Sunday, July 31, 2011

Blaming Boehner

My internet access is extremely spotty until the middle of the week and posting will consequently be light. So instead of reading my blog, go read Jon Chait instead.

There's a hierarchy of blame when it comes to the debt ceiling crisis.* Obviously, at the top of the hierarchy are the Republicans who are either totally unwilling or very reluctant to raise the ceiling. But next after them is surely John Boehner.

Boehner, more than any other person or group, is responsible for subjecting America to the depredations of rabid Tea Party congresspeople. Boehner is simultaneously unable to control his caucus and unwilling to split his caucus, meaning that every time the far right fringe makes a demand of the leadership, he promptly knuckles under. As a result, the agenda of the entire House of Representatives is being set by fifty-odd Tea Partiers. As Chait explains, there's no reason this should be the case -- there's a Democratic-leaning compromise to raise the debt ceiling that could quite easily pass both houses of Congress -- except that Boehner won't consider risking his Speakership for the good of the country. What makes his behavior particularly galling is that the man clearly understands the urgency of raising the ceiling, as well as the basic dangers of major spending cuts during a period of economic weakness. In short, Boehner is consciously placing the entire United States in mortal economic danger to preserve whatever modicum of political influence he has left.

*Not the "debt crisis," by the way. Everyone in Europe and half the people in America are referring to it as this, and the phrase is totally misleading. The debt isn't causing a crisis. The political mechanism is causing a crisis. Although, thinking about the above, maybe it isn't really the "debt ceiling crisis," either. It's the Boehner crisis.

Friday, July 29, 2011

Everyone is worried about the wrong things

Right now, a lot of mainstream sources are focusing on the worst-case outcome in the debt ceiling standoff, which is an outright default on government bonds. Their concern is understandable: a fullblown default would be apocalyptic -- an extinction-level event for the financial markets.

But the focus on bond default has created something of a backlash: commentators coming out of the woodwork to point out that the US is extremely unlikely to actually default on bonds. They point out that interest and bond payments are a small fraction of tax revenue, paying them would be top priority for Treasury, and so even if the debt ceiling remains untouched, a default is not in the cards.

These experts right about the details, but the overarching message -- invariably some version of "Things aren't as bad as they seem, calm down" -- is wrong and misleading. No, the US isn't going to default in the old-fashioned sense. Bu there are plenty of things that can go horribly wrong in the absence of a formal default.

First, there's the possible downgrade of the US debt rating. There's been a lot of effort to put a price on a debt downgrade -- $100 billion a year has been kicked around -- but really, if people were being honest, I think they'd say that nobody has any idea what sort of ripple effects it would create. It's possible that a downgrade would be ignored, because people don't rely on rating agencies to educate them about the desirability of US debt. On the other hand, it could set off a chain reaction, when the ratings of US cities and municipalities get downgraded as well. And there could well be -- in fact, there likely are -- additional effects down the chain that nobody has dreamt up yet. US debt is a foundational brick of the world economy, and if you weaken it just a little bit, everything that's built on it might start to weaken and crumble as well.

But everybody already knows there's a possibility of downgrade, even if they're being too sanguine about it. There are other problems -- genuinely frightening possibilities -- that hardly anyone is talking about. For instance, if we blow past the debt ceiling without a deal, well over a hundred billion dollars will get yanked out of the US economy immediately, as the government stops paying its bills in order to keep paying its creditors. The result? An almost instantaneous recession. Does anyone really believe that a second recession right now -- with employment still over 9% -- would be anything less than catastrophic?

And then there's the way an economic crisis can quickly become a political crisis. A major economic downturn would only benefit the Republican Party, whose strongest card against Obama is and always has been the unemployment rate. Nevermind that the party has made literally no attempt to increase employment -- nobody votes for incumbents when the economy is bad enough. Judging from the damage that 80 or so Tea Party Republicans have done to the country and to the political process in half a year, can you imagine how much damage they could do if their ranks doubled and they took over the White House? Even if we disregard the effects of the then-inevitable gutting of American civil society, the further paralysis and radicalization of the political system would not be well-received by creditors.

Through it all, the deficit -- the ostensible cause of the crisis -- would actually increase. Another recession would lower tax revenues even further and make medium-term budget math even uglier. Likewise, a debt downgrade would add billions, if not trillions, to the national debt by increasing the cost of borrowing. And that's ignoring the knock-on effects, which are potentially far more severe: if the fiscal health of the states and municipalities gets bad enough, the federal government will eventually have to step in and start picking up the tab.

So yes, the US isn't going to default. Not in 2011. But that doesn't mean the murky, uncharted territory waiting for us past August 2 isn't terrifying.

And further into the future, who knows? Fast-forward five years. The government is straining to cover the obligations of states and cities. The economy is in the dumps. Tax revenues have collapsed. Congress is infested with Bachmannite Tea Party Republicans and the GOP controls the White House. That's a world in which it would be a little bit harder to laugh off talk of default.

Wednesday, July 27, 2011

Travel blog

I'm traveling today, which means that I (and now you, dear reader) get a reprieve from breathless debt ceiling reportage. Rumor has it that Boehner's staging a comeback! Although, at the moment, I have no idea how he's expecting his plan to make it past Reid and the president. The 3G here at O'Hare is very dodgy, meaning that I'm in the dark for the foreseeable future.

I suppose I could try watching CNN Headline News, piped into every inch of this terminal on obnoxiously large flat-screens (just like every other terminal in America; I wonder how much CNN pays for the privilege of tormenting weary travelers with Wolf Blitzer's soulless mug). 

Joy Behar informed me earlier that she's going to get to the bottom of the "debt crisis," by asking tough, no-nonsense questions... to... Ann Coulter?!  

Ann Coulter is still alive?

Then there were a few segments where they explained rating agencies with household finance analogies. It's like borrowing cash from your friend to buy a new couch, see!  Next they had a story on how some sick child met with Chuck Grassley to explain the importance of children's health care and the anchor reminded us that this health care thing was just a tiny piece of the ginormous federal budget and I think I blacked out for a little bit.

So no more of that, please.
 
At this point it's basically inevitable that everything will come to a head while I'm on an airplane over the Atlantic. I guess I'll just find out what happened after I get off the plane. If there's rioting in the streets when I get to Belfast, I'll know that either the world economy collapsed, or it's a Thursday. 




Overdrafting at the Fed

Felix Salmon points to another August 2 contingency:
[A]fter August 2, Treasury can simply carry on with business as usual. Money will come in to its bank account; money will go out. And the balance will dip below zero: Treasury will have an overdraft at the Fed. . . . There’s no reason why this state of affairs couldn’t continue for months. Treasury would continue to spend money, as instructed by Congress in the budget, and Treasury’s overdraft at the Fed would continue to rise. The Fed, for its part, would have two choices when it came to cashing Treasury’s checks: it could either simply print the money, or else it could sell some of its assets — it owns $1.6 trillion in Treasury bonds — and use those proceeds instead. Either way, any bank presenting a check from Treasury could cash it, no problem.
What would be the macroeconomic implications of this? Well, I know what everyone is going to say they are (Republicans: "Disaster! You can't just print money!" Democrats: "Eh."), but I myself haven't the foggiest idea. For his part, Felix seems quite excited about the prospect, suggesting it might be the "first-best solution" to the debt ceiling problem.

And would a Fed overdraft be strictly legal? Once again, I don't know. But frankly, I don't think it matters terribly much either. More than anything, the fact this idea is getting batted around indicates the inherent flimsiness of arbitrary legal rules, like the debt ceiling, when confronted with real, tangible disaster. The people in charge know something's got to give, and very few would choose to preserve a set of legal abstractions instead of the US economy. Cue the hunt for loopholes -- not even necessarily real loopholes, but just anything with a sufficient veneer of legality. The administration might not choose to overdraft at the Fed, but if Congress can't do its job, it'll find a similar escape hatch somewhere.

Tuesday, July 26, 2011

DEBT CEILING UPDATE

Debt ceiling miscellania

Tick tock. Eight days till the deadline. Still no deal. And only two options left in sight: Boehner's plan, and Reid's.
  • Democrats won't vote for Boehner's plan. But that's okay, because neither will House Republicans.

  • The Center for Budget and Policy Priorities analyzes Boehner's plan, concluding that, "[i]f enacted, it could well produce the greatest increase in poverty and hardship produced by any law in modern U.S. history."

  • Standard & Poor's reportedly weighs in: Boehner's plan would lead to a debt downgrade, while Reid's preserves the US triple-A rating. Odds this will affect Republican behavior: zero.

