Credibility

xkcd: Wikipedian Protestor

Credible commitment is the problem faced by anyone seeking to get something later from someone in exchange for giving up something now. Can the other party credibly commit, before the fact, to still go through with their end of the bargain when they already have what they want?

Now, it is in the interest of both parties for them to be able to credibly commit, because the first party is not going to do their part if they can’t reasonably expect the second party to go through with theirs. I’m not going to pay the car salesman if there’s no reason for me to believe that I’m going to get a car out of it. I’ll pay him because I expect that if he reneges, he will be punished for it. Maybe he will be fined in court, or have to serve jail time. Or maybe it’s just obvious that if he didn’t give people cars for their money, he wouldn’t have been in business for so long because he would have had a deservedly horrible reputation.

In any case, people are clever, and they’ve developed mechanisms to credibly commit in advance. Whether it’s through legal recourse, collateral, or any number of other means.

The problem is that government can always break its commitments.

When the government is the car salesman, it won’t be punished by the law–for the government is what enforces the law. It is much much harder for government actors to credibly commit than it is for private actors.

The best thing a government can do for its ability to encourage people to do business with it is to establish a very long track record of keeping its promises. The fact that the US federal government has never outright defaulted since Alexander Hamilton took on the debts incurred during the Revolutionary War has greatly augmented its ability to secure loans today.

So where do we stand in the District?

I saw this story today, which did bring up a credible commitment problem within the Council. But mostly it reminded me of an earlier story I’d seen:

Dozens of District residents who installed solar panels on their homes under a government grant program promoting renewable energy have been told they will not be reimbursed thousands of dollars as promised because the funds were diverted to help close a citywide budget gap.

When you are living beyond your means, it is no longer within your means to keep your promises. Does anyone think the Council’s promises will be worth much of anything in the future?

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