Negotiating with Morons

Calculated Risk is one of the best blogs out there. But I think this post makes a serious mistake regarding the debt ceiling negotiation:

“.., but one thing is clear, the Congress will fold and the debt ceiling will be raised. There might be some agreement with the “sequester” that gives Congress some cover, and if that is the approach, then Congress should look to settle this early.”

This is not at all clear to me.I think there are people in congress who are not at all willing to raise the debt ceiling and would rather push our country into a depression than raise the debt ceiling.

It does not seem clear to me at all Congress will fold on the debt ceiling. It seems as though they think hitting the debt ceiling would not be a big deal.

Here’s a quote I found both amusing and disturbing:

“This spectacular display of idiocy is, in microcosm, why negotiating with the House GOP is impossible. Because common negotiation tactics require dealing with an opposition that understands reality. “Leverage” only works against rational people. A large number of House Republicans aren’t just “nihilists,” willing to blow up the economy to get what they want, they’re plain morons who have impossible and horrible goals and no clue whatsoever how to reach them.”

There is a significant chance we will hit the debt ceiling – the markets just don’t realize this yet.

 

Comments
  • Matt Franko January 7, 2013 at 6:59 am

    Mike,

    We are already there, please see Table III-C:

    https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=13010300.pdf

    No additional $NFA for looks like at least 2 months (thru end of Feb.), … scary! rsp,

  • Michael Sankowski January 7, 2013 at 8:38 am

    The job losses should start in just a few weeks. Feb 1 we’re going to begin to see major declines in employment as federal agencies begin to run out of cash on their own.
    :(

    • Dunce Cap Aficionado January 7, 2013 at 10:21 am

      So, that much more motivation for the President to circumvent the debt ceiling, right? Timeframe still obviously an issue as to weather we go off that (dare I say) cliff.

      You mentioned that you’re working on a post regarding the exact numbers. Can’t wait for that despite the fact that seem, well, terrifying at first glance.

  • Matt Franko January 7, 2013 at 10:22 am

    The last time we did this was in 2011 when we hit the ceiling in mid-May and didn’t get the ceiling raised until the first week in August, a bit over 2 months of operation in this mode. That year, GDP growth in the April/May/June quarter came in at 0.1% and then recovered in the July/August/Sept quarter and came in at 2.5% based on the gdp data I found…

    Do you have anything on employment during that time? rsp,

  • Cowpoke January 7, 2013 at 11:00 am

    Are Republicans getting a bad rap here?

    “Let me be clear, I do not support default on the debt and we should never default on the debt and the only players who are threatening to default are President Obama and Harry Reid.

    This is an issue, and earlier in the show you played the President threatening default. In any given month tax revenue are 200 billion and interest is 30 or 40 billion. There is it plenty of revenue to service the debt and any responsible President would’ve stood at that podium and said ‘whatever happens with the debt ceiling, we will always pay our debt. We’ll never default on the debt’ and the reason the President isn’t doing that is he’s trying to scare people and raise the spector of financial apocalypse.” – Sen. Ted Cruz (R-TX) on Fox News Sunday 1/6/12

    • Matt Franko January 7, 2013 at 11:10 am

      If the govt sector is not injecting $NFA, (and bank credit is stuck at $7T) then assuredly certain cohorts in the non-govt sector have to borrow against something or liquidate something in order to pay taxes/fees and fund the profits/savings of others… eventually all the $NFA will end up in the accounts of certain cohorts who have managed to get into a “first position”… after much liquidation. rsp,

    • Michael Sankowski January 7, 2013 at 1:45 pm

      This is one senator.

      Look up McConnell, Toomey, Graham and see what they say. They want to default, or don’t care if we do.

      • Cowpoke January 7, 2013 at 2:32 pm

        And Obama says he’s not even open for discussion on it:

        “White House correspondent Major Garrett said “the White House is very clear it’s not going to negotiate or take any phone calls” about the issue. Garrett noted,

        So I think both sides should share in the “End Of World” brinkmanship.

        • Michael Sankowski January 7, 2013 at 2:57 pm

          Yes, one side wants to destroy the economy, and the other side “it’s not going to negotiate or take any phone calls” on destroying the economy.

          • Cowpoke January 7, 2013 at 8:19 pm

            “Whose sequester?

