JONATHAN CHAIT AUGUST 1, 2011
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The debt ceiling agreement is a horrible piece of legislation. It ratchets down already too-low domestic discretionary spending caps and imposes painful sacrifice on the middle class with little asked of the rich. Obviously, though, you can’t assess any deal without asking “compared to what?” Did President Obama get a worse deal than he had to, given the circumstances? And the answer to that question, in turn, depends on when you start the clock, and more importantly, when you stop it. Let me explain.
Going back to December, the Democrats committed a massive blunder by failing to push for a debt ceiling increase. At the time, observers like Ezra Klein were noting how absurd it would be to let Republicans force through a deficit-increasing policy (extending the Bush tax cuts) and then let Republicans stick Democrats with the blame for the debt ceiling. A reporter even asked him about the Republican Party’s ability to use this vote as leverage, and Obama seemed not to grasp the point at all. Obama has implied that he couldn’t have received a debt ceiling hike, but I don’t think that’s correct.
Then, last spring, Obama committed blunder number two. Republicans began voicing opposition to raising the debt ceiling, or insisting on massive concessions in order to do so. The correct response here was to refuse to negotiate. Obama simply needed to say, we’re raising the debt ceiling the way we always have, because the alternative is catastrophe. We can negotiate any policy change you want, but not with a gun to the head of the American economy. Eventually, the business community would have pressured Republicans to relent. Instead, once Obama ascented to broadening the scope of the debate, business simply wanted a deal to get done, and it pressured both sides to compromise. (It is true that the complicity of the anti-deficit lobby in the Republican hostage gambit made it harder for Obama to insist on keeping the deficit and the debt ceiling separate.)
The third mistake lay in assuming Republicans would agree to raise tax revenue. I spoke several times with administration officials who asserted with total confidence that Republicans would simply have to acknowledge the need for more revenue. They betrayed a complete misunderstanding of the party they’re dealing with.
Once it had agreed to negotiate a ransom payment, the administration was left with a series of bad options. I think the current deal on offer is about as non-bad as it could have gotten. It managed to backload the timing of spending cuts to minimize damage to the recovery and protect programs for the most vulnerable beneficiaries (which also happen to be the most vulnerable programs.) I’ve argued that Obama should give up on trying to get Republicans to accept higher revenue and just sign an all-cuts agreement.
Furthermore, unlike many other liberals, I agree with a key element of the administration’s political calculation. The thinking is that Obama lost the support of a key centrist element of his coalition due to the perception that he’s an out-of-control spender who created big deficits. The perception is wrong, but that doesn’t really matter. Signing onto a major deficit reduction deal helps rebuild Obama’s image. That the deal consists entirely of spending cuts probably only helps. What’s more, recognizing that Democrats will never obtain a fiscal readjustment entirely on their own terms, I’m willing to swallow some cuts to Medicare and Social Security in the pursuit of deficit control.
My red line is revenue. It has become clear that Obama’s pledge not to raise taxes at all on anybody earning less than $250,000 a year is no longer compatible with even the minimal demands of government over the next decade. Just expiring that portion of the Bush tax cuts is not enough. The Bowles-Simpson commission required more revenue, and the Gang of Six required more revenue. Obama has tried repeatedly to lure Republicans to sign a deficit reduction deal, offering them a pact with lower revenue targets than either of those. How does Obama make that paltry revenue target work? By assuming he can get away with slashing domestic discretionary spending. The White House oddly boasts that it reduces domestic discretionary spending to the lowest level since the Eisenhower administration. That’s a plan that either will be broken or will result in shortchanging vital priorities.
Obama has one golden ticket out of the revenue dilemma. As I’ve written multiple times, the expiration of the Bush tax cuts gives him enormous leverage over the GOP. Republicans signaled last year they’d rather kill off the entire Bush tax cuts than sacrifice the portion that only benefits the rich. Holding firm on the Bush tax cuts would let Obama maneuver Republicans into the position of killing off all the Bush tax cuts. That would provide all the revenue he needs – some $4 trillion over a decade, as opposed to the $800 billion he’d raise merely by ending tax cuts for the rich.
What’s more, going to the mat over the Bush tax cuts would provide Obama with a strong political message for 2012. He can’t run on the economy. He needs a contrast election. Republicans will try to pass some version of the Paul Ryan budget, cutting taxes for the most affluent and laying waste to Medicare and Medicaid. Obama can run as the candidate insisting on shared sacrifice – and having already agreed to $3 trillion in spending cuts would give him credible to draw that line.
