An improving economy makes a government shutdown less likely than ever.
Will there be a government shutdown? No, but check back with me at the end of this sentence. Republicans and Democrats are negotiating in earnest, but figuring out whether they are making any progress is hampered by different kinds of complexity: about numbers, about policy, and not insignificantly, about politics. Not only do both sides have to agree on how much to cut and where to cut it, but each side hopes to improve its negotiating position by declaring in public that the other side is being misleading or inflexible.
In this sea of uncertainty, let's haul out the scales and see what we know.
On one side, we have the many reasons a shutdown is likely. Senate Democrats and House Republicans might not be able to come to an agreement on the size of spending cuts and the so-called policy "riders" related to hot-button issues like funding for Planned Parenthood, the EPA, and Obama's health care plan. Or maybe they will reach a deal, and House leaders of both parties will lose enough of their ideologues that there won't be enough votes for the compromise to pass. Or, time could simply run out. The deadline is April 8, but to make good on the House promise to post all bills three days ahead of time, a deal has to be worked out by April 5.
On the other side, arguing against a government shutdown, is one big reason: the economy. It's getting better. On Friday the Labor Department announced that 261,000 new jobs were created last month. That's 500,000 in the last three months. Policy makers on both sides believe that shutting down the government could risk the recovery, and no one wants to get stuck with the blame for that. There are plenty of theories in both parties about how they can turn a shutdown to their advantage, but leaders in both parties really don't want to risk it.
Is there a logical connection between a shutdown and the health of the economy? You can argue that interest rates are low because the market thinks that, when push comes to shove, Congress and the president will find a way to work toward a balanced budget. When a shutdown proves markets wrong, they will charge an Irretrievably Incompetent Premium (IIP), causing rates to rise. That will increase borrowing costs for business.
Whether any of this makes economic sense doesn't matter. The president and House Republicans have been arguing about economic fragility for so long that, as a political matter, the relationship between the economy and a shutdown is a certainty. President Obama cited the fragility of the economy as a reason to extend the Bush tax cuts. The health of the economy will be the single most important factor in the president's re-election. He can't risk a shutdown. That's why Chief of Staff William Daley called Boehner this week to move the deal along. According to one source familiar with the details of the conversation, Daley said the president would support significant cuts but wanted to see the final compromise largely free of policy riders.
The president also knows the economy worries Boehner. On the good news about employment, Obama used the opportunity to send a little shot across the bow. "Given the encouraging news we see today on jobs, it would be the height of irresponsibility to halt our economic momentum because of the same old Washington politics," he said in a statement.
Republicans have argued for months that the economy is hurt by uncertainty. Shutdowns create uncertainty. If the GOP is blamed for creating uncertainty, it can hardly argue with the premise.
Negotiations are at the barroom-and-backroom stage. Lots of people in the barroom yell and accuse each other of bad faith and lack of seriousness. In the backroom, the real work goes on. Leaders from both parties negotiate about the size of the cuts and the riders. They're connected by a seesaw that is driven by what each side can sell to its members. If the riders are watered down or eliminated (as many Democrats want), then Republicans are going to need a bigger total number in cuts to sell to their side. Occasionally the spectators out front pound on the door, and someone from one of the two sides negotiating comes out to please the crowd with partisan talk. Then he returns to the hard business of negotiating.