Cognitive dissonance: Applications to the fiscal cliff, the fiscal tug of war and the debt

Cognitive dissonance is defined as the psychological discomfort or annoyance that may exist when an individual's choice is not consistent with their personal values and beliefs. As initially developed by Festinger (1957), cognitive dissonance provides a useful framework for examining certain types of social choices involving deep-seated psychological fears for some people. The economic literature on cognitive dissonance includes the work of Tullock (1971), Akerlof and Dickens (1983), Mayer (1990), Brady, Clark, and Davis (1993), Brady (1995), Brady (2013)  and others.

This paper develops the concept of cognitive dissonance in the context of “incipient regimes “and rent-seeking.  An “incipient regime” is part of the “iron triangle” composed of special interest groups.  These include government bureaucracy, public interest groups, and private interest groups which seek to establish an “ideal” level of public sector debt to support spending greater than government revenues.  As part of this objective, they create, manipulate, and manage dissonance as a means to market their concerns about spending reductions, representing the  interests of their clients or constituents, pursuing their self-interest, and obtaining rents in the process.

Recent debates involving the “fiscal cliff” and the US “debt ceiling” are  an example of how cognitive dissonance is used to promote political agendas involving public sector debt and spending. This paper expands our understanding of the unseen elements of rent-seeking among members of the "iron triangle" composed of congress, bureaucrats, and public sector and special interest groups. In the United States the “iron triangle” describes the bonds that develop among congressional committees, the federal bureaucrats that those committees oversee, and special constituent interests that form the clientele of both the lawmakers and the bureaucrats.

 Section 1 provides a discussion of Festinger's (1957) psychological theory of cognitive dissonance and empirical examinations of the theory in the psychological literature. It distinguishes between the concepts of cognitive dissonance and the economic theory of regret developed in decision theory. Section 2 relates cognitive dissonance and the arguments for market failure. Section 3 provides a description of the iron triangle's agents of cognitive dissonance. Section 4 relates cognitive dissonance to the recent political theater of the “fiscal cliff” and raising the US “debt ceiling.” Concluding comments are provided in Section 5.