To Win the Debt Ceiling Showdown, Obama Must Stand His Ground

Jul 7, 2011Bo Cutter

The President has to acknowledge that the opposition is ready to send the country into default -- and make it clear he's not interested in doing so.

The last two weeks have been beyond depressing if you believe the debt issue and impending default are actually serious or if you think governance is, or at least ought to be, about solving problems. And if you like and basically agree with the policies of President Obama, it has been hard to see how he emerges from this mess a winner.

On the other hand, if you see this as a theme park or as a political opening for the emergence of the radical center, then you see it all as sort of fun.

To review the bidding, all of the current set of negotiations seem to have gone nowhere -- unless both sides are cleverly hiding a grand bargain. The Senate Gang of Six is on sabbatical. The Biden negotiations are paused. The nation's economists have just sent two contradictory letters to the Hill. The far right, i.e. the Republican House of Representatives, has convinced itself that default is actually not a big deal. The far left is in the process of convincing itself that the President can simply ignore the debt ceiling and rely on a new interpretation of Section 4 of the 14th Amendment. This seems to be what passes for useful strategy today: ignore the problem and create another problem, in this case impeachment.  What passes for a middle is reduced to arguing that the Secretary of the Treasury can manage his way around default by paying bills selectively. (A Treasury Secretary who, by the way, has all but shouted that he is departing, thus rendering himself a short-timer with no negotiating clout. Why doesn't President Obama tell Tim Geithner that he can't leave? Other presidents have.) We are running a $1.5 trillion deficit -- $125 billion  a month. The U.S. Treasury receives about 80 million bills a year, 7 million a month. So each month the Treasury is supposed to sort through 7 million bills and find $125 billion it can avoid paying, while paying all interest and finding a way to roll over maturing debt? This is utter nonsense.

Meanwhile, the President's own strategy is impossible to figure out. He seems reduced to saying that there's a deal if the Republicans agree to alter the depreciation schedule for private jets and reduce America's charitable giving. The administration seems to also be fearful lest an inadvertent comment offend the Republicans. I don't pick up quickly on subtlety, but I can't find a political strategy, or an economic narrative, or a consistent public relations effort in all of this. I hope his call to bring all the negotiators to the White House for another try is the start of a strategy and a narrative.

But this issue is the ball game. Nothing else truly big, truly election settling, is likely to happen before the 2012 elections. There are always unknown unknowns, but most of them are bad. The President has to win or stalemate this issue.

Join us at the Hamptons Institute July 15-17 to hear distinguished speakers take on today’s most pressing issues!

I think there is a way to do this, and David Brooks posed it indirectly in his excellent column yesterday. He argued that the Republican Party may be moving away from being "a normal conservative party, but an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation." The President has to take the measure of his opposition, offer a short-term deal reasonable people could not refuse, and put such a deal in the context of a real economic strategy. The opposition is moving in the direction Brooks suggests: becoming ideologues and nihilists (and making it obvious), while the nation is composed largely of moderates and centrists who increasingly see themselves as politically independent. The new Congressional Republicans also they think they have the Administration's number and that he will cave before risking default, and they think the economic and financial disaster a default would represent would hurt President Obama more than them. The President has to raise the risks a default poses to the Republicans.

He can accomplish this by:

  • Defining himself as clearly being in the center and trying to solve the nation's problems.
  • Defining the opposition as acting beyond any acceptable political boundaries in being willing to expose Americans to the kinds of risks default entails.
  • Proposing a broad economic strategy comprising deficit reduction, tax reform, and infrastructure investment phased in so that the economy can continue its (weak) recovery. (This strategy won't have a chance before the election, but the President can campaign on it for the next 15 months.)
  • Proposing a modest short-term deal: a limited debt ceiling increase with accompanying deficit cuts coupled with a process for a real negotiation. I would suggest a debt ceiling increase covering roughly the next 6 months, and a full fledged process of negotiation out at Andrews Air Force Base starting in September. I would make the short-term proposal hard to turn down by designing it so that about 80% of the deficit reduction came from spending cuts. (They have already identified more than enough enough budget cuts to do this.)

But the President has to believe all of this if he says it. The only way he wins is if he puts forward a reasonable, doable proposal and then stays with it. Does he go all the way through a default? I just do not know, but he has to come close.

This debt ceiling debacle is not acceptable. Americans have a right to be furious at both parties for all of this, and these events will accelerate the movement away from our current duopoly. What right do politicians have to threaten the economic security of all Americans because they are having an ideological quarrel? Most Americans mostly want to be left alone, not made the victims of a political system that has seemingly lost touch with what governance is. As my friend Les Gelb said on another topic: "Without vision men die; with vision more men die."

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.

Share This