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You know it’s bad when Grover Norquist is playing elder statesman.
Watching the shutdown/debt ceiling impasse is increasingly like living next door to an abusive couple. You hear the screaming through the wall, and you pick up enough snippets that you think you know what the fight is about, but you aren’t hearing enough to be sure.
So on the one hand, Norquist has been making the rounds trying to give everyone, meaning those Democrats who need to get the message that they need to whack all sorts of spending, especially Medicare and Social Security, the outlines of where Republicans think a budget deal lies. This is supposed to be a sane-looking Republican ask.
On the other, the Republicans are looking increasingly in disarray, hence the concern about the screaming through the wall. House Speaker Boenher’s stance appears to have changed since Friday, or it may simply be that he’s been required to posture harder. The New York Times reported Friday that Boehner told party members privately that he wouldn’t let the US default. Even though a majority of Republicans in the House are against passing a continuing resolution (ending the shutdown while the two sides work out a bigger budget deal) and putting the debt ceiling on hold, Boehner is widely believed to have enough votes to join with Democrats and vote through agreements that would provide for a longer negotiating runway.
But on Sunday, Boehner’s talk hardened. He insisted he does not have the votes to get anything through unless the Democrats make concessions to get those measures passed. Obama has refused to do so. More worrisome, Boehner is changing his demands. Earlier, it was to delay implementation of Obamacare a year. Yesterday, there was no mention of Obamacare; the bone of contention was now out of control spending and debt (note that I’m not sure this is an actual change in position but in messaging, with the fight now moving to the debt ceiling). Mr. Market does not like the idea of even talking about default; US futures are down about 1% and foreign markets are generally down by a half a percent to a bit over a percent. In other words, concerned but not rattled.
Now political negotiations differ in important ways from private sector ones; the rituals and signaling are different. And there may be things going on behind the scenes, but normally, those wind up being leaked pretty pronto.
But from a negotiating perspective, the state of play looks ugly. Basically, the majority of one side does not want a deal unless it is on extremely favorable terms to them, and is prepared to walk from the table. Even though the media keeps depicting the Republicans as the Tea Party fringe versus a presumed less extreme and a lot less vocal majority, in fact the traditional conservatives look to be seriously outnumbered. Focus group work by DemocracyCorps shows the degree to which evangelicals, which it estimates at 55% of Republicans, are aligned with Tea Partiers on economics issues (social issues like gay marriage are a completely different kettle of fish). Together, the study estimates that they account for 75% of Republican voters.
Now one might assume, since donations count for more than votes in terms of power blocks and voting patterns (see Tom Ferguson’s work, particularly his book The Golden Rule for details), that even if DemocracyCorps is right and moderates only represent 25% of Republicans, surely they carry more clout, since pragmatic business types would fall more into that camp than into the more extreme groups. That may be true, but I suspect you’d have to do pretty granular district by district to know for sure. But the bottom line is that Boehner really is fundamentally conflicted: his members don’t want to do the “responsible” sort of thing that makes sense to traditional conservatives like him. The whip count reports have only 19 to 21 Republican votes supporting a continuing resolution or a clean “suspend the debt ceiling for X weeks” bill.
The Tea Parties and their fellow travelers are taking an apocalyptic stand. They really think it would be better to blow up the economy to get their way. For them, this isn’t posturing. And that means there really is no way to cut a deal that includes them. There is no overlap of one side’s bid and the other’s offer that allows them to work out a deal.
The Democrats cheerily assume that all this Republican extremist behavior will cost them in the Congressional midterms. That might be true but I’m mot sure it’s the slam dunk the Democrats think it is. The results of the 1990s shutdown were less clear cut than they profess (for instance, Clinton’s reelection had much more to do with Bob Dole’s lackluster campaign). A lot of Republican voters listen primarily to Fox News and Democrats are the cause of all evil per Fox. The incumbent party always is held responsible for the state of the economy, and a protracted shutdown battle will inflict damage. But the Republican extremists are simultaneously convinced that they will be rewarded for their intransigence (and in their districts, they might well be) and are willing to go down in flame for the cause.
But what does this mean for the budget deal? I hate sticking my neck out, but Boehner could not deliver a Grand Bargain last year. Since then, the Republicans have added more demands to their list and the Obama does not appear any more inclined to yield on the things he regards as critical than he was last year. So I don’t see how a Grand Bargain gets done. It had been the planned-for end game: the budget drama was to serve as the justification for goring well-loved New Deal programs. But now the extremists want to go much further and Boehner is in the ugly position to have to defy his own party to keep them from acting like economic terrorists.
Now if I am Boehner, I have an additional calculation to make: when do I blink, and do I blink at all? As of October 17, the Treasury runs out of new borrowing capacity and has to operate with existing cashflows. Various forecasters have it hitting the default point on October 31 or November 1. In past big legislative fights, negotiations needed to be completed about ten days prior to a drop-dead date just to get a bill drafted and passed in both houses (although a mere continuing resolution or simple debt ceiling suspension would presumably be a simpler affair and would require less time). The point is that if both sides are going to reach a deal of any complexity, it has to by October 21 at the latest; if dealmaking goes past that, all that is likely feasible is a “stop the clock” or similar minimal measure.
And here it is, October 7, and the two sides aren’t even negotiating. No pow-wows, just posturing.
So Boehner could blink. He might feel it necessary to let the markets get rattled a bit so he can say he was forced to do it. Or he could act as hostage to his party and rely on Obama blinking, as in invoking the 14th Amendment or using one of the other devices discussed in the econoblogosphere to avoid default (Obama is too well tied into Wall Street to default on Treasuries. As much as he is discussing that as a possibility, I can’t imagine him actually allowing that to happen). But Obama would likely feel it necessary to have looked forced to take such extreme measures. And that means letting things go far enough that Mr. Market gets in quite a tizzy.
In other words, the negotiating dynamic looks sufficiently bad that both sides have reason to use the Market Gods to give them cover for taking action that would otherwise be costly in political terms. So the second half of this month could be a wild ride.