Is No Deal the Best Deal?

Debt limit talks are going on in Washington. The Democrats, led by President Obama, want a “big deal”–that is, they want to put together an agreement with Congressional Republicans of which raising the debt limit is only a small piece. Of course, they don’t want just any “big deal.” They will only make such an agreement if it goes a long way toward locking in liberal governance for the next decade. Michael Barone explains what is at stake:

It’s hard to keep up with all the arguments and proposals in the debt limit struggle. But what’s at stake is fundamental.

The bedrock issue is whether we should have a larger and more expensive federal government. Over many years federal spending has averaged about 20 percent of gross domestic product. The Obama Democrats have raised that to 24 or 25 percent. And the president’s budget projects that that percentage will stay the same or increase far into the future.

In the process the national debt as a percentage of gross domestic product has increased from a manageable 40 percent in 2008 to 62 percent this year and an estimated 72 percent in 2012. And it’s headed to the 90 percent level that economists Kenneth Rogoff and Carmen Reinhart have identified as the danger point, when governments face fiscal collapse.

This is a level of spending as a share of the economy Americans haven’t seen since World War II. It seems more like Europe than like the America we have known.

President Obama insisted in his somber press conference Friday that he is willing to reduce federal spending from these levels. But he remained vague on specifics and intransigent in his demand that any debt limit deal include “revenue,” which translated into English means tax increases.

Mainstream media has pummeled Republicans for pushing spending cuts and refusing to support tax increases in connection with raising the debt limit.

But Republicans had a mandate from the voters in November 2010 to advance such policies. In contrast, it’s not at all clear that voters in November 2008 gave Obama and the Democrats a mandate to increase non-defense discretionary spending by 24 percent (84 percent if you count the stimulus package) in 2009 and 2010.

In negotiations on the debt limit Obama has fenced off several programs from any cuts at all. One is Obamacare, even though majorities in polls continue to favor its repeal. Another is, astonishingly, the $53 billion he wants to spend on high-speed rail projects. To call high-speed rail a “boondoggle,” as does House Budget Committee Chairman Paul Ryan, is to engage in considerable understatement.

When negotiations over the debt limit began, it was not clear which side had greater bargaining power. The Republicans seemed to be in the driver’s seat, given their 2010 electoral sweep. On the other hand, their acknowledgement that in the end, raising the ceiling was inevitable made it easy for Democrats to call their bluff. Initially, President Obama wanted not a “big deal” but a “clean deal,” i.e., a simple raising of the debt ceiling with no strings attached. The evolution of Obama’s position in the direction of a cosmic budget agreement signifies the Democrats’ growing conviction that the GOP does not have the strong position that was formerly perceived.

For Republicans, the worst possible outcome of the present negotiations is a large-scale compromise that will take budget issues off the table for the foreseeable future. The Democrats want Republicans to hold hands with them as they go over the fiscal waterfall. From the GOP’s standpoint, nothing could be politically dumber or worse public policy. So, if a deal cannot be struck in which Republicans get something simple and tangible in exchange for raising the debt ceiling–a statutory spending cap, for example–their next best alternative is to give Obama what he originally wanted: a no-strings-attached increase in the debt limit, with all budget and spending issues preserved for the ongoing debate that will take place between now and November 2012.