The Art of the Deal, Part II: The Sun Will Rise, the Sun Will Set, and I’ll Have Lunch

Both sides of the debt debate fanned out today to make their case on various Sunday talk shows.  Obama’s negotiators – chief of staff Bill Daley and Treasury Secretary Tim Geithner were on Chris “I’m No Flake” Wallace’s Fox show and Meet the Press, respectively.  House Speaker Boehner followed Daley on Fox.  Based on what they said, it appears that the debt negotiation scenario I laid out in the last two posts is essentially accurate (as far as one can tell from public comments, which may not be very much.)  Both sides told essentially the same story, albeit with a different spin on why the talks broke down: the sticking point was Boehner’s refusal to consider the additional revenue request the Obama team felt compelled to make in order to placate Senate Democrats after the Gang of Six released their separate deficit reduction plan.

Despite all the media handwringing about a dysfunctional government, the pundits’ fingerpointing and the predictions of impending financial disaster, the key point I took out of today’s talk is that everything is still on the table, including the “grand bargain” initially agreed to, at least in principle, last Tuesday.  Indeed, reading between the lines (always a risky proposition!), it appeared that Obama’s negotiators were signaling their desire to pick right up where the talks stopped on Friday, as if the walkout never happened. They sound almost apologetic for making the additional revenue request.

At this point, however, Boehner holds the stronger cards, and it’s his turn to play.  He has a couple of options.  One is to invite the President back to the table, with the proviso that Obama understand that the additional $400 billion in revenue he requested will not pass the Republican caucus.  It’s a non-negotiable point.  The second is to proceed to direct negotiations with the Senate Democrats on a two-step plan.  Step one would be to raise the debt ceiling for a short time, say, 6 months, paired with an initial cut in spending already agreed to by Democrats.  Significant entitlement reform would be off the table.  Step two would then entail a reconsideration of the “grand bargain” sometime in 2012 – an election year.

As Daley indicated today, the President is adamantly opposed to the two-step plan.  He wants a debt limit agreement that will extend into 2013, past the next election.  Interestingly, however, while Daley walked up to the point of a veto threat, my read of his wording is that he stopped short of actually promising Obama would veto any two-step plan.  If I’m right, this tells me two things:  Obama needs an agreement more than the Tea Party Republicans do.  His preference remains for a grand bargain that secures entitlement reform, which he can then run on in 2012.  But if all he can get is a more limited two-step plan, it would be very difficult for him to veto it, Daley’s bluster to the contrary notwithstanding.

Where do we go from here?  My guess is Boehner works both tracks: he keeps communications open with Obama regarding resuscitating a version of the grand bargain, and he negotiates with Senate Democrats regarding a more limited two-step option.  The fallback option, if he can’t get Senate Democrats to play, is for the House to pass still another Republican-backed plan modeled after Cut, Cap and Balance – but perhaps without the balanced amendment provision – and dare Democrats to vote it down.

As we watch this unfold today, I want you to consider several points that I think the media is underplaying.

1. First, Obama and Boehner both made incredibly risky – some might say statesmanlike – gambles in negotiating the framework of the grand bargain. Keep in mind that Obama had apparently signed on to the framework of a plan that cut spending on Medicare, Medicaid and Social Security – a decision that was assailed immediately by all the key Democratic interest groups: MoveOn,  AARP, major labor unions, etc.   Boehner, for his part, agreed to a tax increase (although he refused to call it that) of some $800 billion, achieved through reform of the tax code, and some perhaps overly rosy economic growth projections.  Still, if it walks and quacks like a tax hike…. .   There is no guarantee either player could get these deals through their respective party caucuses.   While the media squawks about the lack of leadership in Washington, Boehner and Obama were showing extraordinary leadership.

2. The media tends to portray the debt struggles as a political game in which party leaders fiddle while the nation burns.  Each side is engaged in a petty struggle to score political points.  Nothing could be further from the truth.  The reality is that the debate has gone on this long because so much is at stake – these negotiations get to the heart of what it means to be a Republican and a Democrat.  The two sides are locked in a fundamental debate regarding a defining issue: what is it that we want the government to do?  In effect, it is a fight over establishing national priorities. There are strong preferences on both sides, and I would be disappointed if this type of intense, prolonged debate did not occur. And the polling evidence indicates the public is paying attention, even if they do not always understand the details.  This is how the system is supposed to work.

3. If ever we needed a reminder, this last week has provided it: the presidency is an inherently weak office.  But, of course, we do need the reminder.  When George W. Bush was president, particularly after 9-11, critics complained that he usurped power rightfully belonging to Congress and that he acted in imperial fashion.  It was a dubious claim, one fueled more by opposition to Bush’s policies, I suspect, than by any reasoned evaluation of his actual power.  The reality is that when Bush was acting “imperially” he had the full support of a unified party that controlled both houses in Congress.  And when he lost that support, he suddenly looked weak.  Why, critics wonder, doesn’t Obama act more like the first-term, post 9-11 Bush?  Is it because the presidency was suddenly shorn of formal powers when Obama took office?  No.  The reality is that Bush’s apparent authority flowed largely from the political support, or at least deference, he received from Congress.  Without that support or deference, he could do little – as we see with Obama today.  Perhaps the most extraordinary announcement Boehner made last Friday was that he was cutting Obama out of negotiations, and would deal directly with Senate Democrats to end the deficit impasse.  Yes,  some of that  was for show, but Obama basically acknowledged as much when he demanded that the Republicans come up with a plan to avoid a debt default.  One is reminded of Bill Clinton’s plea that he was “still relevant” in the aftermath of the Gingrich-led Republican revolution in 1994.  And that remains the case today – Obama is relevant, in no small part because of his veto power.  But he is working with a weaker hand because he has largely ceded the agenda-setting function to Boehner and House Republicans.

4.  A final thought.  In 1987 star Red Sox pitcher Roger Clemens walked out of training camp during a contract dispute.  When asked by the media what he intended to do, Sox General Manager Lou Gorman famously responded: “The sun will rise, the sun will set, and I will have lunch.”  In the next several days you will read stories like this laying out doomsday scenarios and excoriating our elected leaders for playing political games.

Remember I cautioned long ago that this debate would extend until just before the default deadline, and that only then would both sides reach an agreement to end the budget impasse. I am sticking by that prediction.

In the meantime, the sun will rise, the sun will set, and I’m going to have lunch.