Debt Crisis Was Fueled by Obama's Weak Negotiations

Debt Crisis Was Fueled by Obama's Weak Negotiations

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On August 4, Barack Obama will celebrate his 50th birthday. Among other things, this means that he was barely alive during the Cuban missile crisis, only in his twenties the year the Berlin Wall fell, and he probably remembers little about the Cold War or the era in which Big Labor could bring the economy to a halt with a nationwide strike. I think this is a partial explanation for why he has been such a poor negotiator in dealing with congressional Republicans, many of whom would rather default on our national debt than allow the debt limit to be raised.

The relevance of the Cold War and Big Labor is that the communists and the labor unions were very, very tough negotiators. During most of the postwar era Republican presidents had responsibility for dealing with Soviet and other communists on a wide variety of diplomatic, military and economic issues. And many Republican administration officials had direct experience in hammering out labor contracts in an era when labor unions were at the peak of their power. I think this gave them valuable experience in negotiating with Congress.

Read any history of the Cold War, especially about the peace talks involving the end of the Korean and Vietnam wars or the difficulty in getting agreements with the Soviet Union on arms limitation or anything else, and you will see how tough it was to accomplish anything. Communists were very difficult to negotiate with and no detail was too small to argue about – much of the early negotiations over ending the Korean War were literally about the size of the table where they would take place. Both sides knew that the Communists would eventually come to an agreement, but part of their strategy was to wear down American negotiators and always get something in return for every concession, no matter how small.

Labor negotiations in most of the postwar era were not much different. Unions were very powerful and the president of the AFL-CIO was among the most important figures in American politics. Union solidarity was strong, public opinion mostly sided with the workers during strikes, and work stoppages in critical industries such as steel or railroads could bring the whole economy to its knees. In 1952, Harry Truman became so frustrated with steel workers, who threatened to halt steel production desperately needed for Korean War armaments, that he nationalized the entire industry in order to keep them on the job.

The Reagan Way
One reason why Ronald Reagan was such a successful president is that he had been president of the Screen Actors Guild, the labor union for movie actors. Not only did this mean that he was the primary negotiator on labor contracts with the studios, but he was also deeply involved in opposing a serious effort by communists to infiltrate Hollywood and take control of its unions after the war.

As president, Reagan understood that he could only negotiate if he held a position of strength and made it clear that he wasn’t afraid to use it. This fact was on vivid display in 1981, when the air traffic controllers union went on strike, threatening to ground the entire airline industry. Reagan warned the controllers that he would fire them if they walked off the job – they were prohibited by law from striking – but they didn’t believe him, thinking they had the government over a barrel. But Reagan was true to his word and he fired them when they ignored his warning. Former Federal Reserve Board chairman Alan Greenspan rightly calls this one of Reagan’s most important domestic actions, which had ripple effects throughout the economy.

Similarly, Reagan understood that he needed leverage over the Soviets if he was to negotiate a reduction in nuclear arms and get them to cease their fomenting of revolution in Africa, Latin America and any place else where the opportunity presented itself. That is why he supported a big increase in defense spending and backed a space-based missile defense system, even though it contributed heavily to the deficit. It turned out that the Soviet Union was far weaker than it appeared and when it couldn’t compete, either economically or technologically, it simply collapsed.

When Half a Loaf Is Not Enough
Unfortunately, Obama is really too young to have the kind of experience that previous presidents like Reagan brought to the White House in terms of understanding intransigent enemies and how to deal with them. Consequently, Obama has really been caught flat-footed by the Tea Party era Republican Party. He believed it would respond positively if he offered it half a loaf on just about every issue.

For example, some 40 percent of the 2009 stimulus legislation consisted of tax cuts even though his economic advisers knew that they would have almost no stimulative effect. But Obama viewed them as an important concession to Republicans. Yet despite total rejection of his stimulus package by the GOP, Obama kept the tax cuts rather than reprogramming the money into more effective programs such as state aid or public works.

We are in the midst of a debt crisis that
stems largely from Obama’s inability to accept
the intransigence of his political opponents.

Nevertheless, Obama offered Republicans another half-loaf  by putting forward a health reform plan almost identical to those that they and conservative groups such as the Heritage Foundation had proposed in the 1990s. Obama’s offer was summarily rejected and Republicans suddenly decided that the individual mandate, which previously had been at the core of their own health reform plans, was unconstitutional.

Now we are in the midst of a debt crisis that stems largely from Obama’s inability to accept the intransigence of his political opponents. Last December, he caved in to Republicans by supporting extension of the Bush tax cuts even though there is no evidence that they have done anything other than increase the deficit. There were those who told Obama that he ought to include an increase in the debt limit, but he rejected that idea, believing that Republicans would behave like responsible adults and raise the debt limit just as they did routinely when their party held the White House.

Foreseeing that Obama lacked leverage in the debt negotiations that everyone knew were coming, I tried to give him some by explaining why the 14th amendment to the Constitution gave him the authority to disregard the debt limit if the Treasury runs out of cash, as it will next week. A number of prominent constitutional scholars such as Jack Balkin of the Yale law school supported my analysis. Bill Clinton agreed as well.

In the first week of July there was a great deal of discussion in the media and on law blogs about the constitutional option and Republicans became noticeably more willing to deal. But on July 7, the Treasury Department publicly ruled out the idea. Republicans immediately stiffened their position and ratcheted up their demands. Nevertheless, Obama has continued to reject any proposal that might give him leverage in the negotiations even as House Republicans appear unwilling or incapable of raising the debt limit before a default occurs.

I think if Obama had the sort of experience that Cold War presidents had in dealing with the Soviet Union or that corporate executives and union leaders had in negotiating labor contracts he wouldn’t have been so naïve about the Republicans, who have never hidden the fact that their only objective is defeating him next year regardless of the cost. It’s not too late for Obama to play hardball, but I fear that it is just not in his nature.