SPOILER ALERT! How the debt ceiling “crisis” ends.

By mw | Related entries in Boehner, Budget, Debt, Deficit, Divided Government, Fiscal Responsibility, Obama
Kabuki theater at its best.

Kabuki Theater – a traditional form of Japanese drama characterized by highly stylized poses and exaggerated gestures accompanied by familiar songs wrapped in a plot rooted in historical tragedy (or comedy). The audience knows the story and knows how it ends. The art is in the quality of the performance and not in the story itself. In the United States, this art form is more easily recognizable as “The Debt Ceiling Crisis.” A few weeks ago, I left a comment on the Outside The Beltway blog, describing the show we were about to witness:

“The only thing that provides political cover for a compromise for both sides is the the dire consequences of missing the deadline. So there will be a compromise. The compromise will include some formula for revenue increases, (probably in the form eliminating deductions while reducing rates), it will include cuts to the military, and it will include deep meaningful and substantial cuts in spending in the overall budget. And the compromise will be agreed on the brink of default to no one’s satisfaction. In the meantime, we have six weeks of Kabuki theater to enjoy while the eventual compromise is hammered out. Both tribes will have ample opportunity to point at the feckless hypocrisy of the other. Enjoy the show.”

I do not see any reason to change that prediction. We know the debt ceiling will be raised because all leadership on both sides of the aisle say it will be raised. There is no politician of consequence in Washington who is saying otherwise. We already know how this story ends. It is all about the performance that takes us to the final act.

This is not to say that the performance is unimportant. The performance will determine public opinion and the final shape of the compromise. Whether looking at the more recent temporary measures proposed by Reid, McConnell and Boehner, or the “Grand Bargain” that was being negotiated between Obama and Boehner – the fact is that the two sides are quite close, as Ezra Klein explains:

“Now, remember that the deal Obama offered Boehner about a week ago now, or maybe a little bit less than that was $1.2 trillion in tax increases for $4 trillion in deficit reduction total. Boehner walked from that. but Boehner did say he would be okay with an $800 billion tax increase if there were $4 trillion in debt reduction total. So in some strange way, the two aren’t as far apart as you would think, but they can’t bridge that final gap. so now Boehner’s arguing for no tax increases at all, but Obama is sort of held to that same deal and is trying to continue to offer it to Boehner.”

The “Grand Bargain” is still on the table. That became clear during the dueling press conference “arias” sung by the two principal actors Monday evening. Despite Harry Reid proposing a plan with no revenue increases earlier in the day, Obama ignored Reid’s plan in his speech and continued to make the case for his version of the “Grand Bargain” with revenue increases. Despite Boehner himself proposing a stopgap measure earlier in the day – he spent more time arguing the case for his version of how the “Grand Bargain” negotiation broke down. Conclusion – they are still negotiating the big deal in earnest.

Boehner is playing his supporting role exceedingly well in the shadow of Obama’s scene stealing dramatics, but the President has the edge, successfully portraying himself to the press and most of the public as the more reasonable party in the negotiation. Last week he attempted to press his advantage to push for full $1.2 trillion in revenue increases. That was when negotiations broke down. He pressed it again on Monday with a call for public support to apply pressure in the House. Boehner played his last best move, exiting stage right, proposing a stop-gap, knowing that Obama really wants the “Grand Bargain”. But Obama knows that Boehner wants it too. The plot thickens.

The simple fact is that $400 billion difference is not all that significant in the context of the complete $4 trillion deficit reduction plan. These last few moves are about how that last $400 billion will be split. So far – advantage Obama – but it’s not a big advantage. My prediction – Boehner will move off of his $800 billion “revenue enhancement” cap, but it will stay under $1 trillion. I can hardly wait to see how it turns out.

The problem – both now and throughout this process – is that the “blink contest” negotiation cannot be settled except on the brink of a looming disaster deadline. Neither side can satisfy their constituency with the inevitable compromise. Our representatives on both sides take considerable political risk if they compromise too early – i.e. before a doomsday deadline. We’ve seen this every time the sides get close. Liberals and Democrats are furious at Obama and Reid. Conservatives and Republicans are furious with Boehner and McConnell.

Since a compromise solution of this scope requires a hard deadline, the only remaining variable is whether we agree the deadline actually exists and when it takes place. This is part of what we heard last Friday, with both sides upping the rhetoric to make the case that the deadline was really this last Monday. Nobody bought it. So we are back to the August 2 deadline, except that may not be a real deadline either. Boehner’s stopgap plan moves the deadline ahead another six months. Nobody wants that. I expect we will get a compromise by Monday.

A suggestion – Instead of assuming that one side or the other are intransigent hypocrites, consider the possibility that both sides are arguing from principle (i.e. sincerely believing they are fighting for a position that their constituency holds dear). If you accept this framing, then it follows that both sides must maintain the posture that they are willing to walk right up to the brink of a debt ceiling default rather than compromise their principles. To do otherwise would undermine their negotiating position and be a betrayal of the people who elected them.

