The New New Deal (14 page)

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.
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“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.

O
n 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.
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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 mostly 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.

“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
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.
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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.
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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.”
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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 people 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.