There is one word that a person needs to understand to grasp what will happen in the standoff over the "fiscal cliff," the high-stakes standoff between Congress and President Barack Obama to avert steep tax increases and spending cuts on Jan. 1.
That word is "Batna."
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.
Obama and Speaker John Boehner of 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.
If the nation goes off the fiscal cliff, there would likely be a recession in the first half of 2013.
White House line
So for 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 re-election and will never again have to face voters. 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 more than $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.
There is a caveat to this. The nation's legal debt ceiling will be hit around the end of the year, and by perhaps February or March the Treasury will run out of accounting gimmicks it can use to keep the debt underneath that cap. Obama might be willing to accept a normal, run-of-the-mill recession to get his way on policy. But his batna gets worse when he needs Congress to raise the debt ceiling; there, the risk is the U.S. government defaulting on its debt obligations, which could cause a global financial panic and lasting damage to the nation's credibility. If there is no deal by that point, Obama will have greater incentive to strike one.
Speaker's office line
The batna for Boehner and the rest of Republican leadership in the House depends on their perceptions of the politics of the whole thing. If they feel they can successfully cast blame on Obama for intransigence in a post-cliff economic downturn, they might feel comfortable digging in their heels. But there is reason to think that isn't the case; polls showed voters blaming mainly congressional Republicans for the standoff over the debt ceiling in August 2011 (which set the stage for the current cliff). And Republicans will face intense pressure from some of their own business supporters to agree to a deal.
Perhaps reflecting that a simplistic negotiation over tax rates does not play to Republicans' favor, Boehner's much-discussed speech this past Wednesday suggested an effort to broaden the contours of the negotiation.
"For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said. "What matters is where the increased revenue comes from, and what type of reform comes with it."
With those comments, Boehner didn't cede any major substantive ground, but he did show his strategy of shifting the debate away from whether income over $250,000 will be taxed at 35 percent or 39.6 percent and toward a more complex negotiation that may leave him more room to maneuver and, ideally, leave the country with better tax policy.
That is the ultimate mark of a successful negotiation: Both parties end up better off. The nation has to hope that this series of talks fits that mold.