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What makes the dollar strong?

Aug 23, 2019

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Raising the Debt Ceiling

Business school case study: Debt talks

Stacey Vanek Smith Jul 25, 2011
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Stacey Vanek-Smith: A debt ceiling deal still seems elusive. Both [Republican and Democratic] sides say they’re crafting their own plans this morning. Here to talk about the business of the negotiations is Tom Kochan with MIT’s Sloan School of Management. Good morning, Tom.

Tom Kochan: Good morning, Stacey.

Vanek-Smith: So Tom, the two lead negotiatiors — in this case President Obama and Republican Speaker John Boehner — they’re not negotiating just for themselves, but on behalf of their parties and the public. How does that change the talks?

Kochan: Well we have mixed negotiations here — negotaitions where the people at the table don’t really control their constituencies very well. And in many cases the constituencies have been driving these negotiations, particularly on the Republican side where the Tea Party Caucus within the House really has staked out a very strong and unbending position and that has limited Boehner’s flexibility and limited his ability to make a deal.

Vanek-Smith: One of the difficulties that they’re running up against is that there are some people who don’t seem to want a negotiation on both sides. How does that factor into this debate?

Kochan: There’s a concept in negotiations that you always have to worry about your BATNA — that is, your best alternative to a negotiated agreement. The Republican Caucus in the House, the best altnernative to a negotiated agreement is no agreement. They’re OK with that because it makes them look good to their constituencies and so allows them to hold to a more extreme position. The president doesn’t really have a very good BATNA. He needs an agreement because the economy needs an agreement. So unless the president can negotiate an alternative, he has to get an agreement somewhere in this process to raise that ceiling.

Vanek-Smith: Tom Kochan is a professor at MIT’s Sloan School of Management. Tom, thank you so much.

Kochan: Thank you, Stacey.

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