            In the debate, Obama said he didn’t propose sequestration, Congress did. (We asked the White House for comment, but didn’t hear back.)

            To determine the question of ownership, we turned to Washington Post reporter Bob Woodward’s new book The Price of Politics.

            Woodward’s reporting shows clearly that defense sequestration was an idea that came out of Obama’s White House. But the intention was to force Republicans to negotiate, not to actually put the cuts into effect.

            Woodward summarizes the thoughts of the Obama team: “There would be no chance the Republicans would want to pull the trigger and allow the sequester to force massive cuts to Defense.” Democrats, meanwhile, didn’t want to see their favorite domestic programs cut.

            As the negotiations proceeded, Republicans seemed to think the same thing.

            “Boehner told the House Republican leadership and other key members not to worry about the sequester … ‘Guys, this would be devastating to Defense,’ he said. ‘This would be devastating, from their perspective, on their domestic priorities. This is never going to happen,’” Woodward wrote.

            Nonetheless, sequestration is now looming.”

            Be Honest Mike, they BOTH are responsible for playing with fire. But then that’s what politicians do.

          • Tom Hickey January 7, 2013 at 10:50 pm

            Hey, the basic principle is not negotiating with hostage-takers.

            The president at the time of the crisis when the banks held the economy for ransom, then Bush, should have invoked that principle instead of signing off on the bailout crafted by ex-GS CEO Hank the Hammer and his sidekick Timmy. And of course, the president-to-be rode post haste to DC to cement the deal from the side of the “opposition.” It’s all kabuki.

    • Hesiod January 11, 2013 at 3:41 pm

      Ted Cruz is — as this post points out — a moron. Even if you prioritize interest payments, you are still faced with the problem of not having enough money to do basic things like pay and supply our troops, and cut social security checks.

      And, the Markets aren’t stupid. They know that, eventually, the US economy is going to collapse because we just yanked half a trillion dollars out of it over the course of 6-8 months.

      The very fact that this complete farking idiot is allowed to make complete farking idiot statements supposedly on behalf of the Republican party, is dangerous.

    • beowulf January 8, 2013 at 12:50 am

      Nahh, the train’s left the station. Too much publicity for it already, the Democrats could block the bill in the Senate and of course the President could veto it or… since he has 10 days (plus Sundays!) to sign or veto a bill, well, that’s more than enough time to mint enough coins to pay off the public debt and only then go ahead and sign the bill (like JFK stocking up on Cuban cigars just before he imposed a trade embargo on Cuba).
      We won’t have to worry about the debt ceiling again until after the NEXT $15 billion is accrued and the Republicans get their anti-TDC bill. Win-Win. :o)

  • Ramanan January 7, 2013 at 1:21 pm

    Btw, Canada has a million dollar coin made of 100kg 99999 pure gold

    http://www.mint.ca/store/mint/learn/million-dollar-coin-1600006

    • Cowpoke January 7, 2013 at 2:39 pm

      So does that mean a Trillion dollar coin would have to have over 300 Million KG’s of Platinum?lol

      • Clonal Antibody January 7, 2013 at 4:02 pm

        According to Ramanan – Yes. But not according to the architect of the law – the former head of the US Mint (from 1994 to 2000)

  • Kris Smith January 7, 2013 at 8:51 pm

    I like the coin because it as an absurd answer to an absurd threat and I always like a good flanking maneuver. If I thought that moronic nihilists in the right wing of the Republican Party were the problem here, I’d say go for it. That’s not the real problem though. The problem is the party leadership that feels the need to appease the morons. Telling the leadership you have a clever solution to stop them from destroying themselves only encourages them to continue catering to the loonies. What is needed is a credible threat that you are done talking and you will allow them to push their position to its logical conclusion. Nothing less will put an end to this.

    • Michael Sankowski January 7, 2013 at 9:33 pm

      You might be right about this. There is some case for just going up against the debt ceiling and watching the misery unfold in real time.

      We could force Barro and Tyler Cowen and Robert Lucas to give us some quotes on how the fiscal multiplier is .5, so cutting government spending should spur the economy. Then, 3 months later when the job losses are pushing 2 million, we will have our answer on austerity driven growth.

