The New New Deal (57 page)

“The Democratic Party has become the party of pure
logos
, and the Republicans are the party of pure
mythos
,” says Perriello, using the terms for reason and imagination from ancient Greek philosophy—which, come to think of it, probably proves his point. “We think we can just tell people something once, and the facts will tell the story. They understand that you have to repeat your message over and over again: socialism, socialism, socialism. Factually, it’s ridiculous. But it works.”

The wave election produced the usual recriminations, with centrist Democrats blaming Obama’s liberalism, liberal Democrats blaming Obama’s centrism, and everyone agreeing that the gifted wordsmith who had unspooled such a poetic narrative about his candidacy had failed to tell a coherent story about his presidency. He had stepped on his economic message by flitting around from issue to issue, tarnished his aura of change by cutting backroom deals, and allowed his agenda to be defined by the calculus of sixty votes in the Senate. He needed to be more populist in a populist moment, more combative at a time of all-out political warfare. He had failed to make a forceful case for climate action. He had undermined the case for Keynesian economics, and even echoed the Republican fantasy that spending cuts were an appropriate economic antidote to hard times. He had failed to change the nasty, vapid, ultra-partisan culture of Washington.

There is some truth to all these critiques. But it was never clear how better messaging or a sharper focus on jobs or a more (or less) confrontational attitude toward Republicans would have produced better political results in a battered economy. The academic literature on presidential persuasion suggests that the bully pulpit is vastly overrated. That’s especially true in such a polarized political climate; Obama could have devoted more time to explaining, say, Keynesian economics, but that only would have made a large swath of the country hate it more. Even if he changed it or condensed it, they’d be against it.

In any case, politicians are supposed to try to win elections so that they can govern, not the reverse. And Obama had been pretty busy governing during his first two years. Perhaps his message had suffered, but he had gotten an awful lot done.

And his first two years weren’t quite over yet.

A
t the White House, change was already in motion.

Peter Orszag, tired of infighting, quit during Recovery Summer. Christy Romer, still enamored of Obama but increasingly frustrated with Washington, returned to Berkeley in the fall. Larry Summers, having fulfilled his prophecy that making colleagues feel validated would not be his forte, was about to go back to Harvard, leaving Tim Geithner the only principal from the original economic team. David Axelrod, the guardian of Obama’s message, would soon depart for the reelection campaign; Robert Gibbs, Obama’s spokesman, was on his way out, too. And Rahm Emanuel, the screaming, schmoozing, fuck-you-ing force that made the White House go, had left the building to run for mayor of Chicago. The West Wing felt oddly quiet as it mourned the shellacking.

The president wasn’t much of a mourner. The day after the election, he surprised his morose staff with a list of big things he expected to achieve during the lame-duck congressional session. It would be the last chance for Democrats to move legislation before Republicans seized the House, so he wanted to repeal the “Don’t Ask Don’t Tell” policy that
barred gays and lesbians from serving openly in the military, and pass the DREAM Act to grant residency to illegal immigrants who came to America as kids. He also wanted the Senate to ratify his New START nuclear arms reduction treaty with Russia. And with the jobless rate hovering near double digits, he hoped to extend unemployment benefits and other Recovery Act programs that were about to expire, injecting more of the S-word into the slack economy. His staff thought his to-do list was borderline delusional.

Before he did anything else, Obama would have to deal with the Bush tax cuts.
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They were scheduled to expire on December 31, the final party favor in the Bush gift bag. And McConnell was vowing to paralyze the Senate until they were all extended.

As a candidate, Obama had promised to repeal the Bush tax cuts that solely benefited the top income brackets. But as president, he had repeatedly kicked that can down the road. Economically, tax hikes are anti-stimulus, although less so when skewed toward the rich. And politically, many Democrats were terrified to discuss tax hikes during a recession—or any other time. Ideally, the White House would have preferred to extend Bush’s middle-class tax cuts, which were popular and decent stimulus, while repealing the high-end tax cuts, which were unpopular and weak stimulus. But vulnerable Democrats simply didn’t want to discuss the issue before the midterms. The attack ads about tax-and-spend liberals would have written themselves.