  • For rating agencies, the key difference between the two plans is that Boehner's only extends the ceiling a small amount, putting us back in the same deadlock six months from now. To their credit, Republicans recognize this problem , which is why they opposed a short term solution just one month ago.

  • Felix Salmon recaps how we got here. His takeaway:
    "The lion’s share of the blame here belongs with the Republicans in general, the House Republicans in particular, and the Tea Party caucus within the House Republicans most of all. But it’s not like these people’s existence or intransigence was any great secret. And so the White House tactics over the course of the past few months look dangerously naive."
    Felix is right. Everything that happens from here on out is the Republicans' fault. But Obama was foolish to let himself get sucked into this game, and now we'll all pay for his mistake.

  • Others, like David "Village Idiot" Brooks, seem keen to blame Obama for everything. Krugman dredged up a nice Lincoln quote for this crowd: "[Y]ou say, you will destroy the Union; and then, you say, the great crime of having destroyed it will be upon us! That is cool. A highwayman holds a pistol to my ear, and mutters through his teeth, 'Stand and deliver, or I shall kill you, and then you will be a murderer!'"

  • David Brooks notwithstanding, the worst piece of debt ceiling journalism today is this article from NY Times writer Jackie Calmes, lamenting Obama's lost Grand Bargain. It's pretty much a case study in "Why journalism school should teach policy." She approvingly notes Obama's and Boehner's willingness to "confront their parties' sacred cows," but makes no attempt to say why that's a good thing or analyze the bargain on its merits. Nonetheless, she bemoans the missed opportunity to strike a huge deal, and in doing so perfectly encapsulates the media's sick fetish for centrism. Hey, Jackie: there's a reason that absolutely everyone was happy when the Grand Bargain died. It sucked.

  • Tonight, John Boehner told us that "The bigger the government, the smaller the people." And Jon Cohn reminds us that this isn't technically accurate: "Actually, that's not true. Statistically speaking, the world's tallest people live in the Netherlands, where government spending accounts for about half of gross domestic product." It's not a coincidence, either. A better social safety net leads to better nutrition and taller citizens.

  • Nate Silver extrapolates a market crash from today's drop -- down 4,400 points by August 2. Okay, that's unlikely, if for no other reason than it would be forestalled by a panicked Congress, suddenly more amenable to compromise. But his analysis should be a note of caution for all those deriving encouragement from the present calm in the markets.

  • Speaking of, the House Republicans have been emboldened by present calm in the markets. The debt ceiling hasn't collapsed yet; therefore, the debt ceiling is a liberal fiction.

  • Finally, a word from Tom Toles:

Monday, July 25, 2011

Obama might do what needs to be done, after all

If true, this is a huge deal.

Fox Business is reporting that "officials from the Obama Administration" placed calls to "top executives at major U.S. banks" over the weekend assuring them that the administration will act unilaterally to prevent a default if an agreement isn't reached on extending the debt ceiling. According to one "senior banking official," White House officials say that while Obama intervening would take the threat of default "off the table," a downgrade to the U.S. credit rating remains will be "a real possibility for no other reason than S&P and Moody's have to cover (themselves) since they've been speaking out on the debt cap so much."

Obama would invoke the 14th amendment to raise the debt ceiling on his own...
At least we finally know how the whole thing will end. Either Republicans, about to lose their hostage, will take the Reid deal, or they'll stonewall, Obama will raise the ceiling unilaterally, impeachment proceedings will begin, and the US is likely to get downgraded. Whether that in and of itself triggers a recession or some sort of further economic catastrophe remains to be seen.

The Republican Party is going to have a lot to answer for.

There are no stupid questions (anymore)

Sunday, July 24, 2011

Boehner flunks third-grade civics

As if just to confirm that he's completely lost it, John Boehner is now touting the House's willingness to "act alone" on the deficit, should he not find himself able to strike a bargain with the White House.

Er, what? If this is some sort of bluff, I don't understand what the bluff is. Last I checked, the White House and Senate were still controlled by Democrats. Is he threatening a House-led coup d'etat? Maybe he just thinks the Democrats will be forced to sign on to whatever odious plan he dreams up at the last second.

My best guess, though, is that Boehner finally looked at the headlines from the last two weeks, and realized that he and his party were beginning to look like complete tools for continually shooting down Obama's compromise offers. So he's trying to reclaim some of that Great Leader mojo. He's pretty much spent the last two days trying to convince everyone in DC that Obama was the one who blew up debt ceiling negotiations. (An absurd claim: even if Obama drew some sort of line in the sand on revenues, that line was so far right of the median position that Republicans still get the blame for not taking the offer. And Boehner's claim that House Republicans were prepared to accept $800 billion in revenue increases doesn't exactly jibe with, well, what House Republicans have been actually saying for the last two months.) But Boehner knows that if and when catastrophe strikes, it's bad to be the party that said that catastrophe wouldn't happen. So now he's trying to sound even more stridently opposed to debt ceiling inaction than Obama. He's willing to take bold (and meaningless) steps, even if those Democratic sticks-in-the-mud aren't! That's how much he cares. Does it make sense? Would it work? No, but PR offensives don't have to.

Two-step to the left

Matt Yglesias, on how to strengthen the American left:
If you want to move US public policy to the left, what you have to do is to identify incumbent holders of political office and then defeat them on Election Day with alternative candidates who are more left-wing. I think this works pretty reliable. To my mind, the evidence is pretty clear that even the election of fairly conservative pushes policy outcomes to the left as long as the guy they’re replacing was more conservative. And if your specific concern is that the Democratic Party isn’t as left-wing as you’d like it to be, then what you need to do is identify incumbent holders of political office and then defeat them in primaries with alternative candidates who are more left-wing. . . . This prescription is, I’m afraid, boring. And the solution proposed is, I’m afraid, hard work. But politics is hard work!
Matt's clearly right about this. Without progressive politicians in office, there's a hard upper bound on how progressive policy outcomes can possibly be. But Matt's prescription ignores the other important route to strengthening the institutional left: removing institutional barriers that prevent the left from making use of its electoral victories. Politicians are what we put into the system of government. The structure of institutions is how we determine what comes out of it. Ideologies get funneled through institutions, and in the process, transformed into bills and votes and eventually laws. Except often they don't make it all the way through. And there are lots of structural deficiencies in our system; dead ends which sap the energy and influence of even the most well-meaning, sympathetic progressive politicians.

You know what I'm going to say: the first step towards improvement would be eliminating the filibuster, which creates an exceptionally strong legislative bias towards the status quo, and has no real purpose as a parliamentary device. It's a straitjacket on progressive ambitions. But there are other, more subtle institutional changes that would also benefit progressives. Voter rules often disfavor progressive constituencies. Those can be changed. Easing the nomination process would make policy more responsive to election outcomes. And so on.

Improving policy is a two-step process. First, you have to empower people who agree with you. Second, you have to give those people the tools they need to actually change things. A lot of people would prefer to look for shortcuts, and downplay the first part. But almost everyone ignores the second. That's too bad, because improving our institutions is the easiest and most direct route to improving our politics.

Asian markets open in 90 minutes

Maybe nothing will happen.

Maybe not.

Tick tock.

Edit: to add some substance to this post, I want to be clear, I'm not predicting the markets will tank. I just don't know what will happen. Nobody does. It's unknowable. All anyone knows at this point is that the markets are very likely to tank at some point between now and August 2nd if a deal doesn't get done. What's more, everyone knows this is coming, so once it starts, it's hard to see how cooler heads will prevail. Any new development could trigger it -- or it could just happen, apropos of nothing.

In other words, it's going to be a very long, very nerve-wracking week.

Norway, Islamaphobia, and us

So I'm going to say something about the horrible killings in Norway.

First off, this is going to be a political post. Maybe that's crass, but I don't think so. I don't begrudge people their tendency to view the Norway massacre through a political lens. It's an awful tragedy, shocking in scope. But there's no denying that, for Americans, a mass murder in Norway is primarily a political event. It doesn't touch most of us personally, but it certainly informs our politics. There's little sense in denying that, or in trying to pretend that, this time, we'll rise above our contentious natures. The implications of Norway will be debated on editorial shows and cable programs all the same, and the content of those debates won't change just because their participants prefaced everything with somber invocations of sympathy for the victims and their families. What use would it be to pretend otherwise? If we're going to have this conversation -- and we are -- let's have it out in the open.

