Debt ceiling: "it's a hostage that's worth ransoming" (Jonathan Ernst/Reuters)
The more we hear reaction from both parties, the more convinced I am that my
original take on the debt ceiling deal was correct, and that this "compromise" is in fact an unambiguous and abominable failure by the administration. There's simply not enough lipstick for this pig: it is a failure, pure and simple, and one which is going to have serious long-term negative repercussions for the economy, the markets, and the political environment in general.
While it may seem pointless to argue about a now-finished deal, I think the way it happened, and what the White House thinks it got out of the deal, is worthy of analysis. The White House has tended to approach each of these high-stakes negotiations in the similar ways, with similar results. Each negotiation then sets the administration up for worse failures in the next round of negotiations, as their own targets continue to slide further and further away. And that is worth noting especially because the president himself is masterful when it comes to political speech and public persuasion, but those efforts are regularly undone by dismal, even naive, political strategizing.
This most current "deal" consists almost entirely of caving in to a wide assortment of hard-right conservative demands, in exchange for presumed "fairer" or "more advantageous" dealings with those same Republicans later. Careful students of modern politics will note the profound ridiculousness of such an assumption. The White House gave in on the notion that there will be more than one round of debt ceiling votes, under the premise that the later vote would somehow be set up to gain them an advantage over the current environment. The White House gave in on the notion of any substantive revenue increases whatsoever—truly a remarkable failure, for anyone who actually cared a whit about sensible economic policy—in exchange for the mere premise that a future commission of partisan figures will be able to deal with those revenue increases later. Add a small laundry list of other conservative demands (Medicare cuts, consideration of a Balanced Budget amendment, and so on), and you have a deal that is near-exclusively tailored for the far-right, and gains nothing for the administration itself except a very brief delay in the eventual day of reckoning.
This practice—agreeing to even the most outrageous conservative demands now in exchange for the mere hope of a better outcome later—has been pervasive in this White House, and extremely damaging. It was the signature feature of the "deal" over extending the Bush tax cuts. We would allow the tax cuts for the rich to be extended, against all rational economic logic, because the White House wanted to retain the tax cuts for the middle class and believed the environment at a later date would better support decoupling them. In a negotiation over splitting the two apart, you would think that the White House would easily have the upper hand: one side wants tax cuts for the middle class, the other side wants tax cuts for the rich—it would be a winnable debate, if put up to the public. But that public debate never fully took place, because the administration backed down, preferring to acquiesce to Republican demands in exchange for having that original fight again "later."
What could the White House have done differently? A common refrain is that the administration and Democrats in general are opposed by a force that is willing to shoot any hostage they take, and so negotiation is all but impossible. I think, though, that is a self-fulfilling prophecy, not a rule. Acquiescing to extreme behavior only proves that extreme behavior gets results: it hardly seems controversial to suppose that a reputation for caving when faced with stubborn opposition will result in even more obstinate, more confident opposition. They have actual proof, after all, that their counterparts will, when faced with difficult negotiations, likely give in.
There is probably no bigger hostage than the debt ceiling, that much is true. When one side is threatening to collapse the national economy if it does not get specific demands, it certainly focuses the mind on trying to avoid that collapse.
This assumes, though, that the debt ceiling really is a hostage that they could shoot. I think that is far from clear: a very similar shutdown in the Clinton years resulted in a fairly rapid capitulation by the Republicans, who learned that there are very few better ways to gain negative public attention then a widespread shutdown of government services. This time around, there would indeed have been a shutdown, but the tea party Republicans are a distinct minority of legislators, and "business" Republicans are a far larger caucus, and both then and now I find it difficult to believe that the two groups would stick together in any prolonged attempt to shutter the government (and subsequently, the economy) for any substantial period of time. Would it hurt? Absolutely.
But the current capitulation has negative effects as well, and very real ones. Economic austerity during a time of very poor employment will hurt directly, as will the Medicare cuts and whatever monstrosities our new Super Congress has in store for us. The worst damage, however, may be in precedent. Mitch McConnell:
I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn't think that. What we did learn is this -- it's a hostage that's worth ransoming.
Forget political effects: this statement has market effects, as was hinted at by Moody's last month when warning of a possible credit downgrade for the United States.
[Moody's] also said it could lower the long-term rating “if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress’s and the Administration’s willingness and ability to timely honor the U.S.’s scheduled debt obligations.”
Note that that is precisely the threat is McConnell making, here: that future adjustments to the debt ceiling are indeed likely to be "the subject of political maneuvering," or as he put it, "ransoming." That in and of itself makes U.S. debt a riskier hold for investors, which itself may place a downward pressure on demand for U.S. bonds.
We have achieved momentary relief from the most imminent crisis, the market specter of possible U.S. default. But we have exchanged it long-term for future replays of the very same crisis at each next opportunity. Long term, which represents the bigger economic risk, I wonder? Which truly creates more market "uncertainty"?
At the very least, one cannot discount the damage done by such a precedent. If even U.S. debt can be called into question on a (sigh) now-regular basis by simple partisan bickering (14th Amendment be damned), and it has been proven to be an effective partisan tactic, therefore one worth pursuing, we can expect to see more of it.
