A Federal Government Shutdown Nears. Who Wins?

Mar 25, 2011Bo Cutter

Shaping the future with today’s choices.

Wednesday, at the monthly breakfast series for the Next American Economy project, Joe Minarik, senior VP of the CED and former chief economist for OMB, spoke on the federal budget in a tremendous session. Joe Stiglitz, who is a member of the series, joined us and was a central part of the discussion. As I have said repeatedly, we are headed toward a cliff: the right wants to jump off it; the left wants to deny it is there. I will write a couple of longer pieces, but this is solely about the impending government shutdown.

During the session, I asked Joe Minarik the odds he puts on a shutdown this year and on the side wrote down my own estimate. Joe puts the odds at 85%, I put them at 80%. The most explicit reason we put the odds this high is that the House Republican leadership -- specifically Speaker Boehner and Congressman Cantor -- have lost control of their caucus.

The Republican caucus is now largely driven by the 87 freshman members who are part of the Tea Party movement. This may be the single largest and most inexperienced group of congresspeople ever elected at the same time. It's pretty clear that they do not understand the government or the budget, but by god, they are resolved to cut it to shreds. Behind them are the Tea Party faithful. I suggest you read the commentary by Stan Collander for a sense of how it is all playing out.

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These new members are no longer happy with the two-week bite strategy the Republican House leadership has chosen and want a full year Resolution with massive cuts. The leaders would love to have a full year resolution and get this messy problem behind them but has lost control of the caucus. (Here is one reason they are having a problem: the Republican House Study Group has said -- with great confidence -- that $2 trillion can be cut from domestic appropriations, 12% of the budget, over 10 years. But they have specifically identified $200 billion -- so they want $1.8 trillion in cuts they either cannot or are afraid to identify. This is not serious government.) The new members think they will lose their primaries if they do not cut (and, remember, in our new polarized world only the primaries matter). The leaders think they will not be leaders if they do not go along. So we know how this act ends.

At the same time, the White House has little or no room to give way and is not yet willing to put together a big solution. So I think we are about at the point where a shutdown has to occur politically -- unless someone backs off. And neither side can afford to back off. The question is: who wins in the public's eyes?

Right now the polls are split essentially 50-50 in terms of where the public places the blame. President Obama is in my view far better positioned to win a battle for public opinion, but he has to decide to fight this battle. He has to mobilize the executive branch, get the NEC to start to do something, and begin to speak on this now. There are three messages: (1) debt and deficits have to come down, but in a responsible way; (2) there is a positive value to a competent government that will matter to every American; (3) the Congressional Republicans are providing an example of governance at its most irresponsible, arbitrary, and mean-spirited.

I think the President's second term depends on how he comes out of this next period.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team.

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