There is one word that a person needs to understand in order to grasp what will happen in the standoff over the “fiscal cliff,” the high-stakes standoff between Congress and President Obama to avert steep tax increases and spending cuts on Jan. 1.
That word is “Batna.”
The Washington Post’s Zachary Goldfarb and Neil Irwin sit down with Brook Silva-Braga to preview whether Congress will actually be able to steer America away from the fiscal cliff and what will happen if they can’t.
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It comes from negotiation theory, and is an acronym for “best alternative to negotiated agreement.” It is, for each side, what happens if there is no deal. Understanding what the batna is, for Obama and Congressional Republicans (along with other relevant groups, like Senate Democrats and tea party House Republicans) is crucial to predicting how things will shake out.
Think of it this way. In a negotiation over buying a car, it would seem simple to assess what happens for each side if there is no deal. The salesman’s batna is not having the commission income from a successful sale, and the buyer’s batna is having to drive their old car for a bit longer, or keep taking the bus.
But imagine if the salesman has been told he will be fired if he doesn’t get his sales numbers up. Suddenly, his batna is a lot worse; if he doesn’t close the sale, he could lose his job. The buyer doesn’t know that, but the salesman will naturally be more accommodating in the talks, likely resulting in a lower sales price. Or imagine if the buyer is just starting a new job, needs a car to get to work Monday morning, and doesn’t have any time to do comparison shopping; the buyer has a worse batna than it might seem, and will probably be less able to negotiate aggressively and will likely end up with a higher price.
Usually in a negotiation, you don’t know the true batna of the other side, and they have every incentive to keep it a secret; unless the car salesman above is a terrible negotiator, he won’t let the buyer know how desperately he needs the sale. But that typically doesn’t matter too much; each side will negotiate as aggressively as it can given its own understanding of the alternatives, and whichever one has a better batna has the edge.
The fiscal cliff negotiations are an infinitely more complex set of negotiations with infinitely higher stakes. But the same principles apply. President Obama and Speaker John A. Boehner (R-Ohio) each have a batna, even if they don’t use that term — a sense of what the world would look like if there were no deal. They also have no incentive to tell anyone what it is outside their very inner circle. But we can try to read between the lines of their public statements and look at the economics of the cliff and draw some conclusions.
If the nation goes off the fiscal cliff — the Bush tax cuts go away in their entirety, pushing up rates for essentially everyone, and there are steep cuts to a range of government programs, including defense — there would likely be a recession in the first half of 2013, according to numbers from the Congressional Budget Office, as government austerity of about 4 percent of U.S. GDP drives a contraction in economic growth.
So for President Obama, the batna is a nasty recession to start his second term,which is not what any president wants. On the other hand, he has won reelection and will never have to face voters again. He and his team view the present-day Republican Party as intransigent and unwilling to be a responsible party in governing. If Obama sticks to his guns with the politically popular idea of ending tax cuts for households making over $250,000 while keeping them for everyone else, and Republicans refuse to go along, going over the cliff may be the only way to force more accommodation from members of the House. It is a simple negotiating position: Either pass a bill that keeps tax increases for the affluent, or I will stand by and let taxes go up on everybody, even if it means a recession.
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