The New New Deal (18 page)

In general, Obama’s economists were less interested in replicating the iconic programs of the New Deal than producing timely, targeted, and temporary stimulus. They recognized that delaying some spending until 2010 and even 2011 could be a feature, not a bug, avoiding an abrupt contraction when the stimulus ran out. But they believed short-term need-to-do’s should trump long-term nice-to-do’s.

“The farther you were from being an economist, the more you were into the transformational and inspirational stuff,” Orszag recalls.

O
bama was no economist. He wanted a moon mission, a program that would convey a sense of historic significance while producing tangible results. “We were searching for something big and aspirational but also substantively beneficial,” Biden says. Obama thought the smart grid could be that something, a twenty-first-century version of the interstates or the Internet, this time connecting Americans with digital meters (the smart part) and high-voltage wires (the grid part). “We said:
‘God, wouldn’t it be wonderful?’” Biden recalls. “‘Why don’t we invest $100 billion?’”

During a break to celebrate Orszag’s fortieth birthday, Obama found out it was also Carol Browner’s fifty-third. He didn’t have another cake, so he told his new energy and climate czar she could have a smart grid.
¹³⁵

“Let’s just go build it!” he declared.

Browner shared Obama’s enthusiasm about the smart grid. She was eager to see new transmission wires carry the wind of the Dakotas to the people of Chicago. But just go build it? Um … no. She explained that the feds didn’t need to build wires. Utilities could do that, and had money to do that. The holdup was that siting high-voltage wires had become a maze of red tape, requiring approval from hundreds of zoning boards and other regulators, not to mention entire states that would derive no benefits from the lines slicing through their borders. This was not a problem that could be solved in a stimulus time frame.

“I’m sorry, sir,” Browner said. “We wouldn’t be able to spend the money.”

Obama would not drop the issue. “Let me worry about the politics,” he said. “There’s got to be more we can do.” Biden piled on, telling Browner to stop dwelling on problems and start talking about solutions—as if that would make the problems go away. At one point, Obama and Biden suggested they could personally persuade state and local officials to drop their not-in-my-backyard concerns.

Orszag tried to imagine the president of the United States calling hundreds of mayors to beg for right-of-ways through their towns.

“There was this sense of frustration. Here’s the first African American president, the economy has fallen off a cliff, history is calling, and really? I can’t just do a smart grid?” Orszag recalls. “He really wanted a moon shot, and these seemed like such mundane reasons not to go big. But Carol said no, this is reality.”

Ultimately, Browner was right. The grid was not the interstate highway system. It didn’t make sense for government to try to take it over. And a smart grid will require much more than meters and wires: It’s a complex merger of modern information technology that distributes 1’s
and 0’s with aging infrastructure that distributes electrons. It’s going to be a lot harder to build than Skyline Drive.

But Obama was right, too. His people could do more to accelerate the modernization of the grid—and by harping on the issue, he made sure they did. Some of their ideas would die on the Hill, like a plan to pay states to accelerate transmission projects, and an elaborate scheme to subsidize oversized lines. But some of their ideas would end up in the Recovery Act, like matching grants for smart grid projects, and new transmission lines for federal power agencies.

“It’s not sexy stuff, but it’s how you start changing the energy world,” Browner says.

W
hen Obama’s aides recall December 16, they often marvel how little political considerations intruded on the technocratic discussion, for better and for worse. The political team attended along with the policy wonks—in Rahm-speak, Tammany Hall as well as the Aspen Institute—but Obama made it clear he believed that if he got the policy right, the politics would take care of itself. Obama often bristled when aides offered political analysis during policy debates, and it felt especially un-cool during a crisis. Axelrod compares the atmosphere to a MASH unit; the focus was triage. “When people start throwing around phrases like ‘Great Depression,’ it changes the nature of the discussion,” he says. “It’s not a political discussion. It’s a national emergency discussion. When the house is on fire, you put out the fire.” Politics was in the room, but it rarely got much traction.

