May 10, 2011

COASE BARGAINING OVER THE DEBT CEILING AND THE DEFICIT?:  According to Grover Norquist, the Republicans in Congress plan to bargain with the President on a sliding scale.  Writes Norquist at the Corner:  “Second, and this is sheer genius, Boehner has put a sliding-scale price on debt-ceiling increases. Hey, Obama, you want to buy a debt ceiling increase of, say, $2 trillion that would take you past the next election? Fine, the going price is two trillion dollars in real spending cuts. Cannot afford that and hold your spending coaliton in place? Fine, you can buy a month of debt-ceiling relief, worth about $125 billion, for the reduced price of $125 billion in spending cuts. The price of the debt-ceiling hike is the the same amount — or more — of real spending cuts.”

I haven’t quite decided whether this is clever or too-clever by half.  And I’m not quite sure if this bargaining is truly “Coase” bargaining in the fashion of the law and economics final exam my class took yesterday morning; in what sense is one side “paying” the other?  (Over at Volokh, I solicit comments on this last question; general view is that it is not because neither side is bribing the other.  I also ask what you would change in the story in order to turn it into a Coase situation.)

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