Sen. Tom Coburn is a Republican from Oklahoma. He's one of the Senate's leading fiscal conservative and was a member of both the Simpson-Bowles Commission and the Gang of Six. We spoke on Wednesday about the shutdown, the debt ceiling, and the American political system. A transcript of our conversation, lightly edited for length and clarity, follows.

Sen. Tom Coburn (R-Okla.) reveals his "Back in Black" plan to reduce the federal deficit. (J. Scott Applewhite/Associated Press)

Ezra Klein: Let’s start broad. Tell me about your general thinking on how the shutdown and debt-ceiling fights resolve.

Tom Coburn: You may not have heard but Moody’s agrees with me. Reaching the debt limit does not equate default and will have no effect on our credit rating.

EK: I haven’t read the Moody’s paper yet. But it clearly has an effect on our credit rating. In 2011 Standard & Poor’s downgraded us specifically because of the debt-ceiling fight.

TC: Not true. Go read what they said. It’s the fact that Congress will not make significant changes to their outlook in terms of entitlements.

EK: They wrote that the key reason for the downgrade was, quote, “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.” I strongly read that as saying that the debt-ceiling debate and the nearness of default spooked them.

TC: I read it a totally different way. It’s the fact that we’re dysfunctional in fixing entitlements. You’d get no downgrade if you took the entitlement fixes President Obama had in his budget for entitlements and passed it with a debt ceiling increase. There are all sorts of things we could do. The problem is not talking, not negotiating. If the president stands firm that he’s not going to talk and not going to negotiate on the very fact that for us to raise the debt limit, if he won’t talk because of that, that’s the problem. It’s much more likely we get a downgrade if we pass a clean debt ceiling increase and do nothing.

But I think all this will work out eventually. Pressure will build, and everyone will find a way to save face.

EK: It’s hard for me to believe these fights all the way to the edge of the abyss won’t provoke a real market reaction.

TC: I think there’ll be a market reaction. I believe there will be. But think about where we are today in the market vs, our unfunded liabilities, and Congress not addressing the long-term problems facing our nation. That should worry them more about not increasing the debt limit. Were going to pay a price for this. I think we should solve it while it’s still under our control. Debt limit is a time to think what’s increasing the debt and what’s causing it so we’re not here again.

EK: The Democrats’ view is that it’s fine to start thinking about debt and deficits but that’s it’s illegitimate to use default as the threat to force a deal. They say they’ll negotiate, but the structure of that negotiation can’t be “do what we want or the economy gets it.” Do you think they’re wrong?

TC: Because nobody is negotiating at the table, and everyone is negotiating in the press. Jack Lew is saying all these things that can’t be done which isn’t necessarily true. The president doesn’t have the confidence of Congress that he’ll do what he says. The idea that you’ll raise the debt limit, and he’ll sit down and talk doesn’t pass the smell test. It’s just partisan attack after partisan attack.

EK: Democrats say they’ve been trying to get Republicans to go to a budget conference and negotiate these issues for months and months and that Senate Republicans have filibustered that. So to them, they’ve shown ample interest in negotiations, and the GOP only wants to sit down now that there’s a threat they can use, or believe they can use, to increase their leverage.

TC: There’s no need for a budget when you’ve got a Budget Control Act that’s already said what your budget levels should be. I stood up and said I didn’t think Republicans should oppose going to conference. But the budget isn’t the issue for our spending levels. What’s in law is the issue. Democrats want a budget to get rid of sequester and raise the spending. We already have the levels in law that we can spend at. So no budget is needed for that. Congress isn’t doing its job. It’s just playing politics. You know, only one appropriations bill was put onto the floor by Harry Reid. And he pulled it. But these CRs are a terrible way to run the government. They take flexibility away from the very agencies we’re trying to get to be more efficient.

EK: But isn’t there a tension between the GOP’s argument that Democrats won’t negotiate and the fact that Democrats have been trying to have these budget negotiations with them? Because these budget negotiations could have been used to address mandatory spending issues, too.

TC: I think they are in tension. The reason they didn’t want to go to conference in the budget is they didn’t want taxes back online and with a 51-vote margin to raise taxes again. So is the problem that we’re not taxing enough or is the problem spending?

EK: Can’t it be both?

TC: You just got $600 billion in increased taxes.

EK: But isn’t that the bedrock here? Republicans say they want negotiations but they’ve been opposing them because they don’t want to give anything up. They don’t want to talk taxes. But the Democrats don’t think a negotiation is them giving policy concessions in return for Republicans keeping the government open.