For example, Rahm thought state aid was political insanity. When Obama had visited the National Governors Association in Philadelphia in early December, conservative Republicans like Mark Sanford of South Carolina, Haley Barbour of Mississippi, and Rick Perry of Texas had insisted they didn’t even want federal cash. Why help them balance their budgets without pain, so they’d look like heroes when they ran against Obama in 2012? Now Illinois governor Rod Blagojevich had been arrested for trying to sell Obama’s Senate seat. Why bail out these jokers? In the post-TARP anti-bailout climate, even Democratic governors
were reluctant to admit they needed aid. In Philadelphia, only Ted Strickland of Ohio had dared to ask Obama publicly to help states avoid drastic cuts in health care and education. “I said, would any governors express a similar view?” Strickland recalls. “It was pretty quiet.”

The problem was, state budgets really were in flames, whether the governors admitted it or not. The budget guru Bob Greenstein would soon ratchet up his estimate of state shortfalls yet again, this time to over $350 billion, a 350 percent spike in six dizzying weeks.
¹³⁶
California’s bonds carried a higher risk premium than Mexico’s. Thirty governors were already balancing budgets with Hoover-style austerity; in Nevada, Jim Gibbons was trying to slash the state workforce, cut funding for textbooks in half, and eliminate vision care for uninsured children. Ultimately, Obama approved his economic team’s proposal to seek a stunning $200 billion in state aid, putting substance before politics.

Still, some of Obama’s substance-first policies now seem politically daft. The most damaging was his decision to dribble out the Making Work Pay tax cuts through reduced federal withholding, instead of sending out fat rebate checks that would let people know he had cut their taxes. In the end, most Americans would get an extra $16 per week slipped into their paychecks, but polls would find that fewer than 10 percent of them were aware of the largest middle-class tax cut in a generation.
¹³⁷

Incredibly, that was the point. Studies in “behavioral economics” have shown that we’re more likely to save money when it arrives in a big chunk. When we receive the same windfall without noticing it, we’re more likely to spend it without thinking. So Summers and the rest of the economic team argued for leaking out the tax cuts without fanfare, to mainline more cash into the economic bloodstream. Or as Rahm later described the strategy: “The geniuses on the economic team wanted the money dripped out so nobody fricking saw it.”

Behavioral economics had become trendy in the wake of best-sellers like
Freakonomics, Animal Spirits
, and
Nudge
.
¹³⁸
And its central challenge to laissez-faire theories—its recognition that real-world human beings are not as economically rational and free markets are not as perfectly
efficient as neoclassical models assumed—seemed especially potent after the financial implosion. Most of Obama’s economists had done some behavioral work, and Summers had once begun a paper with the ultimate takedown of rational-actor assumptions: “There are idiots. Look around.” Really, using science to produce change was the essence of Obamaism. The president-elect had read
Nudge
—coauthored by his friend Cass Sunstein, who would oversee regulation at his OMB—and designing tax cuts not to be noticed was a classic policy nudge to encourage desirable behavior, in this case, spending.

Politically, though, when you give people a tax cut, you want them to notice it and appreciate it and remember it. This felt like sending flowers to a romantic interest without signing the note. Rahm argued that “we’re denying ourselves an Ed McMahon moment,” the grateful squeal of Publishers Clearinghouse pleasure that would greet an envelope arriving from Obama. As Axelrod puts it, “our political imperatives conflicted with our responsibility to get this economy moving again.”

Obama decided the economic imperatives came first.

“The
economists
thought it was important to do it
their
way,” Rahm told me. “The president correctly sided with them on policy grounds.” His rolling eyes and gritted teeth did not suggest a deep belief that Obama had in fact decided correctly.

But Obama’s aides weren’t even sure the political imperatives were clear-cut. The Bush stimulus rebates had been a political dud; replicating them felt dumb as well as false to the Obama brand. Also, Democrats had criticized Bush for spending tens of millions of dollars on letters announcing his rebates, so a publicity campaign calling attention to Obama’s rebates might look hypocritical.
¹³⁹
Deputy budget director Rob Nabors, who had been Obey’s staff director on House Appropriations, remembered how Democrats had ridiculed “Bush’s PR money.”

Months later, when Republicans were blasting Obama as a tax hiker even as Americans were receiving his tax cuts, Nabors mused to colleagues: Maybe we should’ve included our own PR money.

“The political theory was if you do the right thing, and you get results, that’s good politics,” Klain reminisced later. “There was an ethos
that policy came first, and in this case the politics seemed like a close call.” Then he winced.

