The New New Deal

by Grunwald, Michael

  Obama raised an eyebrow. “Not just wrong, but oh, so wrong?”

  In his early White House speeches, Obama had tried to explain counterintuitive Keynesian concepts like the need for public spending when private spending dried up.351 But he hadn’t persuaded the public, and he had mostly stopped trying. He reminded his economic team that he was a pretty good communicator, and his stimulus message hadn’t gotten through at all. He was learning, as presidents usually do, that the bully pulpit doesn’t come with magical powers to change minds.352 The professor-in-chief wasn’t inclined to deliver more edifying macroeconomic lectures that would drag down his popularity and decrease his chances of getting the rest of his agenda through Congress.

  “Look, I get the Keynesian thing,” he said. “But it’s not where the electorate is.”

  It wasn’t where Congress was, either. Moderate Democrats did not want to take another big-spending vote, especially if anything that could be attacked as “stimulus” was involved. “Nobody on the Hill would go near it, because the politics were so bad,” Pfeiffer recalls. The problem boiled down to three words: Enough is enough. Romer found the situation intensely frustrating. Eighteen months earlier, the vague prospect of 6.5 percent unemployment had seemed so terrifying that President Bush, Speaker Pelosi, and Leader Boehner had worked together to jam stimulus through Congress. Now the nation yearned for the halcyon days of 6.5 percent, Democrats controlled Washington, and a second stimulus wasn’t even worth discussing?

  “There just wasn’t any appetite,” Gibbs says. “It wasn’t like we had a meeting and said: Hey, should we do more? It was just: No. We’d have conversations, but they’d last ten seconds. Can we get it done? No. End of conversation.”

  Romer still tried to advocate for more stimulus at every opportunity, eventually prompting Obama into a rare flash of temper during a meeting that fall. “Enough!” the president shouted. “It’s not going to happen!”

  Substantively, the Recovery Act seemed to be doing exactly what it was supposed to do. “The accumulation of hard data and real-life experience has allowed dispassionate analysts to reach a consensus that the stimulus package, messy as it is, is working,” the New York Times reported.353 But politically, “stimulus” was a dirty word. Even Democrats who wanted a second stimulus were joining the chorus trashing the first: not big enough, not focused enough, not creating enough jobs. The criticisms recalled the old joke about the bad restaurant whose portions were too small.

  Biden finally called House majority leader Steny Hoyer to suggest that “it’s working; we need more of it” would be a much smarter message than “it’s failing; we need more of it.”

  “Joe was right,” Hoyer says. “The Recovery Act was having a real effect. But it was hard to be too upbeat with 10 percent unemployment.”

  Obama’s economic team had earned its reputation for dysfunction.

  Everyone tussled with Summers, who no longer seemed to be controlling his inner Larry now that Obama had reappointed Chairman Bernanke to his dream job. Egregiously miscast as an honest broker, he was a jealous turf warrior, whining about breaches in protocol, limiting access to the president, insisting on first-among-equals status. At times he seemed almost pathologically argumentative, and his meetings often devolved into academic cage fights that made consensus even less likely. Orszag was even less popular among his colleagues, who resented his glowing geek-chic press attention, and thought his I’m-just-the-budget-guy pose masked a self-aggrandizing infighter. There was some Schadenfreude in the West Wing when tabloid gossips discovered that Orszag’s ex-girlfriend had his “secret love child” just before he got engaged to another woman. “It was all so high school,” says one administration economist. “I could never understand why these people were at each other’s throats.” Orszag later told me he never felt like himself inside the White House: “When everyone else in the sandbox is throwing mud, you start to say: Okay, this is how it’s gonna be? Bring it on!” The team’s incessant bickering and on-the-other-hand one-upmanship seemed to irritate Obama, whose absentee father, for whatever it’s worth, had been an economist, too.

