It seems appropriate to follow up on my earlier post about the factors that create impasse (as applied to California budget negotiations), with a post on what finally broke the impasse. In other words, why did the Democrats cave in to the Republican demand that taxes not be increased? Some political analysts attribute that result to the Democrats simply being more “wimpy” than the Republicans. Because Democrats seem perpetually less organized and more prone to infighting, because they seem to have more difficulty getting a coherent message across, or because they just lack backbone, the thinking goes, they are always getting rolled. I’m sure there is something to this kind of personality analysis of the parties, but I’m not sure it’s the whole story. Here I want to analyze the issue from the point of view of negotiation dynamics, and the needs and interests of each side in making a deal.
Let’s over-simplify the options available to close the California budget gap as (1) raising taxes, (2) cutting spending, and (3) more borrowing. Let’s over-simplify the Legislature as consisting of two parties of approximately equal bargaining power (the numerical disadvantage of the Republicans is balanced by the two thirds requirement for raising taxes). Given those dynamics, one would expect a result that consists of a healthy dose of both tax increases and spending cuts, with some additional borrowing thrown in to satisfy both sides’ interest in deferring unpleasant problems. But that was not the result that obtained. The advocates of no taxes clearly got more of what they wanted, because the resulting deal basically consisted of a combination of spending cuts and more borrowing. So why did the Democrats blink while the Republicans held firm?
I think one answer gets back to my discussion of the political pressures on each side. Republicans have a lot to lose by agreeing to tax increases. They have taken a pledge not to increase taxes. Each legislator who votes to increase taxes faces likely defeat in the next primary. The party’s whole philosophy is based on the idea of reducing the size of government, including using tax reductions as a lever to reduce the size of government (query whether that has ever actually worked in practice, but that’s the theory anyway). The Democrats, on the other hand, are perhaps more beholden to interest groups that depend on state spending, and also more committed to a philosophy of using government to solve problems. So they have something to lose by agreeing to spending cuts. But Democrats don’t face the same political consequences if they don’t raise taxes that Republicans face if they do raise taxes. Since nobody likes paying taxes, voters are less likely to be mad at legislators who refuse to raise taxes. Therefore, Republicans probably suffer more if they give up their commitment not to raise taxes, than Democrats do if they go along with spending cuts. There is another aspect of the costs to each side of not making a deal. If California cannot pass a budget, its credit rating goes down; its reputation suffers; and its government has difficulty functioning. While these costs bear down on everyone, the political consequences of failure may bear down more heavily on Democrats. Indeed, one might even argue that it doesn’t bother Republicans as much when the government doesn’t function, since that accords more with their philosophy.
As a result of all that, we had the classic situation where even though both sides seemed to have equal bargaining power, one side clearly needed to make a deal more than the other side. Whenever that happens, the party that must make a deal generally gets a worse deal. The other side only needs to wait out the side that is getting more and more anxious by the hour to make a deal, until the party that must make a deal finally caves. That seems to be at least part of the explanation for the deal that we Californians got.
(AP photo) (Notice the body language and facial expressions of the players in the accompanying photo: the self-satisfied smirk on the face of Assembly minority leader Blakeslee, the powerful stance of Governor Schwarzenegger, the fawning grin of Senate president Darrell Steinberg, and Assembly Speaker Karen Bass’s tilted-back head and forced smile.)