The problem, though, is that we can’t be sure Obama really intends to draw that line. There’s a limit to how much faith one can place in a man who has so badly misjudged his political opponents time and time again. The debt ceiling ransom may be a shrewd strategic retreat, or it may be the largest in a series of historic capitulations. We won’t know until the fight over the Bush tax cuts has been settled.
27 comments
Not a bad analysis overall, Jonathan. But Obama's failure extends back further than December, to the start of his presidency, and goes deeper than the shortcomings you correctly identify. Instead of preaching compromise at all costs and blaming both parties for the financial collapse, he could have legitimately placed the responsibility where it largely belongs, on the Republicans. He could have similarly called into question the credibility of their leaders, apologists and media allies who preached deregulation, casting doubt on their prescriptions moving forward. He could have pushed for a larger, longer stimulus plan from the start, holding the opposition responsible if they blocked it. He could have brought in economic advisers less in the intellectual (and perhaps even financial) pocket of Wall Street. But even without the wisdom of hindsight reaching back to January 2009, he could have adjusted his positions and policies later that year or in 2010 as it became clear that he wasn't remaking Washington. Instead, he let Washington remake him, or expose his weaknesses. And even if he didn't readjust a year ago, he certainly should have done so by standing up to the Republicans over their absurd debt ceiling demands. If the Democrats had threatened default as a weapon in 2007, Bush would have stood up to them and placed the blame for any harm on them. And the public would have backed Bush, just as it would have backed Obama if his strong stand was part of an overall strategy that pointed out that a jobs-oriented approach was part of a medium-term deficit reduction plan. Strategic retreats can be fine when they are part of an overall strategy, not when they constitute the entire strategy. In the wake of this farce, I doubt we'll see a more assertive Obama down the line.
- Thunderroad
August 1, 2011 at 1:11am
Great comments, Thunder. Chait, too.
- Curran1
August 1, 2011 at 1:31am
This is my first post, though I've been (freely) reading for a while. I have to say that I was so releived to read Mr. Chait's article. After reading so many opinions all night, unable to concentrate on my own work, I was beginning to panic. This deal was sounding more and more dreadful... At last, Mr. Chait weighed in - whom I respect. First off, I agree with most of it, and second, do I have to remind everyone that the President's "partners in compromise" were the House of Hooligans who are unquestionably, certifiably INSANE? I'm sure their next step was impeachment. That's the pattern. It's not that they would win that battle, but it waists so much time and energy, better spent on jobs, etc. By the way, didn't these fools get in on calling themselves "constitutional republicans"? And their first act is to amend it.
- bundylu
August 1, 2011 at 2:06am
"...about as non-bad as it could have been." Bullshit. You guys are all wrapped up in parsing the content of the deal. The content of the deal is irrelevant. The simple reality is that the Republicans have given us government by extortion and Obama has let them do it. Was it the best deal he could have done? Maybe. But he didn't have to do any deal at all. That was his only play, and he failed.
- AaronW
August 1, 2011 at 3:12am
He hasn't failed yet Aaron. I'm not happy with the direction things have taken either, but consider the likely alternatives going forward. Given re-election, which may be a stretch but probably not all that much of one, the Bush tax cuts become the hostage and O could end up leaving office after eight years having accomplished a great deal. I'd give him a C-/D+ at this point, but he still has a chance to pull up his average. No re-election, then we're talking F.
- Robert Powell
August 1, 2011 at 3:33am
I'm afraid he has failed, Robert, in three historic ways: He's adopted economic policies that will prolong the Great Recession, failed to curb the ability of Wall Street to plunge us into another one, and caved to unprecedented political extortion. Now, has he had some successes? Yes. Can he recover in a second term? Perhaps, and I fervently hope so, though he'll be hamstrung by the economic and political legacies of his first term. But for now, in three crucial regards, this is a failed presidency.
- Thunderroad
August 1, 2011 at 4:06am
It's a game of chess, and we won't know until the end. If the Bush tax cuts expire and Obama is re-elected, then it's a budget win. The thing that worries me is that with a divided congress he won't get anything done, even with a second term; 14th amendment angle may have been the best way to make the republicans implode, thereby getting him majorities, and he missed that possibility. If he loses reelection, then it's epic fail, for him and the American people. I actually see him as a potentially great president if he wins 2012 and shifts congress back, but I don't see how he does it.
- sokol8
August 1, 2011 at 5:12am
It is difficult to both balance the budget and grow the economy. Furthermore it is not possible to grow the economy at all by cutting expenditures in a demand starved economy. We are now locked into an impossible situation. We are chasing our tail. The economy will remain sluggish at best and the long term budget deficit will not shrink and the country will grow poorer as we fail to rebuild infrastructure and educate a future workforce. A downward cycle commences.
