerge. But then there's nothing to stop some future Congress a couple years down the road from just basically rewriting everything that they've done.
(SOUNDBITE OF SONG, "EVERLASTING LIGHT")
THE BLACK KEYS: (Singing) In me you can confide when no one's by your side. Let me be your everlasting light.
R. SMITH: We'd love to hear your thoughts, your comments, your questions, rules for brand-new games. Send them all to us to firstname.lastname@example.org.
BLUMBERG: Or visit us on our blog - npr.org/money. Find us on Facebook, Twitter. I'm Alex Blumberg.
R. SMITH: And I'm Robert Smith. Thanks for listening.
(SOUNDBITE OF SONG, "EVERLASTING LIGHT")
THE BLACK KEYS: (Singing) Loneliness is over. Dark days are through. They are through.
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