  • Kris Smith January 7, 2013 at 10:08 pm

    Maybe, but dollars to doughnuts Boehner folds like a cheap suit and puts it up for a vote, just like the cliff. I could be wrong, I’m operating on the assumption that Boehner is an honest negotiator who is not capable of delivering his party’s vote in the house. Not that it matters really. Obama doesn’t seem to have the backbone to put their backs against the wall or mint the coin.

    • Michael Sankowski January 7, 2013 at 10:49 pm

      That’s a good take. The debt ceiling is a losing proposition for the R’s – I can’t even believe they let it get this far. I guess it plays well for their direct voters.

      It’s crazy because they are destroying the party over something they could address in real debates. The only way I can figure this is they are anti-democratic, and they don’t believe in a loyal opposition.

      • Tom Hickey January 7, 2013 at 11:15 pm

        Mike, the far right is all in on using the debt-ceiling as a negotiating chip. Any GOP pols that don’t seem sufficiently motivated face the threat of a primary challenge in the next election.

        So the establishment is faced with having to deal with this cohort on one hand and other the other an angry and frustrated electorate that voted majority Democratic in the past six presidential elections, along with an angry donor base that is threatening to sit on their wallets if the leadership allows the crazies to force the US to default or take another hit to the credit rating.

        This is just where Obama wants the GOP, and I expect him to play it for what it is worth politically.

    • Michael Sankowski January 7, 2013 at 10:53 pm

      I wonder what Obama would really do. He seems unusually committed on this issue. Probably just let the world blow up.

  • Kris Smith January 8, 2013 at 5:56 am

    http://blogs.reuters.com/felix-salmon/2013/01/07/why-we-wont-mint-a-platinum-coin/

    Felix just said this much better than I could. This is posted with all due respect.

    • JKH January 8, 2013 at 6:40 am

      “As a result, while no one intends to actually mint a coin… if you believe that the House Republicans behave in crazy and illogical ways, then you can’t believe in #mintthecoin, because the threat of minting the coin doesn’t work against someone who’s crazy and illogical.”

      I think he’s wrong there.

      The idea is so radical, they won’t use it as a threat unless they’re prepared to use it in action – if it becomes necessary, once threatened, as a last ditch solution to avoid default.

      The mere shock of using it as a formal threat means little political capital is lost by using it in action.

      That’s not to say something else might be negotiated in the interim instead, but it would have to avoid default.

      • Kris Smith January 8, 2013 at 6:57 pm

        JKH – The option to mint the coin remains without using it as a threat. My own feeling is that Republican leadership will cave just like they did in the fiscal cliff, but as I said, I might be wrong about that. Using the coin as a threat increases the odds it will have to be used. This is why I don’t own a gun.

    • Ramanan January 8, 2013 at 11:40 am

      Kris,

      Some moral arguments there but with his own definitions of what morality is. He uses the phrase “coin threat”. The coin actually prevents any sort of blackmail environment. He seems to be justifying the action of those who threaten to default.

  • Kris Smith January 8, 2013 at 6:59 pm

    Hey Ramanan – I think Felix acknowledges that the actions of the Republicans here are stupid, fanatical, self-defeating and dangerous. The closest I see him come to trying to justify their actions is to say that it is within the rights of the legislature to behave like morons. His solution though, is to allow them to over-reach and implode rather than assume an executive power that may or may not exist.

    Look, the fun and funny thing about the coin is that it highlights the absurdity of the Republican position and the debt ceiling in general. They have instructed the treasury to tax and spend at a certain level, but refuse to allow the borrowing necessary to accomplish this in an effort to have more influence over taxation and spending. The coin provides a (possibly) legal means for the Treasury to assume that Congress meant what it said in both cases and still meet the statutory requirements of otherwise incompatible laws (and I apologize if I am butchering legalisms here). That’s the fun part – the funny part is that an attempted power grab by a small minority in the house grants the executive extraordinary power in how to address their incoherent mandates. I love irony and when I first heard Beowulf’s idea I had a good long laugh and pictured Eric Cantor’s face on the tiniest of coins.

    But the funny part is also the dangerous part and that is what Felix is pointing out here. I talked about this with Mike back on Trader’s Crucible (I think we were talking about the 14th amendment at the time, Mike can correct me if I’m wrong, I’ll grant that the coin is a better position than the 14th amendment). I ask you to put yourself 4, 8, 12 years in the future when President Red State Knuckledragger is in office and assumes the same power through some contrived debt ceiling crisis – what powers will he assume he has in that situation? Sell Canyonlands National Park to the Koch brothers? Sell the Grand Canyon to American Waterworks? What kind of creative and clever ideas do you think (s)he might come up with?