- paskunac
August 1, 2011 at 6:21am
Shoulda, coulda...easy to say not easy to do. Speaking of failure or legacy betrays the impatience for the long game. Game theory warns us about dealing with the madman...what if he truly is a madman. The Republicans have proven to be madmen - that they would have crashed the economy feels like a certainty. To believe that there is wisdom in letting that happen is just as mad. So you get the best deal you can, keep some good options for the future - the Bush tax cuts - and go play the next hole. To believe there were other truly available alternatives is either incredibly naive or just spending too much time in the bleachers. Be realistic these people are nuts - they don't care about public opinion - except as spewed by Fox, they don't care about common sense or common people and they refuse to see true facts no matter how obvious - the definition of madmen!
- Zachsteph
August 1, 2011 at 6:28am
It is pretty implausible to think that Obama won't find a way to compromise on the Bush tax cuts. I fully expect there to be some bipartisan "tax reform" package resulting in lower rates. Despite the clear strategic advantage Obama holds on taxes, he will never use the leverage to its full potential. Compromise for the sake of compromise is Obamas primary ideological concern.
- subterran
August 1, 2011 at 6:31am
Chait nails it. Spending "cuts" are like those tax expenditure "cuts" being promoted by Bowles-Simpson, the Gang of Six, and others. The potential for more Republican mischief before the 2012 election is the "trigger". But let them make mischief, and let the 2012 election be a choice between clearly-defined opposing sides. The risk, of course, is as Chait says, that Obama won't be able to help himself and will agree to another "compromise", this time on the only leverage the Democrats have, expiration of the Bush tax cuts. I will hold out hope that Obama chooses a strategy of choice, and that, finally, he proposes the Obama tax plan, including my own preference, which is (short-term) across the board, and significant, cuts in the payroll tax for working Americans, when combined with expiration of the Bush tax cuts, will allow Americans to choose Obama's approach to tax policy or the Republicans' approach to tax policy.
- rayward
August 1, 2011 at 7:29am
My view is that the whole thing was a colossal waste of time. For years, when the Republicans talked about spending cuts, I waited for them to come forward with what they would cut. When they did in the Ryan Plan, they got hammered. And then, with no revenue increases, it made cutting spending that much harder. I'm pretty sure, when the public has its say, and the cuts are finally expressed in real terms, the deal that was reached won't mean much.
- Nusholtz
August 1, 2011 at 7:50am
The failure here is Obama's ratification of government-by-blackmail. The Republicans challenged the very principle of majority rule, and rather than defend this pillar of democratic governance, the president surrendered to short-term political expediency. Yes, the Republicans were acting within the letter of the law but not its spirit. Had Obama acted unilaterally to continue borrowing he would have been within the spirit of the law if not its letter. History would have forgiven him, and more than likely so would the courts.
- AaronW
August 1, 2011 at 8:30am
This is Waterloo. Not just for the President, but for the American people. Hostage taking is now a key GOP tactic to get what they want. It will go on over and over again, because low information voters just here things like "Washington is broken" and "both sides are to blame" rather than there are un-American terrorists in positions of power.
- MikeB.
August 1, 2011 at 8:31am
'The third mistake lay in assuming Republicans would agree to raise tax revenue. I spoke several times with administration officials who asserted with total confidence that Republicans would simply have to acknowledge the need for more revenue.' and 'There’s a limit to how much faith one can place in a man who has so badly misjudged his political opponents time and time again.' It's hard to believe we pay his staff. A high school civics class could probably do better.
- jet
August 1, 2011 at 8:41am
AaronW- Chait agrees with you about the hostage thing and the blackmail thing. He's saying that given taht major and wrong concession, it's about as non-bad as it could have been.
- miceelf
August 1, 2011 at 9:44am
One thing that was ignored in December's compromises, was the March spending bills. One thing that was ignored in April's 11th hour "prevent the Government Shutdown" agreement, was the Debt-Ceiling. And one thing being ignored NOW is the October "prevent the Government Shutdown" spending bills. Obama keeps getting rolled, because he won't put the blame where it lays, he won't stand firm, and he believes in compromise more than doing the right thing. He probably thinks "Compromise" IS the right thing. Except when dealing with the Tea-Party, he'd be right. And he keeps thinking that the latest hostage crisis is the LAST hostage crises -- but is isn't, instead it's simply the prelude to the NEXT hostage crisis. THAT is what he should keep his eyes on.