“In retrospect, it just seems stupid.”

Hindsight always provides an unobstructed view. But even at the time, Klain thought the entire discussion felt “a little Alice in Wonderland-ish.” That night, he called his fellow Clinton White House alumnus Gene Sperling, and said he had just attended the strangest meeting of his career.

“In the Clinton years, we had a surplus, and we’d have knock-down drag-out battles over $20 million for an education program,” he later recalled. “Now Peter’s saying we’ve got a trillion-dollar deficit, and the president is berating the policy people for saying they’re not spending enough money!” Klain is an ardent defender of the Recovery Act’s substance, but he thinks December 16 should have raised a red flag about the politics. “If we thought it was odd that we were struggling to find ways to spend more money, it probably shouldn’t have surprised us that the American people would find it odd, too,” he says.

Axelrod never expected the stimulus itself to be so unpopular. But December 16 was a holy-shit moment for him, too. After the meeting, he told Obama he already knew three things about the next two years: Our poll numbers aren’t going to stay this high for long. All of us geniuses are going to start looking like idiots. And we’re going to have a brutal midterm election.

“We didn’t create this problem, but we’ll be held accountable for it,” Axelrod told the president-elect.

I
f politics is the art of the possible, Schiliro felt like he was about to explore a new realm. Six weeks to get $800 billion seemed insane. And Obama had decreed that the stimulus would have no congressional earmarks, which had always been used as catnip to build support for controversial bills, giving lawmakers something they could brag about
bringing home. Passing something this unimaginably big this unimaginably fast through a pork-free process, Schiliro thought, would be like driving a convertible through a car wash without getting wet.

“Things that would normally take a month had to get done in two days,” he says.

There wasn’t a minute to waste. After the Chicago meeting finally broke up, Obama’s advisers rode the El to the airport, and began devising strategy in the back of a crowded train. Schiliro, Furman, and Nabors discussed what they would say the next morning when they briefed Congress about the stimulus. Geithner, Summers, and Romer huddled nearby.

“No one else on the train has any idea who these clowns are, and they’re plotting economic policy,” Nabors recalls. “I’m like, ‘The treasury secretary just called me over to the corner of an El to figure out what should be in the Recovery Act.’ That’s when I knew this was a pretty remarkable thing we were trying to do.”

A
s it prepared to defy the laws of legislative gravity, the Obama team could at least draw on a wealth of congressional experience. The president-elect may have campaigned as an outsider, but he stocked his administration with Capitol Hill insiders.

Of course, Obama and Biden both came from the Senate, and while Obama had barely located the bathrooms before launching his presidential campaign, Biden had spent thirty-six years in the institution. (Obama once joked with him: “Look, you were a senator. I was never a senator.”) Clinton, Daschle, and Interior Secretary Ken Salazar were also former senators, while Emanuel, Solis, and LaHood came directly from the House. Orszag, surprisingly political for a numbers geek, had been the congressional budget watchdog. Obama’s White House staff was also teeming with former legislative aides, including Carol Browner; Ron Klain; Rob Nabors; senior adviser Pete Rouse, known as “the 101st senator” when he worked for Daschle; Domestic Policy Council head Melody Barnes, a longtime Ted Kennedy aide; and Jim Messina, who was like a son to Senate Finance chairman Max Baucus of Montana.
Schiliro’s boss of twenty-five years, Henry Waxman of California, had just taken over the House Energy and Commerce Committee. Obama’s people would not have to introduce themselves to the key players on Capitol Hill.

Obama could also take heart in the new balance of power there. Pelosi and Reid were both strong allies; Reid had privately encouraged him to take on Hillary, and Pelosi had been secretly pleased when he did. Now Democrats had gained twenty-one seats for a commanding 257–178 advantage in the House, where the hyper-partisan, majority-rules culture would assure Pelosi tremendous power to move legislation. “They didn’t even have to ask us to turn the lights on,” says Republican congressman Mike Rogers of Michigan. Democrats had also picked up seven seats in the Senate for a 58–41 lead, with comedian Al Franken hoping to claim an eighth in a Minnesota recount. The Senate had a less majoritarian ethic, and Reid remained short of the sixty votes he needed to block united Republican filibusters. But every vote counted, and Reid wanted all the allies he could get.