Failure of compromise: the debt ceiling

While reading Howard Marks’ excellent memo on the debt ceiling crisis, titled “Down to the Wire,” I was struck by how deeply the political issue here relates to a core human behavioral problem called irrational escalation of commitment.

Escalation is most commonly seen in the context of financial investments.  For example, gambler’s fallacy leads players to double-down on their original bets to make lost money back. And businesses continue spending money on dying product lines because they’ve already invested so much in manufacturing. It’s usually summarized by the phrase “throwing good money after bad.”

But here we see escalation in a different context: public credibility. Politicians know the consequences of their legislative actions, such as fighting spending cuts and continuing unhealthy tax rebates, but have already publicly taken position in favor of those actions.  So they continue fighting tooth and nail, entrenched in their prior positions, to avoid sacrificing political capital.

It’s perfectly summarized by page 7 of the memo:

There’s another important difference of opinion; which is more important, adherence to avowed principles or action to address the short-term problem? Many politicians have made public pronouncements that render the two mutually exclusive.

As always, acknowledging that you’ve made a mistake and your prior public pronouncement was misguided is a tough pill to swallow.  It requires character, intellectual honesty, and the willingness to submit yourself to questioning. Sadly, politicians lack many of these skills.


Or perhaps I’m being too harsh on politicians. After all, politicians are only marketers at their core, and respond to the demands of their consumers. So maybe voters are really at fault here. In Isaiah Berlin’s conception, people prefer “hedgehog” thinking over “fox” thinking.  The voting public likes its politicans to be firm, resolute, and predictable. Learning and owning up to mistakes are too scary to handle.

I should hope this will change in the near future.  As Marks says, “Repairing the situation will require difficult decisions and great sacrifices, especially on the part of lawmakers required to vote for unpopular solutions.”  And I’d prefer not being forced to switch countries.