In 60 days, the President will agree to major spending cuts on non-Defense programs and entitlement programs. He may garner some meager revenue increases. The ratios, being optimistic, will be about 5-1 spending cuts to tax increases.
And in isolation, the President's actions will be entirely defensible. He will be facing automatic sequestration and hitting the debt ceiling limit, which will cause a government shutdown and cause serious damage to the economy. After all, Republicans are Madmen and are more than willing to hold the country hostage. They would take us all down in flames without compunction.
So why isn't the President's deal on the fiscal cliff similarly defensible? For two simple reason: (1) the Bush tax cuts were to expire, and the only two things Republicans care about are taxes, especially taxes, and defense spending, (2) the fiscal cliff would not . This was the line were the President had to hold his ground, his most favorable bargaining ground.
In 60 days, the President will have little leverage over Republicans. Defense spending is problematic because too many Democrats are also beholden to the Defense industry. It just is not that good a cudgel to use against Republicans. It will get some revenue, in the form of loophole closing (which almost certainly goes away in the near future, closed loopholes never stay closed), but spending cuts will be the order of the day.
The question will be how much and what. I'm quite pessimistic about that. Again, Republicans don't care, and the President does, so he will be the one doing the conceding.
Again, in a vacuum, this will be perfectly defensible. And you have heard the reasons (bizarrely, you are hearing them about the fiscal cliff negotiations where the rationale does not hold water):
(1) The House GOP must agree to any legislation;
(2) They are intransigent:
(3) They are willing to hold the country hostage.
All these thing will be true in 60 days and is true now. The difference between now and 60 days from now is simply this -- the Bush tax cuts were to expire automatically and the effects of the fiscal cliff are simply not comparable to a government shutdown brought on by a debt ceiling crisis.
Here is my view:
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.
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.]
I think Jared Bernstein, Vice President Joe Biden's former economic advisor, Noam Scheiber, of the non-bomb throwing New Republic, and the Shrill One, Paul Krugman, have it right.
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.
Krugman:
[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.
So, in 60 days, when your read the defenses to the President's concessions on spending, acknowledge that they are valid, but remember that it was the President who decided to abandon the favorable bargaining ground to fight that battle on unfavorable ground. It was incredibly poor negotiating.
And to answer an anticipated question, what if the President had not budged until he had agreement on spending and the debt ceiling into, say, February, what then? Well, in the worst case, the deal he got today would certainly be available. In late February the Bush tax cuts would have expired. The discussion would have been entirely about how much to cut taxes, not about tax increases.
One final note, while there are virtues in the deal the President cut, most importantly the extension of UI, the President got no concessions on tax revenues. I've read some misinforrmed comments that the President got the Republicans to agree to tax increases that would not have occurred otherwise. This is simply false. There is not even one tax increase in the deal that would not have occurred or in most cases, been larger, without the deal.
When evaluating the deal, my view is that you have to consider what it, necessarily in my view, portends for the spending deal 60 days from now. Because it portends a very bad deal on spending, due to relinquishing the leverage of tax policy, I believe the President has negotiated a very bad deal on the fiscal cliff.