    Sankowski was right to point out in earlier comments that the Republicans are destroying themselves over something they could address in real debates. The Democrats have the same choice here and I believe they have the upper hand in the debate. Why squander it on their own power grab?

    • beowulf January 8, 2013 at 8:43 pm

      “I ask you to put yourself 4, 8, 12 years in the future when President Red State Knuckledragger is in office and assumes the same power through some contrived debt ceiling crisis”

      That debt ceiling must be contrived indeed if the future president “assumes the same power”. Why would he need to reinvent the wheel? He can just go with the tried and true (in your hypothetical) method of selling platinum coins to the Fed. Crisis averted. Again.

    • Ramanan January 9, 2013 at 12:10 am

      Kris,

      Agree with you in general.

      Commentators in general have issues with legalities etc. But Salmon agrees the coin works.

      My issue was with the phrase “coin threat”. Is the usage of government powers for good a “threat”?

      I think generally everyone will agree that if the debt ceiling is increased without wasting too much time, the platinum option need not be used.

      Obama has said he won’t negotiate on the debt ceiling – meaning he won’t give into it and waste time on it. Is that “threat”?

  • Kris Smith January 8, 2013 at 10:46 pm

    beowulf
    “I ask you to put yourself 4, 8, 12 years in the future when President Red State Knuckledragger is in office and assumes the same power through some contrived debt ceiling crisis”
    That debt ceiling must be contrived indeed if the future president “assumes the same power”. Why would he need to reinvent the wheel? He can just go with the tried and true (in your hypothetical) method of selling platinum coins to the Fed. Crisis averted. Again.

    They are all contrived, that is what the coin clearly illustrates. Anyone with 41 votes in the Senate could chef one up out of ingredients in the cabinet. The concern I am trying to point to is the power this places in the hands of the executive branch if the executive chooses to take it up. A future president would not “need” to reinvent the wheel, but may very well want to.

    With the coin we have taken an obscure, loosely worded law which was not intended to fund the government in any meaningful way and turned it into a way to fund an entire year’s deficit spending – do we really believe there aren’t other statutes which could as easily be taken out of context and turned toward conservative ends? Asset sales and privitization are the low hanging fruit…we haven’t even attempted to get creative about it.

    Don’t misunderstand me. The debt ceiling is stupid. The game that the Republicans are playing is stupid. I agree with all of that. But taking an equal opposite tack creates a governance problem which is just as damaging. The Republicans are either going to cave or blow themselves up with this thing. They should be allowed to.

    • Michael Sankowski January 8, 2013 at 11:38 pm

      I am beginning to wonder if this isn’t the entire point of the debt ceiling debate- to create a lawless society.

      Take a look at this interview with Alex White. I had never seen this guy before, but he apparently has millions of listeners.

      http://www.upworthy.com/angry-gun-advocate-loses-it-live-on-cnn-in-the-most-bizarre-interview-ever

      The dude is crazy. He does not believe in a loyal opposition.

      I ask – how do you fight this? How do you respond? What tactic can outmanuver crazy? This guy is not far from some of the people in the House – actual sitting congresspeople have views similar to this guy, and are equally as adamant about government spending.

      They don’t just want to hit the debt ceiling. Just hitting the debt ceiling would be terrible, but they want more. Nope that’s only the beginning. Some of these people are rooting for an outright default. It’s insane.

      Watch that video again. That is a person who will not compromise, no matter what. People like that will do anything to hold to their principles, including kill other people. They think that holding a strong opinion is a sign of moral strength. They will hold the United States hostage over the debt ceiling, over anything they can. They don’t give a shit what anyone else thinks, even if a majority of people think something.

      You know – you know! – that some members of congress watched this video and were cheering, happy someone was finally telling the truth!

      I don’t see a way to negotiate with a person like this- hell, Piers can’t even talk with him. There isn’t even a conversation possible, because one side can’t be bothered to even participate in a conversation.

      So how to deal with this problem? There isn’t a negotiation possible, there is no middle ground possible. If we fold, millions of people will suffer.

