Then the two MIT-trained macroeconomists began dancing in the street, just about the only white faces in an exuberant black crowd, a pair of awkward fifty-year-olds surrounded by kids a third their age. Christy just wished she had brought a flag. It felt like a good night to wave a flag.
“It was such an outpouring of joy,” she later recalled. “We were all celebrating the promise of this new president who shared our values and our dreams.”
The Romers drove home around 11 P.M. and did the dishes. Christy was still too jazzed to go to sleep. First, she sat at her computer and made a sign for her office door.
It said: Yes We Did.
— FIVE —
Ready Before Day One
In private moments during his campaign, Obama liked to quote the last line of The Candidate, when the political newcomer played by Robert Redford, dazed after his improbable victory, wondered: “What do we do now?”
Obama’s point was that he didn’t intend to be that guy.
He ran for president with no executive experience beyond editing the Harvard Law Review, but even his detractors had to admit his own improbable campaign was a well-run operation—disciplined, cohesive, eyes-on-the-prize. And even after the Wall Street implosion, when he was joking about throwing the election to McCain, he always exuded confidence about leading the cleanup. TARP was a dry run for his presidency, and he felt more comfortable digging into policy issues than he had ever felt working rope lines. He spent so much time grilling economists that one asked him: Shouldn’t you be campaigning?
Obama’s first post-election move, picking the frenetic, volcanic, in-your-face Rahm Emanuel as his chief of staff, signaled an abrupt shift from the hopey-changey poetry of the campaign to the nuts-and-bolts prose of governing.93 Rahm—who was always known as Rahm, like a Bono or Madonna of the political world—was not a poetry guy. He was a profanity guy, a by-any-means-necessary guy, a former Clinton White House henchman who had masterminded the Democratic takeover of the House in 2006—and had once mailed a dead fish to a pollster who irked him.94 The New York Times noted with dry understatement that he was not “considered a practitioner of the ‘new politics’ that Mr. Obama promised on the campaign trail to bring Republicans and Democrats together.” Uh, no. Rahm agreed with Obama about the dysfunction of Washington—he called the city “Fucknutsville”—but he wasn’t interested in trying to change the game. He was interested in winning. Two and a half years later, during his own transition as Chicago’s mayor-elect, I asked Rahm what he had thought of Obama’s lofty rhetoric about changing Washington.
“Look, I don’t really know,” he said with a smirk. “I come from Chicago.”
Rahm was a different breed of Chicago pol, as confrontational and pushy as Obama was conciliatory and cool; Obama once deadpanned that the childhood accident that left Rahm with only half a middle finger had “rendered him practically mute.” He was a perpetual motion machine, always churning, always yapping, the opposite of No Drama. Many Republicans saw him as a diabolical figure, and so did many liberals; he had always espoused a muscular centrism, bashing heads for Clinton on the NAFTA free trade agreement, winning back the House by recruiting culturally conservative Democrats. His critique of the party—too wine-track, too goo-goo, too effete—echoed common critiques of Obama. But Obama wanted a consigliere who filled in some of his gaps, and Rahm knew how to make stuff happen. His hiring sent a message that Obama intended to get stuff done.
The president-elect was walking into “a giant shitstorm,” as Rahm put it, and no matter what he had said about reinventing politics, he had to save the economy first. “You were brushing up against whatever thin line there was between where a recession ends and a depression begins,” Rahm says. Demand was plummeting like Wile E. Coyote clutching an anvil. New home sales were the lowest in half a century, and foreclosures were spreading like Ebola. General Motors, America’s most iconic company, was flirting with bankruptcy. AIG needed another bailout after losing $24 billion in the third quarter, and was on its way to blowing an incomprehensible $66 billion in the fourth quarter. To add to the warm welcome, the Dow shed another 1,000 points during Obama’s first two days as president-elect, its worst tumble since the 1987 crash. The next day, the October jobs report revealed that unemployment had jumped from 6.1 percent to 6.5 percent.
“These reports don’t get much worse than a loss of 240,000 jobs in a single month,” the Wall Street Journal noted.95
Oh, they would soon. Even the October report would later be revised to reflect an actual loss of 500,000 jobs.
