Illustration by Open, N.Y.
Obama Shows His Gambling Streak in Debt-Ceiling Deal: Ron Klain
Among the many misconceptions about Barack Obama is that he is cautious. In fact, it is hard to think of a modern president in recent times who has been more willing to take big risks, not because he is reckless, but because he is willing to suffer potential short-term setbacks to achieve a desired long-term result. It is in that context that the much-maligned debt-ceiling compromise must be understood.
This sort of risk-taking goes beyond making policy choices, whose success or failure will always be debated, and can’t be known for years. What I am talking about are presidential decisions that can be demonstrably shown to be right or wrong in a relatively short window, with serious repercussions. That sort of risk-taking by presidents is fairly rare, and yet Obama hasn’t hesitated to take such gambles.
One example early in his administration was his choice to “bail out” the automobile industry. There were many ways in which that could have gone wrong: Chrysler Group LLC and General Motors Co. (GM) could have failed; management changes and bankruptcy filings that the administration insisted upon could have exacerbated problems; good money could have been thrown after bad.
The safe course was the one that President George W. Bush followed: pumping in just enough money to be able to say he had made an effort, and letting the chips fall where they may. But Obama took action by investing substantial funds, demanding important management and strategic changes, requiring bankruptcy filings, and painfully shrinking auto-dealer networks. All were risky steps that could have quickly unraveled.
Two years later, that choice is paying off: Car sales have risen, auto-industry employment is up, taxpayers are getting their money back, and U.S. cars are getting higher consumer ratings than ever.
A second gamble came in early 2010, after Scott Brown won a Massachusetts Senate seat in an unexpected victory for Republicans, and vastly complicated the path for Obama’s health- care reform bill. With the loss of the 60th Senate vote for the measure, many of the president’s advisers urged him to abandon the push for a comprehensive bill, and pursue a far more limited approach. But Obama wouldn’t bend, and took a gigantic risk: He pressed for a House vote on a bill that was passed by the Senate the previous year and was unpopular with many House Democrats.
Obama could have easily, and visibly, lost. Yet, once again, his gamble paid off, achieving a victory that had escaped his predecessors.
Bin Laden Raid
And earlier this year, the president once again rejected the play-it-safe advice of many advisers, and ordered SEAL Team 6 to carry out its heroic raid to kill Osama bin Laden. The safer alternative -- a drone strike -- would have minimized the fallout if the al-Qaeda leader wasn’t at the target, or if the assault went awry. But the president believed that bin Laden’s death could only be verified with a manned raid; once again, the risky decision was the right choice.
So now we come to the recent debt-ceiling deal, in which the president took a gigantic political risk: publicly pressing for a “Grand Bargain” to tackle long-term budgetary challenges that would reverse years of unwillingness in Washington to consider revenue as part of the fiscal solution.
This time, he came up short. We’ll never know how close we came to a “Grand Bargain,” but Obama didn’t get the revenue increases that he wanted.
Yet instead of folding his hand, he decided to double down in the fiscal card game, an appropriate way to understand the debt-ceiling compromise.
In accepting a deal that swapped an increase of more than $2 trillion in the debt ceiling for discretionary spending cuts that Republicans wanted -- without balanced, revenue-increasing measures -- the president didn’t give up on his goal, as some progressive critics have alleged. Instead, he gambled that he would be able to reach his objective later.
The key to this wager is the package of contingent cuts that will be triggered if Congress fails to pass additional deficit reduction after a so-called super-committee makes recommendations in November.
The current betting in Washington is that the committee won’t yield much, and that Obama will come up short again. Republicans remain under huge pressure from the Tea Party, from anti-tax activists, and their base, not to yield on the revenue question.
But Standard & Poor’s Aug. 5 downgrade of U.S. debt, due in large part to the Republicans’ refusal to consider revenue measures, is a sign that the odds are shifting in the president’s favor. And there are three other reasons why in December Obama might get the victory he couldn’t get in August.
First, there are the cuts that the president agreed to in the first phase of the debt-ceiling deal. These undermine one objection to revenue increases: the idea that the deficit can be addressed through spending reductions alone, and that lowering expenditures should precede any new revenue. Obama has given the “cuts-first” crowd its day, and can now move on to the business at hand: balancing cuts with revenue.
Second, there is the progress he has made in winning over the public to the idea of a balanced solution to the deficit (and in discrediting the Tea Party’s extremism). The political shellacking that the Republican House majority and the Tea Party have taken in recent surveys helps the president’s cause. The S&P downgrade adds to the pressure he can bring.
Third, there is the pain that would be imposed if the super-committee fails and the contingent “trigger” is pulled. The cuts required are so unpalatable that they would create a strong momentum toward responsible congressional action.
The last of these may be the most important in maximizing Obama’s chances of winning this latest -- and maybe largest -- gamble. In the weeks ahead, the White House should do everything possible to convince the widest spectrum of voters that the consequences of activation of the trigger would be unacceptable.
The administration took a step in that direction Aug. 4, when Defense Secretary Leon Panetta said that the trigger’s cuts to defense spending would cause “real damage” to national security. Panetta’s comments need to be followed by specific detail of the reductions that would ensue if the trigger is pulled. Such an accounting will make plain who will suffer if Congress doesn’t act in a more balanced fashion.
A similar case must be made for the trigger’s impact on Medicare and other non-defense programs.
Showing the Pain
Again, generalities can get the administration only so far. It must set forth the potential reductions in detail, and show just how they will devastate senior citizens and our health-care system. While these cuts are in the package to pressure Democrats to come to the table, the political reality is that, if they occur, their sting will hurt Republicans as much (or perhaps even more) than they would the president’s party.
Ultimately, the only way that Republicans will accept what they consider unacceptable -- revenue increases -- is if the alternative is even less acceptable: horrific defense and Medicare cuts.
If the White House can drive that message home in the next three months, continue to advance its political case against the extreme anti-revenue elements of the Republican Party, highlight the consequences of the S&P downgrade, and raise the cost of failure by the super-committee and the Congress so high that it can’t be borne, the president may get his way.
Obama’s willingness to mark his time and double down may be vindicated, and the critics who are betting against him now may be proven wrong once again.
(Ron Klain, a former chief of staff to Vice President Joe Biden and senior adviser to President Barack Obama on the Recovery Act, is a Bloomberg View columnist. He is a senior executive with a private investment firm. The opinions expressed are his own.)
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