      In extreme situations, we need to use tactics which are extreme, and then hope our future selves are wise enough to go back to good behavior. Think of it as going to college, and drinking your ass off, and then graduating and getting your shit together. Was the drinking necessary? Probably not, but you did it, and then grew up when the situation changed.

      I really get a “first they came for the communists,” feeling when watching this video. He’s on over 100 stations, his petition has over 100,000 signatures. This is not a minor movement.

      • Greg January 9, 2013 at 5:07 am

        Its exactly about a lawless society……… for themselves. No regulations, no nanny state. Just let who ever owns the most………… OWN THE MOST!. Dont take away what Ive earned, dont keep me from protecting myself and my stuff in what ever manner I FEEL is necessary! More specifically its about no secular laws, only gods laws are necessary.

        Let the churches instill good citizenry in people which means;

        If your poor, be humble and accept your place…. its gods will and if you are of the right spirit, God will send charity your way.

        If your rich, God has blessed you immensely, but you have done the real work and followed gods plan for you…… dont forget that your success IS his plan. Keep doing what you are doing, dont let anyone or anything get in your way. They are just the devils advocates trying to interfere with gods plan. Oh and be charitable cuz it gets a nice deduction on your taxes.

      • Kris Smith January 9, 2013 at 11:33 pm

        The video is at once frightening and hilarious. I kept waiting for him to come after Piers with a fork to make the point that guns don’t kill people. Redcoat.

        I understand exactly what you’re saying, and I agree there is no point in trying to negotiate with these people. And there’s no point in trying to negotiate with Boehner unless he is working across the aisle because he has shown on multiple occasions that he can’t deliver their vote on anything “impure”. But there is a rift between Republican leadership who understand the need for government to function and the far right who are more, shall we say, cavalier about such things. That’s the rift that Obama needs to exploit.

        So I have two problems with the coin (or the 14th amendment, etc.) 1. As a negotiating strategy it doesn’t help to exploit this division in the GOP and it enables the leadership to keep a hard conservative stance without political backlash – which practically assures the coin will have to be used and 2. The executive power grab creates a governance problem which will outlast this Congress and this Administration. (I’m less sanguine about our future political selves than you. I offer the filibuster and war on terror as exhibits a & b.)

        I’m not trying to suggest any moral equivalence between the coin and the republican’s position, and I think this will speak to what Ramanan is getting at. Yes, of course the coin is a “threat”, as is the republican debt ceiling position, and Obama’s position that he will not negotiate on the debt ceiling (though I kind of hope this is a promise). The debt ceiling threatens chaos in an attempt to exert more influence than they would normally have. The coin threatens to reduce the limited power congress has over this situation to preserve stability. The coin has the moral high ground here, but I still don’t think they should use it.

        I don’t know about the lawless society necessarily. Personally, I think it is about religion. These guys truly believe they are answering to a higher power and want to create some kind of pseudo-theocracy with the 10 commandments inscribed on the Jefferson Memorial. It is the culture war transferred to fiscal policy.

      • Oilfield Trash January 10, 2013 at 10:30 am

        Michael

        Good negotiators always have a legitimate BATNA an acronym for (Best Alternative to a Negotiated Agreement).

        “When a negotiator develops a BATNA he is not interested in the objectives of a negotiation, but rather to determine the course of action if an agreement is not reached within a certain time frame. As a gauge against which an agreement is measured, it prohibits a negotiator from accepting an un-favorable agreement or one that is not in their best interests because it provides a better option outside the negotiation.”

        “It would be a waste of time to start a negotiation with a predetermined decision and not to find an agreement, (not regotiating in good faith) a viable BATNA acts as an essential insurance policy. A well-conceived and clearly defined BATNA gives a negotiator the advantage to break off the negotiation if it becomes clear that a beneficial outcome is not possible. The negotiator would then know the consequences should the negotiation fail. The ‘willingness’ of a negotiator to break off a negotiation allows the negotiator to adopt a more firm and forceful stance when proposing ideas and interests as the basis for an agreement. ”

        The TDC is the other side of the coin in this negotiation. The threat of not raising the debt ceiling and forcing default of payment to someone is a very strong BATNA, and puts the administration in a weaker negotiating position. The TDC concept is the type of BATNA I would develop to counteract the strength of the default BATNA

        For me the administration is telegraphing to the Republicans with the TDC concept if you want to start negotiate in good faith you will have to take the default BATNA off the table.