And indeed, after glancing at the shooter's manifesto, it's very hard not to draw political conclusions from what happened in Norway. A very significant part of the 1500-page document is devoted to quoting and responding to American right-wing bloggers. Many pages contain postings from the right-wing website Free Republic, copied and pasted, with footnotes appended. He cites by name a half dozen or more prominent American anti-Islam demagogues. Anders Breivik was a man very well versed in the rhetoric and reasoning of the American right, particularly as it pertained to Islam.

I don't mean to suggest that Islamaphobes in America are prone to violence, not like this. But you'd have to be deluded not to see a connection between Breivik's beliefs and certain American mindsets. Remember just a year ago, when Republicans led half the nation into a frothing rage because a mosque was being built in the general vicinity of lower Manhattan? How about the last nine months, in which Representative Peter King has held no fewer than three separate sets of congressional hearings on the radicalization of American Muslims? Recall Oklahoma's bizarre recent law, banning the practice of sharia. Or just go back to yesterday, before we knew the perpetrator was white and Norwegian, when right-wing pundits rushed into the papers to remind us all that we're still at war with Islam. Just think about the term "Islamofascist" -- ignored by most, but embraced by the right -- a word that suggests that many religious Muslims are of a kind with violent tyrants, and implies that we would not be remiss to deal with them as such. Are we going to pretend that there's some qualitative difference between these conceptions of Islam and the one that drove Breivik into violence? Are we going to act like Breivik arrived at his ideology independently of the men and women who spewed it onto television screens -- albeit in a milder tenor -- for the last ten years?

I'm sure the usual suspects will find many, many ways to distinguish what they believe from what Breivik believes, and I'm sure that in some respects, they'll be right. But the roots of their beliefs are very similar. A shared conviction that Western culture is superior to other culture. A misconception that temperament is a feature of groups and religions as well as of people. The tendency to conflate ethnic identity with historical destiny, and ascribe special powers to a nation's cultural disposition. And beneath it all, a fundamental, irrational distrust of anything that evokes Islam too strongly.

In this politically correct age, these principles are rarely stated outright by those at the top of the political ecosystem. But they're still visible, especially if you hunt around the fissures from which Islamaphobia seeps into the mainstream. Right-wing politicians find their views on cable TV, and cable pundits find their views from right-wing blogs and radio shows. And nobody on the blogs and radio shows is trying very hard to disguise their real motives. Rush Limbaugh goes on his show and tells America that there's no such thing as moderate Islam. Can anyone deny that Rush Limbaugh drives the agenda of large chunks of the American right? Or go to the grassroots conservative blog Atlas Shrugs, which was cited by name in the Breivik's manifesto. You'll find five posts from the last two days claiming that there was no ideology behind the Norway attacks, and assailing anyone who suggests otherwise. You'll also find five bilious posts from the same span; they are unrelated, except that they all describe bad things for which a Muslim was somehow responsible. I'd be curious to know what point the author thinks she's making with these. This, by the way, is the blog that propelled the controversy around the so-called Ground Zero mosque into the American media. For its efforts it earned harsh denunciations of the project from dozens of prominent politicians. These are people who matter. These are people whose voices get heard and multiplied.

In the coming days, we're going to hear a lot about the rise of the right in Europe, and the spread of anti-Muslim sentiment. But I'm sure few commentators will dare compare what they see in Europe with anything happening across the Atlantic. Don't be fooled. If Islamaphobia is on the rise in Europe, it's on the rise here, too. If it's a danger in Europe, it's a danger here, too. Hateful words can breed hateful acts. And today, there many American politicians plying their trade by spreading the ideas that helped turn Anders Breivik into a monster.

Saturday, July 23, 2011

The incredible oscillating John Boehner

The neverending debt debacle plods forever onwards. Negotiations appear to be locked in some sort of perpetual loop, like a skipping record. Obama asks for three trillion in deficit reduction, Democrats get angry, Republicans say no, negotiations blow up, and the next day Obama asks for another three trillion in deficit reduction. For the most part everyone's been sticking their ground for the last couple weeks, with one exception: John Boehner.

Boehner grows more schizophrenic by the day. Yesterday, he walked out of talks with Obama, once again blowing up a deal. Today, Boehner is back at the table, making noise about a deal that includes three to four trillion in deficit reduction. Yesterday, everyone agreed that a short-term deal was unacceptable. Today, Boehner appears ready to demand a short-term deal that pairs major cuts with a debt ceiling extension. Boehner talks to Obama and decides that we need to raise the ceiling lest we trigger economic meltdown. Then he talks to his caucus and decides that he'll accept nothing short of the wholly unacceptable Cut, Cap, Balance plan.

It's sort of tragicomic. On one hand, it's not really Boehner's fault -- he's stuck wearing two masks at once. He's the institutional face of the lunatic wing of the Republican Party, and if he doesn't protect their interests, he's liable to eventually lose his position as Speaker. He's also one of the highest-profile politicians in the United States, and is frankly quite a bit cannier than the sort-of-dim Eric Cantor and freshman Republicans. He's no doubt acutely aware of the importance of successfully reaching a negotiated outcome.

But on the other hand, Boehner really has a choice here. If he knows that his caucus is putting the country at risk, Boehner has a responsibility to rise above his caucus. Even if that means working with Democrats. At the very least, Boehner has a responsibility to be forthright about what he and his caucus are willing to accept. By constantly shifting his positions, he's burned weeks or months of valuable time, and brought the United States to the brink of disaster. If we'd known months ago that no negotiated agreement was possible, the president and congressional Democrats would have no doubt gone to greater lengths making certain that the best alternative to a negotiated agreement wasn't default -- even if that just involved going on Sunday shows and talking up the Fourteenth Amendment. But (and admittedly, some of this is on Obama for trusting the Republicans to act responsibly) now all our hopes are pinned on the fading prospect of a compromise.

Yeah, it would be funny if it wasn't frightening.

Friday, July 22, 2011

History has a sense of humor, but it's a little dark for me

My roommate made an interesting point tonight:

In Europe right now, everyone is properly freaked out by the prospect of a Greek default. This small country, with a GDP of $300 billion and a population of 11 million, is the subject of great global consternation, with all manner of international organizations and economic entities stepping in to stave off the worst case scenario.

Meanwhile, just across the Atlantic, the United States -- with a GDP of over $14 trillion and holder of the world's reserve currency -- is openly toying with the idea of default. And as far as I can tell, the rest of the world has barely noticed, and barely cares. The only people who seem interested in preventing a total meltdown are a handful of D.C. wonks and a few moderate congresspeople.

Just judging from the respective reactions, you'd think the roles had been switched: that Greece was the linchpin of the global financial system, and that the United States was some kooky European country living beyond its means.

Of course, you can't really blame the world for its relative calm. After all, nothing about the American situation remotely resembles the Greek situation. Greece borrows at 35 percent over two years, while the United States can borrow for thirty years at under 4.5 percent. Greece's debt is denominated in a currency whose valuation is unrelated to Greek economic performance, while American debt is in its own currency. Greece has no strong central bank, while the US has the Fed. To the rest of the world, a US default would be an inexplicable economic suicide, a defiantly irrational event completely out of place in the modern world -- perhaps more akin to some sort of prehistoric mass delusion, in which a passing comet induces entire villages to set their children and livestock on fire.

The rest of the world just doesn't realize that things here in America are more complicated than that.

Wait, things here in America are more complicated than that, right...?

Wednesday, July 20, 2011

What is the real plan B?

We're now thirteen days from debtpocalypse. And things are worse than they seem. A few weeks ago, Barack Obama announced that the "real" deadline for a debt ceiling compromise was July 22nd -- tomorrow -- because additional time would be needed to prep the compromise bill for a vote. Now, July 22nd might not be the actual point of no return -- it's an inherently fuzzy line -- but it does seem clear that some time will be needed to write a bill, so the true debt ceiling deadline will indeed come before August 2nd. What's more, the markets know this too. Assuming there's no deficit compromise in the immediate future, bondholders are likely going to realize before August 2nd that a US default has become inevitable.

Despite all this, the White House continues to lobby feverishly for the largest and most dramatic compromise plans it can dream up. Not coincidentally, those same plans also contain the largest revenue hikes, and are therefore the most objectionable to many Republicans. What's even stranger is the manner in which the administration has reacted to new developments: barely at all. The House has turned down idea after idea, plan after plan, and the White House hasn't visibly budged. For the past two weeks, the New York Times' top headline has been virtually frozen in place, always reading something like "White House Continues to Push for Broad Deficit Bargain."

