Tuesday, 15 October 2013

Congressional Republicans and network effects

What on earth are the Republican Party's representatives in Washington DC thinking of? First they said they wouldn't pass a budget without 'defunding' the Affordable Care Act (or 'Obamacare') - whatever that meant. Then they argued for a delay. Then they refused to pass a budget, shutting down large swathes of central government. Now they're basically pleading for any sort of spending concession at all, so that they can return to their activists and say that the White House has thrown them a bone.

All while the clock ticks down to a catastrophic default - one that might not hit home right away on Friday, but will as sure as eggs are eggs glue up the global economy next week. No-one knows what will happen if the US begins to turn away its debtors. Perhaps the entire banking and exchange system will be at risk, and we'll be right back where we started in 2008 - facing a renewed Great Recession. What in the world could motivate a few hundred members of the House of Representatives and the Senate to risk opprobrium, unpopularity, fury among their own constituents, renewed recession (if we're lucky) and an easy, easy political win for their opponents?

Some point to the gerrymandered borders of House seats, which are often drawn by state assemblies dominated by partisans. That means that you don't have to worry about your right-wing electorate; they're not going to elect a Democrat any time soon. What you really have to worry about are your far-right activists, who might just decide to go for someone more extreme in a contested party primary. So there's nothing to be gained from compromising.
But it's at least as possible that Republicans are exhibiting the effect of tightly-knit networks of thought, belief and sentiment - reinforced by their (often-exaggerated) relatively cosy electoral boundaries and alliances, to be sure, but not actually caused by them. Such network effects are analysed in Paul Ormerod's recent and fascinating work of popular economic explanation, Positive Linking, which despite its terrible title is a lively and funny introduction to mob groupthinks, drawing on examples from football hooliganism to Reformation martyrology.

How does this work? Well, the individualistic, calculating, revenue-maximising revenue of economic legend - of the equilibrium, Received Expectations economics that most Republicans choose to adhere to - would say that every single rational citizen arbitrages their profit-and-loss decisions until they reach a sweet or 'optimal' point where they spend their resources wisely. Those in turn add up, overall, to the best possible outcome for society as a whole, with everyone's choices well represented. What would this have looked like? A lot of to-ing and fro-ing about the budget, some compromises on both sides (though not on 'Obamacare', which the White House always made clear was not on the table), and then a settlement on the brink of the shutdown. Honour served; everyone happy.

You won't be surprised to hear that life isn't like that.

What in fact happened is that some Republicans up on the hill egged others on; others refused to compromise, forcing their leaders into ever-more absurd positions; others got enraged when the Obama administration and Senate Democrats had the temerity to start fighting back; and some others got pulled along by all the shouting and the shoving. As Ormerod argues on page seventeen of Positive Linking, we've tended to think of the 'widom of crowds' as being unquestionable. But that's not always the case:

The crucial assumption needed for the average of the collection of individual opinions to be more accurate than a single expert is that they do indeed form their views independently, without reference to those of others. Once this independence vanishes, once the agents become fused into a single whole, often the outcome is not so much the wisdom, [but] more the 'madness of crowds', as it was described by Charles Mackay as long ago as 1841.

There's a deeper theoretical insight here. Uncertainty affects everything. We can't see what's ahead of us - or even around us - very well. We're bound up with the narrative, and tied into the acts of others. Our apparently 'rational' choices are constantly shaped and reshaped by the world around us. One other example of such phenomena - the structural effects of information known to sellers, but not buyers - is known as the 'market for lemons'. But we're all going to look like lemons, if things keep up like this.

There'll probably be a deal, starting first in the Senate, where cooler heads have been prevailing. But herd effects mean that we can't count on it. And the clock is still ticking.

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