This Is The Big One

by Stuart Shapiro

Sometimes the key moments in a presidency are obvious (9-11 for Bush and the government shutdown for Clinton).  This appears to me to be one of them.  As David Gergen points out, all of the parties have public positions on the debt ceilings that are mutually exclusive and nonnegotiable.  The Republicans refuse a tax increase in any form (for more on the idiocy of this position, read this editorial from the conservative Economist).  The Democrats say no entitlement reform without revenue increases.  And for those who think the way out is kicking the can down the road, President Obama has said no short-term deals.

As the rhetoric heats up, the political stakes grow along with the policy ones.  A short-term deal, or one that does not include some increase in revenues, hurts the president both by weakening the economy and making him look weak, and puts what seems like an easy reelection in jeopardy.  A long-term deal that increases taxes on the rich and stabilizes Medicare, and President Obama capitalizes on the split on the right and starts looking at an election comparable to 1984 or 1964.

The one problem is that with the stakes this high, all sides start to think a default looks better than a compromise.  I didn’t think a default was possible because Wall Street, which still funds both parties (particularly the Republicans), won’t allow it.  But as the rhetoric hardens, I’m less certain than I was a week ago.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.