This brings us back to the administration's penchant for exchanging defeat now for a rematch later. Not only does it in and of itself create uncertainty by prolonging each crisis, and not only has the White House telegraphed repeatedly, at this point, that they will cave on even their most supposedly firm counter-demands, if the deadline looms prominently enough, but even without those things the flaw in administration logic should be readily apparent: refighting the same battles later does not necessarily bring the advantages they suppose it to bring.
Central to their negotiating tactics is the notion of exchanging concession now for supposed bargaining chips later: repeatedly, this administration has claimed those bargaining chips as victories for themselves. They are not. No: it's just that simple. They are not.
A bird in the hand is worth two in the bush, the saying goes, but in Washington it is even more pernicious: the outcome of one particular deal cannot bind the outcome of future deals. It is not possible. Short of Constitutional amendment (apparently up for grabs, these days), one president or Congress cannot effectively bind the next president or Congress. Any deal that one group of politicians has the ability to do, the next group of officeholders has the ability to undo. Even the same group of officeholders cannot easily bind themselves to a "future" deal.
Therefore, the premise of "holding a bargaining chip for future negotiations" is largely a false one. If the other side does not want to be bound by it, they can simply pass legislation declaring themselves not bound by it. If the president himself stands in the way of removing that bargaining chip, they can simply find another hostage to threaten over it, and the negotiations then start from scratch.
Example: the Bush tax cuts. Premise: by threatening veto of any extension of the Bush tax cuts, the administration can effectively force Super Congress negotiations to include balanced tax revenue adjustments. Extremely obvious flaw: GOP negotiators can simply refuse to include balanced tax revenue adjustments, as long as they can bring along any one "business-friendly" Democrat. Or GOP negotiators can shut down negotiations entirely, triggering cuts, and demand a permanent Bush tax cut extension in exchange for lifting those cuts.
Example: threatened "trigger" on very large defense cuts. Premise: by holding the specter of large triggered defense cuts as negotiating chip, the administration can force Super Congress negotiations to be conducted in good faith, with equal compromise on each side. Extremely obvious flaw: GOP negotiators can conduct themselves in bad faith, then GOP can present Congress and the president with legislation to partially or fully waive the triggered defense cuts. Democrats are then placed in the position of either "endangering national security" or abandoning their supposed bargaining chip.
Negotiating the acceptance of concrete ideological demands now in exchange for possible political compromise later is, in a word, nonsensical. You are essentially gaining nothing, save a bit of hope. You can call it a lot of things, but calling it a victory is insulting, given how vaporous the supposed future advantage is.
Even more frustratingly, the administration seems to have very poor sense of what situations are or are not advantageous for them, and so in their zeal to dodge crises often manage to exchange a quite good bargaining position for a decidedly worse one. All polling evidence suggested that the White House insistence on tax increases for the wealthy was a popular one, for the public: having a public brawl now, in the form of government shutdown, would have left the conservative side in awkward straits when the time came to defend themselves on why their stance was worthy of the shutdown.
Instead, the administration traded it for "balanced" but steep government cuts later, cuts that include defense spending as the implicit threat to Republicans. Supposing the GOP responds in the most obvious way, months from now, and pushes to simply exempt defense spending from those triggered cuts, that then puts Democrats in the public position of "holding national defense hostage in order to raise taxes." If the administration truly thinks that as a perfect bargaining chip, they are deeply mistaken: modern political history suggests that is a decidedly worse position, if not an outright untenable one. The exchange of crisis now versus crisis later might not be an appetizing one, but one situation held far more advantage now for the administration than the one they traded it for.
In one situation, Republicans shut down the government over tax rates for the wealthy, and the public sees Social Security checks and other essential government services withheld from them. In the other case, Democrats are charged with damaging national security over tax rates for the wealthy: like it or not, it has neither the immediate, obvious rationality or the implicit public advantage of the former case.
This administration does find itself in a predicament. It is faced with a bitterly partisan foe who states outright, and proves time and time again, that they are willing to go to remarkable measures to extract ideological concessions. This White House, on the other hand, strives to forge a no-drama, ostensibly bipartisan path that requires them to pretend that bitter partisanship does not exist. They earnestly believe the American people want bipartisanship above all else, and this in turn demands they pretend that even the most outrageous demands by the other side are perfectly normal, reasonable things that cannot—cannot, mind you—ever be elevated to the sort of thing it would be appropriate to have a true fight about.
It is not clear, however, that their approach actually works. Calm rationality in the face of zealotry is noble enough, but is also likely to get you hurt. Accepting radical demands simply to move past them and project an air of normalcy ends up subjecting the country to an increasing list of accepted radical demands. If one side is willing to take the entire national economy hostage for its own ideological demands, that is not necessarily the sort of thing one should brush off as political business as usual; the risk is that you will affirm that it is now business as usual.
Bipartisanship is fine. Rising above the fray is fine. Selling out vital principles in order to project either is not, however, leadership. If one side is intent on even jeopardizing the well being of the nation in order to achieve their strictly partisan goals, then leadership demands a bit more assertiveness than simply waving the white flag and vowing to do better next time.