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US Debt Negotiation Lessons

Introduction

The United States stands out from most Western countries by having a second step in the debt process. After the budget is passed and the spending is done, there is another step usually to raise the debt ceiling. This is most odd since the money has already been spent.

By the time this blog entry is being read, most likely there will be a negotiated deal but at what cost? This issue has needlessly dominated the U.S. headlines for weeks. This ridiculous crisis even caused the US President Joe Biden to cut short his East Asia trip, surely doing a bit of damage internationally.


What is the US debt ceiling?

According to The Telegraph:

Since 1917, the US has had a law that sets a statutory limit on the total amount of debt that the Government is allowed to have. The limit was first set at $11.5bn (£9.2bn)…

Congress passes new spending bills that will increase the debt level, but the debt ceiling is not raised until it is about to be breached…American government debt has increased under every single president since Herbert Hoover. In response, the debt ceiling has been raised more than 100 times. It now stands at $31.4 trillion.


Planning and Preparation

When I go to meet with a person, I spend 1/3 of my time thinking what I am going to say or do and 2/3 of my time thinking what they are going to say or do. - Abraham Lincoln.


Fail to plan; plan to fail.


Negotiation preparation and planning is at the core of the process. It is so important that planning has been designated as the first step, not introduction, in the negotiation process.

In this case, seemingly the parties have failed. The necessity of raising the debt limit is not a surprise. This necessity has been known and effectuated for more than one hundred years.


Power

It is clear that the United States has a divided national government. President Joe Biden barely won in the national election and this is his first term. US House Speaker Kevin McCarthy barely won his election as Speaker. The Senate is narrowly Democrat and the House is narrowly Republican.


Biden began the debt discussion by saying that he wants "a clean bill" meaning no negotiation, but the power shifted a bit when McCarthy successfully persuaded the House Republicans to pass a debt bill.


Manage Expectations

One persuasion law is that of expectations. It is often said that one gets what one expects. Further, one sees what one expects. All of the parties involved in this U.S. debt negotiation legislation need to understand this law. Parties seem to bounce about with their expectations.

  • I don’t have much hope that we will get this settled.

  • We are far apart, but we will get this settled.

  • I am optimistic we will make some progress.

Being Positive-Contagious

Research is clear that just by being positive, one can increase the chances of settlement by 2-4%.


Further, emotions are contagious. If one is positive, this positivity spreads.

Senate Majority Leader Mitch McConnell to reporters on 5/24: Relax, they will reach an agreement. This is not that unusual. Agreement will be made and it will pass both the Senate and the House in a bi-partisan way.


U.S House of Representatives Speaker Kevin McCarthy, 5/25/23: We are not just getting an agreement. We want an agreement worthy of the American people.


Timing/How Much Time?

Timing becomes an issue in so many ways.


Wait to the last moment? It is often said that 90% of the cases are settled “on the courthouse steps.” Much actual negotiation takes place in the last 10% of the time. Many effective arbitrators open the session and then leave for 15 minutes to discern if the parties could, at the last moment, settle. They often do.


These actions capture the psychology of timing.

  • Some, simply procrastinate.

  • Some, dread the other parties or the negotiation itself. This is similar to accomplishing performance reviews. So many people, both supervisors and supervisees, dread and then delay it to the last moment.

Hype and then meet for one hour? It is often odd how the politicians hype the upcoming meeting and then when they get together they meet only for an hour.


Negotiate the Whole Package

GOP House negotiator Patrick McHenry is wise in stating that nothing is agreed on until everything is agreed on. Package.


Non-Negotiable:

People enjoy using this term “non-negotiable” since they equate this with power. It is also quite limiting to any negotiation.


Compromise

All parties need to take another look at the definition of compromise.


To compromise is to make a deal between different parties where each party gives up part of their demand. In arguments, compromise is a concept of finding agreement through communication, through a mutual acceptance of terms—often involving variations from an original goal or desires.


Most view “compromise” as positive. They see it as co-promises. Others may see compromising as showing weakness.


Trust

Trust and respect are major issues, especially between McCarthy and Biden. Biden asserts that McCarthy voted 3 times to raise the debt ceiling under former President Trump with no pre-conditions. Biden finds this reminiscent of the Republicans who objected to raising the debt ceiling under former Democratic Presidents Clinton and Obama, but not Trump. Is McCarthy being truthful when he raises concerns about the growing U.S. debt? The Biden administration calls this “a manufactured crisis.”


The debt limit has been lifted 78 times since 1960 — 49 times under a Republican president and 29 times under a Democrat — according to the Treasury Department.

Three of those times were during the Trump administration. In 2017, 2018, and 2019 Congress approved measures to lift the ceiling shortly before it was reached.


