Belmont Club

Shall We Dance?

Jake Tapper describes an off-mic conversation between President Barack Obama and Russian President Dmitri Medvedev.

President Obama: On all these issues, but particularly missile defense, this, this can be solved but it’s important for him to give me space.

President Medvedev: Yeah, I understand. I understand your message about space. Space for you…

President Obama: This is my last election. After my election I have more flexibility.

President Medvedev: I understand. I will transmit this information to Vladimir.

When asked to explain what President Obama meant, deputy national security adviser for strategic communications Ben Rhodes told ABC News that there is room for the U.S. and Russia to reach an accommodation, but “there is a lot of rhetoric around this issue — there always is — in both countries.”

It’s hard to avoid drawing the inference from the dialog that President Obama intends to concede something to the Russians in his second term which, if revealed now, would prevent him from being elected to a second term in the first place.  Here is yet another instance of our old friend, the principal-agent problem.

Who is the principal? The American people who “hire” the chief executive of the Republic. Who is the agent? —  in the ordinary economic sense — it is the President, who is supposed to act on behalf of the principal. What is the principal-agent problem?

In political science and economics, the principal–agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent, such as the problem of potential moral hazard and conflict of interest, in as much as the principal is—presumably—hiring the agent to pursue the principal’s interests …

The principal–agent problem arises when a principal compensates an agent for performing certain acts that are useful to the principal and costly to the agent, and where there are elements of the performance that are costly to observe …

Here, principals do not know enough about whether (or to what extent) a contract has been satisfied. The solution to this information problem — closely related to the moral hazard problem — is to ensure the provision of appropriate incentives so agents act in the way principals wish.

In simple terms the principal agent problem occurs when the agent secretly sells out or represents the principal in order to advance his own (the agent’s) interests.

In this instance the voters hired Obama to defend the national interest, whatever the cost might be to him personally. Whatever he intends to avoid must be costly since he told Medvedev that he wished to wait until his second term to do whatever he intends to do.

The is also the presence of information asymmetry. The agent (Obama) has information about his private costs and about the costs to the principal of which the voters are not aware.  This is known only to himself and his Russian counterparts.

This creates the classic principal-agent problem. Few would tolerate it. Imagine your lawyer saying he will agree to something which he will not reveal until he gets you to sign a blanket, irrevocable authorization to do whatever it is. You may still wish to retain that lawyer on trust, believing he will always act in your interests. However you ought to be aware there is a chance that he is fixing to sell you out. Moreover, his behavior is suggestive of bad faith.

When agent does not faithfully represent the principal, the possibility of “secret diplomacy” arises. This creates the ultimate principal-agent dilemma because the principal can be committed to actions of which he is completely unaware. The practice of “secret diplomacy” contributed significantly to the outbreak of World War 1 in 1914 and the Second War in 1939.

A secret treaty is a treaty between nations that is not revealed to other nations or interested observers. An example would be a secret alliance between two nations to support each other in the event of war. The opposing nations would be unaware of the treaty and therefore unable to add it to their calculations, which could obviously result in a difficult situation for the party that declared war when they are suddenly confronted with the troops of two or even three nations. Secret treaties were common before the First World War, and many blamed them for helping spark that conflict. Other noted secret treaties include the sections of the 1939 Molotov-Ribbentrop Pact that divided Eastern Europe …

Secretly diplomacy is now widely considered to be inadvisable. Although diplomats and chief executives may treat operational and tactical matters as “secret”, elected officials generally have no business making fundamentally new arrangements in despite of the electorate because they are merely the agents, not the principals, of the nation.  Any attempt at substantive secret diplomacy, that is to save the evasion of electoral accountability in the pursuit of his foreign policy raises real and fundamental issues.

The main issue with the agent in these cases is ‘who is he working for”? If he is working for the American people, then he has a political and moral responsibility to tell them what he plans to arrange with Foreign Powers, in policy terms at least, before he does it. If he is working for himself he should resign as agent. In this case the President works for the people.  The people do not exist to supply passive objects for whatever “arc of history” he may have in mind.

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