Did the Government Shutdown Stop Us From Defaulting?

October 10, 2013Danny Vinik Leave a comment

But whatever the endgame, the fight now is over a government shutdown. That’s bad. But it’s not nearly as bad as a fight over the debt ceiling. It’s evidence of how far into dysfunction American politics has fallen that this can or should be said, but thank God for the government shutdown. It might just have saved the country.

Hmm I’m not so convinced.

Here’s what the odds of a default would’ve been without a government shutdown: 0%.
And here’s what they are with a government shutdown: 0%.

I’ve held this view for a while. Under no circumstance would Boehner allow us to breach the debt ceiling. It helps his negotiating position to try to convince journalists that he is crazy enough to breach it, but when push comes to shove, Boehner understands the catastrophic consequences of a default. He also understands that he single-handedly has the power to stop us from defaulting. History would not look on him kindly if he had that power and chose not to exercise it.

That doesn’t mean the government shutdown didn’t help him out. On the contrary, Klein is exactly right that it gave the Tea Party a chance to vent their anger. Thus, it gave Boehner political cover. He can choose to fight on the government shutdown instead of the debt ceiling. But don’t think that means that the government shutdown actually helped prevent a default. Boehner was always going to raise the debt ceiling.

Path Set for Ultimate Battle Between Boehner and the Tea Party

October 10, 2013Danny Vinik Leave a comment

There’s an interesting dynamic developing in the Republican party over John Boehner’s proposal for a six-week debt ceiling increase. The Tea Party has hesitantly accepted the idea, arguing that it would separate out the debt ceiling and government shutdown fights. They want to use the government shutdown to stop Obamacare and the debt ceiling to enact entitlement reform. For them, keeping the two crises separate is vital and the short-term deal accomplishes that. Here’s how Sen. Ted Cruz described it on KYFO radio:

My understanding is that this is being driven by House conservatives who are quite reasonably saying listen, let’s focus on Obamacare, on winning the fight on Obamacare, on helping remedy the enormous harms Obamacare is inflicting on millions of Americans, and let’s push the debt ceiling a little further down the road so that it doesn’t distract us from the fight we’re right in the middle of now.

What’s amazing is that Boehner and Republican leadership want the short-term extension for precisely the opposite reason that Cruz and Co. want it. Boehner wants to make a larger deal that includes a continuing resolution and longer debt ceiling increase in return for concessions from the president. President Obama says he won’t negotiate until Republicans reopen the government and raise the debt ceiling, but if Boehner offers a deal with few concessions (repealing the medical device tax or a promise to focus on tax reform, for instance), the president will likely accept it. Boehner, thus, needs time to craft an agreement and rally support for such a deal. That’s why he’s proposed this short-term extension. From Robert Costa yesterday:

But the quiet acceptance of a short-term extension among rank-and-file Republicans gives Speaker John Boehner, who heads to the White House later today, a chance to avert default and eventually craft a larger fiscal bargain. “We’re telling folks, help us here, and we’ll work together moving forward,” says a veteran House Republican. “We know this isn’t perfect, but we’re not living in fantasyland, thinking we can get everything we want before the deadline.”

Rep. Cathy McMorris Rogers, #4 in the House Republican leadership, further emphasized that the six-week deal would give Republican leaders time to “continue this conversation.”

This is going to set up a major battle between Boehner and the Tea Party in the next couple of weeks. I argued yesterday that Boehner’s pivot from demanding a stop to Obamacare to demanding a fiscal concession was a major victory for the speaker. I seem to have spoken to early. This short-term deal gives Boehner much-needed time, but when the Tea Party realizes that he’s using it to craft a larger deal on both the budget and debt ceiling, they are going to be livid. How Boehner then attempts to calm them and pass whatever deal he comes to is his next challenge.

Boehner Succeeds in Switching Demands

October 9, 2013Danny Vinik 7 Comments

Ezra Klein picks up on an important point in this morning’s Wonkbook:

Two issues led to the shutdown. One was defunding or delaying Obamacare. The other, as Sen. Ted Cruz put it, was “making D.C. listen.”

What’s been remarkable — and largely unnoticed — is that Republicans have abandoned both those demands.

…

What’s odder about the shutdown, though, is that Republicans have also abandoned their core policy demand. They’ve largely stopped talking about Obamacare. They’re begging simply for negotiations. Their latest plan, in fact, is for another budget commission:

The GOP’s play, announced by Cantor at the meeting, is to push for a bicameral commission that brought comparisons to the “supercommittee” from the 2011 Budget Control Act.

In a Wall Street Journal op-ed, Paul Ryan articulates the emerging strategy. “To break the deadlock, both sides should agree to common-sense reforms of the country’s entitlement programs and tax code,” he writes. The word “Obamacare” never appears in the piece. Nor does any other reference to the president’s health-care law.

The Republican Party initially justified this shutdown and these tactics to itself by arguing that it was channeling the will of the people and justified by the dangers of Obamacare. But they’ve lost pubic opinion and realized Obamacare isn’t up for negotiation. But the loss of their original rationale for the shutdown hasn’t led them to reopen the government.

It shouldn’t surprise anyone that Boehner and Republican leaders first started by demanding the president defund or delay Obamacare. Speaker Boehner could not betray the Tea Party and split his party in half by bringing up a clean CR. Even if he had brought up a clean CR that also repealed the medical device tax, the Tea Party still would’ve been infuriated. It would’ve split the Republican party in half. This has clearly been the case all along and Boehner’s strategy has always been to slowly ratchet down GOP demands over time so that the Tea Party believes he fought for them. First it was defund Obamacare. Then it was delay Obamacare. After that it was delay the individual mandate. As Klein points out, GOP demands now have nothing to do with Obamacare.

Boehner knew all along Senate Democrats and Obama weren’t going to change the law. It was a non-starter. But he had to at least show his conservative members that he fought for them. Allowing a government shutdown to happen and drag out for a couple of weeks is a good way of showing them that.

His next step was to quietly switch demands from something unattainable to something possible. This was the toughest part as the Tea Party would revolt if it became clear he was giving up on their goal of stopping Obamacare. As Klein notes, this switch happened “largely unnoticed.” That’s a big victory for Boehner.

Now he still has to return to his party with some concession from the president. It doesn’t have to be much, but he can’t have chosen two major fiscal fights and return with nothing. He also must show that he fought as hard as he could – that means waiting until the last minute to make a deal. This is Boehner’s strategy in every one of these fights and it has succeeded repeatedly. In my first article defending Boehner, I wrote that his strategy is the following:

Lie to his caucus, allow them to “take control” and make it seem as if disaster will strike

Use that desperation to subtly change the conversation to the upcoming disaster and extract concessions from Democrats

Go back to his caucus, say he got everything he could and convince them to vote to avoid the crisis at the last minute

Keep his speakership by allowing himself to seem weak and extract some concessions

Lather, rinse, repeat

Allowing the conservatives members to “take control” required shutting down the government this time. But the rest is unfolding exactly as I wrote. He lied to his caucus about stopping Obamacare, allowed them to “take control” and is now using that desperation to extract any type of concession from Democrats in return for opening up the government and raising the debt ceiling. He’ll then go back to his members, say he got everything he could and we’ll avoid a default. The Tea Party will be angry, but not quite angry enough to challenge his speakership. Lather, rinse, repeat. The hardest part was switching his party’s demands from stopping Obamacare to a fiscal concession. Now that he’s done that, the rest isn’t too difficult. It’ll just take until the 11th hour to play out.