Friday, December 21, 2012

Fiscal Cliff Extra

So I'm trying to game out this fiscal cliff thing now that it seems to be becoming a matter of urgent practical importance:
  • It seems likely at this point that there will be no agreement before Jan 1st given that Speaker Boehner cannot deliver his caucus (about 90% certain of this).
  • I assume that Obama will not be so weak as to immediately capitulate to the right wing of the house Republicans (about 90% certain of this too).   
  • So then we go over the "cliff", payroll taxes and income taxes rise, defense spending falls, etc
  • Public blames Republicans, but hard-core right-wing Republicans don't care what the public (aka "liberal media" and "biassed pollsters") think.
  • The federal deficit falls, but not to zero, so, very shortly, we hit the federal debt ceiling again.
  • Republicans refuse to raise the debt ceiling unless all their demands are met.
  • Obama gets to choose between the various constitution-stretching options to ignore the debt-ceiling, or capitulating to whatever the conservative wing of the Republicans will vote for (and never being able to look his progressive friends in the eye again).
  • In the meantime, the economy goes in the tank due to the combination of the reduced spending power of the taxpayers and government contractors, and uncertainty over whether the federal government will honor its debt or not.
  • Public is furious, but none of the players face reelection for two years, so no change in positions in the short term.
Does anyone know exactly when we hit the debt ceiling again assuming that we do in fact go over the cliff?  I haven't quickly been able to determine this but I seem to remember reading that it's Jan/Feb.

If this really is a game of chicken, who swerves first?  It seems like whoever wins this gets to basically dictate most of what happens for the next two years.

In the meantime, seems like we individually would want to sell speculative assets, avoid risky ventures and career moves, reduce spending and generally hunker down until the dust settles.

Dissents or insights welcome in comments.

Update: Wonkblog says that the latest we hit the debt ceiling is February (we actually hit it this week but the Treasury can use the by-now-familiar extraordinary measures to hold it off a few more weeks).


Doyu Shonin/Risa Bear said...

Been hunkered down for a decade now, so, like, whatever.

For those who like their midterm elections to have some meaning, well, here are some midterm elections that ought to have some meaning for them.

rjs said...

a pelosi - boehner alliance could still deliver the "grand bargain" of earlier this week, including chained CPI for social security...the same combo of Dems & moderate Republicans could also overcome the debt ceiling...brad delong also believes a pelosi-boehner deal may be in the works to secure the speakership for boehner, even without the far right's support...

i dont know what odds you'd put on any of this...

Burk said...

Yes, one would have thought that an election would have put the right in better touch with reality, but apparently not, now with the NRA taking the narrative to a new low. So the mechanism is whether the constituents of the right-wingers (i.e. the rich funders) tire of the economic slump sufficiently to put an end to the circus. Being rich, they are playing the long game, so we may be dangling for a few months. One might hope that regular people constituents would also put pressure on their right wing legislators, as it become ever clearer what they are doing and who they serve. But given the realities of contemporary political funding, that is unlikely to have much effect. The rest of us just have a keep a spinal watch on Obama.

Brian said...

Actually, I'm not sure that it's all that big a deal. My guess on what happens...

- go over cliff
- Jan 2 or 3, Obama (or Reid) present bill to reinstate tax cuts for < 250K, include debt ceiling extension that would last at least 2 years
- Republicans grumble, but end up voting for this because a) it's a tax cut, so they did not break their idiotic (unconstitutional? treasonous?) Grover Nordquist pledge, and b) the PR of voting down a tax cut is more brutal for their caucus than that of raising ceiling (something that all thr grown-ups know has to happen anyway)

- Does Obama throw in some kind of a bone in terms of some kind of additional offsetting spending cut? My head says no because I see no reason to do so, and because it probably sets a bad negotiating precedent. My gut says yes because the guy seems to be truly committed to compromise, whether it is necessary or not.
- Will John Boehner be able to get any of the lunatic fringe to go along? I think yes, because of the reasons above, but it probably doesn't matter. If he can carry a couple hundred non-crazies, the Democrats will make up the difference and pass the thing.

In the end, if Obama sticks to his guns, stays on message with the public ("Republicans are 1) preventing a middle-class tax cut, 2) holding the country hostage for the wealthy, and 3) threatening to ruin the good credit of the USA"), and even remotely appears to act like a rational adult, he really ought to win this one. Of course, he's shown a serious propensity to compromise even when holding a winning hand, so who knows?

Stuart Staniford said...

@rjs - my sense is that Boehner can't do a deal that relies mainly on Democratic votes unless he wants to kiss his political career goodbye. He'll lose the speakership and/or be primaried at the next election.

Stuart Staniford said...

@Brian - I take the Republican's unwillingess to vote for "Plan B" as an indication of severe intransigence. They've just humiliated their own leader in the most public possible manner - twice (first over his plan A negotiations with Obama and then over his plan B). You don't do that unless you are in an extremely uncompromising mood. Boehner was clearly willing to horse-trade, but his caucus isn't. So Obama's choices basically are to agree that the right wing of the house Repubs gets to dictate to him whatever they want, or to take them to the mat until he breaks their will somehow. I think it could get really ugly.

sunbeam said...

I guess how this plays out is kind of in Obama's court.

Are any of you really confident in predicting what his decisions will be on this matter? Or even what his core economic beliefs are, disregarding campaign rhetoric.

It's been one four year term, and I still don't have a good feel for this guy. He's like a cipher to me.