  Often, the psychodrama was irrelevant background noise. Romer once stormed out of the White House after she felt Summers and Geithner were marginalizing her, but Rahm immediately called to promise that it wouldn’t happen again. When Summers froze Austan Goolsbee out of a key meeting on the auto bailout, Obama summoned him to the Oval Office to make sure his case against rescuing Chrysler got a fair hearing.354 No harm, insignificant fouls. But economists on both sides of the gas-brakes divide believe the team’s dysfunction delayed the White House response to the soft economy during the miserable fall of 2009. The Summers style was to debate new ideas to death—one of his mantras was the Hippocratic oath to do no harm—which created a bias toward inaction. “The process just broke down completely,” says one team member. “People say process doesn’t matter, but jeez. We weren’t that far apart on substance.” Today, everyone on the team says they supported more short-term stimulus coupled with belt-tightening in the out years. But at the time, they couldn’t get on the same page.

  “Most of the time, we managed to work incredibly well together despite some tiffs,” Romer says. “The squabbling that fall was a little more troublesome.”

  For example, when the team searched for new stimulus measures that could pass the timely-targeted-temporary test as well as the political realism test, it kept coming back to the business tax credit for new hires that Obama had proposed in Toledo during the campaign. Romer and her staff worked overtime to build a case for it. Geithner supported it, in part because two of his top aides, Gene Sperling and Alan Krueger, were in love with it. Orszag was fine with it, too. This time, the holdout was Summers. Even though he believed the economy needed more gas to reach “escape velocity,” and his trusted deputy, Jason Furman, was another avid fan of the credit, the born contrarian kept offering objections: Firms were unlikely to hire as long as demand remained slack. Rahm didn’t think Congress would go for anything but new infrastructure. CEOs were saying the tax credit wouldn’t affect their hiring decisions.

  Krueger conducted a quick survey of human resources managers, who suggested the credit would in fact promote hiring. But the debate never seemed to get anywhere.

  “We can’t keep going around in circles here,” the president chastised the team.

  What finally broke the logjam was double-digit unemployment. With speculation starting to build about a jobless recovery, the White House scheduled a jobs summit, which meant it would need to announce some jobs initiatives.355 At the summit, Obama made a pragmatic case for moderate gas now, moderate brake later. “It’s not going to be possible for us to have a huge second stimulus, because, frankly, we just don’t have the money,” he said. But he warned that pivoting too hard toward deficit reduction could trigger a double-dip recession: “If we move too abruptly in that direction … then we’re going to be in a negative spiral.” He even used the car analogy, suggesting that he would love to “press the accelerator in terms of jobs growth,” but that the tricky part would be knowing “when to apply the brakes in the out years.”

  In a speech a few days later at (where else?) Brookings, Obama made his pitch for more gas, outlining several tax cuts and spending ideas, including the hiring credit.356 He also suggested expanding several Recovery Act provisions: capital gains relief for small businesses, tax breaks for green manufacturers, infrastructure projects, and “Cash for Caulkers” tax credits for consumers who weatherized homes. It added up to nearly $200 billion in new stimulus, although no one in the White House dared call it that publicly.

  But Obama’s political team wanted him to use the State of the Union address to pivot to themes of spending restraint.357 There was some debate among the advisers whether voters truly cared about the deficit, or just said they cared as a way of expressing frustration about the economy. Either way, they figured Obama ought to show he cared, too. One internal memo warned that America’
s excitement about change had given way to a “resurgence of jaundice” about Washington. All the public could see was big spending, partisan squabbling, and rising unemployment.

  Meanwhile, even though the jobless rate—that infernal lagging indicator—was still rising, Obama and his economic advisers were growing more confident that their medicine was working. The November jobs report was the best yet, with a loss of only eleven thousand jobs, down 98 percent from Obama’s first month in office. Losing jobs at a dramatically slower rate is not the same thing as putting people back to work, but the trajectory felt promising. Romer hand-delivered the report to the president, and he gave her multiple hugs. “A thrilling moment,” Romer recalls. Privately, Geithner was telling Obama the economy had turned the corner for good. “The deficit hawks thought we were on a path out of the woods,” says one White House economist. “And in his heart, I think the president was a deficit hawk.” Ultimately, the entire economic team signed off on a modest pivot toward austerity in the State of the Union. Even Summers, still a pessimista, figured the president signaling a desire to brake might actually provide political cover for Congress to provide a bit more gas.

