Saturday, October 5, 2013

The End Game

In today's Wall Street Journal, Gerald Seib pens a very interesting op-ed titled "The Deal That's There for the Taking", where he outlines what I believe the outcome of this contretemps is likely to be. I'll call it the Mini-Grand Bargain. Here are the elements:
  • The GOP gets a repeal of the medical device tax in the ACA and agrees to a rewriting of the sequester cuts plus new tax revenues raised by closing loopholes.
  • Democrats get relief (amount TBD) from next year's sequester level budget of $967 billion, versus their Senate Budget of $1058 billion. In return, they agree to chained CPI for Social Security and means testing for Medicare.
The reason Seib says this "deal is there for the taking" is that all these items have already been put on the table, mostly in the Obama-Boehner summer 2011 negotiations. The obvious problem is what to do about the current impasse. How do we transition from here to a Mini-Grand Bargain? Here's Seib's last graph:

 For that to happen, Republicans might have to agree to at least some short-term funding of the government to allow time for this broader conversation. Or the White House might have to find a way to back away from its insistence that it won't negotiate until the government is reopened and the debt ceiling raised.

Possible? Yes. Probable? We'll see.

Here's Seib talking about why Obama may come off his No Negotiation position:

The White House doesn't think it's required to do much of anything now to end the impasse. Indeed, there is a deep-seated feeling within the administration that giving in on any front would amount to acquiescing in GOP hostage-taking, in the form of holding up both the funding of government and an increase of the debt ceiling that will be needed in two weeks. Administration officials see a chance to put an end to budget brinkmanship.

The problem with that approach, though, is that the standoff risks a dangerous impasse that could do real damage to an economy that, ultimately, the president owns. Moreover, the history of these showdowns is that the party with the temporary advantage almost always overplays its hand, snatching political defeat from the jaws of victory by reaching for too much.

So, ultimately, both parties should want an exit ramp. 

In other words, the Administration will cave and agree to negotiate, before a clean CR and debt ceiling raise have been effected.

I think Seib's outcome is right, but his sequence of events is wrong. Obama will not back down. If the GOP figures this out in time, they will cave, pass a short term clean CR and a debt ceiling hike, and begin negotiations on the deal Seib outlines. If they don't we will go over the debt ceiling edge in 9 days. At that point I am convinced that the President will assert his constitutional duty (perhaps under the 14th Amendment) to protect the country from grievous harm, and order the Treasury to issue Special Notes that the sole legal borrower, the Fed, will buy, thus funding the Government until the debt ceiling is raised, and we can go back to issuing regular Notes and Bonds. In fact, the US did this near the end of World War II, and markets took it in stride.

If Obama is going to do this, why not announce it up front and end the uncertainty over the debt ceiling? I think he wants the GOP to pay a steep price for their hostage taking; and he knows that unprecedented Executive action is better taken, then defended, than offered as a trial balloon before the fact.

In either case, there will be negotiations, with a Mini-Grand Bargain a very possible end result. If so, the aborted 2011 Obama-Boehner deal will finally be completed - $2.4 trillion in budget cuts (2011 Budget Control Act plus sequester),  $1.0-1.2 trillion in new tax revenues ($600 billion from raising upper income rates at the Fiscal Cliff in January, 2013, and $400-$600 billion in tax reform "loophole-closing" revenues now), plus $400-600 billion in interest savings = $4 trillion in deficit reduction, Obama's original goal.  The absolutely crucial difference: Boehner could have avoided the tax hikes on the wealthy had he made the deal in 2011. Plus the GOP now will be in bitter disarray, having suffered an astonishing and humiliating defeat.

Simply cannot wait until the media picks this up.

And I wonder if folks like Bob Woodward on the Right, and Obama's many critics on the Left will finally acknowledge that our President does play a very long game, that he is, in fact, a Master Negotiator.

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