TC: Again, I’m not in control of any of that. I voiced what I could about going to conference. I’m not in control of the House. I can understand that they have a different point of view than I do. But it’s also that the Senate has been shut down for almost four years for minority rights in terms of amendments. We’re not the greatest deliberative body. We’re nowhere close. We are at impasse in terms of the comity of the Senate moving forward on these issues.

EK: You made a point earlier that I think is important. You said that markets should be worried about all the legislation we’re not passing, all the problems we’re not addressing. And this seems like a bigger deal to me than it gets credit for. It’s easy for us to focus on crises. But over extended periods of time bad governance is a crisis, and it hurts your growth, and while it’s hard to miss growth you never had, it’s still a huge problem for living standards.

TC: We’re at 1989 living standards right now. We’re going backward. I think it’s a real issue. Politics has caused us to focus on the short-term at the tremendous cost of making good policy decisions for the long-term. That's all about leadership. It’s all about bringing the country together and saying here are the real problems. Now we can debate whether it’s tax revenue or entitlement changes that are needed. But there’s plenty of room for that process to happen. But now it’s all political in the short term and none of it is policy for the long-term. We’re not only bankrupt as a nation, we’re bankrupt in our leadership.

EK: Do you think markets have too much confidence in the American political system?

TC: No. I think it’ll all work out. It doesn’t mean you won’t have a hiccup or an 8 or 10 percent drop in the market. But look at the fundamentals. We're only growing at 2 percent. If we could just do tax reform you’d see that corporate money on the sidelines coming back. If you could add some of that back in, you could see a 50 percent jump in growth. That’d throw another $200 billion toward the federal government. So the point I’d make is no one has confidence in Washington now. But they’re looking at the baseline economic activity in the country in spite of the lack of leadership and the dysfunction in Washington. So I think they have reason to have optimism given how we’re doing in spite of the dismal leadership.

I’ll tell you a side story. I was in Miama, Oklahoma. I was talking to a guy who grows mushrooms. He said I could spend $5 million and create another 100 or 200 jobs but I’m afraid to because I don’t trust you guys in Washington. So I’m spending money to buy from my competitors to meet my contracts, and I think that’s a safer way to go. He might be an outlier. But what if that’s true in 50 or 100 places around the country? It makes a big difference. Confidence is important. What if we kept our differences minor and not public and didn’t negotiate through the press? I think it’s untenable for the president to just not talk. And I think President Obama is a good man. For the life of me why he wants three more years of big fights is beyond me.

EK: Why do you think he does? Certainly the White House’s belief is they’ve tried very hard to negotiate, and Republicans just don’t want to give anything up.

TC: Because I think there’s conflict between the Democrats in Congress and the president. They don’t trust his ability to work a deal. So I think he’s reticent to go out there on a limb on entitlements and be left there shaking hands with the Republicans.

EK: You don’t think putting chained-CPI in his budget, which got him a lot of flack from the left, was him going out on that limb?

TC: I praised him on the floor and personally for making those steps. But those were baby steps. if we’re going to raise the debt limit let’s raise it $3 trillion so we get him out of this deal.

EK: In all these interviews with members of Congress we end up talking a lot about Obama. But you guys could just cut a deal and send it to him. And you worked with the Gang of Six which came up with a pretty credible and interesting grand bargain. So if there’s really this willingness in Congress to cut a deal why not just do it without Obama? I mean, he said he would support that package if it ever came to him.

TC: No he didn’t, he gamed the deal. He said it raised taxes more than his deal. He undercut all Republican support for that because he made claims that weren’t accurate about the deal. So we lost all interest on the Republican side because he said it raised $2 trillion in taxes when it only raises a trillion.

EK: I don’t know those specific quotes, but Republicans in Congress don’t typically have a lot of trouble believing Obama is lying about something. If it’s just a misconception, why can’t it be cleared up, and you guys move forward?

TC: You gotta have leadership that wants to do it. I could get Mitch McConnell to do that deal in a minute. That’s just my guess. But I’m not sure Harry wants that deal because he feels a short-term political advantage right now. And that’s my whole point.

EK: So what do you think will be the real endgame here in this fight?

TC: It’ll have to be some deal struck where both can save face. That’s what’ll happen. That’s why you have to be talking. You need to let everybody walk away with a small win. If you won’t do that you’re on cruise control to go right through October 17.