Political Hay

Go Ahead, Make Their Day

Republicans should know why Democrats are bluffing on the budget.

By 4.1.11

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From Wednesday night's Washington Post webpage:

After weeks of arguing, Republicans and Democrats on Capitol Hill began negotiations Wednesday on a possible budget agreement that would slash federal spending by as much as $33 billion and avert a government shutdown.

"We're all working off the same number now," Vice President Biden told reporters after meeting with Senate Democratic leaders at the Capitol on Wednesday evening. "Obviously, there's a difference in the composition of that number -- what's included, what's not included. It's going to be a thorough negotiation."

On Thursday, Speaker of the House John Boehner pushed back against the Democrats' (including the Post) attempt to force a fait accompli down the GOP's throat: "There's no agreement on numbers and nothing has been agreed to until everything has been agreed to."

There is some logic to the Democrats' claim that by agreeing to $33 billion in cuts for the rest of this fiscal year, they are "meeting the Republicans half-way," and part of the electorate will certainly be inclined to find such an outcome an example of politicians of both parties "working together to get something done."

But to use a current example for purposes of analogy, if Moammar Gaddafi had said to the world, "Don't attack me and I'll only kill half as many people in Benghazi as I had planned to," would that have been an acceptable outcome (to those people who think that humanitarian justification is sufficient for U.S. military involvement)?

Or, if President Obama said "If Republicans will stop fighting me on Obamacare, I'll agree to modify the law so only half the states have to comply," would the GOP go along?

The answer in the first case is a moral question. The answer in the second example has elements of politics and morality. In the current situation, the acceptability of a compromise also has both moral and fiscal aspects, but depends primarily on whether Republican politicians think they will be rewarded or punished. Are they "getting something done" or are they "caving in"?

Unfortunately, the answer is unclear, or at least bipolar. Many Republicans and perhaps more importantly many independent voters will like the cooperation after years of intense partisanship (which I don't inherently object to). But the Tea Party wing of the GOP which includes not only many activists but also many Congressional freshmen will think of this in the same terms as the examples above, namely that doing half of something immoral and destructive is still doing something immoral and destructive.

In nuts and bolts political tactics, this comes down to the question of a government shutdown, to a game of chicken between the two parties each wondering who's afraid of a shutdown more.

Unlike 1994-95, Republicans have a stronger hand to play and a weaker opponent to play it against, not to mention a more even-keeled Speaker of the House to manage the politics. No doubt a government shutdown poses a large "binary" political risk, meaning it's likely to end up quite good or quite bad for either party, but not likely to end up with little impact.

To be fair to John Boehner and friends, it is not obvious that the potential risk of negotiating the nation's way to a federal government shutdown is a risk worth taking. It reminds me of a question a friend of mine asks: If we were to flip a coin (and you knew the coin was fair) with you losing your bet if it came up heads but winning three times your bet if it came up tails, how much would you bet? What if tails paid you ten times your bet? There is no mathematically correct answer; it's a question of risk tolerance and risk-reward calculation. Indeed, some people would bet nothing even with a 10:1 ratio.

Continuing with this metaphor, in a 10:1 scenario, I would personally bet a lot of money, perhaps as much as I make in a year. But there's almost no way that the potential reward for the GOP, even in winning the PR battle over a shutdown, is 10:1, and perhaps not even 3:1. So, if you would bet $100 on a 10:1 payout potential, what would you bet on a 2:1 payout potential? Maybe $10?

I believe this is where Boehner finds himself. He thinks there's at most a 2:1 payoff for going into a shutdown. At most. Tea Party freshmen and activists think it's 5:1 or 10:1 and want to place a big bet. On this specific point, Boehner is right. The very loud Tea Party activists and freshmen, projecting that everyone sees the world as they do, will think that a shutdown will be a huge political victory. It won't be, even though with excellent management of the media -- something the GOP has not been good at since Reagan -- it should be a modest victory.

Part of the political problem for Boehner going down the compromise road is that if he loses a significant number of the most fiscally conservative budget-cutting-minded members of his caucus on a spending bill, the bill will require getting many Democrats on board.

This risks making Boehner look like a RINO, something he certainly doesn't want and is not and would not be even if he went down that path. Furthermore, as we know that Nancy Pelosi has frequently been able to make individual Democrat congressmen make votes that they did not want to make, it's possible that Pelosi will arm-twist wavering Democrats into not supporting a spending bill that cuts spending substantially but not as much as the Tea Party and conservative freshmen want. Pelosi's motivation would be to make Boehner and the GOP look bad, look unable to govern even with a substantial majority, and to sow dissent within the ranks of the Republican Party. The more you think about it, the more it seems likely such a thing could happen.

If Boehner will not be able to pass a "compromise," then he should not even try. The downside from failing is large. Indeed it's the Democrats who have the 2:1 or 3:1 payoff from refusing to compromise in this scenario.

So, considering these factors:

• The real risk that a compromise bill may not pass the House,

• That a government shutdown, if plausibly caused by Democrats refusing to cut federal spending, would likely benefit not just the GOP but the nation itself, and

• That "compromise" on current levels of government spending is immoral and destructive,

I believe that House and Senate Republicans should not support only $33 billion in cuts in the remainder of this fiscal year. I could live with a so-called compromise if it weren't a meeting-you-halfway compromise. In other words, if the original GOP proposal were $61 billion in cuts, and with the understanding that many House freshmen (and a few Senators) would prefer much larger cuts than that, I could nevertheless live with a "compromise" of $50 billion. $50 billion would be big enough that the GOP can claim massive cuts and can show that their being in the majority has made a difference. And it would be big enough that it would be hard for the Democrats to claim a political victory of any importance. Unfortunately, this very fact makes such a compromise that much less likely.

There is no easy political way out of this financial mess. But Republicans need to realize that the Democrats' tactics are based entirely on political optics, not on any actual desire to cut spending or reach a compromise. With that in mind, a compromise of about 50% of the originally demanded cuts is a political loser for the GOP and a baby step toward fiscal sanity at a time when the nation is, for perhaps the first time in history, ready for a giant step.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.