Would Democrats Support a Six-Month Clean CR?

It seems like we are slowly inching towards a compromise between Senate Democrats and Senate Republicans. Majority Leader Harry Reid (D-NV) has issued a new offer that includes a nine-month debt ceiling hike, a six-week clean continuing resolution, a delay of the medical device tax, greater income verification for Obamacare subsidies, a formal budget process and a yet-to-be-decided Republican concession. It’s unclear what that concession will be. But if you take the Democrat’s position that they will not negotiate over the debt ceiling or a clean CR, here’s what the deal looks like from their perspective:

Republicans get:                                                           Democrats Get:

  • Delay of medical device tax                                        •  Unknown Concession
  • Greater income verification
  • Formal budget process

The clean CR and debt ceiling increase are not part of the deal as they were never negotiated upon (although Republicans can return to their constituents and say they broke Obama’s promise not to negotiate on the debt ceiling, even if it isn’t actually true). John Boehner will break the Hastert Rule and allow something like this to pass, because he knows we can’t default. That’s how Democrats envision the final deal, at the moment.

But Republicans are upset. They think that Democrats are moving the goal posts on them by demanding a six-week, instead of a six-month, CR. Here’s Sen. Lindsey Graham:

You can blame us, we’ve overplayed our hand, that’s for damn sure. But their response, where the president and [Senate Majority Leader Harry Reid] basically shutting everybody out, and when you try to negotiate, they keep changing the terms of the deal … it’s very frustrating.

So, what terms of the deal does Graham think Democrats changed? He doesn’t specify, but I think this all comes down to what Democrats thought they meant when they said they wanted a clean CR. They meant a CR that lasted six-weeks, or at least they are saying that’s what they meant. Republicans think Democrats meant that they would support a clean CR for any period of time. This is how Reid’s offer looks to them:

Republicans get:                                                           Democrats Get:

  • Delay of medical device tax                                       •  Six-week clean CR
  • Greater income verification                                        •  Unknown Concession
  • Formal budget process

This is the main sticking point right now. Republicans see the six-month CR as something Democrats said they would agree to by itself. Thus, the six-week continuing resolution is a concession for them. Meanwhile, Democrats see the opposite. The six-month clean CR would be a concession. When Democrats originally were calling for Republicans to open government, they didn’t say for how long. The House continually passed bills for six-week CRs that had absurd conditions on them. Democrats may have assumed that any CR would last for six weeks – but they never said so publicly (at least that I can find). Instead, they hammered the Republicans by telling them to pass a clean CR and reopen government, without any time horizon on those demands. Republicans want that clean CR to last six-months to lock in sequestration for longer. Democrats, of course, don’t.

There’s an easy way to figure out what Democrats would accept: Boehner could bring up a clean six-month CR in the House. Would Senate Democrats reject it? If so, it would contradict everything they have said about wanting Republicans to pass a clean CR. If they passed it, it would lock-in the cuts, a current goal of Senate Minority Leader Mitch McConnell. Unfortunately for him, Boehner won’t bring such a bill to the floor due to the internal political dynamics of House Republicans.

Instead, McConnell has limited power to achieve a six-month CR. Americans overwhelmingly blame Republicans for the shutdown and the October 17 debt ceiling deadline is a few days away. He must make a deal and has limited leverage to do so. Meanwhile, Harry Reid truly believes that a six-month CR is not what Democrats meant when they said they’d support a clean CR. If he agreed to a deal with a six-month CR instead of a six-week one, this is how it would look to him and Senate Democrats:

Republicans get:                                                           Democrats Get:

  • Six-month clean CR                                                      •  Unknown Concession
  • Delay of medical device tax
  • Greater income verification
  • Formal budget process

That’s not acceptable to them. That’s the impasse we’re at now. It has nothing to do with Obamacare. Instead, it’s all about how long the clean CR should be and what Democrats meant when they said they wanted a clean CR. And the only person who can force Democrats to answer that question has his hands tied by extremists in his caucus. All as the clock slowly ticks towards a self-inflicted financial crisis.

Senate Democrats Unnecessarily Force Summers Out

Larry Summers is out of the running for chairman of the Federal Reserve after he notified the President yesterday “that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.” Summers is right here. After Jon Tester (D-MT) announced Friday that he would vote against Summers in the Senate Banking Committee, it became clear that his confirmation process would be extremely difficult. His decision to bow out saves an ugly intraparty fight between the Administration and Senate Democrats. It was a fight that the President should’ve won, but wasn’t going to and Summers knew it.

To start, Obama should’ve nominated current Fed Vice-Chair Janet Yellen from the beginning. It should’ve been an easy decision. But the President loves Summers and was seemingly set on choosing him from the start. It wasn’t the optimal choice, but Summers would still have made an excellent Fed Chair. This is what makes it so absurd that Tester and other liberal Democrats were going to vote against him.

Larry Summers withdraws from the Fed Chair search.
Larry Summers withdraws from the Fed Chair search.

Summers is, by all accounts, a brilliant economist. However, many liberals were wary of his prominent role in the repeal of Glass-Steagall and the deregulation of the derivatives market in the late ’90s. There’s no question that Summers was a leader in making those decisions, but Summers has also learned from them. He supports banks holding greater levels of capital, one of the focal points of Dodd-Frank. In addition, there’s not much information on Yellen’s regulatory beliefs. She’s an economist by trade, not a regulator. But skeptics of Summers inherently believe that she would be a tougher regulator than him. As Josh Barro pointed out on Twitter last night though, if Republicans thought that was true of Summers, they would’ve supported him as well. But that hasn’t happened either. The fact is that Summer would in all likelihood have implemented Dodd-Frank in a similar manner to how Yellen would.

Other arguments against Summers is that the nomination of an elite Democrat would politicize the Fed too much. But this argument is overblown. The Fed is already a politicized institution and nominating Yellen over Summers wouldn’t change that.

One of the least covered areas of this debate has been Yellen and Summers views on monetary policy. Yellen is considered more of a dove, but only slightly more. Markets perceive a larger difference between the two than may actually exist.

Finally, Yellen’s proponents argue that Obama has done a poor job appointing women to economic positions. This is true, but it’s not a strong enough reason to oppose Summers.

For all those reasons, Yellen is a better choice. But she’s only slightly better. Summers would still likely do an excellent job as Federal Reserve chairman. Both candidates should have had no problem receiving Democratic support. Instead, liberal Democrats jumped on this as a chance to fight the President. But why? This really does weaken Obama: he can’t even get his own party to support an extremely strong candidate in Summers. Does he have any sway on Capitol Hill at all? It’s increasingly looking like he doesn’t. This perceived weakness hurts not just Obama, but Democrats as a whole in trying to pass other legislation. A weak President is bad news the Democratic party.

This is why it was absurd for Democrats to vote against Summers. They may get a slightly better Fed Chair in Yellen (or maybe a worse one, if Obama nominates someone else) in return for showing that the President doesn’t even have sway in his own party. Does that sound like a smart move for Democratic senators and the Democratic party? It sure doesn’t to me.