Monday night the President said“The American people may have voted for divided government, but they didn’t vote for a dysfunctional government.” A good line, but it misses the mark.

We have a divided government because we have a divided country. There is a significant faction of the electorate who would like to see our country more closely emulate a European style social welfare democracy. There is an equally significant faction of the electorate who would like to see our country move back to the more limited government concepts on which it was founded. To a large extent the Democratic and Republican politicians we elected to represent us are doing exactly that – representing our views – just the way we want them to. Our government is not dysfunctional, it is behaving exactly as it was designed to resolve conflicts between large and opposed factions in the populace.

Oddly, I am filled with optimism and almost euphoric watching this performance. It reinforces my conviction that there is no need to put any faith in the motivations of the politicians of either party. It is enough to know that we have a system that was designed to anticipate this kind of political conflict – in fact – to insist on it and institutionalize it. As James Madison said in Federalist #51 when arguing for our Constitutional division of power: “Ambition must be made to counteract ambition.” Out of the conflict inherent in a government run by men and not angels we get a better result than we would in the absence of the checks they put on each other. Madison again in Federalist #10:

“The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State. In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government.”

The time to worry is when the factions are not fighting each other to a standstill. That usually means the system is not working as it should and power is too concentrated. Or it means we are going to war.

My primary rationale for supporting divided government is that it leads to more fiscal responsibility and spending restraint. I am interested in the result, not the histrionics that are necessary to get there – no matter how entertaining. The kind of giant cuts envisioned by the “Grand Bargain” can only happen when we are teetering on the brink and can only happen with a divided government in place. Pay attention to the result – not the performance. At this point it appears that divided government is winning and is winning big. It’s a good thing.

Bravo, gentlemen. Play on.

X-posted from “Divided We Stand United We Fall”


This entry was posted on Wednesday, July 27th, 2011 and is filed under Boehner, Budget, Debt, Deficit, Divided Government, Fiscal Responsibility, Obama. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

27 Responses to “SPOILER ALERT! How the debt ceiling “crisis” ends.”

  1. WHQ Says:

    Now that the stock market seems to be taking this more seriously, I image certain donors will start calling, which should take precedence over faux populism. Not that I really disagree that it was theater all along, but still…

  2. michael mcEachran Says:

    I’d agree if there weren’t actual consequences. Real Kabuki theatre doesn’t threaten one’s Moody’s rating.

  3. Centerist Cynic Says:

    I sincerely hope you are right. My fear is the fringes on the left and right have no idea that they are part of political theater. Due to a variety of reasons we have more members of the fringe in Congress right now and they see no value in compromise. Boehner is clearly having trouble getting his caucus to cooperate.

    I also question your support of cuts in the deficit no matter what they are as good. In a country that is already suffering from under-education of poor and low income citizens and run away health care costs, it is difficult to see how many of the proposed cuts solve these problems.

    I do see the benefits of getting these discussions completed and moving forward. I am deeply worried that these discussions are not over. The US still does not have a 2012 budget. I have seen nothing to indicate the debt ceiling debates will make those discussions any easier.

  4. cranky critter Says:

    The simple fact is that $400 billion difference is not all that significant in the context of the complete $4 trillion deficit reduction plan.

    And is a 4 trillion reduction in the extent of our total overspending over 10 years significant? Stupid question: if we reduce our overspending by 4 trillion over 10 years, what is the total debt projected to be be in 10 years, given that it’s 14 trillion and change today. I hope no one thinks it’s going to be 14 – 4 = 10.

  5. cranky critter Says:

    moderated for my 8 line comment.

  6. cranky critter Says:

    I think many of the big donor people who’ll be calling are the contractors who will end up among the last in line to get paid, after seniors, the unemployed, fed employees. And if you have a little contract with Uncle Sam, I’d be very worried about this.

  7. WHQ Says:

    I hope no one thinks it’s going to be 14 – 4 = 10.

    I hope no one thinks the outcome over the next ten years will be driven by the budgets, period. From the looks of it, they won’t manage to make spending cuts or tax increases that won’t be significantly offset by the effects of each on the economy. Revenue down + welfare payments up = poorly directed deficits, lost production and possibly reduced productive capacity. This is going to be fun (not!).

  8. mw Says:

    @Cranky @WHQ
    In the end analysis – the Obama/Boehner “Grand Bargain” has the largest spending cuts and the biggest deficit impact of all the options on the table. Plus it is the only active plan that takes a shot at entitlements. Does it really solve the long term problem? No. It just gets closer than anything else.

  9. kranky kritter Says:

    Which is known as “thin gruel,”right? LOL Just felt the need to point out we’re a long way from a hearty stew.

    @WHQ I’d settle a trend involving even the slightest of diminishments of the ratio “total debt to GDP.” But I think you’re right if you’re sort of alluding to the undeniable problem that reducing deficits (either via cuts, or a combo of cuts and tax revenue increases) could very well adversely impact economic recovery.

