High Bid vs. Low Bid Strategies and Obama

Reader CTH asks in comments:

It is becoming conventional wisdom in liberal circles that the White House undercuts itself by starting negotiations with the Hill at too low a level and that they just end up compromising on their initial compromise. You hear this a lot in regards to the stimulus bill. What is your opinion on this? I don't buy it simply cause I think Rahm & Peter Rouse would have a better understanding of Congressional politics than most bloggers but maybe I am wrong here.

You know, I don't really have more to say on this than what you said. Nevertheless, I'll give it a try!

There's really, IMO, no way to have a good go at this question. It would be nice if it was the case that if bills pass easily, then we know that the White House bid too low...but that's not necessarily true, because regardless of the situation it's likely that marginal voters will try to extract stuff from their position.

OK, let me tease it out a little more. I guess there are two possible models here. Model 1 (the liberal bloggers model; I agree with CTH's characterization of their position) is that the "moderate" position will always be, say, 20% to the right of whatever they're presented with. If that model is correct, then all the White House has to do is bid 20% higher than what they really want, and presto!

Model 2, however, says that there's some objective standard out there, presumably among Washingtonians, of what constitutes a "liberal" or "conservative" position on any issue. If a Democratic president tries going 20% higher (to the left) of what he really wants, then there's a chance that everyone will just toss the entire proposal into the garbage -- and the president's reputation with it.

Which model is correct? I don't know of any study that sheds light on it (if anyone does, please add a comment!), but as a working guess I'd go with (1) it varies across issues; (2) about 75% Model 2 and 25% Model 1; and, (3) the downside risk is much greater if you act as if Model 1 is correct but it turns out Model 2 is actually correct.

Now, if Model 2 is mostly correct, where does the standard come from? Well, the accumulated conventional wisdom, over time, is part of it. That can't be changed by the current players, at least not in the short term. Evidence from the recent campaign is part of it -- that's why I constantly repeat that single-payer was dead after the Iowa caucuses last year. Campaign events can change the conventional wisdom, if everyone agrees that a strong signal was sent (so stuff that was in ads, or in the regular stump speech counts for a lot more than something that was just in an issue paper or buried somewhere on the web site). And then White House statements and spin may count for something, but that's probably the least of the three if there's already strong opinions about the issue over time and from the campaign (presidential statements matter a lot more on newly emerging issues).

Think about the ban on gays in the military in 1993. There was a strong consensus among Washingtonians that gay rights was a fringe issue, which of course had been true in the past. Clinton did campaign on repealing the ban, but it was not a front-tier issue in the campaign, so the conventional wisdom didn't move much. The result was that straight-out support for repeal was perceived as an extreme liberal position; when Clinton took that position, not only was he easily rolled on that issue, but Washingtonians perceived Clinton (and other positions he held) as far from the political center, all of which hurt Clinton's efforts to get other things passed in 1993-1994. Times change, however; Clinton's failure laid the groundwork for DADT repeal to be far less of a fringe issue, and then polls moved, and Obama made it a more prominent campaign item than Clinton had, and now it's likely that Obama can get DADT repeal through without being branded by Washingtonians as a liberal extremist.

Back to the question...on the stimulus bill, it's probably true that Obama and his allies had more scope than usual to define the mainstream, since the issue was essentially new. Still, they had to be careful; the issue wasn't entirely new, and Obama had done nothing whatsoever in the campaign to prepare anyone for the size of stimulus that economists thought was needed. Did they bid too low? I'd say they took a fairly prudent course. First of all, the downside risk was huge -- not only would failing to pass anything be a major blow to Obama's reputation among political elites, but the substantive damage from failing to pass any stimulus included the risk of a new Great Depression. On the side of bidding low were two things -- first, it wasn't clear how quickly money could actually be spent before the economy recovered anyway, and second, there was (and is) always the possibility of coming back for more. Given those things, it was probably better to risk bidding 10-20% too low than 10-20% too high.

Overall, though, I think it's a hard question to answer. My feeling is the same as the commenter's; I see no reason not to assume for now that the Obama legislative team knows what they're doing. That doesn't mean they're always correct, but given that they have plenty of experience and far more information than we have, and that they appear to be going about things the right way (consulting with Members of Congress, trying to find coalitions that will work), the odds are that their opening bids are usually fairly good ones.

I'll go back to civil rights...Obama could have tried for the sky right away; he could have insisted, in his SOTU-like speech to Congress early in the year, on a comprehensive bill that included hate crimes expansion, DADT repeal, and DOMA repeal. Instead, he lowered the profile of those issues pretty much as far as he could, started with the lowest hanging fruit (hate crimes) and got that, and he's been carefully laying the groundwork on DADT, with the vehicle for that one just getting announced today. Now, I can't prove that the comprehensive, right from the start approach would have yielded a disaster, and one can certainly point to the costs of bidding low (continued discharges from the military, and I wouldn't argue much with those who want to pin the defeat in Maine at least partially on Obama's strategy). Even if Obama eventually passes the entire agenda, there's no way to prove that his strategy was the correct one. As I said, however, there are real downside risks to bidding too high, and I think it's easy to overlook those risks when the bid-low strategy is largely succeeding.