Renewed Hope for the Gang of Five or Six?

The conventional wisdom is that we will now see paralysis in Washington until the next election. There will be a last minute budget deal that will shave $150B from the deficit over the next couple of years and avoid default. But no grand bargain is anticipated this Congress to address our structural fiscal imbalance.

The Gang of Six dropped to five after Tom Coburn received a great deal of pressure for suggesting that concessions on the revenue side might be necessary. Formerly untouchable, his involvement in the Ensign Affair has made him vulnerable and he’d rather foster friends than enemies in his own party.

The hand of the intransigent Republicans has now been seriously damaged. The only way to keep the Ryan Plan from ruining GOP prospects in 2012 is to otherwise address our accumulating red ink. A grand bargain is now a lot more attractive to those who were shouting “No compromise!” only a few months ago. The priorities for the House Republican freshmen has now shifted, a consequence of their collective cold sweat. I expect Coburn to soon rejoin the Gang with the blessing of his party leadership.

The president and the Senate Democrats have been open to a deal resembling Simpson/Bowles. Contrary to conventional wisdom, it is still in the Democrats political interest to deal. They will want bipartisan fingerprints on anything that materially reduces the deficit – something that voters continue to demand (albeit in the abstract).

But it has to happen this year. Next year, both parties will focus on making bipartisan cooperation unnecessary…