There is a maxim in the business world: Never bet the company.
Wall Street “masters of the universe” ignored that maxim. The result was the financial meltdown in 2008. Republicans ignored it in the famous 1995 budget showdown with President Clinton. The result was that voters blamed the GOP for the subsequent government shutdown and Clinton was re-elected in 1996.
Republicans must learn one lesson from 1995: It is not possible to govern via control of one-half of Congress. The president is the Big Kahuna in American politics. And he is an even bigger Kahuna if the mainstream media is on his side.
John Boehner and Mitch McConnell parlayed smashing victories in the 2010 elections into a superb budget win in late December, when President Obama caved on taxes. Obama was reeling from an election catastrophe then, and the prospect of a government shutdown did not scare the public. But there is a new, huge factor in this summer’s confrontation: the prospect of a default by the federal government if it fails to pay all interest and principal on debt as it comes due.
In 1979, the U.S. defaulted, which raised interest rates 60 basis points — six-tenths of a percentage point — for a long time. Given $10 trillion in public debt, a 60-basis-point jump would equal $60 billion in added interest expense every year for years to come — $600 billion over the next decade.
Clearly this is a bet-the-company risk the GOP should not take. Compromising with the president, which would entail a huge tax hike, would be equally bad.
There is, fortunately, an alternative that will force the Democrats to bet the company: Offer a responsible budget plan that holds the line on taxes and makes major cuts in spending. If Democrats nix it, stand aside and invite them to pass their own budget. Democrats will have rejected a bipartisan compromise along GOP lines, with trillions in reduced spending plus no tax increases. Democrats will then have two options: pass a clean debt ceiling increase with no budget changes or pass their own budget with huge tax hikes and cuts limited to the defense budget.
Earlier this week, Bill Kristol explained how this might work in practice: 48 GOP House members would commit to vote “present” on the Democratic budget. The other 192 would vote against it, while all 193 Democrats would vote to pass the Democratic budget — either the simple debt ceiling increase or a high-tax, high-spend budget. The Democratic Senate would pass whichever the president chooses, with all 47 GOP senators voting against but without any attempt to filibuster. President Obama would then sign his own bill.
Democrats will have bet the company by judging that markets will accept a high-tax, high-spend plan. But if investors and consumers continue their current strike, we will see a double-dip recession, and President Obama will be returned to private life on January 20, 2013.
If the economy improves, the Democrats will deserve to win. They will have proven their point that high taxes do not necessarily discourage economic growth. They will have won fair and square.
But if, as Republicans argue, the result is a job-killing double-dip recession, then voters will know who to throw out come November 2012. Republicans will get their chance to repeal Obamanomics and Obamacare.
Republicans will have stood by their core convictions and avoided a tax-raising compromise that they believe will undermine the economic recovery. They will be able to tell their base that they simply cannot govern while controlling just half of Congress.
Democrats will have stood by their own core convictions and will face a market test of their beliefs. Voters will render their own judgment next year.
There’s no reason for Republicans to bet the company right now. They’re beating Democrats in the court of public opinion and they’re fresh off a huge midterm victory.
Instead, Republicans should offer voters a clear choice between their vision, the Democrats’ vision, and gridlock. If voters don’t choose the Republicans’ vision, so be it.