The Fiscal Cliff Negotiations: Things are Better than they Seem

The harbingers of doom are at it again. You can’t open the paper or turn on radio these days without hearing everyone from John Boehner to Erskine Bowles scaring the living daylights out of everyone by saying that the fiscal negotiations – and our economy – is close to failure.

Don’t listen.

Let me put it this way:  if a negotiation doesn’t seem like it could fall apart at a moment’s notice, you haven’t hired the right negotiators.

Here is how a typical negotiation – whether it be for the price of a car or the future of America’s tax code – proceeds:

(1) Party A lays out an proposal. It is outlandishly disadvantageous for Party B…

(2) …and Party B wastes no time in explaining why they’d never agree to such a ridiculous offer. Party B lays out their own proposal, which Party A would never accept in a hundred years.

(3) Party A threatens to quit, but, at the last moment, submits a new counterproposal, which is marginally closer to Party B’s proposal.

(4) Party B is shocked – shocked! – that Party A would think that was acceptable. Party B retires for a day in disgust, then returns the following morning with a proposal that is marginally less extreme than their original proposal.

(5) Repeat Steps (3) and (4) until time runs out.

(6) As time is running out, the marginal concessions made in Steps (3) and (4) become larger and larger, until eventually, one of the parties make a concession large enough that the other party takes the metaphorical money and runs.

(7) Everyone shakes hands and talks about how they’d love to join the other for a round of golf “one of these days.”

So far as I can tell, the fiscal cliff negotiations are somewhere around Step (2) of this process. This is why things look so dire. However, they’re not. This is vanilla Negotiation 101.

Long story short: if you’re losing your hair worrying about the future of America’s fiscal burden, stop it. Have a martini and turn off CNN. You’ll be amazed what a couple weeks will do.

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