Will Smoke From Lew's Burning Pants Obscure Debt Deal?
In a letter to House Speaker John Boehner, Treasury Secretary Jacob Lew projected that the department's "extraordinary measures" currently being taken to avoid default will be "exhausted in the middle of October." From there, Lew writes, the United States would have only whatever cash Treasury has on hand, estimated to be about $50 billion. Lew calls that potential situation "unacceptable."
Next question: Will Republicans believe him?
Unfortunately, as Noam Scheiber has observed, Jack Lew has a bit of history with Republicans in Congress. Before he was Treasury Secretary, he worked on the 2011 budget negotiations for the administration. The Republicans were demanding $100 billion be cut out of the budget, which the administration thought was unreasonable as we were just pulling of a recession. Jack Lew's answer was to come up with tens of billions of cuts that looked deep, but turned out to be mostly "cuts" in money that wasn't going to be spent anyway. Unfortunately, as soon as the Republicans signed on the dotted line, the administration trumpeted its little trick to every fiscal reporter in town. As a result, the hardliners in the Republican caucus do not trust Jack Lew.
Since no one knows exactly when Treasury is going to run out of money, there's no way to produce an alternate set of figures that Republicans will trust. That may greatly complicate things as negotiations get down to the wire.
As I remarkedwhen Lew was nominated,
The negotiating tactics that Scheiber describes may be good for some high-fives in the White House, but they strike me as exactly the sort of short-term, partisan thinking that has led to the Great Coin Caper. Every sales executive I've ever interviewed can tell you a story like this: the incredibly slick deal where you really put one over on the other side with a fine piece of fast talking. That story almost invariably ends in the salesman getting fired.
Why? Because you cost yourself a customer in order to make a one-time deal. Door-to-door salesmen or infomercial spokesmen can afford to sell you a $19.99 "Universal Clothes Hanger" that turns out to be a nail. You'll never see them again, after all. But a salesperson with a reputable business cannot afford to rubber-hose the customer so thoroughly that he takes his custom somewhere else. This is a lesson that most salesmen have to learn, with more or less degrees of pain.
That's not to say that salesmen are some sort of angels who only have the customer's best interests at heart. They'll charge as much markup as they can, upsell you to products you really don't need, and (say the engineers, through gritted teeth), oversell what the product can actually do. In The Big Short, Michael Lewis has a lot of fun with the legendary (alleged) propensity of Goldman Sachs traders to do deals which take their customer for a ride in some clever, opaque way. But even they do not deliberately and openly screw the customer in a way that the customer can obviously detect, or else, they quickly stop having customers. Shortly after that, they stop being sales people.
We're about to find out if I was right, or if the GOP has put aside its distrust. In this Congress, however, I won't bet any money on a sudden outbreak of trust.
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Megan McArdle at firstname.lastname@example.org