Tuck

Slaughter & Rees Report - Double-Secret Probation

October 21, 2013 --

The sun rose last Thursday and, thankfully, the world was not confronting a U.S. Treasury default, which could have been catastrophic. Plus the U.S. government reopened. All good news, right?

Wrong, on at least three critical counts. First, last week’s frantic negotiations resolved almost nothing of fiscal substance. The deal funds the federal government only until January 15, still with no actual budget for fiscal year 2014, which started October 1. The deal lifts the debt ceiling only until February 7, after which the Treasury will again scramble to avoid default via “extraordinary measures.” What about the fundamental tax and spending choices underlying all this? The deal created yet another bipartisan panel charged with crafting some sort of grand bargain—by December 13. Really? After Bowles-Simpson and countless other high-quality bipartisan panels whose recommendations have been largely ignored, why should anyone think this time will be different? America will likely ring in the new year confronting the exact same fiscal mess.

Second, the fiscal chaos incurred real economic costs, at home and abroad. What about U.S. households? Gallup reported a sharp slide in U.S. consumer confidence in the past few weeks, with 71 percent of Americans saying the economy is getting worse, not better. A Wall Street Journal/NBC News poll reported a record 78 percent of Americans think the country is “off on the wrong track,” versus just 14 percent who think it is “headed in the right direction.” What about U.S. businesses? Several executives told us in recent weeks about frantic efforts to prepare their balance sheets for a Treasury default—and days spent contingency planning were days not spent hiring and creating new ideas. What about abroad? Business and government leaders around the world voiced confusion, sadness, and alarm over America’s inability to govern. Perhaps most embarrassing was President Obama canceling his trip to Asia and thus missing long-planned negotiations to push trade and investment liberalization in the Trans-Pacific Partnership. China’s official Xinhua News Agency suggested “it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”

Third, the fiscal chaos incurred opportunity costs, in terms of what is not getting done in Washington to support American workers and companies. What about comprehensive reform of the laws governing high-skilled immigration (the many economic benefits of which we have written about here)? What about pro-growth reform of corporate taxation (ditto, here)? What about rebuilding the country’s crumbling infrastructure? That’s right: in recent weeks, Congress made zero progress on these critical policy challenges.

And don’t hold your breath expecting progress soon. Last Friday, an insightful postmortem of the fiscal negotiations painted a sobering picture of pervasive distrust and hostility.

“The budget fight that ended Wednesday night marked a new low in an increasingly dysfunctional capital. Interviews with more than a dozen lawmakers, congressional aides and administration officials about what transpired behind the scenes revealed that the traditional back-channel negotiations and 11th-hour bartering that produce most legislative deals didn’t happen. Instead, both parties focused mostly on trying to kill any plans that emerged … Both sides emerged more entrenched and distrustful of one another, and that bad blood could spill beyond the budget questions.”

At Tuck and other top business schools, a staple course is Negotiations. In that field, the canonical text, Getting to Yes, summarizes decades of research and practice on what characteristics of successful negotiations make them successful.

“Any method of negotiation may be fairly judged by three criteria: It should produce a wise agreement if agreement is possible. It should be efficient. And it should improve or at least not damage the relationship between the parties.”

We don’t know whether to laugh or to cry at how far Washington is from this ideal. We do know that were we assigning grades in a Negotiations class, everyone involved in America’s latest fiscal agreement would be moving from probation to a status famously described by that noted academic, Dean Vernon Wormer: double-secret probation.

Articles © 2013 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2013 Trustees of Dartmouth College. All rights reserved.

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