That afternoon, Obama held his first news conference as president-elect, best remembered for his quip that he might get Sasha and Malia a “mutt like me.”96 Mostly, though, his tone was sober, as if he had just been named CEO of a bankrupt firm: “We’re facing the greatest economic challenge of our lifetime, and we’re going to have to act swiftly to resolve it.” He vowed that a stimulus package would be “the first thing I get done.” But he also served notice that the short-term crisis wouldn’t shelve his long-term agenda, that change was more urgent than ever: “We cannot afford to wait on the key priorities I identified during the campaign, including clean energy, health care, education and tax relief for middle-class families.”
It was the same audacity, minus the poetry.
Another Defining Moment
FDR had to wait four months after his landslide to assume the presidency, at a time his aides feared there might be a revolution first. As Jonathan Alter chronicled in The Defining Moment, Hoover tried desperately throughout the interregnum to rope Roosevelt into bipartisan cooperation, but FDR steadfastly refused to co-sign any of his policies.97 He wanted a clean break from the past.
Obama read The Defining Moment during his own intense transition—the first during a freefall since FDR’s, the first during wartime since Nixon’s. His limbo period would only last two and a half months, but he didn’t intend to repeat Roosevelt’s leave-no-fingerprints, take-no-ownership gamesmanship. Obama had already embraced TARP, even though he knew he’d end up sharing blame for the bailout. The Big Three automakers loomed as another pre-inaugural morass, especially after their CEOs arrived in Washington on three private jets to beg for taxpayer aid. But Obama resisted the temptation to remain silent and let Bush own the choice between another bailout and the possible obliteration of a vital industry. Instead, Obama publicly pushed to save the automaker, further muddying his break with the past.
Bush also took a responsible approach to the transition; unlike Hoover, he ordered his administration to cooperate with his successor. But it was an awkward situation. While Obama was the center of attention, Bush was the leader of the free world. As Obama kept saying, there could only be one president at a time. And there clearly wouldn’t be another stimulus as long as Bush was that president. One Bush aide recalls Pelosi pleading for a relief package, arguing that families were lining up at soup kitchens. “Madame Speaker, I wouldn’t be doing my job if I didn’t tell you that Republicans have a different view on stimulating the economy,” the aide told her. Pelosi asked what he meant. “Most Republicans want to extend the Bush tax cuts,” he explained.
“That’s what got us into this mess!” Pelosi yelled.
But Obama couldn’t wait to start crafting a recovery package until January 20. Rahm wanted him to sign a recovery package on January 20. Even though he hadn’t chosen a team yet, and didn’t have the federal bureaucracy at his disposal yet, the work had to start now. Campaign aides who had gone months without a decent night’s sleep had to start designing complex legislation that would help define Obama’s legacy. Clinton had boasted she’d be ready to govern on Day One in the White House; it was now clear that would be much too late.
“We were all so emotionally and physically exhausted,” recalls Dan Pfeiffer, the transition’s communications director. “You run a marathon, you feel like total zombie, and then you have to do an all-out 800-yard sprint.”
Presidential transitions are usu
ally glorified job fairs, but Obama’s became a frantic policymaking exercise. The team had just a few weeks to figure out how to spend a few hundred billion dollars.
“People talk about walk-and-chew-gum moments,” says Melody Barnes, Obama’s top domestic policy adviser. “This was a walk-and-chew-gum-and-touch-your-nose-and-spin-around-and-do-a-backflip moment.”
Jason Furman, who had coauthored that “If, When, How” stimulus report for Brookings in January, was assigned to run point on a stimulus plan for Obama the day after the election. If and When were no longer serious questions. Now the question was How to stop the bleeding, and How to craft a package that Congress could pass while there was still time to save the patient.