This behavior is odd, to say the least. Surely, if nothing else, the last few months have taught the administration that, for Republicans, its endorsement makes an idea politically radioactive in a way that nothing else can. Surely the administration has learned the folly of giving the GOP a policy football and letting it play Lucy. And surely the administration knows the urgency of the situation. So what's actually happening here? Does the administration really think that if they ask over and over for the same set of concessions, House Republicans will eventually relent?

Maybe, but I doubt it. At this point, staking the nation's economic future on some sort of late-breaking grand compromise would not only be bold, it would be foolish. The president and his administration can't possibly be that dense. There is obviously more happening here than meets the eye.

First, I'd guess that the calls for a large-scale compromise are basically a facade. That's not to say that Obama wouldn't like to strike one; he clearly would, as his original negotiations with Boehner demonstrate. But that ship has probably sailed, and the White House surely realizes it. But they've also realized that his calls for compromise are slowly becoming a political boon. They prove Obama's deficit-reduction bona fides, and they make Republicans look utterly unreasonable. That puts political pressure on Republicans, and helps shift blame for any eventual fallout back on to the GOP. Whatever's going on in Washington's back rooms, Obama has clearly decided that his best public role is as the Great Conciliator. And hey, if by some twist of fortune Republicans do decide to compromise, Obama's offer will always be on the table.

In the meantime, however, one has to suspect that the White House is quietly lining up a plan B. Emphasis on "quiet" -- if Obama's role becomes too clear, the plan will likely become politically unworkable. Which leads to the question for the rest of us: "What is plan B?"

It's clearly not the Gang of Six proposal. That's too close to Obama's original plan, and besides, has already been publicly endorsed by the administration. A week ago I would have said it's the McConnell plan -- Harry Reid sure is hard at work making it more palatable to Republicans -- but the McConnell plan is also loathed by House Republicans. And if it really were the fallback, Harry Reid should be concerned about making it more palpable to Democrats, because there are no doubt many Republicans who will simply never touch the thing.

There are a few other possibilities. A last-minute scare offensive, designed to frighten a few moderate Republicans into enacting a clean (or almost clean) debt limit increase, just as the maw of doom closes on America, might do the trick. It also has the nice side-effect of requiring little or no prep time, compared to most of the other alternatives. On the other hand, this approach remains a tremendous gamble, because if it fails, time will have almost certainly expired. The president could also take Bill Clinton's advice and resurrect the constitutional option, which has many advantages but would probably end in some sort of push for impeachment.

Finally, I suppose the president might just be prepping for the hundreds of billions of dubiously-legal, instantaneous cuts that would go into effect August 3rd. But let's hope he's not. Cuts to government on that scale, enacted that quickly, would tilt the US back into recession almost immediately. They would represent a default on American fiscal obligations and would probably result in a reduction of the country's credit rating. And as dozens, maybe hundreds, of government services evaporated overnight, the damage to civil society and the wellbeing of millions of Americans would be almost incalculable. At the end of the day, the biggest question about Obama's plan B to raise the debt ceiling isn't how it works -- it's whether he's got one in the first place.

Congress faces the debt ceiling crisis the only way Congress knows how

It's quite common for animals to have evolved specific, instinctive responses to high-stress situations. Some, like cats, or blowfish, puff themselves up to look bigger and more dangerous. Others, like possums, play dead to avoid attention. And then there are those famous fainting goats, an animal whose primary defense mechanism appears to be uncontrollably immobilizing itself and hoping for the best.

The congressional animal, as it turns out, has an instinctive response of its own: releasing high-profile deficit plans. And yesterday, faced with the stress of impending fiscal apocalypse, Congress did exactly that: churning out yet another deficit proposal, approximately the eight-hundredth this year.

But like those unfortunate goats, Congress seems to be hoping that things just aren't as bad as they seem, and if they stay in one place and do nothing different, all will turn out okay in the end.

Everyone's heard of the Gang of Six plan by now, right? To place it within the broad taxonomy of deficit plans, you should just know that it's nothing like the Ryan plan, and it certainly bears no resemblance at all to the very best deficit plan, which is "do nothing about the deficit." It doesn't look very much like the many small-bore plans being kicked around in connection to the McConnell proposal, either. But it shares certain features with a number of the many progressive budgets that came out over the first half the year, it's kind of similar to Obama's Grand Bargain, but more progressive, and very similar to the Simpson-Bowles plan from January, but without a spending cap.

In short, it's virtually indistinguishable from a number of ideas that have collectively gone absolutely nowhere at all. And yet, everyone in DC is buzzing about the proposal, which apparently won the approval of large swaths of the Senate. Why all the excitement? I have two theories.

First, I think the plan is more popular because it didn't originate with Obama. You could be forgiven for finding this confusing: the Republican caucus is forever insisting that Obama negotiate with them directly instead of using Harry Reid and Nancy Pelosi as proxy negotiators. But if you took that complaint as an indication that Republicans would actually prefer to strike a bargain with Obama, you'd be gravely mistaken. No, the reason Republicans want to negotiate with Obama is that he makes an excellent political foil for the party; House Republicans win more street cred when they spit directly into Obama's face. But by the same token, Republicans are far, far less likely to accede to any plan that bears Obama's imprimatur. Doing so would signal their complete defection to the dark forces of progressivism.

It makes sense, then, that there'd be more optimism about a plan that grew directly out of bipartisan congressional negotiations -- even if that plan is essentially a more progressive version of the bargain Obama already negotiated. It doesn't matter what the substance of the plan is -- the important thing is that it remain free of the taint of Barack "Public Enemy Number One" Obama. Which it was, for about twelve seconds. But since then, there's been a major hitch: Obama promptly endorsed the Gang of Six plan. That potentially puts us back on square one:
— A Senate Republican leadership aide emails with subject line “Gang of Six”: “Background guidance: The President killed any chance of its success by 1) Embracing it. 2) Hailing the fact that it increases taxes. 3) Saying it mirrors his own plan.”
The second reason for the explosion of optimism is even simpler. The Republican Party needs a way out of the mess they made. Polls seem to be turning against them. McConnell's escape hatch appears to be locked tight: House Republicans hate the idea almost as much as they hated the original compromise. Oh, yeah, and there's the minor issue of the financial doomsday clock that's not-so-slowly ticking down as we speak. Republicans have backed themselves into a corner on the debt ceiling -- many of them know they need to raise the ceiling, but they also know can't raise the ceiling without striking a deal with the devil. Given the circumstances, it makes sense that a lot of the GOP would enthusiastically jump at any new plan that emerges. Their relief is almost palpable.

The problem is that neither of these things actually addresses the real impediments to raising the debt ceiling, which are, and always have been, an unyielding deadline and an unyielding House Republican caucus. There are two key obstacles for the Gang of Six plan:
  1. The plan literally can't get written by the debt ceiling deadline. Right now, it's just a collection of broad, somewhat ambiguous proposals, and it's going to take some time to turn the thing into legislative language.
  2. The plan raises a trillion dollars of revenue. That alone seems sufficient to torpedo any chance that the Republican House will vote for it; after all, revenue increases are what originally deadlocked Congress a month ago. Indeed, there seem to be a large number of Republican House members (at least 80, at last count) who genuinely believe, in their heart of hearts, that the debt ceiling doesn't need to be raised at all, and that the country is better off in default than levying one new dime of taxes.
Gang of Six supporters seem to think that if they talk about bipartisanship enough, the partisans gumming up the works will just fade away. Out of sight, out of mind, I guess. But they're wrong. Winning bipartisan support in the Senate might be worth bonus points with the Washington Post, but it does nothing to solve the dilemma at hand. In other words, Washington's optimism is badly misplaced. The political press and Senate Republicans cannot simply freeze in place and wait for a debt ceiling solution to conveniently emerge.

Tuesday, July 19, 2011

Flight to quality

You know what's frustrating? When you write a blog post, and then a real blogger like Jonathan Cohn goes and writes pretty much the same post, except 100 times better. But I'm not the jealous type -- too much -- so go check out what he has to say. An excerpt:
Republican threats to block nominees to the consumer board are of a piece with their opposition to Don Berwick, Obama's first choice to run the Center for Medicare and Medicaid Services; to Peter Diamond, whom Obama tapped to sit on the Federal Reserve Board; and most recently to John Bryson, Obama's nominee to take over the Commerce Department. It's nothing short of a power grab by the Republican Party – an effort to achieve, through the confirmation process, what they could not achieve through legislation. And it seems unprecedented, at least in modern times.

...

