“There were charts up on the wall, and it was like, ‘Oh my God, where are we going?’” Kaufman recalls.
Over the next few years, Republicans would argue that Obama didn’t care about deficits. Liberals would argue that Obama cared too much about deficits and not enough about stimulus, accusing his team of overlearning the balanced budget lessons of the Clinton era. But even before the team was in place, Obama cared a lot about deficits. He always assumed that once the recovery was in bloom, he’d pivot from short-term fiscal expansion to long-term fiscal sustainability. From the start, his transition team scrubbed stimulus proposals to avoid “tails,” spending that would continue after the stimulus was over. Obama made a point of warning agency leaders not to try to slip their one-time windfalls into their annual budget baselines.
Still, short-run deficit reduction would have been anti-stimulus. The team agreed its first priority had to be a massive and immediate injection of deficit-expanding stimulus. Defeat or even delay would be economically disastrous, rattling fragile markets, accelerating the death spiral, and ultimately growing the deficit. As Rahm argued, it could also be politically disastrous, fueling an early narrative about the new gang that can’t shoot straight. He believed in “putting points on the board,” using political capital to produce victories that would build more political capital, demonstrating power by exercising power. Success would beget success, and the same was true of failure.
“We can’t fuck this up,” he said.
A Team of Centrists
A week later, one hundred executives converged on Washington for the Wall Street Journal’s CEO Council, an exclusive conference designed to tease out the business community’s policy agenda. The council’s number-one priority: fiscal stimulus.104 Republicans were already attacking Democratic stimulus desires as liberalism run amok; as Boehner put it, “more Washington spending isn’t the answer.” But the CEOs wanted more Washington spending, calling for a package exceeding $300 billion, featuring infrastructure, clean energy, education, and state aid. In other words, a package like the one the Obama team was preparing. In a crisis, that didn’t seem like socialism to America’s top capitalists.
Larry Summers, a candidate for his old job of treasury secretary, was again thinking bigger. In a panel discussion, he noted that some analysts were calling for $500–$700 billion worth of stimulus—and everyone knew that when Summers noted the opinions of others without shredding them, he was probably stating a Summers opinion he wasn’t supposed to share publicly. He even suggested his timely-targeted-temporary stimulus test no longer made as much sense as it had in January, considering the utter disappearance of demand.
“I would go for speedy, substantial and sustained,” he said. “I think we’re going to need some impetus for the economy for two to three years.”
Summers didn’t get the Treasury job. Obama gave it to Tim Geithner, another Summers protégé. Geithner had been immersed in the financial crisis at the New York Fed, and while Obama had no problem with Clinton administration retreads—his anti-Hillary arguments about Change trumping Experience no longer seemed to apply—he preferred not to return them to the same positions. He wanted his team to look at least somewhat like Change. Geithner was a fresh face—an unnervingly boyish face to those who liked their treasury secretaries silver-haired—who was two weeks younger than Obama, and had bonded with him over their experiences living abroad as kids. Geithner’s low-key, down-to-earth persona also meshed with Obama’s no-drama ethic. Summers had, well, a different persona. It wasn’t just that Larry didn’t suffer fools gladly. It was that his idea of a fool could encompass almost anyone who wasn’t Larry. The son of two Ivy League economists and nephew of two Nobel laureate economists, he had enrolled at MIT at sixteen and received tenure at Harvard at twenty-eight. He had always been the smartest boy in the room, and had never stopped proving it. He was a born alienator, a college debate star who was still on the lookout for stupid arguments to dismantle.
But Obama wanted Summers around. He really was as brilliant as he thought he was, even if he didn’t always know as much about topics outside his areas of expertise as he thought he did. He had been ahead of the curve during this crisis, and in his last stint at Treasury he had helped resolve crises in Mexico, Russia, and Asia. The concerns about his interpersonal skills that might have carried more weight in normal times seemed less relevant on the brink of Armageddon.