- AllanL5
August 1, 2011 at 10:09am
Is there anyone out there that believes the Republicans do not have a strategy for extending the Bush tax cuts? And as you all shake your pom-poms for in increased debt ceiling, are you not concerned about the devaluation of the dollar and the daily effect this has on peoples lives? You are right, Jonathan, that this plays well to independants because it is a more responsible bill than one calling for revenue increases. It also addresses, perhaps unwittingly, the concerns of a majority of Americans who feel the country is moving in the wrong direction (because of over spending).
- 64099
August 1, 2011 at 10:56am
It is all so easy sitting at the keyboard, knocking back Buds and blathering on, isn't it, Thunder? I so want to be able to take the resident geniuses here at TNR and grab them by the scruffs of their necks and catapult them into power in the Oval Office and watch them running out the door, screaming uncontrollably before their first day is even up. Though Barack Obama doesn't have your understanding of the opposition, Jonathan, maybe his own understanding isn't inferior at all. I just think his strategy is light-years distant from yours. You are a little too quick in imagining that your policy prescriptions would work the way you think they would in the real world, as opposed to the cyberworld.
- liberalref
August 1, 2011 at 11:04am
I guess it is only to be expected that, in the face of the slightest potential for Obama to have eeked out a win, we change focus to how badly things went and how good it could have been, if only...
- GSpinks
August 1, 2011 at 11:41am
The President simply has no leverage of any kind any longer. At some point, when you fail to hold firm on any bottom line, your opponents reasonably start believing that there is nothing you're willing to hold firm on. This President is well past that point now. There is no line he won't cross to get a deal. I guess that appeals some "independent voters," but it also results in ineffective policies. A perpetually faltering economy appeals to no one.
- rlpeterson
August 1, 2011 at 11:49am
I believe he's patient and takes a longer view. (I hope) remember the Osama business. He's no dunce, and surely possesses a savage side. Just wait until his 2nd term.I know he's thinking about his legacy and reelection, but hopefully he "comes to" once he's in again. After 2010, everyone (o.k., mostly CNN) kept saying he should "truncate" like Clinton. Yipes.
- bundylu
August 1, 2011 at 12:08pm
A win? Eeked out a win? This is complete incompetence. There is no excuse whatsoever for failing to demand a debt ceiling for as long as necessary as a direct consequence of the Republicans' budget busting insistence on extending the Bush tax cuts. When the president was jacked up, he should have refused to negotiate. The moment he legitimized the hostage-taking, he had already lost. We will now suffer ruinous spending cuts while still mired in a de facto recession with GDP below 2007 levels. If the Republicans had pulled the trigger, he could have pro rated payments through the end of September, the end of this budget cycle. That would have brought Republicans to their knees within days. Or he could have kept paying the bills an proved that he was willing and able to face down the maniacs. His re-election would have been reassured for that reason alone. Simply lack of nerve and lack of any understanding of the opposition and how to negotiate, or not. Looking like a grown-up is not a policy goal. That and $2.75 will by you a slice of pizza in Manhattan.
- roidubouloi
August 1, 2011 at 12:51pm
Why does anyone believe a second term for a man who not demonstrated that he has any principles would result in him finding some? He either believes that the Repub's theory that the deficits are more harmful than the economy or he has no ability to explain basic economics. My belief is he simply has no clue about how the economy works (in addition to his obvious inability to think strategically). Why anyone thinks that having the Bush tax cuts expire is somehow a big win while unemployment hovers at 10% is beyond me. If this deal get approved we have years and years of continued misery among all but the top 2%
- krvogel49
August 1, 2011 at 2:20pm
- Jeeze, some people see the word cut and they pass out. The GOP did not win, it was a set-up and the TP will own their tuchus. It appears most people posting don't realize how little will be cut and when it will happen. Further, the right has more reason to worry about the options in Act II. Finally, the Republicans are doomed to dance with the dead-enders & the lingo from the candidates is proving that.
- michaelg
August 1, 2011 at 3:43pm
Obama didn't get rolled, he gave away whatever the Tea Party wanted hoping they wouldn't ask for more. The problem with most articles I have seen on raising debt ceiling is that they assume that this is an economic problem. It isn't. It's a political problem. The tea party is out there to embarrass Obama and they succeeded. Obama hates a political fight and they know it. He is no LBJ and no Clinton. I hope someone challenges him for the nomination and soon. There has got to be some other African American Democrat that could take his place.
- arnon
August 1, 2011 at 4:00pm
"ascented" >> "assented"
- cwsebring
August 1, 2011 at 4:48pm