Obama's Squandered Recovery

The Escape Artists: How Obama's Team Fumbled the Recovery. By Noam Scheiber, Simon & Schuster, 351 pages, $28.00.

A guy I know told me a story. He had a friend who was working on the 55th floor of the South Tower of the World Trade Center on that terrible day. When the plane hit the North Tower, everybody in the office understandably got very worried. When the plane hit the South Tower, people were going crazy. But the authorities on the floor—calm, experienced—told them not to panic. The guy’s friend thought to himself, “Fuck this, we’re all going to die," and raced downstairs, exiting the building right before it collapsed. I thought of that story when reading Noam Scheiber’s The Escape Artists, about the economic crisis at the start of Obama’s presidency and the administration’s response. In the book, based upon hundreds of on- and off-the-record interviews with principals and other witnesses to the events described, Obama and his top economic and political staff emerge as, to a man (more about the one woman later), thoughtful and honorable public servants (Chief of Staff Rahm Emmanuel isn’t very calm). But Scheiber argues that they grasped neither the magnitude of the crisis nor the opposition they faced from a rabidly partisan Republican Party.

Scheiber’s strategy is to show the reader that, as they used to say in the Reagan years, “personnel are policy.” He elaborates on this axiom in two ways. First, at pivotal moments, key people do what their history and temperament have prepared them to do. Thus, Tim Geithner’s long history of working with banks as a regulator guides critical decisions during his tenure as Secretary of the Treasury. Second, Scheiber offers a meta-approach: Obama naturally wanted experienced people handling the economy. When the time came to make appointments, he plucked Geithner; former Harvard president Lawrence Summers; then-director of the Congressional Budget Office Peter Orszag; former Treasury undersecretary Gary Gensler; and several other important players from the tree of Robert Rubin, Clinton's treasury secretary and former honcho of Goldman Sachs and Citigroup. The president risked a team perspective that was “too close to Wall Street,” as one unnamed Democratic senator warned Obama after his election. 

Scheiber astutely identifies different strains in the Rubin genealogy. Geithner represented the “restorationist” Rubinite, adopting Rubin’s personal mannerisms and his concern about deficits. Like Obama, Geithner had been raised for a time abroad, and Obama was taken with his dedication to public service and modest demeanor. Scheiber observes that Geithner worried about the banks more than former banking officials in the administration, who knew they would manage just fine. Summers, director of the White House National Economic Council and Rubin’s successor at the Treasury, was in turn a “reformist” Rubinite, unwedded to obsessing over the deficit during a massive recession. Orszag, the team’s primary deficit hawk and director of the Office of Management and Budget, had also entered Rubin’s orbit as a young Clinton White House economist. “Orszag’s power," Scheiber writes, “came from the harmony between his worldview and the president’s. Both men were fierce anti-partisans; both shunned ideology.” Orszag thought there were practical limitations to how much the government could spend, and that much of the stimulus would inevitably be rolled into the long-term deficit. While the country was still losing 350,000 jobs per month in May 2009, Obama asked Orszag to write him a secret “fiscal crisis” memo.

Cristina Romer, the chair of the Council of Economic Advisors, and a relative outsider, alone was the pure academic of the crew, seeking to make the right, evidenced-based argument with views shaped by the layoff of her middle manager father decades earlier and by her study of the Great Depression. To Romer, an effective policy would always increase the aggregate demand of consumers and not stop at guaranteeing the safety of the banks. Only she kept the recession at the top of her agenda. Summers also kept the recession a priority but, in an effort to remain in line with his colleagues, he cancels his own expertise and bails on Romer. Scheiber depicts Summers as a brilliant, but fraught figure, who fritters away his influence with the president. At times, he shows excellent judgment, but loses the argument. Unlike Emmanuel, the purported political wizard, Summers argues correctly against the offering of specific predictions in what becomes the Romer-Jared Bernstein memo forecasting the effectiveness of the stimulus and predicting that it would hold unemployment below 8 percent.