“Obama felt like we were in war mode, and he needed the best people, period,” transition-chief John Podesta recalls.
Obama envisioned Summers as an adviser without management portfolio, the kind of White House position that Henry Kissinger once suggested should be assigned to him on a permanent basis. But Summers insisted that if he was going to accept a staff job, he wanted to run the National Economic Council, the “honest broker” role that was expected to go to the friendlier Jack Lew. That way he’d get his own staff, and a gatekeeper status he could use to control the policymaking process. “I mean, honest broker?” says one transition official. “That’s not exactly Larry.” Summers was a fighter, not a referee, and he even warned Obama that making colleagues feel validated was not his forte. One economist recalls that after reviewing one of his memos during the shadow transition, Summers urged him to make one option sound less attractive, the opposite of honest brokering.
“When I heard they gave him NEC, I remember thinking: Whoa,” the economist told me. “Strange choice.”
Those were strange times. Anyway, Obama felt comfortable with technocratic elites like Summers and Geithner. He was one of them. He also felt comfortable with their brand of market-oriented centrism. It was another thing they had in common.
Obama was offering an early answer to the burning question in Washington: Would he govern from the left or the center? GOP leaders and conservative pundits were laying down markers, arguing that if Obama was really a moderate, he needed to devote some of his stimulus to tax cuts; back off his promise to undo the Bush tax cuts for the rich; ditch another pledge to pass “card-check” legislation that would make it easier to form unions; and surround himself with middle-of-the-road advisers.105 Rush Limbaugh and Fox News were warning their audiences that Obama would soon show his far-left colors, reinstating the Fairness Doctrine to get liberals equal airtime, cracking down on gun owners, and conceding defeat in Iraq. By choosing Summers and Geithner to lead his team, the president-elect was telling the political and financial markets that he lined up with the Rubin wing of the Democratic Party. Washington Post columnist David Ignatius declared Obama’s fledgling administration “so centrist it almost resembles a government of national unity.” Even Bush political guru Karl Rove wrote that Obama’s personnel choices “provided surprisingly positive clarity.”
Summers had helped deregulate the financial system in the 1990s. Geithner had spent the last year saving bankers from their own excesses. These were not granola hippies; in a populist moment, they were downright hostile to populism. Both were close Rubin allies, as was Obama’s new Office of Management and Budget director, Peter Orszag, a deficit hawk who had helped Rubin launch the centrist Hamilton Project before moving to CBO. So were Jason Furman, who became a deputy to Summers, Gene Sperling, a former NEC head who agreed to help Geithner at Treasury, and Jack Lew, a former OMB director who went to work for Hillary Clinton at the State Department. As the New York Times reported, “a virtual Rubin constellation is taking shape.”106 To disappointed liberals, it was only fitting that on the morning Obama announced his economic team, Bush announced that he was bailing out Rubin’s Citigroup.
“Those guys were so closely associated with pro-bank policies,” Joseph Stiglitz says. “You had to ask: Why would Obama want them in a crisis like this?”
To some Obama loyalists, the new team looked disappointingly like a third Clinton administration. The joke circulating among campaign staff was that Obama supporters got a president, while Hillary supporters got the jobs.
“We knew all the Rubin pe
ople would be bad optics,” Podesta says. “But at a moment of crisis, Obama wasn’t dwelling on that.”
The main exception to all the Clinton-era recycling was the Council of Economic Advisers, the in-house White House think tank that became an outpost for “Obama people.” Christy Romer, who had danced in the streets on election night, was chosen to lead it. She was a well-respected economic historian whose expertise in the Depression could not have been timelier, and Obama needed a woman on his team. But she had no experience in government or politics. “She was never going to win a bureaucratic knife fight with Larry,” one transition aide says. Austan Goolsbee, the economist closest to Obama, could not understand why the Clinton crowd was vacuuming up all the top jobs, but the president-elect persuaded him to serve on the CEA as well. As a consolation prize, Goolsbee was also assigned to manage a new advisory board chaired by his mentor, Paul Volcker, the former Fed chairman famous for taming inflation, but the board never had much influence.