All three times, Congress didn’t vote to raise the limit by a specific amount, the way they usually do, and the way they most recently did in 2021 when Biden was in office. Instead, they voted to suspend the limit altogether, allowing the Treasury to borrow the funds it needed at will.


Then, when the suspension was over, a new ceiling was automatically installed based on how much the Treasury had borrowed in the interim. As a result, the debt ceiling rose by several trillion dollars during Trump’s term.


At the same time, McCarthy feels disrespected by Biden. They met directly after McCarthy’s narrow win to the Speaker of the House. They both said kind things about each other post-meeting. Then, according to McCarthy, he has not been asked back to the White House for almost 100 days.


After a deal was struck, rumors had it that McCarthy stated in a private call that Democrats got nothing. Politicians should realize that there is no such thing as a "private" call. This is an excellent way to either erode trust or never gain trust.


Conflating issues

On the surface, necessary legislation to cover the bills already incurred does not equate to the budget issue but some are combining the two. Biden desires “a clean bill."


BATNA/WATNA

WATNA (Worst Alternative to a Negotiated Agreement): Most would agree that the worst situation is to not reach a negotiated agreement allowing US economy to go into default. This could cause a sudden recession, stocks could crash, federal workers would be in limbo, delayed Social Security checks, Medicaid payments, Medicare payments and a cut in vital services. So, the WATNA worst is default. Further it would erode global confidence in the US economic system. - Washington Post Commentator Heather Long on Options, 5/2323


Long offers some other options:


-Short term extension

-Senate vote or House vote on “discharge petition.” A discharge petition allows a bill to be brought to the House floor with 218 signatures.

-Temporarily raid the Social Security Fund.

-Treasury Department could issue “consol bonds.” The consol bond is unique since it has no end date.

-Mint the coin. “This is where the US government issues a $1 trillion platinum coin that the Federal Reserve then accepts."

-Invoke the 14th Amendment.


BATNA (Best Alternative to a Negotiated Agreement) Fourteenth Amendment, Section 12: Although this has never been used to secure the U.S. debt, many scholars say it is viable.

Oddly, Janet Yellen, who is not a constitutional lawyer, seems to eliminate this as an option.

Republicans also discourage the use saying this would be Executive Overreach, creating even more of an Imperial Presidency.


What is the 14th Amendment?

Section Four of 14th Amendment, adopted after the 1861-1865 Civil War, states that the "validity of the public debt of the United States ... shall not be questioned."


Historians say that aimed to ensure the federal government would not repudiate its debts, as some former Confederate states had done.


But the clause has been largely unaddressed by the courts, and legal experts disagree about what it requires from Congress and the presidency.


The U.S. Supreme Court might avoid any lawsuits filed if Biden did invoke this section. Investors also might be spooked.


Attorney and congress member Jamie Raskin (D-MD) claims that this section is an imperative, not an option. It requires the President to continue paying the U.S. bills, including Social Security, veterans’ pensions, etc. Biden must pay the creditors, because the U.S. debt will not be questioned. This would set the stage for lots of legal questions. Probably no congress member would have standing to sue, and if so, probably SCOTUS would not hear the case.


Conclusion

Political negotiation is surely different than regular negotiations. It is challenging to determine the parties. In this case, there is the Freedom House Caucus consisting of about 32 members and the Progressive Democratic wing possibly led by Senator Bernie Sanders. The media is involved daily, possibly hourly. The real negotiation is being accomplished by staff, not Biden or McCarthy who are the front people. At the same time, those involved should do a review of negotiation stages and processes since these all have been upended in this debt negotiation.


Note: As of June 2023, Congress passed and the President signed a debt deal. American TV Anchor Lawrence O'Donnell of MSNBC's The Last Word called it a big win for Biden. But Biden, being an old-school, institutionalized negotiator knew not to boast. New York Times reporter Peter Baker described Biden's wise and calm negotiating approach is his article, Don't Spike the Ball Early: How Biden Negotiated His Way to a Debt Deal. He notes how Kevin McCarthy boasted that this deal was a Win for conservatives, but Biden kept quiet. "Biden positioned himself as the calm man in the capital, the mature leader he hopes voters will prefer during next year's election."


Resources

See Recommended Books under “Blogs” drop down menu. Clicking on any book will lead one to the discounted Amazon site.


Roy J. Lewicki is the author of 'Essentials of Negotiation', published 2015 under ISBN 9780077862466 and ISBN 0077862465. Publisher: McGraw Hill Higher Education


The Conflict Resolution Training Program, Leader’s Manual, ISBN: 0-7879-6077-2. Prudence Bowman Kestner and Larry Ray


5 Languages of Appreciation in the Workplace.

https://readingraphics.com/book-summary-the-5-languages-of-appreciation-in-the-workplace/


Getting Your Way Every Day.

https://www.google.com/search?q=Getting+Your+Way+Everyday&sxsrf



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