After the election, Obama had to stop kicking the can and decide what to do. Republicans were holding the middle-class tax cuts hostage to try to force him to extend the upper-income tax cuts, and their leverage would only increase once Boehner became speaker. So the president had only two real options. He could let all the Bush tax cuts expire, which would violate his pledge not to raise middle-class taxes, and possibly trigger a double-dip recession. Or he could cut a deal to continue Bush’s regressive policies, and see what he could get in return. The left itched for a new fight over tax cuts for Richie Rich, but Obama was happy to have that fight in 2012. He had just gotten annihilated in his last fight; he was eager to remind independent voters that he was a
reasonable man. And with the Recovery Act starting to peter out and the recovery sputtering, he hoped to give the engine more gas.

To broker the deal, Obama turned to his most experienced Washington hand, his only adviser who had a working relationship with McConnell: the vice president. Biden was still a Senate man at heart—he called it “the greatest institution man has ever created”—and he was still the son of a salesman. He and McConnell didn’t agree on much, but they were both rational politicians, and Biden sensed there was a deal to be had. The basic framework would have to be Obama accepting two more years of the Bush tax cuts, a political victory for Republicans, and McConnell agreeing to extend unemployment benefits and a host of tax cuts for the poor and the middle class, a substantive victory for Democrats. McConnell agreed with the general thrust, but Republicans were viscerally opposed to extending anything in the Recovery Act. They still saw “refundable” tax cuts for the working poor as glorified welfare for lucky duckies. And if Obama was submitting a wish list, then Republicans wanted a huge reduction in estate taxes for the heirs of multimillionaires.

Obama and his aides found these priorities offensive, but they figured it was more important to help ordinary people than to stop Republicans from helping rich people. Unemployment was way too high to walk away from a significant stimulus deal out of pique over goodies for the wealthy. Biden finally told McConnell: We’ll do your stuff, but you have to do our stuff, including the “refundables.”

As staffers hashed out the details, the main sticking point was the allergic Republican reaction to the Recovery Act. GOP aides even objected to extending bipartisan technical fixes that had been tacked onto the stimulus as a matter of convenience. “It was crazy: If it was in the Recovery Act, they had to fight it,” Furman recalls. Republicans flatly refused to continue the wildly popular Build America Bonds, which had begun as a bipartisan proposal, and had expanded to one fifth of the municipal bond market in two years. They also refused to extend the advanced manufacturing tax credit, which had helped finance 183 factories producing clean-energy components, as well as the cash-in-lieu-of-tax-credits
for clean-energy projects, which had kept the wind and solar industries afloat after the financial crisis. Gene Sperling, who would soon replace Summers at the National Economic Council, half jokingly asked if they would also oppose the annual relief from the Alternative Minimum Tax, since it was now tainted by the stimulus.

The White House did take advantage of the Republican jihad against Recovery Act provisions to swap the Making Work Pay tax cuts for a one-year payroll tax cut, the policy it had kept in its back pocket since the summer. The substitution let Republicans claim the scalp of a signature Obama initiative, but the alternative was quite similar to Making Work Pay, and the White House preferred it. It would inject more stimulus in a form the public would be more likely to notice. And Republicans would probably agree to extend it in 2011 to avoid a tax hike, so it could inject even more stimulus down the road.

The initial media coverage focused on Obama’s policy retreat, but the deal provided over $300 billion in new stimulus, while preventing the anti-stimulus of tax hikes. After the Recovery Act, $300 billion sounded a bit piddly, but it was bigger in real dollars or as a slice of GDP than any New Deal initiative.

“There was nothing accidental about that,” Biden boasted to me later. “We needed another stimulus!”

The deal gave high earners another windfall, but over two thirds of its benefits went to ordinary families and small businesses. And most of those benefits came from Recovery Act extensions that the Republicans eventually agreed to swallow. In addition to the payroll tax cut and unemployment benefits, the deal extended the Recovery Act’s expansions of tax credits for children, college tuition, and the working poor through 2012. It also extended incentives for firms to buy equipment, along with another year of alternative minimum relief. And at the last minute, Reid told McConnell the deal wouldn’t fly without the renewable-energy cash grants, so those got a one-year extension as well.

What’s more, the deal kept the Senate open for business, allowing the Democratic Congress to repeal Don’t Ask Don’t Tell, one of the most significant civil rights advances since the civil rights era. The Senate
also ratified Obama’s nuclear treaty, which never would have happened in 2011. The DREAM immigration bill fell short of sixty votes, but the lame-duck session was far more productive than anyone except Obama expected.

As usual, most progressive activists greeted this historic string of progressive achievements with contempt. Obama had caved to Republicans, breaking his promises and betraying his supporters. He had made the Bush tax cuts his own, and approved an estate tax giveaway that Bush couldn’t even get when Republicans ran Washington. And he had rewarded hostage takers, which would only invite more hostage taking. At a private post-election meeting of top Democratic funders and activists, the billionaire George Soros said it was time for the left to start recruiting a new presidential candidate for 2012, someone who wouldn’t take liberals for granted and suck up to conservatives.

“We’ve been given the opportunity to govern, and we’re failing,” Soros said.

Seriously? Even the conservative pundit Charles Krauthammer credited Obama with pulling off “the swindle of the year.”
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Obama had come to view liberal activists as the kind of people who would yell at Lassie for tracking mud on the carpet after saving the kid from the well. They wanted a fight? They just had a fight, and Democrats had gotten crushed.

Around this time, Obama met with some of his left-leaning economic critics, including Robert Reich, Joseph Stiglitz, and Paul Krugman. “You guys are the last Keynesians left,” he cracked. Everyone laughed uncomfortably. Obama had just gotten a dozen stitches in his lip after getting elbowed playing hoops, and he quipped that he didn’t feel nearly as wounded as he felt when he read Krugman. The columnist seemed genuinely pleased to hear he had irritated the president. For the most part, the meeting felt like a waste of time. The liberals all wanted new stimulus, but they were horrified by this particular new stimulus. They also wanted Obama to stop talking about deficit reduction and fiscal restraint, which would have been an odd political response to the Republican triumphs of November. “Within the political constraints,”
Obama asked, “what do you think I can do?” Yes, he had ransomed another hostage, because the hostage was the American people. He understood the value of a good fight, but he wasn’t interested in letting utopian fantasies become the enemy of good policy.

“If that’s the standard by which we’re measuring success, let’s face it, we’ll never get anything done,” Obama said at a news conference the next day.
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“People will have the satisfaction of having a purist position and no victories for the American people. And we’ll be able to feel good about ourselves and sanctimonious about how pure our intentions are and how tough we are.”

A
fter the shellacking, the Obama administration didn’t even wait for Scott Walker and John Kasich to take office in Wisconsin and Ohio before taking away their high-speed rail money. The two newly elected Republican governors had made it perfectly clear they planned to shut down their projects, so Secretary LaHood beat them to the punch, redirecting $1.2 billion to the other first-round winners. That meant another cash infusion for Florida, where Governor-elect Rick Scott had been less than perfectly clear about his plans for the Tampa–Orlando bullet train, and California, where Governor Schwarzenegger wrote a teasing thank-you note to his friend Kasich.

“I told John: Thanks for your fiscal responsibility!” Schwarzenegger recalls.

For the White House, it was an annoying episode. Granted, the 3-C plan to start rail service from scratch in Ohio had been a stretch, but the Milwaukee–Madison line had real promise, as a stand-alone route and as a link toward Chicago–Minneapolis. The good news was that the reshuffling seemed likely to salvage Obama’s showcase project in Florida, since Scott had said his main concern was the potential drain on state finances. Now the feds were covering 90 percent of the cost of the Tampa–Orlando line, and several multinational firms hoping to
build and run it indicated that they’d be willing to cover the rest—and would even absorb any risk of operating losses. Ron Klain told me in late 2010 that he expected high-speed rail to work politically for Obama in 2012, when thousands of workers would be laying tracks for the Sunshine State bullet train.