Summers is an inside angler but an inept one, whom the smoother Geithner and more dispassionate Orszag outmaneuver. Then there’s the famous matter of how much stimulus to go for. As Scheiber describes it, when Romer gives her fellow economist her estimate that $1.8 trillion over two years is needed in order to restore the economy’s lost output, Summers rejects the number as “impractical.” So Romer constructs a “reasonable compromise” and asks for $1.2 trillion, but also proposes smaller packages of approximately $600 billion and $800 billion. At that point, Summers’s thinking becomes clouded by the rules of Washington inside baseball which he flatters himself he has mastered during his earlier tenure in Washington. Adopting the preemptive mantle of political adviser, Summers cuts even the $1.2 trillion proposal from the draft memo because, as he says to Romer, ‘One point two trillion dollars is non-planetary. People will think we don’t get it.” By people, Summers means the president’s political advisers, who at that point were already on record saying that anything over a trillion dollars would be a loser in Congress. In short, Summers squanders his greatest comparative advantage over everyone else, that on these issues, his voice was the one the president trusted most. By surrendering without a fight to Rahm and the politicos, Summers prevents Obama from realizing how grave his economic team’s evaluation of the crisis was.

Scheiber’s narrative is lucid enough so that the reader can begin to question, along with the author, why several mistakes are made more than once. The White House trusts Iowa Republican Senator Chuck Grassley time and again during sensitive negotiations long after he’s demonstrated his bad faith. The deficit fetish culminates in the ghastly 2011 effort by Obama’s new Chief of Staff, Bill Daley, and David Plouffe, his 2008 campaign manager, to increase the president’s credibility with independent voters by positioning him as a budget cutter—not only the “hoariest of Washington’s old saws,” Scheiber says, but an old saw dependent on the fantasy, even after the Tea Party ascendancy, that a deal can be cut with the Republicans. But there are strange omissions in the book. Scheiber fails to discuss the successful auto bailout, without which the country might have lost another one million jobs. He doesn’t point to the Republican’s unprecedented use of the filibuster as their most powerful obstructionist tool. In the most wrong-headed analysis in the book, Scheiber argues that the president should have delayed health care reform in 2009, and tried to pass more stimulus or financial reform. But there is no reason that the president couldn’t have, at least, proposed a second stimulus to Congress while the health care bill worked its way through the system. Moreover, the best chance to increase employment—besides the original stimulus—was changing the composition of the Board of Governors of the Federal Reserve. But Obama reappointed moderate Republican, Ben Bernanke, as Fed chair, instead of endorsing a more aggressive alternative. For some reason Scheiber—a skilled, knowledgeable economic writer—does not pause to give his readers an understanding of Obama and his team’s thinking about monetary policy.  

I happen to think that if the health care system is rationally integrated and costs are controlled in 20 years, then the Affordable Care Act will ratify Obama’s place as one of America’s most important domestic policy presidents. But Scheiber is right that if Obama and his team accomplished a great thing in fending off depression, they did not relentlessly seek out every possibility to increase GDP and job growth. Economically, things could have gotten even worse than they did. Maybe—just maybe—we’re starting to come out of it. But the escape artists were the authorities. They told everyone to stay calm while the building was burning down. They should have had a better instinct for the unique crisis they faced. They did ok, but they’re not really artists—they’re lucky to have escaped.

Comments

If you want a bad case of the scared witless, think about what John McCain would've done if elected in 2008.

I have a small nit to pick vis a vis your take on Bernanke: All of his previous academic work, especially his detailed criticism of and recommendations for the Bank of Japan, suggested that he would be far more aggressive in dealing with the aftermath of 2008 than he was. And his initial response was, in fact, quite aggressive. It's just that once the banks were saved he failed to follow through to reduce unemployment. Given his previous written and spoken views, my working hypothesis is that he, like Obama, was too focused on achieving consensus, and allowed a minority of deficit/inflation hawks among Fed voting members to call the shots. Had he been as authoritarian as Greenspan we'd have seen the aggressive action needed to turn things around much sooner than they now will.

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