“The recession has entered a new phase, pulling away from an economic abyss into a period of steep but orderly decline,” the Washington Post reported.296
Hooray! A steep but orderly decline!
Well, it beat the abyss.
Inside the White House, nagging fears that at any minute a bank collapse or foreign crisis or market hiccup could plunge the economy back into Lehman-style chaos did subside. But it was hard to get too excited after a month when enough Americans to fill seven Yankee Stadiums had received pink slips. Candidate Obama had not promised “steep but orderly decline,” and 9.4 percent unemployment would’ve been tough to explain even if his economists hadn’t predicted the stimulus would keep the rate below 8 percent. Lagging indicator or not, the jobless rate was a PR nightmare, and public support for the president’s handling of the economy started to droop. The White House was still talking about saving or creating 3 or even 4 million jobs with the stimulus, but over 6 million had been lost since the start of the recession. Republicans now had a stock response to anything Obama said or did: Where are the jobs? Boehner released a YouTube video of a bloodhound named Ellie Mae searching for stimulus jobs around the country. “She hasn’t found any yet, and neither have the American people,” Boehner said.297
“By any objective standard, this has been a failure,” McConnell sniped.298
By any objective standard, this was baloney. As Romer pointed out, if your doctor gives you an antibiotic for strep throat, and then your fever spikes anyway, it doesn’t mean that antibiotics are useless. It means you were probably even sicker than you thought—and it’s a good thing you started the antibiotics when you did.
“Fiscal stimulus is a well-tested antibiotic, not some new-fangled gene therapy,” she said in a speech.299 “The economic theory of how tax cuts and increases in government spending can help counteract a recession is almost as widely accepted as any in economics—practically up there with supply and demand.”
Absolutely right. Impeccable logic. On the other hand: nine-point-four percent! Even some White House officials thought they were overplaying a losing stimulus hand.
“It’s fucking irrelevant to be talking about how many jobs you’re creating when the economy is shedding so many more,” one Obama adviser grumbles.
On June 8, Jared Bernstein learned this the hard way during his Recovery Act update for the White House press corps, a half hour of vultures feasting on roadkill.300 Bernstein suggested the stimulus had already saved or created 150,000 jobs, but it was too early for him to specify how many saved and how many created, or catalogue what kind of jobs, or provide any supporting data other than the original Romer-Bernstein forecast—the forecast that had wildly underestimated the jobless rate. And 150,000 jobs sounded anemic when forty times that many had vanished.
“With hindsight, what we did was throw raw meat to wild dogs—and then ask them politely to step back while we explain,” Bernstein recalls.
After Robert Gibbs finally intervened to stop the feeding frenzy, reminding the media the stimulus wasn’t designed to fix the economy overnight, he endured a half hour pummeling of his own. “Do you think there’s a danger here of a credibility deficit developing on the issue of the economy?” one reporter asked. As McConnell aide Don Stewart watched Bernstein stammering about “confidence intervals,” Gibbs spinning about “the best available data that we had,” and the press piling on about “saved or created,” he kept thinking: We’re winning.
“The press smelled blood, and ate ’em alive,” Stewart chortles.
Some Obama aides saw this as the inevitable result of a flawed messaging strategy, a shortsighted focus on jobs—saved, created, green, direct, indirect, whatever. Jobs bills are expected to add jobs, and the best Obama could hope for while Americans were forming their opinions of the Recovery Act would be to lose jobs at a slower rate. “We set ourselves up for surefire failure,” one aide says. In private, Biden also argued the message was too jobs-centric, too much about “numbering jobs” at a time when the numbers were unavoidably dismal. He didn’t expect the White House to get much credit for averting a depression once the depression was averted.
“The inclination is: ‘See? You were wrong. There wasn’t a depression,’” Biden says. He suggests that while Obama’s young Ivy Leaguers might have expected gratitude for their Keynesian heroics, “I have some sense of human nature.”