    Problem is, so could ignoring the debt. My sense is that if the US doesn’t at minimum show a trend towards sustainable debt levels, the rest is moot.

  10. kranky kritter Says:

    OK moderated again. On top of that, I just refreshed past a captcha that included cosine theta, in symbols. Really? Cosine theta? I don’t even know how to make a theta without changing fonts or using equation editor, and I edited math textbooks for 15 years. Just when you think captcha can’t get more preposterous . . ..

  11. Al Says:

    mw:

    I like your positive spin but I’m more concern about the Credit rating and I notice you haven’t said any thing about it.

  12. mw Says:

    @Kranky
    Whew – captcha must really hate you. Perhaps if you said something nice about capthca once in a while – there might be hope for a reconciliation.

  13. mw Says:

    @Al
    The credit rating is a distinct – but obviously connected – issue. Raising the debt ceiling is a necessary but not sufficient condition to retain our AAA rating. I heard the guy from S&P who is the top analyst for sovereign debt on CNBC yesterday. He made it perfectly clear that – at this point – deficit reduction in the $3 – 4 trillion dollar range would also be necessary to prevent a downgrade. The only plan on the table in that range is the Obama/Boehner Grand Bargain. Another reason why I think it is some variation of that plan that will pass. Nothing else protects the credit rating. Obviously we are out of time to craft and pass that significant a piece of legislation between now and August 2. I expect we’ll get an agreement in principle over the weekend, then the fudge factor on the date will come into play – or maybe they will pass a 1 line 1 week debt ceiling extension to give them time to get the legislation passed. Don’t worry. Be happy.

  14. Jacob Says:

    Hi folks,

    I seem to have comment moderating power. I’ve downloaded the WordPress app to my phone and I’ve been trying to approve comments when I have a moment during the day.

    I can’t speak to why the filter is so bad lately but I can say the amount of spam Justin gets is staggering.

    It’s the “sneaky” spam that I’m having trouble with. 3/4 of the comments are people (or bots) that offer vague generalizations – Ha ha ha! Debt ceiling’s a terrible problem. Let’s fire them all! – while linking to product pages in their names.

    It’s hard to tell if they’re real or not.

    The name-links don’t bother me so much as the pointless blather.

    Anyway, I’m trying. Please don’t stop the conversation.

    Oh, and Tillyosu: Take ‘er easy!

  15. Jacob Says:

    Oh sweet irony. I had to moderate the above the comment!

    Also had some sort of weird mathematical symbols in my 1st captcha too.

  16. kranky kritter Says:

    Consider passwords. Sorry the spam is so staggering. Never seen one piece here.

  17. Al Says:

    mw:

    I HOPE YOU’RE RIGHT!!!

  18. Al Says:

    mw:

    So basically the debt ceiling will pass with the One Page debt ceiling paper, that has been advertise by Lawrence O’Donnell.

    http://thelastword.msnbc.msn.com/

  19. Maria Says:

    LOL! How do you come up with something like Kabuki Theater?

    Anyway, great anology and I completely agree.

    Maria

  20. Blackie Says:

    @Maria: LOL! How do you come up with something like Kabuki Theater?

    You may want to google it, Maria. MW would be the first to admit that it’s far from an original reference.

  21. mw Says:

    @Blackie, @Maria,
    True. In fact, one can find blowback on the tubes for overuse and misuse of the phrase. I like it though.

    Clicking on Maria’s name link, it appears that English is not her first language, so she may not be familiar with its common use in political discussions here.

    I first became familiar with “Kabuki Theater” used as a metaphor when I was in enterprise software sales in the mid-nineties. We used to refer to a corporate evaluation that we knew to be wired for us or the competition as “Kabuki Theater” – by which we meant “going through the motions” on a pre-determined outcome. I did not notice it used in the political context until we were well into the aughts.

  22. When “Bad” Bipartisanship Happens to “Good” Partisans « The Rantings & Ravings Of A (Formerly) Mad Mailman Says:

    [...] get me wrong – to call it thin gruel is to give this legislative stew more flavor than it deserves. It does not solve the deficit [...]

  23. CBPP blames Bush for current & future deficit - Centrists Rising - Centrists Rising Says:

    [...] this analysis were picked up by MSM, embraced by the left, and used as ammunition for the “Grand Bargain” negotiation. The very negotiation that ultimately failed and spawned the bipartisan [...]

  24. Donklephant » Blog Archive » When “Bad” Bipartisanship Happens to “Good” Partisans Says:

    […] that future deficit reduction legislation will follow. Don’t get me wrong – to call it thin gruel is to give this legislative stew more flavor than it deserves. It does not solve the deficit […]

  25. Donklephant » Blog Archive » BREAKING: Divided Government solves the debt ceiling “crisis”. Says:

    […] I am not one to say “I told you so”. But – just this once – I would like to take this opportunity to mention that – um – I told you so. […]

  26. Donklephant » Blog Archive » The sequester is not the problem. The sequester is [part of] the solution. Says:

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