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SPOILER ALERT! How the debt ceiling “crisis” ends.

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Kabuki theater at its best.

Kabuki Theater – a traditional form of Japanese drama characterized by highly stylized poses and exaggerated gestures accompanied by familiar songs wrapped in a plot rooted in historical tragedy (or comedy). The audience knows the story and knows how it ends. The art is in the quality of the performance and not in the story itself. In the United States, this art form is more easily recognizable as “The Debt Ceiling Crisis.” A few weeks ago, I left a comment on the Outside The Beltway blog, describing the show we were about to witness:

“The only thing that provides political cover for a compromise for both sides is the the dire consequences of missing the deadline. So there will be a compromise. The compromise will include some formula for revenue increases, (probably in the form eliminating deductions while reducing rates), it will include cuts to the military, and it will include deep meaningful and substantial cuts in spending in the overall budget. And the compromise will be agreed on the brink of default to no one’s satisfaction. In the meantime, we have six weeks of Kabuki theater to enjoy while the eventual compromise is hammered out. Both tribes will have ample opportunity to point at the feckless hypocrisy of the other. Enjoy the show.”

I do not see any reason to change that prediction. We know the debt ceiling will be raised because all leadership on both sides of the aisle say it will be raised. There is no politician of consequence in Washington who is saying otherwise. We already know how this story ends. It is all about the performance that takes us to the final act.

This is not to say that the performance is unimportant. The performance will determine public opinion and the final shape of the compromise. Whether looking at the more recent temporary measures proposed by Reid, McConnell and Boehner, or the “Grand Bargain” that was being negotiated between Obama and Boehner – the fact is that the two sides are quite close, as Ezra Klein explains:

“Now, remember that the deal Obama offered Boehner about a week ago now, or maybe a little bit less than that was $1.2 trillion in tax increases for $4 trillion in deficit reduction total. Boehner walked from that. but Boehner did say he would be okay with an $800 billion tax increase if there were $4 trillion in debt reduction total. So in some strange way, the two aren’t as far apart as you would think, but they can’t bridge that final gap. so now Boehner’s arguing for no tax increases at all, but Obama is sort of held to that same deal and is trying to continue to offer it to Boehner.”

The “Grand Bargain” is still on the table. That became clear during the dueling press conference “arias” sung by the two principal actors Monday evening. Despite Harry Reid proposing a plan with no revenue increases earlier in the day, Obama ignored Reid’s plan in his speech and continued to make the case for his version of the “Grand Bargain” with revenue increases. Despite Boehner himself proposing a stopgap measure earlier in the day – he spent more time arguing the case for his version of how the “Grand Bargain” negotiation broke down. Conclusion – they are still negotiating the big deal in earnest.

Boehner is playing his supporting role exceedingly well in the shadow of Obama’s scene stealing dramatics, but the President has the edge, successfully portraying himself to the press and most of the public as the more reasonable party in the negotiation. Last week he attempted to press his advantage to push for full $1.2 trillion in revenue increases. That was when negotiations broke down. He pressed it again on Monday with a call for public support to apply pressure in the House. Boehner played his last best move, exiting stage right, proposing a stop-gap, knowing that Obama really wants the “Grand Bargain”. But Obama knows that Boehner wants it too. The plot thickens.

The simple fact is that $400 billion difference is not all that significant in the context of the complete $4 trillion deficit reduction plan. These last few moves are about how that last $400 billion will be split. So far – advantage Obama – but it’s not a big advantage. My prediction – Boehner will move off of his $800 billion “revenue enhancement” cap, but it will stay under $1 trillion. I can hardly wait to see how it turns out.

The problem – both now and throughout this process – is that the “blink contest” negotiation cannot be settled except on the brink of a looming disaster deadline. Neither side can satisfy their constituency with the inevitable compromise. Our representatives on both sides take considerable political risk if they compromise too early – i.e. before a doomsday deadline. We’ve seen this every time the sides get close. Liberals and Democrats are furious at Obama and Reid. Conservatives and Republicans are furious with Boehner and McConnell.

Since a compromise solution of this scope requires a hard deadline, the only remaining variable is whether we agree the deadline actually exists and when it takes place. This is part of what we heard last Friday, with both sides upping the rhetoric to make the case that the deadline was really this last Monday. Nobody bought it. So we are back to the August 2 deadline, except that may not be a real deadline either. Boehner’s stopgap plan moves the deadline ahead another six months. Nobody wants that. I expect we will get a compromise by Monday.

A suggestion – Instead of assuming that one side or the other are intransigent hypocrites, consider the possibility that both sides are arguing from principle (i.e. sincerely believing they are fighting for a position that their constituency holds dear). If you accept this framing, then it follows that both sides must maintain the posture that they are willing to walk right up to the brink of a debt ceiling default rather than compromise their principles. To do otherwise would undermine their negotiating position and be a betrayal of the people who elected them.

Monday night the President said“The American people may have voted for divided government, but they didn’t vote for a dysfunctional government.” A good line, but it misses the mark.

We have a divided government because we have a divided country. There is a significant faction of the electorate who would like to see our country more closely emulate a European style social welfare democracy. There is an equally significant faction of the electorate who would like to see our country move back to the more limited government concepts on which it was founded. To a large extent the Democratic and Republican politicians we elected to represent us are doing exactly that – representing our views – just the way we want them to. Our government is not dysfunctional, it is behaving exactly as it was designed to resolve conflicts between large and opposed factions in the populace.

Oddly, I am filled with optimism and almost euphoric watching this performance. It reinforces my conviction that there is no need to put any faith in the motivations of the politicians of either party. It is enough to know that we have a system that was designed to anticipate this kind of political conflict – in fact – to insist on it and institutionalize it. As James Madison said in Federalist #51 when arguing for our Constitutional division of power: “Ambition must be made to counteract ambition.” Out of the conflict inherent in a government run by men and not angels we get a better result than we would in the absence of the checks they put on each other. Madison again in Federalist #10:

“The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State. In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government.”

The time to worry is when the factions are not fighting each other to a standstill. That usually means the system is not working as it should and power is too concentrated. Or it means we are going to war.

My primary rationale for supporting divided government is that it leads to more fiscal responsibility and spending restraint. I am interested in the result, not the histrionics that are necessary to get there – no matter how entertaining. The kind of giant cuts envisioned by the “Grand Bargain” can only happen when we are teetering on the brink and can only happen with a divided government in place. Pay attention to the result – not the performance. At this point it appears that divided government is winning and is winning big. It’s a good thing.

Bravo, gentlemen. Play on.

X-posted from “Divided We Stand United We Fall”