The sophisticated political observer doesn't need public opinion polls to weigh the odds of President Obama's re-election. Economic indicators drive voters, and if the president and his party come up short in November, the recriminations won't be aimed at campaign headquarters in Chicago but at the staffers and wonks tasked with turning around the American economy.
The Escape Artists: How Obama's Team Fumbled the Recovery, provides just that opportunity. Noam Scheiber, an editor at The New Republic, susses out the Obama administration's most important internal debates to find exactly where the supposed dream team of economic wonks failed.
As a fair account of opportunities missed, the book is exceptional. As an explanation of our current economic woes, it suffers from a perhaps unavoidable bias: A book so focused on the actions inside the Treasury building and White House can't help but elide the factors that pop up outside the policymaking bubble.
Those factors, including key decisions made in the Federal Reserve and Congress, were more than just foils for the squabbling experts at 1600 Pennsylvania Avenue; they influenced the course of the economy themselves and constrained the president's ability to act.
Scheiber's deeply reported narrative follows the debates of those three crucial years with care, and will in many cases confirm the worst of what progressives suspected about the Obama administration's coziness with investment banks and distracting focus on deficit-reduction. It will not do much to confirm the worst conservative suspicions, given the wide gap between visions of socialism and the resolutely mainstream advisers who struggled to think outside the box as they confronted the worst economic disaster of their lifetimes.
The central actors in this book are painted with the subtlety each deserves: Lawrence Summers, the original right-hand man to living symbol of Wall Street Robert Rubin; and Gary Gensler, a Goldman Sachs banker who as a Clinton administration official abetted financial deregulation, both turned out to be advocates, if not always successful ones, for more progressive economic policy. Tim Geithner, the life-long civil servant that the Prospect's Bob Kuttner endorsed for Treasury Secretary in the fall of 2008, managed to stabilize the financial system but failed to apply the same doctrine of overwhelming force to heal the economy at large. Peter Orszag, who exemplified the youthful and wonky technocracy of the Obama administration, is painted as a tragic figure whose potential was undone by his inability to let go of an obsession with the deficit.
The book spends a good deal of time on the two touchstones of the Monday morning economic policy quarterback. First, the size of the stimulus: Scheiber reveals that Christina Romer, the Berkley macroeconomist whose views about the need for more stimulus were blocked by an team of deficit-nervous economic and political advisers, originally estimated a $1.8 trillion gap that needed fiscal filling by the government. The final number would be pared down to an $800 billion ask that was further weakened in the Senate and garnered just three Republican votes.
In describing the battle over the size of the stimulus, Scheiber makes an important observation about Summers: The great economist's high estimation of his own political instincts led him to do his policy-coordinating job the wrong way. Rather than present the president and his political team with the full magnitude of needed stimulus, he predicted Congress would reject it and thus cut the $1.8 trillion figure from the memo that ended up on the president's desk. Would Rahm Emanuel have vetoed the larger stimulus, or Geithner and and CBO Director Peter Orszag have raised deficit warnings? It's likely-even progressive White House economist Jared Bernstein was concerned about implementing such a large burst of spending-but at least the president would have understood the extent of the problem sooner.
The other major issue to rehash is how the White House handled the stumbling Wall Street banks in 2009. Would Geithner's effort to let the Wall Street banks earn their way out of trouble by turning a blind eye to internal problems and convincing private investors to provide new capital win out against Summers' justified concerns that much of Wall Street was insolvent and needed to fail under government supervision? The Treasury view won out and the banks have emerged from the crisis little changed, largely because Summers, like many critics who wanted the administration to take over failing megabanks, he didn't have much of a plan for how to do it-or to get necessary hundreds of billions of dollars from Congress.
Sadly, two important debates get a short shrift in the book. The first is the problem of the housing markets, where Treasury failed with far more devastating consequences than it did in its management of the financial crisis, and the second is the monetary policy at the Federal Reserve. Housing is one of the largest drags on recovery, and the Treasury's unwillingness to coerce banks and regulators into action to clear the markets and prevent unfair foreclosures is perhaps its biggest mistake.
Meanwhile, at the Federal Reserve, too-cautious monetary policy held back the potential for strong growth. While the central bank was willing to expand its balance sheet dramatically to save the financial system in 2008, it's follow-up efforts in the real economy have been meager compared to what could be done to incentivize job creation. The book doesn't mention monetary policy or discuss the decision to reappoint Bernanke outside of its effect on Summers' ego.