“When Austan got hosed, a lot of us were like: Hey! What’s happening to change we can believe in?” a campaign staffer recalls.
The team’s only traditional liberal was Biden’s chief economist, Jared Bernstein of the union-funded Economic Policy Institute, a New Age wonk who had studied double bass at the Manhattan School of Music, then had earned degrees in social work and philosophy. He had a mellow, good-energy vibe, but he wasn’t perceived as a heavyweight who could counter Summers or Geithner. Obama’s labor secretary, California congresswoman Hilda Solis, was also a staunch progressive, but it was clear she wouldn’t be part of the economic team.
Starting early in the transition, the Obama team seemed to go out of its way to accommodate Republican demands, signaling that it would put card-check on hold, include significant tax cuts in the stimulus, and keep the Bush tax cuts for the rich during the downturn. Obama’s plans to seize guns and impose the Fairness Doctrine existed only in the fevered imagination of the right. But when it came to Main Street stimulus, Obama’s team sounded a lot like traditional liberals.
“I don’t know what the exact number is, but it’s going to be a big number,” Goolsbee declared in a TV interview.107 “We’re out with the dithering, in with a bang.”
Of course, even the CEOs at the Wall Street Journal conference had sounded like liberals when it came to stimulus. But Summers kept warning that the dangers were all on the side of doing too little, not too much. By the time those 387 progressive economists sent their letter urging a $300–$400 billion package, his $500–$700 billion trial balloon was already appearing in news stories as Obama’s preferred policy.
“We knew this had to be big, but we didn’t comprehend just how big before Larry got deeply involved,” Furman says.
Christy Romer, the incoming CEA chair, felt even stronger about the need to go big. And when she was summoned to meet the president-elect for the first time in Chicago, she found out that he was on the same page.
Romer’s first meeting with Obama has entered the realm of myth, but she remembers it vividly. She was waiting nervously in the Chicago transition offices to talk to him about the CEA job, finishing a last-minute comb of her hair, when she heard that familiar baritone: “Dr. Romer, so nice to meet you.” The president-elect shook her hand warmly, then ushered her into another office; she was flattered he had come out to greet her, rather than send an assistant to fetch her. Obama began their chat by remarking that there wasn’t much more the Fed could do to inject monetary stimulus into the economy. Romer bluntly responded that he was wrong. Even though the Fed was about to lower its key interest rate as close as it could go to zero, there were still ways it could help juice the economy.
This innocuous exchange among eggheads later sparked an odd sexism controversy, after journalist Ron Suskind wrote in his best-seller Confidence Men that “before exchanging hellos or even shaking hands,” the president-elect tried to deliver a “zinger,” saying monetary policy had “shot its wad.”108 Suskind used this “salty, sexual language” as his Exhibit A demonstrating that “the president didn’t have particularly strong women skills.” But Romer is positive that Obama never said those words to her, even after exchanging hellos and shaking hands; she used them to Suskind, paraphrasing the president-elect. She says Obama was courteous and professional, and she remembers that day as one of the most thrilling of her career. She found the entire kerfuffle surreal.
What Romer remembers most about that discussion was Obama’s laser focus on fiscal stimulus, and his interest in the lessons of the New Deal. Romer’s academic work had emphasized how FDR’s expansionary monetary policy of taking the United States off the gold standard had helped breathe life into a moribund economy. But like most scholars of the era, she also believed that FDR’s expansionary fiscal policy had helped boost growth during his first term, and that his premature shift to austerity in 1937 had throttled the recovery. She saw two problems with FDR’s fiscal stimulus: It was too small, and he abandoned it too quickly. “One of my early themes was that sheer size matters,” Romer says. In the current crisis, even though she rejected the conventional wisdom that the Fed was out of ammunition, she thought the crisis was so grave that Congress desperately needed to act as well.
