The logic of brinkmanship as a bargaining strategy is that by raising the stakes and threatening to let events spiral out of control you can coerce the opposing actor to back down and accept your demands. During the Cuban Missile Crisis President Kennedy’s decision to place a naval “quarantine” around Cuba increased the chances of a naval clash and subsequent escalation between tense, nuclear-armed adversaries. In this crisis, both sides used the very real threat of impending doom to wring concessions from the other.
Today we are witnessing a good example of brinkmanship in the standoff between President Obama and Congressional Republicans over raising the debt ceiling. The August 2nd deadline is looming for the U.S. to raise the ceiling or risk defaulting on its obligations–not quite as bad an outcome as nuclear holocaust, but bad enough that many analysts are using the terms “apocalypse” and “armageddon” to describe the economic consequences of a default. For analyses of the consequences of a default for the U.S. and the global economy see here, here, and here. Summing up the concerns, a senior economist at Wells Fargo is quoted in a recent Huffington Post article as saying: “It would be an earth-shattering event. It’s taken as a given that U.S. Treasuries are a safe asset. Once you question that assumption, it shakes the foundations of global finance, and the way it’s been established over the last 50 years.” Yet despite these dangers, President Obama walked out of talks last week and House Speaker John Boehner broke off talks last night, raising the heat and signaling that they were willing to court economic disaster if the other side didn’t budge. Some analysts believe that the willingness of some Congressional Republicans to accept the prospect of no deal by August 2nd gives them the upper hand in negotiations, and analysts such as Thomas Schelling would agree. The problem with brinkmanship, however, is that it requires increasing the likelihood of catastrophe, and if that catastrophe happens both sides have lost.
What do you think? Who is playing the game of brinkmanship better in this standoff? How will it end? Are both sides acting irresponsibly by raising the risks of economic disaster, or is one side more to blame for holding the economy hostage to extract self-interested concessions?