Other Obama aides and allies thought his message should have been even more jobs-centric. Rahm liked to joke that Obama’s big mistake was passing the Recovery Act too quickly; if he had dragged it out, there might have been a depression, but at least the country would have seen him focused on the economy. Oprah wasn’t the only American who forgot that he tackled the economy first, before the political conversation shifted to health care. When times were this tough, talking about anything but jobs-jobs-jobs made the president look detached.
In June, Obama’s shift in focus contributed to an underappreciated blunder, his decision to scuttle a $450 billion, six-year transportation bill that could have helped revive the construction industry. Transportation Committee chairman Jim Oberstar had waited his entire career for this moment, and he had bipartisan support for his blueprint. It would have financed some of the more ambitious long-term projects that were bypassed during the stimulus because they weren’t shovel-ready. But hours before Oberstar’s press conference to unveil the bill, Secretary LaHood informed him the White House wouldn’t support it. “Poor Jim,” says his Republican counterpart, John Mica. “I’ve never seen him that mad.” Obama’s political team didn’t think the president had enough time or political bandwidth to deal with another huge spending bill while health care was heating up, especially since Oberstar hoped to raise gas taxes. The White House had a rare opportunity to work out a compromise; congressmen love concrete, and the six-year funding stream would have given contractors more confidence to make permanent hires. But after reading a memo about Oberstar’s plan, Obama wrote “No”—and underlined it.301 Oberstar went on the warpath, seething that White House economists who had never held a shovel in their delicate hands couldn’t understand the anxieties of unemployed workers, or even the frustrations of commuters stuck in traffic.
“I suggest that those highfalutin economists get out of their chauffeured limousines and get on the street and drive like the rest of America,” he complained.
That summer, as health care bogged down and the Tea Party caught fire, the prairie populist Byron Dorgan of North Dakota visited the Oval Office to beg Obama to focus full-time on the economy.
“If I had been elected president,” Senator Dorgan said, “I’d want people to know one thing and one thing only: That I was spending every waking moment focused on putting people back to work and getting the economy moving again.” Obama reminded Dorgan he had promised to reform health care during the campaign. “Yes, and then the bottom fell out,” Dorgan said. “We’re sitting in a much deeper hole, and you’re still trying to reach just as high.”
The White House did schedule frequent events about jobs. For example, when Boehner scoffed on Fox News that in Ohio, not one Recovery Act infrastructure contract had been awarded, Biden promptly visited his district to show that over fifty transportation projects were under way in the Buckeye State.302 Obama then used his weekly address to chide critics who “are already judging the effort a failure although they have yet to offer a plausible alternative.”303 But at times it felt like he doth protest too much. If he was so focused on the economy, why was it so weak? If he cared so much about jobs, why were they disappearing? And whenever he made the elephant-in-the-room observation that Bush had gifted him a calamity, critics tsk-tsked about his un-presidential finger-pointing.
“I know voters in Ohio, just like voters in my state, are beginning to understand this economy is owned by Barack Obama,” Eric Cantor said the day of Biden’s visit.304
House Republicans were amazed by how often the White House took their bait, elevating attacks th
at would have been ignored without a presidential response. On July 14, in the battered auto town of Warren, Michigan, Obama veered off his text to swallow Cantor’s bait hook, line, and sinker. “I love these folks who helped get us into this mess and then suddenly say, ‘Well, this is Obama’s economy,’” he said. “That’s fine: Give it to me. My job is to solve problems, not to stand on the sidelines and carp and gripe.”
Back in Washington, Republicans could not believe their good luck. Obama was already taking ownership of the Bush economy?
“I remember when he did it,” says one Cantor aide. “We were like: Heyyyyyy!”
Better Economics, Worse Politics
Actually, the stimulus was working.
Bernstein didn’t have the evidence to prove it yet when he ventured into that hostile briefing room, but the Recovery Act’s medicine was already stabilizing the patient. After plunging another 6.4 percent in the first quarter, GDP only dipped 1.0 percent in the second quarter, the second-biggest improvement in twenty-five years. The second-quarter jobs numbers, while still grim, were the biggest improvement in almost thirty years. Economists later calculated that the Great Recession ended in June 2009, “just when the Recovery Act was providing its maximum benefit to the economy,” notes Mark Zandi, the former McCain adviser from Moody’s.305 Google searches for “economic depression,” which had spiked over the last year, were returning to normal levels.
