Keith Hennessey writes that in the fiscal cliff negotiations, President Obama is bluffing when he threatens to veto any deal that does not include a big tax hike on the rich.
It’s a good piece, but I’m not sure that it’s right. Here’s the heart of the post.
This conventional wisdom makes three key assumptions.
- The President’s top economic policy priority is his fiscal policy goal (raising taxes on the rich).
- In a veto / no bill / blame game scenario, the President can shift most of the political blame to Republicans.
- He will make his veto decision on these two bases: fiscal policy and relative political blame.
Key flaw in the conventional wisdom: The President’s veto decision is not about tax increases or political blame; it’s about causing a recession in 2013.
I make different assumptions.
- If there is no bill, the U.S. economy will probably dip into recession for much/most/all of 2013, and it’s impossible to predict whether such a recession would be short-lived.
- A 2013 recession would be terrible for the country and terrible for the Obama Presidency. It would limit the President’s options across his entire policy agenda, economic and non-economic. And it could define and dominate his entire second term.
- President Obama believes #1 and #2, and therefore avoiding the risk of triggering a recession with his veto is an even higher policy priority than his fiscal policy goal.
- The President wants to get things done. He cares more about his own chances for policy success (across the entire breadth of his agenda, whenever he figures out what it is) than he cares about relative political blame. A scenario in which Republicans get most of the blame for a veto-triggered recession is still a loser for him if it means he can’t accomplish his second term goals.
If my assumptions are correct, then the President cannot afford to veto a bill and have no compromise enacted.
But what if the president isn’t actually interested in getting things done? Or, to focus in a bit, what if the things the president wants to get done are not the things presidents usually want to get done?
President Obama essentially campaigned for another four years in office on the promise that he would tell us what he wants to do once he has won. He didn’t run on getting any specific things done, other than one thing: Raising taxes on the rich. That’s point one in the conventional wisdom points above. He explicitly said that he would view winning re-election as a mandate to raise taxes on the rich. Four years prior, he explicitly said that he wanted to raise taxes on the rich “for the purpose of fairness,” not because hiking those taxes would lead to more government revenue or stronger economic growth. He doesn’t care about those latter two things as much as he cares about hiking taxes on the rich. He rightly believes that much of his own base puts taxing the rich above economic growth and sound fiscal policy. They all know that hiking taxes on the rich does nothing to fix our fiscal problems. But they don’t care.
Hennessey’s first point is probably true. Going over the fiscal cliff without a deal will probably result in a recession. But his second point may not be true. While a recession would be terrible for the country, it may not be terrible for the Obama presidency. Obama knows that he has the media standing by to blame Republicans for any failure to reach a deal, and he knows that there are enough low-information voters out there to believe whatever the media says. The media covered for him both on Benghazi and the fiscal cliff during the elections; it’s likely to keep covering for him. He also knows, based on his own re-election victory, that a terrible economy leads to more dependency on government, which leads to more people seeing him and his party as the guarantors of their government benefits. This dynamic is a very effective way to kill arguments favoring smaller government. Who needs abstractions and Milton Friedman when there’s no food on the table?
A recession in 2013 obviously comes on the calendar before the mid-term elections of 2014. If President Obama and the Democrats intend to cause a recession and blame it on the Republicans, their real game could be to use a spike in economic misery to take the House back and hold the Senate in 2014. They already face a daunting task in both; Republicans have a strong grip on the House and have to defend fewer seats than the Democrats have to defend in 2014. The Democrats need something to upset that plus deal with history: the party in the White House tends to lose seats in mid-terms.
I’m not saying that this strategy is without risks, or that it is anywhere near something that a responsible president and party would even contemplate. But we’re dealing with a president who despite his rhetoric is far out of the mainstream on policy, and is quite capable of ignoring public opinion in the short term to achieve his goals in the long term. He could trade some pain in early 2013 for 18 months to spin that pain as the Republicans’ fault, and present himself and his party as the only defense for Americans who have found themselves depending on government services to survive. The Democrats are a party without elder statesmen who ever think of putting the country ahead of their party.
So the president may well not be bluffing, and he may be willing to risk hurting millions of Americans in order to make them loyal to him.