To the intransigent go the spoils

Whatever comes next, the Obama presidency is in trouble

The United States’ fiscal emergency will not be over until a bill to raise the debt ceiling has passed both House and Senate and President Barack Obama has signed it. This can still be done by Tuesday’s deadline. As this column went to press, a deal looked within reach.

Better take nothing for granted – except Washington’s flair for making easy things hard. But suppose, with or without a market eruption to focus minds, the deal is done. What would be the consequences? For the economy, once relief at avoiding default subsides: not good. For Mr Obama’s standing and hopes of re-election: between bad and dire.

Preventing default is good, but lifting a threat that should not have been made in the first place is little to boast about. It is worth stressing that the history of the past few months cannot be unlearned. Will this farce recur every time the debt ceiling needs raising? That question is a new risk factor in its own right.

Fortunately, any short-term spending cuts will be mild – planned savings are backloaded – but even timid cuts are risky with the recovery stalling. Revised figures for growth in the first part of the year were alarming. Further temporary stimulus should have been in the mix.

Depending on the process that will trigger a second set of cuts – a key sticking-point in the talks – the deal will reduce long-term borrowing, but not by enough. Many arguments about exactly how to cut long-term spending lie ahead. The debt-containment strategy should include far-reaching tax reform. The debt-ceiling battle resolves less than you might think.

The political results will be more immediate. The Republicans have taken an enormous gamble. If default happens and they are blamed, they will pay a terrible price. In any other scenario, they win. The logic is brutal: they hardly budged, and the Democrats gave way. Many in his own party blame the president. They say he caved. Mr Obama may be the biggest loser in all this. And the question arises, does the United States want a loser in the White House?

How unfair, you may say. The Republicans took the country hostage by linking the debt ceiling to their plans for spending cuts, and then refused to deviate. Again and again, Mr Obama and the Democrats compromised. With default looming, that was the responsible thing to do.

At one point John Boehner, leader of the House Republicans, came close to a deal with the president that would have included modest tax increases. The Tea Party said no, and Mr Boehner capitulated: no deal. Many Democrats had been equally opposed. Unlike Mr Boehner, Mr Obama was willing to face down his internal opposition.

So Mr Boehner surrendered to his extremists, put the economy in peril, and stands ready (if his party has the wit) to claim victory. Mr Obama defied the Democratic base, accommodated the GOP in the national interest, and stands ready to be denounced (not least by his own party) as a weakling. To the recklessly intransigent go the spoils – not something to fill one with optimism about America’s future.

You bet, it is unfair. On the other hand, it did not have to be this way. One must ask how Mr Obama and his party got themselves into this position.

Reckless intransigence was not enough for Republicans to dictate fiscal policy; they also needed a majority in the House of Representatives. Give Nancy Pelosi, leader of Democrats in the House, some credit for that. The Democrats had to contend with a flattened economy between 2008 and 2010 – but they also over-reached, and did so knowingly, passing a healthcare reform that most Americans opposed (and still do).

Mr Obama stood aside and let that happen. With notable exceptions such as the raid on Osama bin Laden’s compound, standing aside and letting things happen has been a theme of his presidency: “leading from behind”, as one admirer (believe it or not) called it. In a crucial late phase of the debt-ceiling talks, the president stood aside yet again. His poll numbers fell further.

In fiscal policy, Mr Obama has timidly defended a weak position. For months he suggested that long-term borrowing was no great problem. This year’s budget, withdrawn as soon as it was proposed, had public debt rising literally off the charts. Once forced to discuss deficit reduction, he said he preferred tax increases to spending cuts. Neither line worked. The country is worried about public debt, and it thinks the government is spending too much. The uncompromising liberal line urged on Mr Obama by the left of his party is a certain election-loser.

Mr Obama should have boldly advanced a strong position: long-term borrowing needs to come down, and meaningful spending cuts must be front and centre along with tax reform. That would have dismayed many in his party – which is why he did not do it – but he ended up dismaying them anyway. It would also have involved working with Republicans, which seems impossible with the party in its current hyper-conservative mood. But even the Tea Party is not a law unto itself. Like any political faction, it expresses, and therefore responds to, the public’s mood.

By leading from the front, Mr Obama might have carried public opinion. Instead, he ... stood aside and let things happen. They have, and whatever comes next, his presidency is in trouble.

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