“I think we need a very large fiscal stimulus,” she said. Obama agreed.
Romer and Obama also agreed that part of Roosevelt’s genius was the way his own jaunty confidence had helped restore national confidence. Romer said it was hard to measure the effect of FDR’s forceful promises to fight the Depression like a foreign invader, but they had an effect. By contrast, Hoover’s passivity had left Americans feeling like no one was looking out for them, and Romer thought history was repeating itself. Where was Bush? She was glad Washington was stabilizing the banks, but who was stabilizing the rest of the economy?
Time’s new cover, headlined “The New New Deal,” had depicted Obama with FDR’s trademark cigarette holder and pince-nez, and he was thinking a lot about the bond Roosevelt had forged with ordinary Americans through his speeches and fireside chats. Obama hoped to start a similar conversation with the public. He wouldn’t tell Americans they had nothing to fear except fear itself, because that wasn’t true. He lacked FDR’s talent for BS. But he thought that by projecting competence and determination, by assuring the country that he was on the case and developing appropriate policies, he might be able to help soothe some anxieties.
On November 24, Obama pitched his new New Deal at his news conference to introduce his economic team, trying to project Rooseveltian resolve.109 “If we do not act swiftly and boldly, most experts now believe we could lose millions of jobs next year. … We cannot hesitate and we cannot delay.” Obama refused to put a specific price tag on the stimulus, but pledged to “do what’s required to jolt this economy back into shape.” At the urging of Rahm, who was convinced the stimulus would need a jobs number to get traction on the Hill, he did lay out a specific goal of creating or preserving 2.5 million jobs. He also committed to use the recovery effort to attack the nation’s energy, health care, education, and infrastructure problems, “to lay the groundwork for long-term sustained economic growth.”
At times, Obama sounded more like a pundit than a leader, talking about the importance of restoring confidence instead of just doing it. He seemed grim, not jaunty, and he kept undercutting his message of revival with caveats about the slog ahead—partly because he didn’t want to sugarcoat a nasty situation, partly because David Axelrod worried that inflating expectations now could create a backlash down the road. “I want to repeat, this will not be easy,” Obama said. “There are no shortcuts or quick fixes.” His exhortations about long-term investments also seemed to undercut his urgent message about short-term jobs. And the next day, Obama blurred his call for fiscal stimulus by preaching fiscal restraint. “There’s no doubt that we’ve been living beyond our means, and we’re going to have to make adjustments,” he said.
Obama had a real public relations challenge. He didn’t want to depres
s confidence. He didn’t want to promote irrational exuberance, either. He needed to project forcefulness but not profligacy. Like FDR, he was about to replace an unpopular president who was leaving the economy in shambles, but unlike FDR, he would take office before Americans really felt the pain. There were no Hoovervilles, no Dust Bowl. As the Reagan speechwriter Peggy Noonan wrote in the Wall Street Journal, everything still looked the same: “It’s as if the news is full of floods but we haven’t seen it rain.”110 Obama aides used a similar metaphor: The tidal wave was in motion, but it hadn’t hit the shore.
That time lag could create major political headaches. Sure, Obama was buying low, but was he buying low enough? Summers mused that FDR was lucky; the country had already suffered through three years of depression under Hoover before he took over. Everyone understood that it was Hoover’s depression.
“That’s probably true,” Romer earnestly replied. “But I’m so glad Obama is here. Maybe this time we won’t have to suffer so long.”
Two-Part Messages
The November jobs report made the October report look like a ray of sunshine. Over 500,000 jobs had evaporated, the worst monthly decline since 1974. “The economy is unraveling so fast as to defy analysis through the usual statistical methods,” the Washington Post reported.111 Ordinarily sober analysts used phrases like “shockingly weak,” “indescribably terrible,” and “God-awful.”
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