At thirty-eight, Furman understood the interplay of policy and politics as well as any graybeard economist. He was the guy who knew all the Medicaid formulas, and also the guy who knew which senators wanted to tweak them. As a teenager, he had handed out leaflets for Walter Mondale’s 1984 presidential campaign in Greenwich Village; his parents, a real estate magnate and a child psychologist, were prominent Democratic activists and donors in Manhattan. Two decades later, after a stint in the Clinton White House, he had overseen economic policy for Kerry’s 2004 campaign, before doing the same job for Obama. Some liberals were leery of his ties to Bob Rubin and Larry Summers, and rivals mocked him as Larry’s pet. But he was infinitely more collegial than Summers, and no one doubted his candlepower. He was the kind of savant who would work a fourteen-hour day in the White House, then post a literary review on Facebook at night: “This is the best book I’ve read on Cleopatra in the last year. Yes, there was one other.”
Furman had one week to convert Jack Lew’s overview of stimulus options into preliminary recommendations for Obama. He had help from colleagues on the transition team, but there was no treasury secretary or budget director to offer guidance, no NEC or CEA head, no “principals,” in Washington parlance. Questions that would help determine the fate of the economy and the Obama presidency were starting to be answered, even though Rahm was the only senior staffer in place.
The first question was the size of the stimulus. The transition team put the question to a range of economists—partly to pick their brains, partly to push them to float big numbers in the press, so Obama’s big numbers wouldn’t create as much sticker shock. “We were trying to expand the realm of what was possible,” Furman recalls. Everyone surveyed from left to right—except for Republican Greg Mankiw, a Bush CEA chair who had been Furman’s adviser at Harvard—wanted Obama to go big to fill the gap in demand. A few liberals were thinking astronomically big. At coffee with Furman, University of Texas economist Jamie Galbraith, son of the New Dealer John Kenneth Galbraith, floated $900 billion just for the first year. Nobel laureate Joseph Stiglitz, Furman’s former boss at the World Bank, would soon propose $1 trillion over two years.98 Rahm also reached out to Paul Krugman, who thought the economy needed at least $600 billion in Year One. “You really, really don’t want to lowball this,” Krugman wrote on his blog.99
In November, though, those numbers were still outliers. Furman’s eleven-page Confidential Discussion Draft for Obama recommended a “notional package” of $335 billion, which still seemed plenty big.100 It was almost double Obama’s campaign proposal of a few weeks earlier, and over three times the size of a stimulus bill that Senate Democrats would roll out a few weeks later. It was more than the annual budgets of the Departments of Transportation, Education, Energy, Agriculture, Justice, Interior, Labor, Housing and Urban Development, Homeland Security, and Veterans Affairs combined. At the time, 387 predominantly liberal economists—many of whom later attacked Obama for skimping on stimulus—were signing a letter urging Congress to “move quickly and decisively” to pass a stimulus bill in the $300–$400 billion range.101 Furman had already stretched the normal definition of “timely” from one year to two, since this wasn’t a normal downturn, but he thought it would be tough to spend more than that in an effective way.
The big question was how to spend it. Unemployment benefits, food stamps, and other aid to vulnerable families would be no-brainers, acing the three-T test while providing about $50 billion to people in need. Furman’s PowerPoint also included $80 billion worth of aid to states, to prevent fifty gubernatorial mini-Hoovers from undermining Obama’s stimulus with drastic layoffs and other anti-stimulus.
The draft also allotted $70 billion for a one-year Making Work Pay rebate. Conventional wisdom held that the Bush stimulus checks had failed to stimulate anything. And panicky consumers were now even more likely to save extra cash or pay down debt. Even purchases of imported goods would “leak” out of the country, limiting their economic oomph. But when Furman analyzed the data, he thought the Bush rebates had a decent impact on consumer spending, before they were overwhelmed by the economic tsunami. Tax cuts were also a speedy way to get cash into circulation, with potential for bipartisan support. Anyway, as Rahm pointed out, Making Work Pay was a campaign promise. “We’re checking that fucking box,” he declared.
That added up to $200 billion worth of three-T stimulus. Then what? Well, it made sense to fund things that deserved funding anyway. This was Rahm’s Rule: Never waste a crisis. “Look for ‘win-wins’—targeted, temporary measures that lay foundation for long-term agenda,” the draft said. “Stimulus as down payment on long-term goals.” Obama had done lots of talking about clean energy, health care, education, and infrastructure. Now he could do lots of spending.
