Breakdown of Budget Negotiations Was Inevitable

Posted June 27, 2011 at 4:38pm

There was no way to know for sure that House Majority Leader Eric Cantor (R-Va.) would cause the collapse of the debt ceiling talks being led by Vice President Joseph Biden, as occurred last week when Cantor decided to take his budget ball and go home. But it was more likely than not that something or someone eventually would cause the negotiations to crumble.

The reason is simple: Commissions and summits, especially those that deal with the federal budget, are always far less likely to succeed than they appear at their creation. The dismal history of budget commissions proves conclusively that they almost never live up to the expectations, promises and aspirations. As Cantor’s walkout demonstrated yet again, they frequently fail completely.

I’m commenting here both as an analyst and from personal experience. During the Clinton administration, I served on a presidential commission that was only responsible for recommending whether the United States should have a capital budget, a relatively easy issue when compared with reducing the deficit. Even that comparative trifle of an effort failed to have any effect.

Even the budget-related commission that is widely believed to have succeeded — the 1982 effort chaired by Alan Greenspan that was charged with dealing with Social Security — was a failure. Contrary to what is commonly believed today, the Greenspan commission was unable to agree on any plan, and the talks came to a complete standstill, as Jackie Calmes reported in the New York Times in January 2010 based on the unpublished memoir of Robert Ball, one of the senior Democratic appointees. The actual deal was cut the old-fashioned way — that is, with President Ronald Reagan and Speaker Tip O’Neill (D-Mass.) agreeing to a compromise behind closed doors. The only reason the commission is generally considered to have been a success is that it was allowed to announce the deal that Reagan and O’Neill had cut.

The other commission that is so often cited as a success that it is presumed to be a model for all other ad hoc efforts — the Defense Base Closure and Realignment Commission — is not really comparable to the others. The tough decision to close some Defense Department facilities had already been made, and BRAC’s only job was to determine which ones should go. BRAC would likely have failed just as badly if it first had to make a decision on the threshold issue of whether military spending should increase or decrease.

While lessons from the Greenspan commission might seem instructive in the current situation, there are a number of reasons why that situation is not as analogous as it seems. For example, Reagan and O’Neill conducted their negotiations with a handful of power brokers in secret, or at least as hidden as such things can ever be in Washington. Calmes included a wonderful anecdote in her article describing how Ball snuck out the back of his home “and slid down a hill to a car sent by the White House” to avoid the reporters out front. In today’s 24-7-365 media world of bloggers who tweet with smartphones with cameras, it’s hard to imagine that happening again.

In addition, compromise was considered far more acceptable and appropriate in 1982 than it is today, especially on tax and spending issues.

Led by Chief of Staff Jim Baker III, the Reagan White House was in a much better position to deliver the Republican votes needed to pass a deal on Social Security than Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) are today on the budget and debt ceiling. The same is true of the Obama administration: It’s not at all clear that Congressional Democrats will automatically agree to whatever the White House negotiates.

But the most important differences between the Greenspan commission and today’s situation are that there was widespread agreement in 1982 that Social Security was about to run out of cash for payments, and there was overwhelming concern about the political consequences if that were allowed to happen.

By contrast, there is no consensus about the Treasury Department’s repeated warning that the United States will not have enough cash to pay all of its bills if the federal debt ceiling isn’t raised by Aug. 2. Furthermore, there is no agreement that the nation will face political, financial or economic disaster if that happens.

This wasn’t the case in April when Congress and the White House agreed to the continuing resolution for the rest of fiscal 2011; there was no doubt the government would shut down if a deal wasn’t reached. That fiscal precipice and its political ramifications were obvious and impossible to ignore.

This is why the growing concern in financial markets about the debt ceiling situation and the increased coverage of that concern are actually very positive developments. It’s one thing for “Fiscal Fitness” to note that the number and price of credit default swaps on U.S. debt have been rising in recent weeks as Aug. 2 gets closer, but the growing concern becomes more obvious when publications such as the Economist report something similar, as U.S. economics editor Greg Ip did in the most recent issue. (Note: The Economist Group, which owns the Economist, also owns Roll Call.)

Increasingly negative market reaction to the debt ceiling problem will make 2011 far more like 1982 and, therefore, greatly increase the chance of resolving the situation by the deadline. Without that, some other key decision-maker will be in a position to take his ball and go home.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”