The Recovery Act didn’t end the recession by itself. TARP stopped the financial meltdown, and Obama’s stress tests helped restore confidence in the banking system. His auto rescue provided vital anti-anti-stimulus by bringing GM and Chrysler back from the dead, preventing the collapse of the industrial Midwest. The White House also goosed demand for cars by reviving its Cash for Clunkers idea, ginning up 700,000 purchases in two months; the program’s initial funding ran out in a week, so Congress raided $2 billion from the Recovery Act’s clean-energy loans to keep it going. And Bernanke helped save the global economy with his aggressive improvisations, loaning trillions of dollars to hedge funds, investment banks, manufacturers, and other borrowers who had never dreamed of receiving Fed cash.306
But the data told a powerful story of how the Recovery Act was pulling the economy out of the ditch.307 State and local government spending that had plummeted for months increased 3.6 percent in the second quarter, after the aid to states helped governors cancel layoffs and cuts. The states that got the most aid lost the fewest jobs, and outside government, the sectors with the biggest improvements were the sectors targeted by the stimulus. Globally, countries that enacted larger stimulus packages had better economic results than countries with more modest ones.
“If you study the data and look at the timeline, there’s no question the Recovery Act saved us from something much, much worse,” Zandi says.
Unfortunately for Obama, the American people were not studying the data or looking at the timeline. The economy was getting better. His poll numbers were getting worse. His policies were working. His politics weren’t. And his opponents, whatever they lacked in credibility, had an unmuddled message: Big government is bad.
“What can you sell when you do not have the White House, the House or the Senate?” a Republican National Committee staffer wrote in an internal strategy document.308 “Save the country from trending towards Socialism!”
Maybe Obama had inherited a mess, but it was his mess now.
For example, his overhaul of the auto industry would become a stunning success, minimizing taxpayer losses, avoiding the erasure of countless jobs, and restoring the Big Three to profitability. But at the time, the intervention was a political drag. Republicans accused Obama of engineering a Soviet-style assault on free enterprise, bailing out his union pals, and creating a doomed Government Motors. While he got little credit for the meltdown that didn’t happen, he was savaged for the inevitable layoffs at the restructured firms, and the downsizing of politically connected car dealers.
“It’s a classic avoided problem,” says Ron Bloom, an investment banker and union adviser who cochaired Obama’s auto task force. “We were preventing a disaster that would have had multigenerational impacts. But the reaction was: Why are you cutting jobs?”
Health reform and cap-and-trade—Obamacare and cap-and-tax, to Republicans—further inflamed the Tea Party. Obama’s health bill was modeled on Governor Romney’s reforms in Massachusetts, and cap-and-trade was a market-based energy policy the McCain-Palin ticket had supported. But the grassroots right came to see them as evidence of Obama’s insatiable desire to dismantle capitalism. Even beyond the Tea Party, polls suggested that Americans were skittish about government rearranging two of the nation’s largest private industries during tough times. The Republican drumbeat about fictitious “death panels” and “$3,000 energy taxes” did not soothe their anxieties.
Obama let Democrats in Congress take the lead on both issues, and they didn’t do him any political favors. Senator Baucus tried desperately to negotiate a health care deal with his pal Grassley, resisting Rahm’s pressure to end the futile talks until Grassley publicly accused the president of trying to “pull the plug on Grandma.” It was, Axelrod says, “like waiting for Godot.” At the White House, Obama asked Grassley point-blank whether he would support the bill if Democrats gave him everything he wanted; Grassley said no, unless ten other Republicans agreed to vote with him.309 In other words: No. In fairness to Baucus, he felt he had to go to extremes to show good faith toward the Republicans, because the same centrist Democrats who had helped keep the stimulus under $800 billion did not want to support partisan health reforms.