So Furman added $20 billion for health information technology and $25 billion to renovate schools, although he did warn that both investments could create the “appearance of throwing everything into stimulus plan.” He included $30 billion for roads and bridges, which would advance Obama’s infrastructure goals while building support among congressional asphalt lovers. He lifted the final $60 billion from a “Green Stimulus” memo compiled by Carol Browner’s energy and environment team, proposing win-wins like home weatherization, mass transit, energy efficiency grants to state and local governments, and the smart grid.102
“Suddenly, the funding we had struggled so mightily to get in small quantities was going to be available in huge quantities,” recalls the green team’s Dan Reicher, an assistant energy secretary under Clinton. “It was very exciting. And daunting.”
The proposals had not really been vetted yet. For example, the green team’s impractical plan to install a smart meter in every U.S. home would be scaled back in later drafts. The team’s exorbitant initial estimate of shovel-ready transit projects, cribbed from an advocacy group, was also ratcheted down after actual transit agencies weighed in. “The whole exercise felt weird,” one team member recalls. “Someone would make a single phone call, and suddenly it’s, ‘All righty. Put a billion dollars over there.’”
But Browner, a former Senate aide to Al Gore, had dreamed for decades about serious clean-energy investments. And Obama had said he didn’t intend to wait any longer.
On November 12, the shadow economic team reconvened for the last time in Chicago, to meet with Obama and “hand off” to his new advisers. The budget guru Bob Greenstein came bearing especially bad news: State tax revenues were crashing.103 A few weeks earlier, he had projected $100 billion in state budget shortfalls. Before the briefing, he told Furman the gaps now exceeded $200 billion. That didn’t even include local government deficits, which were also spiraling out of control. Furman was about to present his stimulus recommendations to Obama, and they already seemed out of date. After the president-elect entered the drab conference room in his transition offices, Furman asked Greenstein to repeat the chilling numbers.
“Obama was impressed—in a way he didn’t want to be impressed,” Greenstein recalls.
The next two hours continued in that vein, a roundup of ugh, oof, and yuck. Jack Lew had never spent time with Obama before, and while he was impressed by the president-elect’s crisp sense of command, the probing tell-me-more’s interspersed with brusque I-know-that’s, he most
ly felt sorry for him.
“It wasn’t the meeting you would have chosen to start things off,” Lew recalls. “There wasn’t a lot of: ‘Hey, don’t worry, it might get better on its own.’”
Obama emphasized that while short-term calamity avoidance was his top priority, he expected action on his long-term goals. Throughout the stimulus debate, there would be a tension between speed and change, between shoveling money out the door quickly to save the economy and investing money thoughtfully to transform the country. Zipping cash to taxpayers or states or existing programs through existing formulas is always easier than trying something new. And given the spending appetites on the Hill, Furman noted, “including anything beyond clearly defined short-term spending in a stimulus plan opens the floodgates.” But it’s hard to shake up the status quo through existing programs, and Obama told his team he didn’t want to hire unemployed workers to dig holes and fill them back in.
“The economists were giving us the advice they should have been giving us, which is the quicker you get this out, the more rapidly it gets into the bloodstream, the better it is for the economy,” Biden says. “But our view was that this is also an opportunity to begin—it’s a corny-sounding phrase—but literally to begin to lay the planks for a platform that can get us to the next place.”
Obama also began to focus on another long-term issue: the solvency of the country. In his presentation, Greenstein forecast a deficit of $1.2 trillion, a chilling 8 percent of GDP. That would need to drop to about 3 percent to stabilize the nation’s debt-to-GDP ratio; when Greenstein started to explain the concept, the president-elect cut him off, saying he understood it all too well. In his presentation, Furman did not recommend offsets or triggers for the stimulus, because it needed to pass in a hurry, but he did suggest that it should be presented in tandem with a “strategy to return to long-term fiscal discipline.” Transition cochair Ted Kaufman, who had been Biden’s Senate chief of staff and would soon inherit his seat, was struck by the intense concern in the room about unsustainable deficits.
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