Just to be sure, I consulted Thomas Mann, the political scholar at Brookings known for his encyclopedic knowledge of congressional history. Here's what he said:

In the case of the Consumer Protection Board, Senate Republicans have said they would not confirm anyone who does not agree to restructure the leadership of the agency from a single person to a multi-member body. They insist that a legitimately passed law be changed before allowing it to function with a director – a modern-day form of nullification. Same with the director of the Center for Medicare and Medicaid Services. There is nothing normal or routine about this. The Senate policing of non-cabinet appointments is sometimes more aggressive but the current practice goes well beyond that, more like pre-Civil War days than 20th century practice.

Ah, yes, nullification. The ostensible philosophy behind that idea was the need to protect rights of a permanent minority, namely the slave-holding states of the South, lest they never have a say in policy. But Republicans aren't a permanent minority in need of special constitutional protections. They're a faction trying to bully the majority. And they're getting away with it.

Things are getting a little medieval around here

Why did human beings ever go to the trouble of organizing their politics? You see it everywhere, on every level -- countries and states and counties and towns broken down into legislatures and councils and managers and administrators. It seems obvious that we could have politics without so much structure, but equally obvious that something's driving us to build all the structure anyway. So what role do these political structures play that's so vitally important?

That's not rhetorical; I have an answer. On the most basic level, they resolve controversy. All society is riven through with disagreements, big and small, and structured politics is the mechanism we've developed to bring those disagreements to a close.

Before the development of governments and the like, disagreements were most easily resolved by two groups lining up across from each other in a field. The group still standing at the end of the day got to do whatever it wanted. At some point, we seem to have figured out that there was a better way to get things done -- putting someone in charge of making decisions. But that didn't work great either, because a lot of the time the guy who made decisions decided very badly, everyone got angry about it, and the decider would get his head lopped off. So finally we developed a virtual smorgasbord of alternatives, ranging from "The side with the most people voting for it gets what it wants" to "The guy with the most tanks gets to decide."

At the end of the day, though, all these diverse systems have one thing in common -- they find a way to transform individual disagreement into some sort of actionable consensus.

With that in mind, consider the latest news about the Consumer Financial Protection Board. The CFPB found its way into the statute books a year ago, a reaction to the crisis that leveled the financial world in 2008. Its creation was the political system's reaction to widespread -- though not universal! -- concern about the ability of financial companies to devise damaging and deceptive products. The CFPB represented politics functioning as it's supposed to function: absorbing a range of opinions and spitting out a result.

Now skip forward to July 2011. Barack Obama has finally nominated an individual to head up the CFPB: former Ohio attorney general Richard Cordray. The Republican response?
Forty-four Republican senators have signed a letter saying they would refuse to vote on any nominee to lead the bureau, demanding instead that the agency replace a single leader with a board of directors.
Now, the appointment power was clearly not given to the Senate as a back-door veto over previously enacted laws. The appointment power was intended to be used as a means for vetting badly-chosen appointees. But if Republicans refuse to appoint any director to the CFPB, the body can never exercise its rulemaking authority, and the appointment power becomes a veto nonetheless.

The problem with this sort of Republican intransigence (besides, of course, its petulance and open disregard for the interests of anyone outside the business lobby) is that it takes place outside the bounds of the established political resolution mechanisms.

First, let's talk about something that does function, in a sense: the American legislative process. The legislative process isn't always pretty or even workable; the various ill-advised checks and balances in the US government ensure that ideas supported by a broad majority nonetheless often end up bottled up with nowhere to go. But even when it resolves a dispute in favor of the wrong side, the legislative process generally does accomplish the first and most fundamental goal of politics: resolving disputes. We know how legislative standoffs end. Either one side gets the votes, or the other does.

By comparison, how does this newest standoff end? It pits two mechanisms for the resolution of political issues -- one legitimate, the other improvised, but both equally potent -- against one another. On one hand, you have a directive originating with the votes of a majority of both houses of Congress and bearing the signature of a duly elected president. On the other, you have the undeniable ability of Republicans in Congress to undermine that validly created directive by simply refusing to do their job.

This is a dynamic repeating itself across the federal government, and in many of the state governments. It happened in the Minnesota government shutdown. It's happening with the debt ceiling. It's happening with the dozens of Obama nominees that Republicans in Congress are refusing to confirm. It happens every time Republicans slash the budget to some government agency below minimum operating requirements.

And while this dynamic is certainly grounds for criticizing Republicans -- no, really, please, criticize away -- it also creates a much deeper problem. It undermines the whole point of politics in the first place. Because in each and every one of these instances, the question is always the same: who actually gets to decide? And in each instance, it's a question without any good answer. Instead, each standoff is resolved on an ad hoc basis. Through some combination of polls and political willpower and happenstance and panic, things sort themselves out.

One nice thing about politics-as-it's-supposed-to-be is that outcomes are predictable. It doesn't take any special powers of divination to say who's on top at any given moment, what that side would prefer, and how they're going to make it happen. A discrete series of steps lie between idea and actuation, and a reasonably informed observer can look at those steps and decide which ones can be completed.

Another nice thing about politics-as-it's-supposed-to-be is that it provides a channel for the efforts of political actors. Rather than spending their time and energy figuring ways to exile, jail, or otherwise silence their opponents, politically motivated groups can focus on working the well-publicized set of political levers that controls the system. Voting in more senators, for instance, or taking charge of the White House.

But as Republicans become more determined to carry their fights outside the predetermined confines of the political arena, these benefits begin to fade away. It's not clear where, if anywhere, Democrats can channel their efforts do to mollify or overcome Republican opposition in the Senate. There's just no clear workaround. And there's no way to predict who will win the impasse that has developed in the meantime. Instead, we've got two sides completely at loggerheads, and we're seemingly stuck without any mechanism to pick a winner.

More and more, this confusion defines our political system. Rather than being a series of orderly contests with predictable results, it's a series of random spasms triggered by unpredictable internal forces. No one can say who will resolve any particular issue, or how. At any given point, a handful of determined troublemakers can overturn widespread political consensus. The nation is increasingly governed in back channels and in response to events that ordinary voters can't control or even affect.

The wisdom of many centuries of governance tells us it's vitally important to know who gets to make decisions. It's taken the Republican Party all of two years to amend that wisdom, adding "so long as that person isn't Barack Obama" to the end.

In the short term, moving important debates into these murky political hinterlands might benefit Republicans. After all, the odds are currently stacked against them, so they'll likely fare better when standoffs are resolved by something resembling pure random chance. But in the long run, we all lose. Because in the long run, it's all of us who are ceding influence over our political destinies to chaotic forces we don't understand. Or put another way: thanks to House Republicans, America's headed back towards the political Dark Ages.

Sunday, July 17, 2011

Chaos and American government

I'm glad to see that Matt Yglesias is coming around to my way of thinking about Obama's bargain-making tendencies -- I'm going to take full credit for propagating the idea that Obama's major problem is his inability to realize that political issues are rarely resolved permanently.

I also think his description of British-style policy-making is interesting, because it puts into relief the different approaches that are available, and how our system isn't well-suited for any of them:
In many places, I think it’s taken for granted that this is how progress is made. In the UK, Labour never wins a definitive victory against the Conservatives and vice versa. Nor is there ever a “grand bargain.” But over the long term, public policy reflects both conservative and progressive ideas because people inspired by those ideas take turns trying to govern the country in a way that pleases the voters.
What Matt's describing here is a system where long-term policy is decided through, essentially, competition in the political marketplace. Two sides tugging as hard as they can in opposite directions, and the solution ends up falling somewhere in the middle.

At the other extreme, there's the benevolent dictator model. Whoever runs the country sits down, attempts to synthesize a bunch of competing ideas, and ultimately come up with a single solution that represents, as much as possible, the best of both worlds.

Both approaches have something to be said for them. The former is perhaps more traditionally democratic, while the latter is a certainly less contentious and more efficient way to find something approximating an optimum solution -- assuming the people in charge know what they're doing.

But what's interesting here isn't the tension between these abstract ideas, but how that tension manifests itself in the US government.

The Republicans play the government game as if we were living in a purely competitive, majoritarian system -- the British system, more or less. They rarely or never compromise, they pursue their few motivating principles to the point of absurdity and excess, and generally behave like diehard partisan demagogues whenever they get the chance.

The Democrats, on the other hand, govern like the Kings of America that they all wish they were. Very often, the Democratic proposal for a particular policy problem will include ideas that run counter to the most basic demands of the Democratic base (Medicare cuts, for instance). That's because many Democrat leaders acknowledge that unyielding pursuit of their party's interests doesn't necessary create optimal policy outcomes, and those acknowledgments find their way into policy debates.

