Friday, December 13, 2013

Deep Currents, Surface Storms - Budget

The Budget Wars are over! Which side won?

Can you see how the win/lose frame keeps us tied to the surface, stuck in the storms and unable to discern the deeper currents?

One way to approach this problem is to engage both dimensions, both levels of the question:
  • The  surface question is "Who won?" Most would say the President and the Democrats eked out a slight margin of victory, though many would disagree. Here's Paul Krugman in today's New York Times lamenting the failure to extend unemployment compensation. Here's Andrew Stiles in this morning's NRO with his article "Score One for Boehner".
  • The deep currents question,  as always, is "What's really going on? What's trying to emerge?" The answers at this level will not reveal themselves if you are committed to wearing a particular set of lenses, generally of a partisan nature.
So let me try to work on the deep current question - What's emerging? What patterns can we see, if we clear the lenses of perception? Here's what I think is happening at a deep currents level:
  • Budget cutting is over.  Budgets are not going to go any lower than the August, 2011, Budget Control Act sequester levels. That's the level we have just moved up from. In the BCA negotiations, Obama insisted that the sequester should affect Defense and Non-Defense equally, and that entitlements should not be touched. Obama knew GOP hawks would eventually cry "Uncle" due to the serious Defense cuts, especially in year two of the sequester, beginning in 2014. They did exactly that and the result is the Ryan-Murray deal, raising Defense and Non-Defense Discretionary $67 billion over the next two years. The BCA is probably the last budget cutting act we'll see for a long time: it set the principle that Defense and Non-Defense must be treated equally, and GOP hawks will not allow further Defense cut backs.
  • No more shutdowns. The GOP was badly clobbered on the shutdown. They were convinced Obama would fold. He didn't. They had to cave and got nothing for their efforts. They will not go here again for a long time. This forces them to change their negotiating tactics, putting compromise back into the discussions. This infuriates the Tea Party wing of the party.
  • Entitlements will not be cut without new tax revenue. And therefore they won't be cut. This is the very big deal that Obama's failed negotiations with Boehner, followed by the August, 2011 BCA,  accomplished. The President demonstrated a willingness to cut entitlements in exchange for new tax revenues from closing loopholes. Hard liberals called this the "Grand Betrayal", as opposed to the "Grand Bargain". But Boehner walked away from the deal. Now (as in the current Ryan-Murray deal) it is accepted that entitlement cuts must be matched by new tax revenues. Obama really was willing to trim entitlements, but it looks like the GOP has lost their chance, at least while a Democrat is President and as long as they are completely opposed to raising taxes.
  • A "common sense caucus" in the House is now visible. The vote in the House last night on the Ryan-Murray bill was 332-94, with 169 Republicans joining 163 Democrats to pass the bill. Hard conservatives mustered only 62 votes in opposition, joined by 32 liberal Democrats, who were upset that Unemployment Insurance was not extended. Could this mark a sea-change? Has the GOP phalanx, which appeared  solid until now, been broken? Will a real, continuing civil war play itself out within the GOP, with all of our eyes upon it? Might something like this allow Immigration to pass? Red State's Erick Erickson, a hard conservative and fierce "Amnesty" opponent, is certainly afraid it might. I'm not forecasting yet; but I personally feel a new sense of optimism and possibility around Immigration reform.
How did this happen? How did Conservatives allow themselves to be backed into the corner they are in, with the Party possibly split, Budget cuts off the table, entitlement cuts not possible without new taxes, and the Speaker possibly getting ready to bring up Immigration reform? How in the world did all this transpire?

This is Obama, the integral leader, playing the long game, working to affect the deep currents, while noticing, but not overreacting to the surface storms.

I covered much of this in my recent post Budget Aikido. After the near Government default and the passage of the BCA in August 2011, Speaker Boehner was quoted as saying that he had "gotten 95% of what he was trying for." That statement comes from a "storm player". Obama, a "deep currents player", would have said, "Let's wait and see."

And that's what we're doing now. I think Obama knew that if the Supercommittee failed (as it did), and the sequester kicked in, that eventually GOP hawks would call for a deal. He probably also knew that he would have to stand firm, and endure a shutdown that would humiliate the GOP, in order for a space to open for a "common sense House caucus" to emerge and make that deal. He also knew, I believe, that if he offered entitlement cuts in return for new taxes, and if that deal were refused, then he could always say to the Speaker at a later time, "You should have taken the deal I offered in the summer of 2011, and since you didn't, you must know that my price for entitlement cuts has not gone down: New tax revenues, or else you can forget about entitlements." And all the while, the CBO was taking the BCA cuts agreed to and showing deficits coming down to acceptable levels. And the longer term picture was brightening as well: the slowdown in healthcare costs, now in its 8th year, would soon allow CBO to forecast the long term debt picture as sustainable.

And all of this was put into motion in early 2011, just after the Simpson-Bowles Commission issued its report, when the President decided to adopt the Commission's $4 trillion deficit reduction goal. He told us in April 2011, but nobody paid much attention, preferring instead to criticize him for not formally adopting the Commission's findings. Many progressives (including Paul Krugman this morning) were upset at Obama seeming to accept the neoliberal austerity argument. Hard liberals felt betrayed by his putting Medicare, Medicaid and Social Security up for trade.

The President's strategy was political, not economic. Bush had thrown the country off kilter by declaring The Global War on Terror, telling us to be "very afraid" of terrorist threats. After the GFC in 2009, deficit hawks were doing the same thing with deficits and debt: the country faces imminent economic collapse, so be "very afraid." He had to counter and eventually defuse that argument. As an Aikido Master would surely have told him, use your opponents' energy to cause him to disable himself. Translated into political action, this meant: "Embrace the GOP's deficit cutting energy. Put your own stamp on it and make it yours. As deficits come down, the GOP will become confused. Some will get very angry. There will be a crisis, where you must be like a Rock. And then new possibilities will emerge for more positive, sustainable governance."

This is what we are seeing emerge. Hard to believe that Obama has essentially disarmed the opposing Party without really firing a shot, or taking the offensive.

This is the power of our extraordinary integral leader.

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