  In his speech, Obama proposed a three-year discretionary spending freeze that would start in 2011, which would be almost insignificant to the macroeconomy but sounded austere.358 He also announced he was creating a bipartisan deficit commission by executive order, which would anchor the political debate around budget cutting. (Congress had tried to create the commission through legislation, but McCain and other Republican cosponsors had scuttled it once Obama endorsed it.) The president even echoed the anti-Keynesian rhetoric commonly heard at Republican press events and Tea Party rallies: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

  The left was furious about his call for fiscal retrenchment, and wasn’t appeased by his push for fiscal stimulus. “That was a ruinous moment,” says Bob Borosage, a participant in the White House’s weekly “Common Purpose” meetings with liberal activists. “Right there, he conceded the argument on the economy.” Needless to say, his call for belt-tightening didn’t satisfy conservatives, either. But Obama’s aides figured the sulky reactions had more to do with suffering in the land than anything he said.

  “At the end of the day, unemployment was 10 percent,” Pfeiffer says. “It doesn’t matter if you’re Bill Clinton or Ronald Reagan or Andrew Jackson, there’s no message that’s going to make you popular.”

  It was an odd moment. Polls suggested that Americans wanted stimulus—more road repaving and education funding and unemployment benefits—but they didn’t want “stimulus.” At the same time, they wanted “deficit reduction,” but they didn’t want the actual spending cuts or tax increases that could reduce the deficit. And while economic performance was improving, public approval of Obama’s economic performance kept declining. Obama fatigue even spread to liberal Massachusetts. After Senator Kennedy died, an unknown Republican named Scott Brown won his seat, undoing the filibuster-proof Democratic majority and threatening to upend health care reform just before the finish line. The House and Senate had both passed reform bills, but it was unclear how they’d get a final version to Obama’s desk.

  Brown’s victory didn’t bode well for more stimulus, either. When he was asked about the economy, he declared the first stimulus had failed to create a single job.

  In late January, the president visited the Chesapeake Machine Company in Baltimore to pitch his plan for a $33 billion hiring tax credit.359 After a tour through the noisy belly of the industrial beast, wearing blue protective glasses that looked like wraparound shades, Obama seemed energized by all the sawing and shearing and grinding of heavy equipment being made in America.

  “It’s nice to see a functioning, well-oiled machine,” he bantered. “That’s a nice change of pace from what we see in Washington.”

  Even with undivided government, the legislative process had little in common with an efficient assembly line, except for the grinding and noise. By 2010, it was clear that no matter what happened in the labor market, getting new stimulus through Congress—even business tax breaks that Republicans traditionally supported—would be far tougher than the Obama team had imagined in 2008. If the Recovery Act was the first hint, the battles over health care, cap-and-trade, and the deficit commission left no doubt: If the president was fer it, Republicans would be agin it, even if they were fer it in the past. And Brown’s victory meant Obama would again need at least some Republican support in the Senate. That would further limit his options for jobs bills.

  Even Senate Democrats were divided about stimulus. For months, while Max Baucus was slow-walking his health care negotiations, Byron Dorgan had been a man on fire, telling his colleagues the same thing he told Obama: We’ve got to lead on jobs. In the fall, he and Dick Durbin led a series of brainstorming sessions, trying to unify the caucus around a Democratic jobs agenda. But at the final meeting in January, Baucus of all people showed up to propose a more bipartisan approach. “He basically threw his crowbar into the transmission,” Dorgan says. Soon the caucus had two competing plans. Baucus and other centrists thought the Dorgan plan, heavy on spending, had no hope of sixty votes. Dorgan and other populists thought the Baucus plan, heavy on business tax cuts, was straight out of the trickle-down Republican playbook. Eventually, Majority leader Reid rejected both. He decided the only stimulus measures that could actually pass were a short unemployment insurance extension and an almost unrecognizable version of Obama’s hiring credit, watered down and slimmed down to $13 billion.

