Agency Problems’ Impact on Budgetary Outcomes

David Super

     Over the past few years, critics on both the Left and the Right have been intensely critical of their respective party leaders for supposed timidity in failing to achieve their fiscal objectives.  These criticisms are not without foundation.  A careful examination of the past few years, however, suggests that although agency problems have real adverse effects, within each political coalition grassroots distrust of leaders has proven much more destructive to the grassroots’ espoused substantive goals. 

     The inescapable conclusion is that each side needs effective ways of dissuading their leaders from putting personal considerations ahead of the group’s substantive objectives, micromanaging negotiations from afar is disastrous.  Even when partisans suspect their leaders have fallen short, failing to support those leaders opens a huge opportunity for the other side.  This post illustrates this point with one actual agency failure and one grassroots revolt from each side of the political chasm. 

     With an evenly divided Senate during President Biden’s first two years in office, and with supposedly moderate Republicans abandoning much pretense of bipartisanship, passing any legislation required the support of every Senate Democrat.  That included the moderate Joe Manchin and the capricious Kyrsten Sinema.  As much as progressive activists might wish otherwise, neither senator shares their values.  Although Arizona has recently elected some fairly liberal candidates, West Virginia is one of the reddest states in the country:  if Joe Manchin were not a moderate, he would not be a senator.

     With the possible exception of the Affordable Care Act, the Build Back Better deal that President Biden negotiated with Senator Manchin would have been by far the most important social legislation in more than half a century.  It would have assured child care subsidies to low- and moderate-income working families, revolutionized financial assistance to low-income families with children through a vastly improved Child Tax Credit, dramatically expanded the availability of housing assistance to low-income people, transformed our nation’s response to climate change, and much, much more.  Many of these provisions were ones Senator Manchin had opposed but agreed to accept as part of the deal. 

     In exchange for those concessions, however, President Biden agreed to drop provisions on family and medical leave and on immigration reform.  Senator Manchin insisted that both were just too hard a sell to his conservative constituents.  Immigration reform, too, could not pass because the Senate Parliamentarian had ruled it subject to a point of order, requiring at least ten Republican votes (not one of which was in prospect).  Those following the negotiations closely were astounded that President Biden had done so well with Senator Manchin and had understood that the parliamentary situation put immigration reform out of reach no matter what they had agreed. 

     Progressive activists, however, did not trust President Biden’s fidelity as an agent for the progressive agenda.  They were convinced that he could have won immigration reform and family leave had he pressed harder.  They launched a furious pressure campaign, vilifying Senator Manchin and loudly condemning him to his West Virginia constituents.  Grassroots pressure campaigns are inherently unpredictable; reportedly lines were crossed in some very ugly ways involving his family.  And in an appalling display of cowardice, the Biden White House refused to defend the deal it had reached and seemed to encourage the pressure campaign.  Predictably, once the President failed to stand behind his deal, Senator Manchin saw no reason to do so himself.  Congress came very close to passing nothing, and when the Inflation Reduction Act finally moved the following summer, virtually everything except the climate provisions had been dropped. 

     In addition, the year of demonizing Senator Manchin effectively eliminated any chance he had of re-election.  Although his victories have depended on gaining crossover votes from independents and Republicans, he also has depended on a heavy turn-out from West Virginia’s progressives, which he clearly would not have.  Knocking out Senator Manchin, who votes with his party on the vast majority of issues, seems likely to hand control of the Senate to Republicans in 2025.  That will doom President Biden’s judicial and other nominees should he win and would allow former President Trump to further remake the federal judiciary if he prevails.  It also ends any hope of passing progressive legislation even if Democrats retake the House. 

     I believe President Biden had, indeed, been a faithful agent for progressives.  But even if he was not, progressive’s rejection of his leadership proved disastrous. 

     That is not to say that President Biden’s fiscal leadership is above progressive reproach.  When Republicans took the House in the 2022 election, Democrats still had time to raise the debt limit before the new Congress took office.  President Biden refused to support such an effort, apparently in the belief that doing so would implicitly question the patriotism of Rep. Kevin McCarthy, the presumptive new House Speaker.  The President was convinced that Rep. McCarthy would never allow a default on the national debt and hence that a bipartisan deal could be struck.  Throughout the following Spring, even after it had become unmistakably clear that Speaker McCarthy had little real authority within the Republican Conference and had mortgaged his speakership to the House Freedom Caucus, the President brushed aside numerous proposals for technical fixes to the debt limit problem.  He elevated his desire to pretend that we still live in the courtly world of gentlemen’s agreements and patriotism over prudence and fidelity to the progressive agenda – to say nothing of the nation’s economic well-being. 

     The result was entering negotiations with Speaker McCarthy in a profoundly weakened position.  The predictable result was a deal that badly undermined the progressive agenda by sharply cutting real non-defense discretionary spending over the next two years.  By this point, Democrats had lost all leverage, and congressional Democrats wisely concluded they had no viable choice but to vote for the debt limit legislation. 

     Parallel problems, however, exist on the Republican side.  Speaker McCarthy won the best deal House Republicans could reasonably expect, given that their donors were quietly warning that a default on the national debt was absolutely unacceptable and would lead to numerous well-funded primary challenges.  The House Freedom Caucus nonetheless rebelled, forcing Speaker McCarthy to rely primarily on Democratic votes to pass the legislation. 

     This set a pattern that was substantively disastrous for the Republican far right:  because everyone knew that overwhelming Democratic support was necessary to move any further fiscal legislation, it could not include provisions that would cause widespread Democratic defections.  Democrats had power because their votes were available for a price; the House Freedom Caucus lacked power because their votes were surely out-of-reach. 

     This pattern continued with the continuing resolutions and then last week’s “minibus” (not to be confused with an “omnibus”) appropriations legislation.  The more far-right Republicans voted “no”, the more control they handed to Democrats.  Moreover, their raucous internal squabbling, their defenestration of Speaker McCarthy, and their quickly turning against their own far-right Speaker Johnson insured that any government shutdown would be blamed on Republicans.  This effectively robbed Speaker Johnson of any leverage negotiating with Democrats. 

     Here again, although House Republicans’ rejection of their speakers’ leadership quickly proved self-destructive, genuine agency problems did exist.  Speaker McCarthy’s frequent vacillations, and in particular his abandonment of his deal with President Biden, were not just unprincipled but also disastrous for the House Republican Conference.  In the ultimate repeat player environment, nobody in Washington can afford to allow their counterparties to renege on a deal, whatever the price.  Neither President Biden nor congressional Democrats could ever tolerate any further cuts below those in the Biden-McCarthy deal or they would never be able to count on any agreements they made. 

     Surely an old Washington hand like Speaker McCarthy knew that.  By prioritizing his desire to extend his speakership a few more months rather than leveling with his conference and letting the chips fall where they may, he allowed House Republicans to blunder along into positions so extreme as to preclude either meaningful negotiations or effectively blaming Democrats for any government shutdown.  Just as President Biden’s delusions about the civility of contemporary politics destroyed Democrats’ bargaining position on the debt limit, Speaker McCarthy’s delusions about his ability to hold onto his gavel wrecked Republicans’ bargaining position on final appropriations bills.  

     This entire analysis could, of course, be misguided if it is mistaken in its assumption that the activists’ goals are to change policy.  Some have suggested that much of the House Freedom Caucus is driven by the desire to stoke outrage, and hence fundraising, on social media.  If so, they may well be playing this just right.  I would prefer to think that progressives’ goal is to help people, but perhaps I lack perspective. 

     @DavidASuper1