The most important indictment in the book is of Obama himself, who was reluctant to take up the economy as his central issue and hoped it could be handled in tandem with other major priorities like health care, energy, and education reform. By the time he accepted that the real challenge of his presidency would be economic recovery and not comprehensive bipartisan projects, it was too late to shift course.
But if Obama had the drive, would he have been able to get the money-for a bigger stimulus or a second stimulus, to take over the banks, to rescue millions of underwater homeowners-to save the economy? "If you don't have a choice, you don't have a problem," Geithner would tell colleagues who proposed plans contingent on Congress coughing up money.
Like most observers of the presidency, Scheiber is baffled by the president's unwillingness to deploy campaign tactics to achieve policy ends, and offers a counter-scenario: What if Obama had proposed his $400 billion-plus jobs bill in spring 2010 rather than in fall of 2011, and campaigned to get it passed while he still had majorities in Congress?
Scheiber thinks Obama failed to advance a second stimulus because of concerns about the deficit even though he could have won public opinion over to his side. But after barely passing his controversial, deficit-reducing health-care bill without a single Republican vote, and with the Tea Party fully ascendant-Republican Senator Bob Bennett would lose a primary election to a Tea Party candidate that May; and now-Senator Rand Paul beat out a GOP establishment favorite the same month-it remains an open question whether Obama would truly have been able to garner support more spending, especially with so much research suggesting that presidential messaging has little impact on public opinion.
Yet a few months later, the Dodd-Frank regulatory overhaul was approved with two Republican votes, the last major piece of legislation of the year. It's unlikely that bill would have passed had jobs legislation been in the offing, and it seems equally unlikely that any stimulus passed in the spring would have worked quickly enough to blunt the Republican tide that came in November.
I doubt any financial-reform bill would have passed had Obama also pushed for another stimulus, and I believe Scheiber would agree. In the final pages of the book, he argues that the best thing the president could have done was seize the issue of the day, and follow the first stimulus not with health care, but with tough financial regulation.
Now, though, we are no longer talking about different choices-we're talking about a different presidency. Early in his presidency-even before he was inaugurated-Obama decided to hire a team of experienced economic advisers so he could focus on his reform agenda, and those two decisions set his administration on firmly on the path to groupthink and chronic underestimation Scheiber describes.
For all that, perhaps the greatest blindness of the president and his political advisers was to the reality of the GOP's total commitment to obstruction, combined with Obama's penchant for delivering concessions as an opening bid. The administration's management of the deficit and debt debate during 2011, while technically magnificent-Scheiber gives short shrift to rear-guard action fought by the administration's budget gurus to limit near term spending cuts-was politically foolish. When the absurd "debate" over raising the debt ceiling spun out of control, it damaged the recovery. There was little chance of real stimulus from the Republican Congresses elected in 2010, but ceding control of the debate to them was a mistake. Judging the successful extension of the payroll tax cut, Obama seems to have learned something about making demands and enforcing them.
Yet for all the ugliness of seeing this young president's political and economic education play out against a backdrop of millions of Americans out of work for no good reason, this book feels like it came out just a wee bit too late-or perhaps nine months too soon. Its titular assumption is that Obama and his team fumbled the recovery, but this year has been marked by enough economic good news that it's possible we may see meaningful growth and a path to re-election for the president. And while holding the White House accountable for its promises of full recovery is necessary, it's important to understand how artificial much of our pre-crisis prosperity actually was-and how the president's pledge set unreachable expectations.
Today, Escape Artists is about mistakes that may be irrevocable. In five years, it could be taken as a portrait of a team faced with once-in-a-hundred years challenge that, despite their own failings and the obstacles in front of them, helped navigate the United States out of economic quagmire while accomplishing the familiar litany of Obama's accomplishments: Health-care reform and financial regulation, the end of DADT, two liberal Supreme Court justices, getting out of Iraq-the list goes on.
While recovery might have come sooner had the president and his team made different decisions-or had Congressional Republicans relaxed their obstruction and Congressional Democrats found some spine, or if the country hadn't been battered by natural disasters, or if the Fed had been more daring, or if Japan hadn't faced a tsunami and a nuclear crisis, or if the crisis in Europe hadn't diminished economic expectations around the globe-the world is about the choices everyone gets to make, not just the choices made by those we can hold accountable.
