Thursday, October 17, 2013

Government reopens, but for how long?

Democrats finally used the leverage they had (by benefit of holding the presidency and a majority in the Senate) and waited for Republicans to realize they wouldn't cave to their ridiculous demands. For future reference, Democrats, that is how it's done. Please repeat as necessary. And sadly, I think it will be necessary sooner rather than later. A fairly short term continuing resolution was passed during the last big shutdown in 95. A deal wasn't worked out and there was another shutdown. It was only the second time when Clinton refused to give into all of Newt Gingrich and the GOP's demands that they came to an agreement. I think we're likely to see the same thing happen.

Let's start with what Republicans want, because they are clear about it. They want to cut as much spending from just about everything (maybe not defense, but even then I'm not sure since they seem to be accepting the sequester cuts). If they could do anything they wanted, they would at the very least enact something similar to Paul Ryan's budget proposals. Those proposals include such things as ending Medicare by giving people vouchers to buy health insurance on their own and cutting Social Security benefits, among many other ridiculous things. More than any of that, Republicans want to cut taxes on rich people and corporations.

I'm less sure about the specifics of what Democrats want. But they obviously don't want to cut taxes on the rich. If anything they want to raise their taxes, or at least keep them at current levels. There's always talk about "closing tax loopholes" from both sides. But there's no way Republicans will endorse whatever that looks like in actual policy if it raises taxes on the rich at all. At best, it will involve some technicality that just moves money around but doesn't actually raise any more revenue. At worst, Democrats will cave and give the rich more defined benefits through the tax code.

Some Democrats say they don't want to cut Social Security and other entitlements. But others, such as Obama, seem very open to "entitlement reform", which is just code for cutting benefits. Democrats already cut Medicare spending in one of the few places that wasn't a direct benefit cut (payments to doctors). And Republicans screamed bloody murder when they did it. So I doubt Medicare will be part of "entitlement reform". That probably leaves Social Security and chained CPI, which amounts to a benefits cut. There's just no way Republicans will agree to anything but cuts. And for some reason, Democrats seem open to this. Unless something changes and Democrats decide to make a stand on not cutting entitlements, I think a deal is likely to lead to chained CPI. And unless Republicans rediscover their love for defense spending, I think the current spending levels will remain in tact. We'll get a bare bones budget that drags us and the economy along until the 2014 elections.

Is there any way to avoid that scenario? Well, Democrats will continue to have leverage in the fact that nothing can pass the Senate and be signed by the president without their approval. But they will have less leverage than they did these last few weeks because Republicans probably won't be asking for something ridiculous like defunding Obamacare, thus fewer people will blame a shutdown or debt limit breach on them. But I think if Democrats can negotiate effectively, they can minimize the damage Republicans can do. The first thing I think they need to do is ask for a lot of stuff initially; stuff like infrastructure spending, a reverse of the sequester cuts, a 3% increase in income taxes on incomes $250k and up, and the complete elimination of the debt ceiling.

They won't get any of that. But if you ask for that and gradually back off some of those demands it makes it look like you're negotiating and conceding things to Republicans. I don't really know if I'd raise taxes on those incomes if I could because I don't care about the short term deficit. But starting at a 3% raise, backing down to 1.5%, and then making a "huge" concession by saying you'll abandon the tax increase completely in favor of something like not doing chained CPI is worth trying. I'm not very confident this will happen. Obama in particular seems to have a negotiating strategy that involves starting with the minimum of what you want and conceding from there, offering to do accept things you don't want, thus making Republicans ask for more. If that happens like it did in 2011 this deal will end up being pretty bad, assuming we get a deal at all.

Tuesday, October 1, 2013

Government shutdown

A quick analogy to highlight how ridiculous Republicans are being: imagine Romney won the presidency in 2012, Republicans gained control of the Senate, but lost House control to Democrats. Then imagine that instead of passing a budget or a continuing resolution, Democrats in the House (where spending bills have to originate) say they will let the gov't shut down unless the Senate and Romney agree to very strict gun control policy. That would be ridiculous. What's beyond ridiculous and a lot more dangerous is threatening to not raise the debt ceiling while advocating the same policy.

And that brings me to a point Matt Yglesias made today in regard to negotiations (I'm too lazy to link to his post. If your interested go to my twitter page.) He says that Dems and Obama shouldn't just sit back and wait for Republicans to cave and inevitably pass a "clean" CR, meaning it contains nothing about defunding or delaying Obamacare. He thinks their stance should be to also raise the debt ceiling, or actually, to get rid of the debt ceiling all together since it doesn't really serve any good purpose. I certainly agree with that as policy and as a negotiating tactic.

If I were Democrats and Obama I would think about going further and telling Republicans that I won't support a CR that doesn't get rid of the sequester cuts that were implemented as part of these same negotiations (or really, hostage taking) last year. Democrats don't like the sequester cuts because they hurt important programs they care about. Republicans also don't like the sequester cuts because they hurt important programs they care about. That was the point of the sequester, to force both parties to come to an agreement so that they could avoid something no one wanted. That didn't work and both parties seem to have rationalized maintaining the cuts. But even if Democrats aren't serious about getting rid of the sequester cuts I think it might not be a bad negotiating strategy.

Say Obama comes out in a speech talking about how bad this shutdown is and trying to convince everyone to blame Republicans for it and lays out what he wants as part of a negotiating tactic. He says at the very least he wants a "clean" CR. There will be absolutely no deal without that. The second thing he wants is what Matt says, a raise of the debt ceiling and an abolishment of it forever so that we don't default on our debt and create big economic problems. And the last thing he wants is to remove the sequester cuts from the CR because they are hurting the economy and important gov't programs.

If Obama were to spend the first round of negotiations pushing really hard for all of those things Republicans likely wouldn't budge at all and would likely try to get the press to blame him for asking for too much, thus extending the shutdown. The press may even play along and cast Obama as the main person to blame. Obama could then go back to the negotiating table and say that he'll accept a "clean" CR and debt ceiling raise but not the sequester cuts so that they could end the shutdown. Then Obama could say he's the one making concessions for the good of the country. And if Republicans don't agree to his concessions, he could try to shift the blame to them.

The problem with trying to move the debate to the left by demanding more than you would actually agree to in the end is that you have to convince Republicans that you are making a legitimate demand and you have to appear to be willing to hold out until you get it. I'm not sure Obama can convince Republicans of those things. And I'm not sure how willing they would be to getting rid of the debt ceiling once and for all. They were successful last year in using it to get something they wanted. So they would probably view getting rid of it as a concession instead of just a thing we as a country are obligated to do. All of these problems are why I only say this negotiating strategy should be considered. I'm not sure it would work. But it's at least worth thinking about.