Evaluate the US Debt Limit Negotiations

Here are my Seven Principles of Negotiation from my book, DECISION TIME! Better Decisions for a Better Life. After all the smoke clears in Washington, decide for yourself whether each side did a good job of handling the process, regardless of what it looked like to outsiders.

The first principle of negotiation is that you must be sensitive to the needs of others when you set priorities for what you hope to accomplish. If all parties have the same list of priorities, then it is unlikely that the negotiations will be successful. However, it is usually the case that there will be differences in the priority lists for the two or more parties to the negotiations. This will allow a final outcome where more than one party comes away from the process having satisfied his top priority goal. By being sensitive to the desires of others, you can set your priorities into a structure that makes negotiation success more likely.

The second principle of negotiation is that you must make it very clear to your opponent which are your top priorities and how determined you are to achieve them. It is a fact of human nature that if you are able to reach a decision that gains your top priority objective too easily, you will feel that you could have negotiated an even better outcome. This is true whether you are setting the price for the purchase of a used car or if you are involved in a complex labor contract negotiation. For this reason, most negotiations will and should start out with a firm statement of your goals. These goals should be reiterated and should seem to be inflexible for as long as possible. There is acting involved in such posturing, but the objective is to find out which party most desires a positive outcome to the negotiations. That party will usually show the first sign of flexibility. If no such flexibility is seen on either side, progress may have to be made as the result of setting a deadline or introducing a third party to mediate the process. A final alternative to inflexibility is to walk away from the negotiation process. If and only if your opponent believes that you are truly willing to stop the process, moving to end the negotiations may actually introduce flexibility from your adversary and stimulate the process toward success.

The third principle of negotiation is that although you frequently will have to resolve conflicts by giving in to someone else’s viewpoint, you should always try to get something back in return for your willingness to see things their way. This is usually an acceptable and expected trade procedure. Even when there may not be an item on the table that your opponent is willing to give up in exchange for your flexibility, you may be able to gain something by proposing that he or she commit to a future benefit for you. This is why so many sports team trade negotiations end up including “a player to be named later” or a future draft choice. It is easier to reach agreement in this way because neither party knows the true value of a future benefit.

The fourth principle of negotiation is that decisions proceed from the bottom to the top. For this reason, it may be useful to have some low priority points on which you are willing to give in to your opponent’s viewpoint. They may mean little to you, but after you have relinquished something, it is reasonable for you to expect your adversary to offer you something in return. Not only are smaller points agreed before larger points, but also in formal team negotiations there is a “pecking order” for personnel on the two sides. [Lower level people decide lower level matters. Highest level people come in only when trying to come to the final agreement.]

The fifth principle of negotiation is that when you are not sure what to decide on a particular point, the best tactic is to add something to the discussion which “puts the ball in the other party’s court” and gives your opponent responsibility for the next decision. This approach gives you more time to reach the decision that was facing you, and it may also give you new and valuable information from your opponent’s response on the new matter.

The sixth principle of negotiation is that you can’t please or accommodate everyone. You will definitely have to say No in many situations, and you will have to be firm about it. The word No has great value in that it can be used to reverse or slow down the momentum of a negotiation. You may be willing to concede additional points to your adversary, but judicious use of the word No will help you to gain return concessions and will help you to minimize those items on which you have to yield. It also helps to create an image of you as a tough negotiator, and in negotiations image is very important.

The seventh principle of negotiation is that the party with the greatest detailed knowledge of the matters being discussed has a great advantage. If you have all the details immediately available while your adversary has to repeatedly call for assistance from others or request a break in the process to obtain more information, you are negotiating from strength while the other party is negotiating from weakness. It is very important that you have done your homework before the meetings even start.

Half Full, NOT Half Empty

What the U.S., and for that matter the world, needs to realize going into the future is that the proverbial glass is half full. For all the complaints about slower-than-expected employment growth and too much indebtedness, we have all accomplished a lot on our way back from the economy's burst bubble due to unrealistic home ownership policies and other problems. Whether you are talking about personal career development, governmental projects, or international development, a pessimistic future outlook is dwarfed by an inventory taken to show what we have accomplished in the past. The strength of democracies and market-oriented businesses is that each manages to do one or two good things every day. When you look backward to see how far you have come, you will generally be amazed. The incremental things we do each day appear small because we like to talk about achievement of goals rather than maintenance of progress. Make a little progress every day, week, month, and year. As you continue making that progress, you will be able to look back and see that goals have, indeed, been achieved. The glass is at least half full.

You Should Look a Gift Horse in the Mouth

The old adage is Don't Look a Gift Horse in the Mouth. In my mother's view, it meant that if someone gives you a present, you should accept it graciously, even if it is something that is not exactly what you want. My view is that the economy fell apart because greedy people failed to examine that steed. Too many people jumped at the chance to get homes, cars, and other luxuries they couldn't afford with loans and cheap credit they knew they couldn't repay (at least not in this lifetime, based on minimum payments). I'm old-fashioned enough to be suspicious whenever someone offers me something that sounds to good to be true. Read that fine print and you'll find that it almost always is. The size of our economy is a function of how much credit is being used. The quality of our economy is a function of how much we save, how much we keep spending within our means, and how frequently we buy products that are manufactured here rather than abroad. Don't always look to cheat the system, or you may find that there won't be a viable system at all in the future.

Economic Security or Temptation Toward Problems?

I heard a financial advisor on television say that the first thing you should do to guard against financial problems is to set up a line of credit against the equity you have in your home. She said that you don't have to borrow against your home equity unless you have to, but that this step would give you instant access to capital when you needed it. Frankly, this advice made me feel very uneasy. If you are in a position where it is at all likely that you will need capital, this approach will keep dangling the temptation in front of you to borrow and maintain a rich lifestyle. If you want to plan ahead against possible financial adversity, you are better off to learn how to trim your lifestyle so that it doesn't take as much capital to sustain it. If you start borrowing even a little against the equity you have in your home, especially in an economy that is tending to reduce the value of that home, then you are going to be tempted to do it again the next time you need a little cash. The commentator said that borrowing against your home equity line of credit is as easy as using a credit card. That is exactly the problem. The banks and mortgage holders make it easy because they want you to borrow. It tends to be a one-way street of borrowing more and more and not paying anything back beyond the interest, of which there will be plenty. Has anyone else noticed that the Fed has been reducing interest rates while the credit card companies have either left them the same or found more reasons to increase interest rates whenever you get into a technically incorrect position? Now is the time to learn how to reduce your spending in step with the reductions in the economy. Now is not the time to set yourself up to be tempted to borrow more and more.