Sunday, July 31, 2011

Analyzing the Deal

We're starting to hear outrage from both the left and the right in response to the debt ceiling deal that leaders of both parties have made tonight.  We're being assured by the usual gang of pundits that this outrage from the most partisan members on both sides demonstrates that the deal is probably fair. It reminds me of something that a lot of mediators like to say, which is that if both parties are unhappy with a proposed settlement, that probably means that it is fair.

I do a lot of mediations professionally myself, and I never like to tell people that. Why would I want people to leave unhappy?  I prefer to try to persuade parties to a conflict that they should feel good about the settlement they are making. They should get a good night's sleep and feel that a weight has been lifted from their shoulders, and that it is good to put a dispute behind them. One way to persuade people that they are doing something beneficial for themselves by resolving a litigated dispute is to get them to understand that they should not compare the deal on the table with the deal that they wanted or believe they deserve.  The only thing people should be comparing a deal to is the alternative of no deal. What that means in the private dispute resolution context is that you have to compare the offer being made by the other side, with the alternative of proceeding with a costly and risky lawsuit. You should not compare the offer being made by the other side with what you believe you are entitled to in some ideal system of justice.

In evaluating the debt ceiling deal, you have to compare the deal on the table, not with what either side wanted to achieve in these negotiations--for Republicans bigger spending cuts and a balanced budget amendment, for Democrats some increase in revenues. You have to compare this deal with the alternative of no deal. Here's what no deal would mean: The Treasury runs out of cash on Wednesday, and then the President has to decide whether to ignore Congress and unilaterally order the Treasury to borrow more money anyway. And that probably causes a constitutional crisis as well as an economic crisis.  Alternatively, the President and the Secretary of the Treasury have to decide to stop issuing checks to a lot of government contractors, federal employees, veterans, seniors, people on disability, and a lot of other people who depend on government checks to live. There are only a small number of Congressmen who actually want to play out either one of those scenarios.

Let's compare that to the deal. The deal prevents a default, and commits Congress to enact some substantial spending cuts and possibly some revenue increases, most of which won't kick in for quite some time, maybe five or ten years from now.

Which means that, even if you don't like the plan for handling these deficit issues in the future, right now this deal is still way better than no deal. Which means that everyone should be happy.

As for President Obama, he was somewhat thwarted in his goal of getting the parties to make some tough decisions about these priorities right now.  Some of those decisions are being put off until later in the year. But he seems to have achieved his main goal of taking this debt ceiling issue off the table until after the 2012 election. And that means we can have a real debate in next year's election about taxing and spending priorities, and that ultimately it will be up to the American people to elect the kind of Congress they want to achieve the taxing and spending priorities that they want.


  1. Joe, you know there are no "real debates" during campaign season. This one will be no different, just more demagoguery.

  2. If by demagoguery you mean that the Democratic Congressional candidates will probably try to scare voters into thinking that Republicans will cut Medicare, and the Republican candidates will probably try to scare voters into thinking that Democrats will raise taxes, then you're probably right. But even at that level, there would be some truth in both claims, and people will understand that they have a choice.

  3. Yes, I did mean from both sides. Cuing everything up in 20 second soundbites will solve no problems though.

  4. This is a disgrace. Both sides are telling competing lies. An outright disgrace. There are no new revenues and no real cuts; and the cuts that are listed almost all take place after the 2016 elections. We the people took another beating, as did Obama. Sickening.

  5. The fact that nobody can come up with much in the way of spending cuts in the short term should be taken as proof that the conventional wisdom that there is a lot of wasteful or excessive spending in Washington is just wrong. We simply don't have a problem of excessive government spending.

    And the fact that the Republicans refused to agree to any sort of revenue increases, unless they are forced to agree to them by the proposed "Super Congress" should be taken as proof that the Republican Party is just out of touch with what most Americans want. There is a lot of room for revenue increases, and those would go a long way toward reducing the deficit.

    You might be right that we the people took a beating. If so, that is because none of this was necessary or useful.

    As far as whether Obama took a beating, I think the jury is still out on that. I think he still ends up looking better than all the politicians in Congress.

  6. Joe, proof? Far from it. Dems badly need a primary. I don't think we have to wait for time to tell on this one.

  7. Of course we have wasteful spending. $700,000 of "stimulus" was spent on a joke machine. It's sacred cows.

  8. One man's wasteful spending is another man's sacred cow.