The result is that we're stuck with an absolutist Republican Party that would be a strong counterweight to a Democratic Party -- if the Democratic had any interest in absolutism or demagoguery, which it rarely does. It's little surprise, then, that policy debates are perpetually getting dragged to the right.

The second and more fundamental point I'd make is that the US federal government is not designed in a way that facilitates either of these systems. As the Republicans are finding out in the debt ceiling debate, an utter refusal to compromise quickly goes nowhere, because the system includes a multitude of veto points. On the other hand, because of those same veto points, an intransigent minority can easily frustrate any and all attempts to carefully construct the optimal solution to any problem. Instead, our political process is irrational and chaotic, and progress is only possible in moments of political serendipity.

Friday, July 15, 2011

One additional thought on the laughable debt ceiling compromise

The more Republicans that defect from the compromise, the more the compromise proposal should favor Democrats, because Democratic votes become increasingly necessary to pass the thing. As much of the GOP cuts itself out of the bargain, the equilibrium point moves left.

But that's not what actually ended up happening. Instead, the more Republicans that defected from the compromise, the more the compromise proposal moved right, as the White House and Democratic leadership ineptly tried to win back those lost votes. The votes never will come back, though -- for all the chasing the Democrats have done, a good 80-100 Republicans will probably never vote to raise the debt ceiling. And in giving chase, the Democrats only gave Republicans more incentive to never compromise, because the GOP knows it doesn't risk turning the issue over to its own moderates and the Democratic caucus.

All this is fairly obvious to anyone who understands that a negotiated outcome is a function of the preferences of the participants in the negotiation. But Washington speaks its own language, in which irrelevant things like "bipartisan cover" and "taking a case to the voters" and "owning the issue" are ascribed almost mystical importance. Meanwhile, the simple logic of offer and counteroffer is laughed off and forgotten. I'm firmly of the opinion that all the best thinking about politics comes from people who remain -- mentally, if not physically -- outside the beltway; the political circuit's cognitive quirks can corrupt anyone's ability to understand Congress as anything more than a hypertrophied debate club.

Democrats snatching defeat from the jaws of snatching victory from the jaws of defeat

Imagine a man in prison. He wants out, and he figures he can either pay off the guard and walk out the front door, or start the long, painful process of burrowing through the back wall. Our prisoner doesn't want to spend the money, so he starts chipping away with a spoon. But he soon realizes that the guard might notice him. He pays off the guard, who leaves for the afternoon... and then the prisoner continues to dig with his spoon.

Say hello to the congressional Democrats.

Let's take a step back. First, there was the debt ceiling standoff. Republicans refused to raise the ceiling until they'd extorted substantive spending cuts from Democrats. Democrats would not even consider spending cuts until Republicans agreed to some form of revenue increase.

That came to a head after Republicans rejected increasingly generous offers from President Obama because they included increasingly minimal tax increases. Negotiations melted down, Eric Cantor staged a virtual coup of the House leadership, and Mitch McConnell offered a new plan: the Republicans would capitulate on substance, but would force onerous political requirements on the Democrats. Namely, Obama would have to unilaterally raise the debt ceiling -- the Washington Post and Politico.com tells me this means he'd "own it" -- and Democrats would be forced to cast a vote in approval of him doing so no fewer than six times over the next two years. It was a nakedly political solution, but hey, at least it preserved the United States of America for future generations. Which is more than anyone could say for the Cantor Plan, backed by a huge chunk of House Republicans.

But then, someone figured out that those same House Republicans probably wouldn't vote for the McConnell solution. Now, I'm just some guy with a blog, but that doesn't seem to me like too much of a problem. There are, after all, well over a hundred House Democrats, virtually all of whom would very much like to see the debt ceiling raised without major spending cuts. Pair those Democrats with Boehner and like-minded Republicans -- you know, the not-crazy ones who understand that not raising the debt ceiling by August 2 means some kind of default, and default is bad bad bad (these people do exist, right? please tell me they exist) -- and the McConnell plan stands to pass.

Unfortunately, that's not how people in DC think. In DC, the solution to all problems, all the time, is to give concessions to the right. So the new proposal on the table is as follows: the McConnell plan, combined with $1.5 trillion in spending cuts, and no revenue.

Excuse me, but what on earth?

Maybe I'm missing something, but isn't the entire point of the McConnell plan to circumvent the deadlock over spending cuts? Republicans won't do tax increases, and Democrats won't accept cuts without extra revenue. What we have here is the worst of both worlds: Republicans get spending cuts without tax increases, and Republicans get to impose a heavy political cost on the heads of Democrats. Why in the world would Democrats agree to this? If they're going to throw in the towel on spending cuts, then don't use the McConnell plan -- just raise the debt ceiling the old-fashioned way! With a one-time, lump-sum, bipartisan vote! Don't give out $1.5 trillion in freebies!

Honestly, nothing says "Democratic negotiating strategy" quite like giving the other side their demands in order to entice them to make the ugly compromise you'd prefer. Smart, guys. No, really, just brilliant.

Anyway, congressional Democrats are nothing if not spineless, and Obama's debt ceiling strategy has been amazingly dimwitted, so I can only assume this "compromise" will pass.

Thursday, July 14, 2011

Blog recommendations

So posting on here has been light. The obvious topic for any post is the debt ceiling debate, and right now, debt ceiling discussion is pretty well-worn ground. It's almost literally the only thing being blogged about at all, by anybody, anywhere on the internet. I feel a little preempted -- every time I can think of anything to say, I discover that another, smarter, better blogger has gotten there first!

But maybe you guys aren't reading those other, smarter, better bloggers. And I've gotten at least one request for blog recommendations recently. So without further ado, here's an official 4:17 AM blogroll, representing the best of the best in internet writing. Or at least stuff I like to read. I even ranked them! The top five, anyway. Most of these names will be familiar, but maybe there are a few that people don't know about.

1. Felix Salmon - Mostly blogs about finance, art, and food. He's such a compelling writer that I actually want to read it anyway. If only he posted more often.
2. Matt Yglesias - Which is something no one has ever said about Yglesias. Dislikes height limits.
3. Ezra Klein - Like Yglesias, except a much better writer, and less manic.
4. Kevin Drum - Sort of like the previous two, if they were written by an ordinary guy and not weirdo policy savants.
5. TAPPED - I enjoyed it more before they sold out (read: back when Tim Fernholz wrote for it). Mostly just complains about Republicans these days -- but hey, that's what I do too!

And the rest:
Mike Konczal
Jon Chait
Greg Sargent
Dave Weigel (His tweeting is better than his blogging, but his blogging is pretty good.)
Jon Cohn
Adam Serwer

There's a danger, of course, in making this list. Namely, that you guys actually will go read some of these blogs, and realize that I shamelessly lift most of my content from these twelve sources. Browse, enjoy, find something you like. But seriously, don't overdo it.

(If you're under the impression that this is sort of the blogging version of a clip show, well, you'd be exactly right.)

Wednesday, July 13, 2011

Apocalypse soon

We're twenty days away from debt ceiling D-Day. Rather than becoming more amenable to the fantastic deal the president has offered them, the House Republicans seem intent on doubling down and hoping nothing bad happens. Most of them seem convinced that default wouldn't be that big of a deal, anyway. The caucus has a mind of its own now. This is still a game to them. They're not listening to Boehner, and they're not listening to McConnell -- nobody is in charge. The "deal" McConnell proposed yesterday, which in actuality was little more than complete capitulation to the president and his party, demonstrates just how frightened the leadership is right now. The GOP threatened to set off an economic bomb if they didn't get their way, and suddenly its realizing that it can't defuse the thing.

Go read Kevin Drum and Jon Cohn. It's time to start worrying, people.

Tuesday, July 12, 2011

One thing the left doesn't need to worry about

I've noticed a growing fear from progressives: that Barack Obama will sell them out on deficit, and get away with it. For instance, there's this Ezra Klein post from yesterday:
You’ve heard the old joke about the two hikers who round a bend only to find themselves face to face with a growling bear. One sits down and begins lacing up his running shoes. “You’ll never outrun a bear,” whispers his terrified companion. “I don’t have to,” replies the first hiker. “I just have to outrun you.” Today’s news conference was President Obama lacing up his running shoes...

