The collapse over the weekend of the $4 trillion debt deal doesn't spell doom. But it does clarify who's running the show.
As you've probably already heard, the chance for a historic, $4 trillion deficit-cutting deal disappeared in a puff of smoke on Saturday night when House Speaker John Boehner called President Obama and told him to forget about it -- Boehner said he couldn't countenance the tax increase that such a deal would require, although he'd apparently been open to it at one point. (And with good reason: Medicare and Social Security cuts would have been a part of this deal, which is should be no small thing if you're a conservative looking to shrink the size of government.)
Every indication is that pressure from his base and his own deputies is what forced Boehner to relent on the big deal. National Journal's Major Garrett, whose reporting and analysis on Boehner has been sharper than anybody's, likened the collapse of the deal to the Saturday Night Massacre during Watergate, in the sense that it will cause similar despair and hopelessness about Washington's ability to operate. A number of skeptical Washingtoncommentators argued that it was foolish to imagine that such a deal could ever be struck--why would a bigger package surmount the hurdles that a smaller package could not? But Boehner and Obama obviously believed there was a way. The fact that there isn't one tells us a number of things: Boehner doesn't control his caucus; Republicans care more about spending and taxes than deficit reduction; and the complacency of the financial markets -- the view that Congress is a bunch of idiots who make a big scene but always get their act together in the end -- could well be misplaced.
The latter view is one that's always struck me as foolishly arrogant and out of touch, because it insists on ignoring how the current impasse differs from, and is more serious than, earlier struggles over the debt and other matters -- above all, it doesn't recognize or take seriously the fact that the crowd that just ankled John Boehner is the one that ultimately must sign off on raising the debt ceiling. Does that seem more or less likely after the Saturday Night Massacre?
Two weeks ago, after speaking with a number of smart, serious Hill conservatives, Treasury officials, and Wall Street investors, I wrote a version of the above graph in a column ("Why the Debt-Ceiling Debate Matters Now"). The point I was trying to make was that Wall Street doesn't appreciate Washington's capacity to fail on this issue, and Washington doesn't appreciate Wall Street's capacity to react more severely to such a failure than many Republicans expect: panicked selling of stocks, sky-rocketing interest rates, and pain for all concerned.
Saturday's events ought to make this a good deal clearer. And maybe we will start to see outward signs of panic or at least concern -- at this point, that seems like a necessary precondition for the debt talks to move forward. As Garrett notes in his update this morning:
There is no clear political or legislative path to raising the debt ceiling by the August 2 deadline, and the chances of partial default on U.S. government obligations is now more than just technical. No one is panicking yet. But that doesn't mean they won't or shouldn't.