Meanwhile, still irked by the way the Senate had rolled the House on the Recovery Act, Pelosi rammed through a cap-and-trade bill that had no chance in the Senate, despite Rahm’s pleas to wait until there was a real chance of getting something done. Many Democrats were furious about taking a hard vote for no apparent reason. And the handful of Republicans who voted yes were furiously denounced as traitors by their base, which would make them think twice about crossing the aisle in the future. Americans for Tax Reform founder Grover Norquist, Washington’s most influential antigovernment activist, says Republican lawmakers learned during that Tea Party summer that their core constituency did not want them to work together with a Euro-socialist president. The base wanted knife fighters, not “collaborators.”
“You could make a list of guys who thought their job was to cut the best deal that they could,” Norquist says. “Then they’d go home and find out their voters wouldn’t be pleased. They’d be pissed.”
The Recovery Act remained at the heart of the case against Obama as a spread-the-wealth big-government radical. Inside the conservative echo chamber, Porkulus was all about dubious-sounding projects like a $3.4 million “Turtle Tunnel” designed to prevent wildlife from getting squashed on a Florida highway, along with made-up scandals like a $1.19 million purchase of two pounds of ham.310 (It was really 760,000 pounds of ham in two-pound packages, a cost-effective way to get food to the hungry, but the Drudge Report led with it anyway.) A former health care CEO named Rick Scott, whose firm had engineered the largest Medicare fraud in history, bankrolled ads claiming an “innocent-sounding board” created by the Recovery Act to oversee comparative effectiveness investments was “the first step in government control over your health care choices.” For the Tea Party, the stimulus was the ultimate symbol of Obama’s reckless deficit spending, even though he had inherited the record deficit. The rallies were full of signs like “Stimulus: The Audacity of Dopes” and “Hey, Barack, Go Stimulate Yourself!”
By the summer’s end, independent analysts like Macroeconomic Advisers, Goldman Sachs, and Moody’s all agreed the stimulus had added at least 2 percent to GDP.311 And the administration had fulfilled all of its pledges for the Recovery Act’s first two hundred days: saving 135,000 education jobs, funding 200,000 summer youth jobs, starting work on 2,200 highways, 500 military facilities, and 100 national parks.312 In the soft econ
omy, bids were routinely coming in under budget; the FAA was using its savings to fund another 60 airport projects. Things were in motion. A Buffalo veterans hospital was building a state-of-the-art hospice wing. Families in the Tar Creek mining region of northwest Oklahoma, where the lead-poisoned creek dyed turtles orange and lead-poisoned children struggled in school, were relocated through a stimulus-funded Superfund project. And the paychecks of 120 million working Americans earning less than $200,000 were a bit fatter.
But these short-term benefits didn’t register with the public, not when the jobs numbers were still negative. And the long-term benefits at the heart of Obamaism weren’t visible yet. One poll found that 45 percent of Americans wanted to cancel the stimulus and return its unspent funds to the Treasury; only 36 percent wanted it to continue.313 Biden wrote a New York Times op-ed titled “What You Might Not Know About the Recovery,” bemoaning how the stimulus “remains misunderstood by many and misconstrued by others.” In politics, when you’re explaining, you’re losing. In a speech at Brookings, Biden tried to remind his audience just how awful things had been when Obama was sworn in, how every day “there was a new revelation to be added to the economic parade of horribles.” He recounted the headlines from February: “Automakers Bankruptcy Looms.” “Credit Freeze Leaves Thousands of Student Borrowers Stuck in Default.” “Governments Brace for Hard Times.” “Newly Poor Swell Lines of Food Banks.”
“It’s hard to remember, even though it’s only been eight months,” Biden said.
Inside the White House, Ron Klain pushed for Obama to attend stimulus events to help revive the Recovery Act’s popularity. (Other aides wanted to keep Obama away from stimulus events to protect his own popularity.) One day, Rahm felt an urge to put the president in front of workers in hard hats; the best excuse the Transportation Department could come up with was a celebration of its two thousandth stimulus project. An initial plan to bring the president to the Baltimore airport raised logistical problems, so the event ended up in a department briefing room, a dispiriting place to discuss a lane widening in Kalamazoo.314 When the event was over, Obama told his staff: “This is bullshit.”
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