I’d guess that White House political adviser David Plouffe is very happy about how this debate is playing out, while White House economic adviser Gene Sperling is pretty unhappy about it. Republican intransigence is great for the Obama brand. These negotiations have been an extended opportunity for Obama to continually emphasize his commitment to bipartisanship, his desire to get things done, his frustrations with Washington, his status as the adult in the room.
To whatever extent Obama is pursuing a large-scale, cut-oriented deficit deal, I think he's making a horrible choice. But there is no reason to be concerned that this (potentially) cynical political calculation will pay off for him. The notable thing about austerity economics is that it doesn't work. And whatever happens during Obama's administration is going to be laid squarely on his own head by voters.

Much of Washington is currently embracing a poisonous idea: that Obama can take a moderate stance on the deficit, and negotiate an outcome that is substantively worse but politically more appealing, and thereby increase his chances of reelection. This is a delusion. Anything Obama does that undermines the economic recovery will decrease his chances of reelection. If the recovery stalls further, Obama can't "argue to voters" or "make the case" or "illustrate the difference between him and Republicans." The voters aren't listening; they're too busy worrying about how to make ends meet.

At this point, the president's political wellbeing and the economic wellbeing of Americans are virtually the same thing. Whatever bad decisions the administration makes on the economy, it'll pay the consequences in full.

Sunday, July 10, 2011

Problems that are more pressing than the deficit

From Kevin Drum:
[I]n the new paper, the authors modeled glacial and non-glacial eras separately. And the best fit with the data suggests that climate sensitivity does indeed change depending on glaciation. In fact, during an ice age, the most probable climate sensitivity is six to eight degrees Celsius for a doubling of CO2, more than twice the previous estimate. Why do we care? As the authors drily put it, "Because the human species lives in a glacial interval of Earth history, this modeling result has more than academic interest."
How much is "six to eight degrees"?
Six degrees isn't just a bit warmer here and there; it's a global catastrophe that would likely produce mass extinctions, dead oceans, large-scale desertification, coastal cities underwater, and billions dead. And unless something changes, we're well on pace for a doubling of CO2 before the end of the century.

The deal that Democrats shouldn't strike

As Republicans pull back from debt ceiling talks (again), it's becoming ever more difficult to see how this whole thing plays out. I plan to revisit the possibilities a few times today, but first, let's talk about the conclusion which the pundits (and bond markets) still seem to expect: the parties find a deal.

We now know a little more about how this deal would need to be shaped. For Republicans, avoiding new tax revenue is more important than pursuing large-scale entitlement cuts. It's less clear what Democrats would or would not accept, but there does seem to be growing congressional resistance to entitlement cuts. At this point, both parties seem to be moving towards a smaller deal: as the amount of deficit reduction envisioned by any particular compromise gets smaller, the need to raise new revenue or cut entitlements also shrinks.

Unfortunately, most of both parties' preferences also point towards a deal that, compared to Obama's Grand Bargain, more heavily favors Republicans. That's because the Democrats' second highest priority, after avoiding entitlement cuts, seems to be "getting the debt ceiling raised." There's a middle ground here where a viable deal might still exist, in which Republicans cut giant chunks out of the discretionary budget, while Democrats, having successfully protected Medicare and Social Security, just grimace and let it happen.

That would be a terrible mistake and a terrible outcome. When politicians talk about wasteful spending, they generally are doing two things:
-deceptively playing off the expectations of their audience, who have heard horror stories about $40,000 hammers and thus are convinced that the deficit can be fixed by cutting the Pentagon's coffee budget.
-but in actuality, reclassifying entire government functions as "wasteful." For example, if you don't believe the government should regulate pollution, the very existence of the EPA qualifies wasteful spending, regardless of how efficiently the agency puts its money to use.

In reality, there's less near-term bloat and waste in discretionary spending than just about anywhere else in the federal budget. Significant cuts immediately degrade the functioning of government, make it less efficient and more error-prone, set the stage for large-scale regulatory failures (think of the Gulf oil spill), and generally undermine civil society.

They would also undermine the economy. Discretionary government spending creates jobs and cycles money back into the private sector pretty much instantly, and cuts to discretionary spending would need to be relatively front-loaded, unlike cuts to entitlements, which would likely phase in over time. Nor do private industries function well when confronted with an unreliable, poorly-enforced administrative state.

For its part, the American public would only know two things: that the government wasn't doing its job very well, and in the meantime, the economy had continued its decline. Furthermore, the public, never terribly adept at ascertaining cause and effect, would almost certainly lay the blame for the continuing rot of the American state on the heads of the president and his party. This is, in short, a recipe for yet more spending cuts and small-government nonsense.

Democrats, focused on protecting Social Security, should not allow themselves to be coaxed into cutting the legs out from underneath the American government. But what alternatives do they have? Not many good ones, as we'll see later.

Saturday, July 9, 2011

Friday, July 8, 2011

Department of inept messaging

The Huffington Post reports that, in a private meeting, Tim Geithner told congressional Dems that the Fourteenth Amendment "constitutional option" is off the table in debt ceiling talks.

This is a horrible tactical blunder by Geithner and the administration.

Now, of course, the administration would rather negotiate some sort of bargain than invoke the Fourteenth Amendment -- the constitutional option has never been without significant attendant risks. I have little doubt that this is the reason for Geithner's statement -- to communicate to Congress more fully the urgency of finding a deal.

But the Fourteenth Amendment, even if left untouched for now, serves two important purposes. For starters, it's the administration's only significant leverage over Republican negotiators. As long as it remains on the table, Republicans have to worry about pushing their demands too far and forcing the president to ignore the debt ceiling altogether.

Maybe more importantly, the Fourteenth Amendment gives the administration a legally cognizable escape hatch if negotiations fail. There is, as Felix Salmon points out, little chance that Treasury is even capable of halting all payments in time to meet the August 2 deadline -- too many computers to reprogram, too little time. Even if it could, the administration would then be forced to begin withholding Social Security checks and military wages in order to keep up interest payments. You might call that default or you might not, but it's kind of the same thing either way: the US government failing to meet its fiscal obligations. Markets would react accordingly. If this option is preferable to default that's only a commentary on how very bad a default would be.

This nightmare scenario is now less than one month away. No one seems to know how Congress could reach an acceptable, plausible budget deal. The administration needs a plan for the worst-case scenario, and it apparently just took its best option -- the option that goes the furthest towards preserving the status quo, ending the standoff, and preventing anyone from getting stiffed -- out of the game. In the meantime, Obama, rather than searching for an exit, is significantly raising the stakes of the deficit deal.

One final thing: it is worth noting that Geithner's comments came in private, and was intended to prod Congress into action. It probably wasn't meant for public consumption and it's probably not an official statement of administration policy. Now that his statement has escaped into the wild, it does significant damage to the administration's negotiating position going forward, but it hardly precludes Obama from reversing course and declaring the debt ceiling unconstitutional. I wouldn't completely write off the Fourteenth Amendment just yet, if for no other reason than because, come August 2, the administration might have precious few options left.

I'm sure this will end well

Some of the more conservative members of my audience might occasionally read my blog and think, "Wow, has this guy ever met a regulation he didn't like?" As it turns out, the answer is yes:
At a hastily-convened news conference to unveil his plans for inquiries, Mr. Cameron also proposed an extraordinary tightening of regulations on the behavior of the free-wheeling British press, which prides itself on investigative prowess far beyond the tabloid titillation with which some of its titles are associated.

“I believe we need a new system entirely,” Mr. Cameron declared, saying the current self-regulation of the press by a body called the Press Complaints Commission has “failed.”

In case you haven't been following the burgeoning scandal in the UK, the country is up in arms because a tabloid was caught hacking into the voicemails of newsworthy people -- people who also often happened to be dead, like soldiers or abducted teenagers. To make matters worse, there were, it appears, all manner of unseemly contacts and payoffs between the tabloid and the police, and because the now-deceased tabloid was a flagship paper of media mogul Rupert Murdoch, all manner of unseemly contacts between its staff and the current Tory government.

I enjoy a bit of schadenfreude as much as the next guy, particularly when it involves affirmed villains like Murdoch and clowns like David Cameron, but clearly the thing to crack down on here is not the press, but the government and the cops. Regulating the press is creepy and Big-Brother-ish; if anything, a healthy press corps should, from time to time, skirt over the bounds of good taste and legality in pursuit of a story. The real scandal is that the British government was aware that this sort of thing was happening, and because of its high- and low-level connections to Murdoch showed no interest in addressing it.

For the media to succeed as an institution, it should find itself occasionally at odds with the law (which the News of the World certainly did) and at odds with the ruling classes (which Rupert Murdoch certainly was not). Government oversight discourages both and drains the vitality of the whole enterprise.

