We may lose the battle, but need to stay focused on the war

So, how to judge the deal the Obama seems on the verge of reaching with the GOP? Both Democrats and Republicans seem upset about the pending deal, and in the short term, there is good reason for this.

But looking at the deal over the longer term, one possible interpretation is that Democrats have lost this battle, but may yet win the war.

Given how this battle was set up by the Tea Party and the GOP, which was able to take the economy hostage to get their way, the deal that seems to be taking shape is not all that bad of a result.

(explained in detail on the flip)

First off, from a variety of sources, here are the key outlines of the terms (I’m not trying at all to be detailed here) as I understand them:

*A debt ceiling increase to take us beyond January 2013.

*Immediate spending cuts of $1 trillion or more – basically, the cuts agreed upon in the Biden talks.

*The 12-member commission that will find additional cuts, with the following trigger: if cuts are not enacted, there will be an across the board expenditure cut, include Medicare and Medicaid (to motivate Democrats to reach an agreement) and Defense (to motivate Republicans to reach an agreement).

*The commission can consider revenue increases, meaning the decision for Republicans would be, essentially, whether they would prefer revenue increases or defense cuts. That’s not a great trigger, but it is not a complete loss.

Now, why are Democrats unhappy? Well, Obama seems to have given in on every point, most significantly the fact that there are plenty of expenditure cuts in this deal and no new revenues. This is too superficial of a deal analysis, in my view. The fact is that new revenues were never in the cards at this point in the deal cycle, and so their absence from the final deal is not a significant concession. Further, it is important to understand that Obama has been dealing with a hostage situation here, and so to the extent the final deal seems tiled to the GOP, the playing field was not a level playing field to begin with. Within limitation, Obama had no choice but to rescue the economy, if he could, at the cost of short-term concessions. That needs to be taken into consideration in evaluating the final agreement.

I submit, based on what I have seen from this deal so far, that Obama’s report card score here is “Incomplete.”

Here’s why:

Democratic electoral goals for 2012 should be, in order: (1) retaining the presidency; (2) holding on to the Senate; and (3) re-taking the House. This deal, as outlined above, advances that agenda more than the other possible alternative at this point, which is basically letting the debt ceiling deadline pass and taking extraordinary executive actions to mitigate the effects.

First, while Obama has lost some political support through this debacle, by far the Tea Party brand has suffered a more significant setback. Sure, while this mess may have increased the intensity of existing Tea Partiers, it has probably stopped dead in its tracks the movement’s ability to attract new followers or expand its influence beyond the extreme. Indeed, while we may see more Tea Party candidates emerging from GOP primaries in 2012, these candidates will be far too extreme to win general election contests that more moderate Republicans might have won, a la Nevada and Delaware in 2010.  So, to the extent this deal seals in these attitudes, it benefits Democrats.

Second, as split as Democrats seem about this deal, the fissure in the GOP is much deeper and much more difficult to repair. This, too, enhances Democratic chances in 2012.

Third, because Democrats were able to push the debt ceiling out beyond 2012, it means the 2012 election, at least insofar as deficits are concerned, can be fought out on the issue of whether to increase taxes on the rich and whether to close outrageous corporate loopholes, which is very friendly terrain for the Democrats. Republican intransigence on these issues will hurt them in 2012, badly, and I suspect we will see a split among GOP candidates, presenting a difficult problem for the presidential nominee.

Fourth, the GOP will now share what looks to be a lousy economy in 2012. Republicans belittle the argument that our lousy economy is the fault of George W. Bush (even though that is true), and have argued that the economy belongs to Obama because he is president. Thanks to this deal, forced on the country by the GOP’s hostage-taking tactics, in 2012 both parties will be seen as directly responsible for our economic situation. Never mind that this is total crap – as I said, the fault here lies with Bush — it neutralizes what would have been the GOP’s best issue in the upcoming election.

Fifth, according to ABC News, the cuts in Medicare that the trigger in the deal contemplates would be in the form of payments to providers (a generally Republican constituency), as opposed to benefit cuts for recipients. While this may give Republicans some political cover, in would still allow Democrats to run against the benefits cuts of the Ryan Plan and, in the short term, at least, minimize actual harm to people. So, while the deal minimizes GOP issues for 2012, it leaves Democratic issues substantially intact. (One caveat – to the extent the debt ceiling deal will inexorably lock in benefit cuts to Medicare, Medicaid or Social Security, then it should be rejected immediately. Default is a preferable option to cutting those benefit, which would be lousy policy and lousy politics from a Democratic perspective.)

Sixth, we will be able to address the issue of deficits in the 2012 election, without the GOP holding the economy hostage. This will put the onus for deciding how the country should proceed on these issues squarely where it belongs – on the shoulders of voters – who will be able to evaluate the options without a sword handing above their heads.

Seventh, no matter how heavily tilted toward expenditure reductions this deal seems, remember Obama still has a great deal of leverage in his pocket heading into 2012 because the Bush tax cuts will automatically expire, and they cannot be renewed unless he agrees. If Obama wins re-election, this leverage increases exponentially because not only will Obama be there for the next four years, he will not be facing another election, leaving him free to hold firm of vetoing any extension of the tax cuts without exacting something valuable in exchange.

And that is why I give him an “Incomplete.” The ultimate judgment on this deal will need the election of 2012 to play out to determine whether what must be seen as a tactical retreat will bear fruit in terms of electoral success — and, if so, whether Obama would be willing to use the leverage that will provide.

So, while a battle royal right now with the Tea Party might make us feel better, from a more dispassionate, analytical perspective, Obama has done exactly the correct thing here. To what ultimate end, however, remains to be seen, and that will be the test of whether this deal was brilliant strategy, or simply a poor job of negotiating to a poor result.

So, I for one am willing to withhold judgment on Obama’s deal at this point (as long as Social Security, Medicare and Medicaid are protected), but if I could, once it all plays out, I would remind Obama of the wise words of the Do-Dah man: