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Intelligent and reasonable persons can disagree on whether what appears to be the emerging fiscal cliff deal is a deal worth making. It certainly is not a good deal, but it might be the least bad option.

However, it does confirm that Madman Political Bargaining works. Republicans are getting much more than they should have in this deal.

In my August 2011 post about the debt ceiling "end of the world" negotiations of 2011 (soon to be repeated apparently), I argued:

You want to negotiate a deal when your bargaining leverage is at its maximum, not at its minimum. This is basic bargaining. It amazes me how few people understand this point. In 1995, Bill Clinton searched for moments of maximum leverage to bargain with the Republicans. Luckily for Clinton, the GOP never played the debt ceiling card on him. But Obama should have known the GOP would with him. A good bargainer would have known not to give up his best chip (tax cuts) without making the other side take theirs (the debt ceiling) off the table.
My biggest concern with the details reported on the proposed fiscal cliff deal, other than the most basic - that we should be looking at policies to grow the economy, not worrying about the deficit (not Dem's fault, that simply was not in the cards with this GOP)- relates to the loss of the tax issue chip while getting nothing menaningful in return on the debt ceiling.

I understand the concern about UI benefits. But I do not believe it is wise to let that concern overwhlem every other issue involved in this debate. Consider the issue of spending cuts on programs such as food stamps, Mediciad, Medicare and yes, Social Security, to name just a few.

What will the President use for leverage to get good deals on these issues? The contra argument is that military spending is a big enough chip. I am skeptical, mostly because the constituency in the Congress for defense spending is broad and bipartisan. Frankly, it is not a good "hostage" for Democrats. They will not threaten it and Republicans know they won't threaten it.

The tax issue was the maximum leverage for Democrats. In August 2011, I argued:

Now is not the moment of maximum leverage for Dems on taxes. Frankly it won't come until after the 2012 election.

Moreover, the maximum POLITICAL advantage comes for Dems who propose extending tax cuts for ordinary Americans and saving Social Security and Medicare by raising taxes on the wealthy.there will be no short term deal that will be advantageous politically to Dems. The political advantage comes from having the GOP defend the rich at the expense of everyone else. [Emphasis supplied.]

Giving up their maximum leverage while the GOP holds on to its maximum leverage points, the debt ceiling and the sequester down the road, is not a good bargain imo.

In a vacuum, the reported deal is not terrible and can be defended in isolation. But in the larger context, it gives too much leverage to the GOP for the future, this year and beyond.

I think the Madmen in the GOP will have won this round, not because the score in this round is lopsidedly bad, but because of what the set up is for future negotiations.

Reasonable minds can disagree of course.

UPDATE: Jared Bernstein:

So, here’s my first blush response to this deal.  The thing that worried me most in the endgame is that the WH would be so intent on a deal that they’d lock in too few revenues with no path back to the revenue well, and that they’d leave the debt ceiling hanging out there.  Remember, the ultimate goal of Repubicans here is still to “starve the beast”–to shrink government by hacking away at both sides of its ledger–receipts and outlays.

Those fears will be realized unless the President really and truly refuses to negotiate on the debt ceiling and is willing to blow past those who would stage a strategic default.  If he is not, and if this cliff deal passes, then I fear the WH may have squandered its hard won leverage.

Noam Scheiber:
I think a reasonable person can defend the bill on its own terms. [...] My far bigger gripe with the whole fiscal-cliff exercise has always been the strategic dimension—how it affects the next showdown with the GOP, and the one after that. Coming into the negotiation, Obama had two big problems: First, no matter how tough he talked, Republicans always assumed he’d blink in the end, for the simple reason that he pretty much always had. [...] Second, despite the results of the most recent election, in which Obama won a fairly commanding victory on a platform of raising taxes on wealthy people, the GOP continued to believe that public opinion was mostly on its side. House Republicans cited the preservation of their majority—never mind that their own candidates received fewer total votes than House Democratic candidates—and polls showing most Americans still think government is too big.

Fortunately, the fiscal cliff offered Obama a chance to solve both these problems. He could afford to be unyielding because the economic consequences of going over the cliff for a few days or weeks would be relatively minimal and almost entirely reversible. And doing so would immediately demonstrate to the GOP that public opinion was emphatically not on its side—polls showed that the public reaction to going over the cliff would be both intense and heavily trained on Republicans. Throw in Obama’s post-election bump in approval ratings, and there was never a better time to hold out.

Instead, the emerging deal will reinforce the convictions that have made the GOP such a toxic presence in Washington. If Obama will cave even when he’s got all the leverage, when won’t he cave? Never, the Republicans will assume.

[N]ow for the really bad news. Anyone looking at these negotiations, especially given Obama’s previous behavior, can’t help but reach one main conclusion: whenever the president says that there’s an issue on which he absolutely, positively won’t give ground, you can count on him, you know, giving way — and soon, too. The idea that you should only make promises and threats you intend to make good on doesn’t seem to be one that this particular president can grasp.

And that means that Republicans will go right from this negotiation into the debt ceiling in the firm belief that Obama can be rolled.


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