Thursday, July 7, 2011

What's the matter with Barack Obama?

And so here we are again. Congress is in discord, the future of the nation is in peril, and Barack Obama has stepped into the breech, offering up a "grand bargain."

Stop me if you've heard this one before:
Obama plans to argue that a rare consensus has emerged about the size and scope of the nation's budget problems and that policymakers should seize the moment to take dramatic action.
Consensus? Dramatic action? National problems that we can't afford to leave unaddressed?

It's the Moderate-In-Chief, emerging yet again to find a bipartisan solution that both sides can agree on. We all know where this is headed. After some gentle chiding in both directions, and nothing whatsoever resembling a defense of his party's ostensible views or interests, Obama will come to some sort of compromise with Republicans. The Washington Post will cheer, the Republicans will get a lot of what they wanted, and the rest of us will be left feeling a bit dazed, wondering why we needed a bargain in the first place.

And one more time, America's progressives will find themselves asking the same question: how can Obama be so bad at this? Why can't he ever, ever, just stick his ground?

Perhaps nothing over the last two years has dismayed the left quite as much as Barack Obama's lack of negotiating prowess. The story has replayed itself so many times that it's gone from tragedy to farce and then back again: the administration makes preemptive concessions. It talks about striking a deal. Then, the Republicans (or Blue Dogs, as the case may be) take those concessions and run to the right. Wash, rinse, repeat. The depressingly predictable result: policy outcomes that inch ever closer to the Republican ideal, and seem absurdly incongruent with the reality that two-thirds of the elected branches of our government are currently Democratic.

What creates this pattern? The two main explanations on the left can be summed up as "Barack Obama is evil" or "Barack Obama is stupid." Neither is very good. I find the former view implausibly conspiratorial, as it boils down to accusing the president of being a conservative sleeper agent. And the latter view hardly jibes with everything else we know about the man, who is almost impossibly articulate when it comes to explaining complex policy matters -- particularly in comparison to his political peers. And his academic and literary credentials are astonishing to boot. You mean to tell me that the former editor-in-chief of Harvard Law Review has spent the last two years failing Negotiations 101? I don't buy it.

There's also a structural explanation -- that congressional and electoral pressure on Obama always force his hand, and he has to make concessions that he knows he shouldn't. Ordinarily, I'm quite fond of structural explanations, but this one seems increasingly weak to me. To see what I mean, look at Obama's position on the deficit vis-à-vis that of Democrats in Congress. If anything, pressure on congressional Democrats is more severe -- and yet, Obama has continually rushed to the right of them, offering up entitlement cuts that have earned the skepticism of even fiscal conservatives like Kent Conrad. (Also note that this is not always the case: whatever you believed about Obama's position on health care reform, it was consistently representative of, if not slightly more progressive than, the consensus view among Democratic congresspeople. In that instance, I found structural explanation far more persuasive.)

So in the end (no, I'm just kidding, you're nowhere near the end yet, sorry), I really do think that the problem goes to the very top. There really is some sort of persistent, recurring mistake that Obama keeps making. A cognitive error, if you will. But what could it be? I sincerely doubt it's anything too obvious, too glaring, or at some point in the last few years, someone would have located it and rectified it.

There's been a lot of speculation about this, but I actually think I've located a pretty strong candidate. I think Obama's conception of the political and policy challenges he faces is flawed in one subtle, essential respect -- but a respect that completely alters his strategy for addressing them.

The key distinction here is between one-off negotiations, where two (or more!) parties negotiate a permanent solution to a problem, and iterative negotiations, where a solution is continually renegotiated over time. Prevailing in each type of negotiation requires different tactics.

In a one-off negotiation, a party's stated principles and preferences only matter insofar as they affect the ultimate conclusion. But when that conclusion is reached, the parties' original preferences stop mattering at all, because the negotiation has finished, the game is over, the issue is off the table. Therefore, a party that is willing to bend its stated preferences in order to achieve a better substantive outcome has much to gain. They're giving up something unimportant for something important.

In an iterative negotiation, however, the dynamic changes completely. The final outcome of each negotiation might matter a little bit (it'll have an effect for some period of time, after all), but its importance is greatly diminished. That's because the final outcome is always subject to change in the next negotiation. Talks will eventually recommence -- and depending on the parameters of the problem, may recommence immediately.

In an iterative negotiation, a party's stated principles and preferences become much more important. Unlike the final outcomes, which are malleable, preferences persist from negotiation to negotiation. So while a party might win some negotiations and lose others, a party which shifts its preferences towards its opponents' is likely to effect the outcome of of all subsequent negotiations. A party might still be able to win concessions by shifting its principles, but in doing so, it would be trading something very important for a temporary benefit.

The fundamental problem with the administration's negotiating strategy should be becoming clear. It's not that Obama is a poor negotiator. (In fact, I'd argue he's quite a good negotiator, though some would likely disagree.) The problem is that he has mistaken the character of the negotiations themselves. Obama thinks he's participating in one-off negotiations, but he's actually participating in iterative negotiations.

Don't believe me? Look at the approach the administration has adopted over and over. When Obama and his administration tackle a policy problem, they typically go all-in -- they try to solve the whole thing (or as much of it as possible) in one fell swoop. They won't settle for a short-term solution on the debt, or on health-care, or taxes. They'd prefer a comprehensive solution, something large and lasting. In other words, they treat each issue like it's a one-off negotiation, which they can resolve all at once, and then shelve permanently.

If they were correct, their willingness to compromise on principles would make sense, and, indeed, might actually be the optimal negotiating strategy. But history has proven, time and again, that the administration is simply not correct about this. Nothing our government resolves stays resolved permanently. The health care bill gets passed -- and then it's contested in the courts, and maybe even in Congress come 2013. Congress reinstates PAYGO, and the Republicans strip it back out. The administration's willingness to compromise on terror prosecutions and military tribunals only sets off a new round of demands from the right.

The perfect example, though, is the current string of budget and tax and deficit bargains. Repeatedly, the administration has attempted to strike a bargain with the Republicans. And for the most part, it's succeeded. The tax cut compromise, whatever its political weaknesses, was surprisingly close to optimal policymaking (i.e., don't raise taxes during economic downturns, and raise them all during boom years). The Republicans practically got rolled in the budget compromise -- by giving lip service to spending cuts, the President was able to strike a deal while stripping all the bite out of the actual cuts. And now, even though all the structural factors are against him, it looks like Obama might be able to squeeze unexpectedly high revenue increases out of Boehner. If you look at them in isolation, each episode looks like a draw -- or even a victory! -- for Obama.

But during each negotiation, Obama also made certain ideological concessions that narrowed the range of possibilities at the next negotiation. In December, he conceded the importance of tax cuts. In March, he publicly accepted the premise that spending cuts will improve the US economy. A month ago, he acknowledged that the Republicans could legitimately make demands in exchange for raising the debt ceiling. All of which lead us to today: Obama's range of negotiating options has shrunk considerably. And the potential impact of this debt ceiling negotiation is far larger, and far longer-lasting, than the impact of either of the previous compromises. What's ended up mattering the most is not the deals Obama struck, but how he struck them. When you're brought back to bargaining table over and over again, the outcomes may change, but the you're stuck with your principles.

And this, of course, is not necessarily the final deal. Pretty soon, Obama will have to negotiate another appropriations bill. Eventually -- assuming he wins reelection -- he'll have to negotiate another debt ceiling increase. And so on, and so forth. And while the result could conceivably shift in either direction, Obama will be largely stuck with the set of policy preferences he's establishing as we speak. The outcomes may change, but you're stuck with your principles.

In short, the thing that perpetually undermines Obama is his affinity for thinking big. He seeks out comprehensive solutions and sweeping bargains. It's a noble impulse. It's not hard to see why the administration finds it so seductive.

But it's also precisely the wrong tack to take most of the time. Politics isn't a one-off game. It's not a chess match that both parties play to conclusion, and then no further. Even if Obama were able strike the grandest bargain of them all, and address all the nation's ills in perpetuity, CNN wouldn't go dark, the Republicans wouldn't all go home, and the entire Washington Post editorial board wouldn't retire. The same set of people would continue to revisit the problems that Obama had already fixed, with an updated set of critiques.

Politics is an interminable series of recurring standoffs and renegotiations that stretches ahead far into the future. It's neverending. And if you want to win at politics, you should probably forget about grand bargains and definitive solutions, because solutions rarely last forever. You have to play the long game. Whether you like it or not.