I'm a little tired of political arguments right now, but in a lot of ways, particularly the creeping police state tendencies, and how he has catered to the FIRE sector I don't see him as too different from Bush.

My perspective is that for the most part cultural issues are election fodder. I don't believe too much of anything that politicians put out on public display. For example homosexuality, well closeted homosexuality, is alive and well in the Republican Party.

And Obama seems to be a major player in the whole catfood commission...

Just saying I'm not worried about the fiscal cliff. I'm more worried about the trends in this country that started with the first Clinton administration being continued. Heck I could go further back to Reagan, but the Reagan/Bush years really didn't seem too subtle.

Anonymous said...

Here are my comments on this from a couple of weeks ago. I don't see that anything has changed.

I do have that sinking feeling that Obama will give away the store...

Anonymous said...

Why did Speaker Boehner publicly float "Plan B" before lining up his votes?

It's not the moderates who are drawing the line in the sand, but they're going to take the hit in 2014 just as much as the fire-eaters, and they know it.

A moderate coalition across party lines seems to be the most likely outcome, but I don't expect that to happen before we have some more pain. How much, though?

HalFiore said...

My prediction, based on past performance: He'll decide to "take them to the mat," but not for anything sensible and substantive like the budget. He'll do it over something meaningless and symbolic like gun control. Then he'll have strong incentive to cave on the budget, just to try to get the Repubs to love him, I suppose...

Michael R said...

I believe these are the two relevant precedents:

The crisis will get to the point where public sentiment is overwhelmingly against intransigent Republicans, Obama will act decisively, the Republicans will be crippled, and it will become an iconic moment in Obama's second term.

I expect once government checks to major contractors stop being issued, the behind-the-scenes pressure on the tantrum caucus will rapidly become unbearable.

One potentially interesting question is who ends up being elected Speaker of the House, and what happens to the "Hastert Rule" in the process.

Michael R said...

Oh, and there's this:

Michael Cain said...

@brian -- On Jan 3 it's a new Congress. First order of business for the House is selection of the Speaker, which does not appear to be cut-and-dried this time around, and committee assignments. There is a reasonable chance that the new Speaker will *not* be Boehner, but rather someone more to the liking of the conservative Republican members. Legislation regarding revenue (eg, all tax bills) must originate in the House. No matter who the new Speaker is, the Ways and Means Committee will hear (and rewrite as they see fit) any tax bills first. I'm betting that Paul Ryan will be the new chair of Ways and Means, and no tax bill will get through Committee unless Rep. Ryan approves of it. Obama and Reid can talk all they want, but neither one can introduce a tax bill or bring it to the floor of the House.

Stuart Staniford said...

Michael R:

I think the calculus of the conservative republicans has to be that Obama will fold out of personal character weakness. They might be right. I agree that if he doesn't fold, their position is ultimately a weak one. And I agree that Boehner's position as speaker now looks very weak, and it would probably be better for everyone if repubs elected a leader who actually represents their real views.

Brian said...

@Michael C - All true. Let's say house is under more conservative leadership. What do they do? Taxes are already up. Public seems to be assigning lion's share of blame to GOP. They can pass hard-core tea-party bills all they want, but they can't pass the Senate. So, either the House agrees to pass a bill that can pass the Senate, or they live with higher taxes and most of the blame, along with the optics of being the party of the 1%.

The "cliff" will impact the middle class, working class and poor much more than the 1%. The longer it goes, the more the pain will be apparent to everybody in the bottom 90%. Everybody will get some blame, but if the to 10% aren't suffering much (and they won't be), Republican protestations about tax cuts for all or for none will ring hollow. Politics is perception and these optics create horrible perception problem for GOP.

In the end, I guess I don't think Ryan is quite as crazy as some of the others. He has higher ambitions and just learned (one would hope) the lesson that independents don't like extremism. Of course, some people might argue that the lunatic fringe is taking the opposite message... that nobody running on their side, especially the final guy, was extreme enough... if so, you might be right and they might choose the obstructionist path for the next 4 years, put forth a truly crazy candidate, and, I think, get clobbered while further destroying both the nation and their own credibility. If they truly choose the scorched earth approach to politics, I think they will pay a very heavy price in two years... but they could do a world of damage between now and then.

I still think a tinge of reason wins out. Once taxes are up, they are free of the Nordquist pledge for at least a little while. By itself, this dynamic seems like it should improve their willingness to work on a middle-class tax cut. If Obama (and Reid) continually hammer away on message about what is "reasonable" and "fair" and "can pass the senate", I think, eventually public opinion goes their way and they get the deal they want. How long does that take? Who knows? If I thought we were dealing with rational people, I'd say not very long. Of course, if we were dealing with rational people, the problem wouldn't exist, would it? ;-)

Michael Cain said...

Sunbeam: "I guess how this plays out is kind of in Obama's court. Are any of you really confident in predicting what his decisions will be on this matter? Or even what his core economic beliefs are, disregarding campaign rhetoric."

One of the wildcards if there's no settlement until the new Congress meets is whether the Senate Democrats run through a significant change in the filibuster rules. If so, and they can get bills to the floor and a vote without any Republican support, the dynamic changes considerably. Obama will have to give much greater consideration to keeping the more liberal Senators happy than he does now.

rjs said...

re: "Or even what his (obama's) core economic beliefs are, disregarding campaign rhetoric."

jane hamsher: Can We Please Stop Pretending Obama is “Capitulating” on Social Security?