  For the White House, it was a letdown. But it was better than nothing.

  Obama’s critics on the left often claim he crippled his presidency by pushing too small a stimulus in early 2009, then failing to follow up with more stimulus in 2010. As one liberal economist puts it, the Recovery Act was Obama’s version of Bush’s “Mission Accomplished” moment in Iraq—and he didn’t even follow up with a surge. But there weren’t sixty votes for an economic surge. And the Republican minority was close to breaking the Senate filibuster record it set in the last congressional session, so legislation that didn’t have sixty votes wasn’t going to make it to Obama’s desk.360

  In fact, one untold story of the 111th Congress is how much stimulus Obama did manage to wring out of that poorly oiled machine. “We never stopped planning and plotting and pushing for jobs bills,” Bernstein says. In a hostile political climate, the president ended up supplementing the Recovery Act with about $200 billion in additional fiscal pop before the 2010 elections.361 So the left got its trillion-dollar stimulus after all.

  It wasn’t an easy lift. For example, Republicans filibustered a state aid bill designed to prevent more teacher layoffs, but a shrunken $23 billion version finally squeaked through the Senate when Snowe and Collins agreed to vote yes. It also took months to finagle two Republican votes for a $42 billion bill to cut taxes and expand credit for small businesses. Voinovich, the decisive vote on the small business bill, could not believe his party was marching in lockstep against “job creators,” even though the bill—like the hiring credit and the state aid—was fully offset over 10 years.

  “I said: What could be more Republican than that? But McConnell was furious with me,” Voinovich says. “Come on. My good Republicans are dying on the vine, the banks are cutting off their credit, and you’re telling me I can’t do this for them? Oh, I didn’t like that. Instead of doing what was right, partisan politics always came first.”

  Senate Republicans even fought Obama’s efforts to extend unemployment benefits for victims of the Great Recession. In late 2009, GOP senators used procedural shenanigans to hold up an extension for a month—and then voted for it unanimously. “You can only categorize that as malicious mischief,” Axelrod says. By mid-2010, even though unemployment was still 9.5 percent, with five times as many job applicants as openings, the Republican strategy had shifted from delay to all-out ob
struction; Snowe and Collins were the only GOP senators to support another extension of unemployment benefits without offsetting cuts, which had never been required for emergency relief. Ben Nelson, the most conservative Democrat, had turned against unemployment insurance as well, so when Robert Byrd died in June, the Democrats could no longer break a filibuster. Two million laid-off workers had their benefits lapse before Byrd’s replacement was appointed.

  The Republican Party’s newfound concern about deficits did not end its push for deficit-exploding tax cuts with no offsets. And it did not translate into a single vote for Obamacare, which the CBO projected would cut the deficit by $1 trillion over two decades. In fact, at the same time Republicans were slamming the president’s leftist plot to create a government health plan, which Obamacare isn’t, they were bashing his heartless cuts to Medicare, which actually is a government health plan. While some Republican positions were consistent with a desire to put the brakes on the deficit, they were all consistent with a desire to put the brakes on the president. The GOP had become the Groucho Marx character in Horse Feathers:

  “Your proposition may be good,

  But let’s have one thing understood,

  Whatever it is, I’m against it.

  And even when you’ve changed it or condensed it,

  I’m against it!”

  Rage on the Right, Whining on the Left

  Bob Bennett was a loyal soldier in McConnell’s army of No. The Utah senator voted against the stimulus, against the omnibus, against Obamacare. Bennett had been just as loyal a soldier in President Bush’s army of Yes.

  But to the Tea Party, that was no longer a point in Bennett’s favor. The Republican base now mocked him as “Bailout Bob,” the turncoat who voted for TARP. And while he was a solid conservative partisan, he wasn’t an angry conservative partisan. He was pals with Biden, and described Obama as “misguided” rather than “socialist.” He didn’t seem to realize the Constitution was under assault. One leading Utah Republican told him: Bob, we want to see passion. At the state Republican convention, he tried to explain to the mad-as-hell grass roots that TARP had prevented a catastrophe, that the banks were paying back the money with interest.