The GOP’s Fiscal Reykjavik Moment

Most folks who recall the 1980s—or who have read chapter 10 of my book—will know that the climactic moment of Reagan’s Soviet diplomacy was the Reykjavik summit in October 1986, when Gorbachev offered huge concessions to the United States on nuclear weaponry, culminating in the central agreement to abolish all strategic nuclear weapons in 10 years.  But there was a catch: Reagan had to give up development of missile defense.  Reagan said “Nyet,” and the summit collapsed, amidst gloom and doom and near universal condemnation of Reagan for stubbornly refusing to yield on his silly missile defense idea.

Before long, however, it became clear that Reagan’s “stubbornness” (the history books will—already are—understand it as “statesmanship” rather than stubbornness) was the key to getting the Soviet Union essentially to capitulate on nearly all of Reagan’s terms, and fairly quickly, too.

The budget talks in search of a “grand deal” that are apparently under way this weekend look like the fiscal equivalent of Reykjavik: Obama may well offer substantial reform of entitlements a decade down the road, in return for a GOP concession on taxes today.  On the surface it will look like Obama is willing to break with his base, and in a sense he would be, as Nancy Pelosi will prostrate herself in front of the Social Security Administration.  But Speaker Boehner should nonetheless say “Nyet” to this deal, as we’ve seen this movie before—with the 1982 budget deal that was supposed to deliver $3 in spending cuts for every $1 in tax increase.  (It had the opposite effect: one study concluded it results in $1.06 in new spending for every $1 in new taxes.)  President Bush I’s 1990 budget deal was arguably a little better in its outcome, but note that it didn’t stop Bill Clinton from raising taxes further when he arrived at the White House because, well, that’s just what Democrats do.  There’s simply no ay to guarantee that a future Democratic Congress (or a weak Republican one) won’t simply cancel future entitlement reforms five or ten years down the road before they go into effect.

What happened after Reykjavik is instructive.  Gorbachev went back to Moscow, and the Politburo reassessed its position, concluding that they had to abandon their demand to junk SDI and reach a deal with Reagan.  Similarly, if the budget talks between now and August 2 (the debt ceiling deadline) collapse because of a GOP refusal to raise taxes, liberals and the media (but I repeat. . .) will howl at the moon, but Obama will have little choice but to come back to the table on Republican terms.


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