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As Budget Talks Founder, Shutdown Looms, But Solution to Shutdown Not Promising Either

John Boehner is in a tight spot. Having been around in the 1990s, he must have a sense that affirmatively shutting down the government carries a serious risk, especially because that’s not the end of the story. Eventually, there would be a resolution, and it won’t carry everything the Tea Party wants, and the reaction will clearly be betrayal. Not to mention that he has Eric Cantor looking over his shoulder, dusting off the nameplate that would go over his out in front of the Speaker’s office should Boehner lose the confidence of his caucus. Cantor has been stepping out of late, ruling out any short-term stopgap even while Boehner never made such a claim.

As of now, Boehner is playing the best hand he can, saying that the Senate needs to pass a budget bill first.

The Democratic-led Senate must pass its own bill to fund the government if it expects House Republicans to negotiate a final agreement on spending and budget cuts, House Speaker John Boehner (R-Ohio) will say in a Wednesday speech.

“House Republicans are not going to negotiate with ourselves,” Boehner will say in a speech before the U.S. Hispanic Chamber of Commerce, according to prepared remarks.

Considering that there’s been no ability to get 60 votes on anything budget-related, this is probably a good strategy. But there are people like Lindsey Graham out there advising Republicans to take half a loaf and come back for the rest in the next budget. So there’s an outside chance Senate Democrats can get to something approaching their next offer, a $30-$36 billion overall spending cut, through the Senate.

The question then becomes what form those cuts take, and whether policy riders get involved. Harry Reid raised some eyebrows by saying he would “take a look” at GOP policy proposals and riders in their budget, but Chuck Schumer firmly ruled out any riders on Planned Parenthood or the EPA, the most controversial ones.

Meanwhile, just as Democrats are trying to pass something with moderate Republicans, the House Republican leadership, despite their maximalist tone, is wooing moderate Democrats to come in on a final deal. This could get them in trouble with their conservative base, which planned a rally in the Capitol on Thursday.

None of this scheming looks like it’s going to be ultimately successful in avoiding a government shutdown. You know that because Republicans are trying to rename it a “slowdown.” So they recognize their vulnerabilities here.

But at the same time, Democrats have serious vulnerabilities as well, because their offers of more cuts are a blueprint to sink the economy. The latest offer of $30-$36 billion in cuts ($10 billion already enacted, $20-$26 billion in the offer) would put the number right where the House leadership had it back in January. The deficit is driven by an output gap. The Democrats are responding to this by seeking to shrink demand even further and increase the output gap even more. And with home prices cratering, commodity prices rising and global hotspots burning, this is about the worst possible time for state and federal budget cuts. But that’s what’s happening.

A shutdown will have negative economic consequences, but so will the solution to the shutdown. Before long, somebody will have to write this New Republic editorial from 1938 all over again.

I can well understand, Mr. President, with what grim humor you must have listened, in recent months, to the anguished hows of business men-anguished because you had taken their advice and they didn’t like it. For years, every self-appointed spokesman for business had been demanding that you should balance the budget. To be sure, nobody suggested that we should accomplish this by increasing taxation to the level of the British, for example, which is about three times as high as our own. On the contrary, they wanted you to perform this mystic and sacred rite by economizing in expenditures. Since nearly all the abnormal spending in your administration had been for relief, that is obviously where the wanted the cuts to be made.

There is a deadly parallel between the downward movement of the business index and this enormous drop in federal spending. I am not saying that the curtailment of relief was the only cause of the trouble, or even the chief cause…no one can doubt that the sudden withdrawal of hundreds of millions of dollars of federal relief funds, the smashing of thousands of projects all over the country, did contribute materially to the creation of our present misery. Your triumph over your foes-on this point, at least-is complete.

To be sure, they do not hate you any the less because you have demonstrated that on this extremely important matter they were wrong and you were right. If anything, they hate you more than ever. One of the great mysteries that historians of the future will puzzle over is why you have aroused such bitter animosity….Taxes during your administrations have on the whole been amazingly light…Your very mild efforts to regularize Wall Street, to make the electric utilities behave, to obtain recognition of union labor, have been matters on which most sensible men have agreed with you. They have been directed chiefly against the small minority of bandits whom the majority has always wanted to discipline if it could.

Those who were demanding economy, a year ago, and now don’t like it, have gone back to the old cry about “confidence.” If you would only do something to restore confidence, they say, business would go on zooming across the landscape, full of vitamins…

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David Dayen

David Dayen