Confidence Men: Wall Street, Washington, and the Education of a President

by Ron Suskind

  Or so it might have seemed. It was clear to those inside Obama’s inner circle that the new president was trying to find ways to harness the energy that his stunning election and glowing presence had created. He certainly hadn’t been bashful so far, answering the high hopes of his election with an audacious breath of early initiatives. Over the objections of his key advisers, Obama had decided to use his historically strong opening hand to bet on health care reform rather than to focus, night and day, on the disastrous nexus of a collapsed financial system and a sinking economy.

  Still, they were all anxious to see how Obama used his vast political capital in a moment he had created: calling this White House summit to push forward his signature initiative. Several advisers were recommending toughness, saying that he needed to scare some sense into these health care stakeholders. They argued that fear was all that they, or anyone in Washington, respected.

  Obama went with hope instead. His opening speech laid out the problems: medical costs rising at four times the rate of inflation, crushing kitchen-table budgets, tenuous business balance sheets, and leaving forty-six million uninsured. Then he told those gathered—fifty-five members of Congress, eighty-two representatives of the health care interests—that things were this way because over the years “people in this room failed to act.”

  As the speech ended, Geithner turned impatiently to Alan Krueger. “I need to leave,” he told him, and slipped out a side door.

  The assembled then broke into discussion groups led by top officials in the administration. Krueger, in Geithner’s stead, ran a breakout group with Nancy-Ann DeParle, the White House’s new chief official on health care reform, and then made his way back to the main room, where the larger group was reconvening. Orrin Hatch, the conservative senior senator from Utah, grabbed Krueger’s arm.

  “Tell your boss, Geithner, he shouldn’t be coming to things like this,” the senator said. “Someone needs to be working full time on the job of saving the economy.”

  Clearly the president wasn’t. Now, with the precious opportunity of having brought official Washington together for the day in his house, the people’s house, Obama spent the next hour conducting a kind of afternoon talk show.

  He offered a few passionate remarks about reform, read the highlights of what some people had said in their breakout sessions, and then answered a few questions from the audience. There were some special guests who needed to be cited. Key lobbyists were asked to stand and affirm their commitment to reform. They did, one by one—the lead lobbyist for the hospitals, for the doctors, for the nurses. Then the room quieted.

  “Is Karen Ignagni here?” Obama said. “Someone get her a mic.”

  A smallish women with a blond pageboy stood up. Everyone in the room knew that she and her organization—America’s Health Insurance Plans, or AHIP—were the dangerous wild card in the mix. Ignagni, once the head lobbyist for the AFL-CIO and now president and CEO of AHIP, had broken with the hospitals, doctors, drug companies, and other stakeholders in 2007, saying the insurers would agree to reform in exchange for a federally supported individual mandate. Such a mandate would force people to get health insurance, in the same way they needed auto insurance to drive a car. Health insurers—with $12 billion in annual revenues, a modest-size lynchpin in a $2.5 trillion health care industry—had suddenly seemed willing to trade plenty to get forty-six million new customers.

  And that was before the election. The fear rippling through the room today was about what health care professionals quietly called the “divide-and-conquer strategy.” If the new president could turn Ignagni’s grand bargain into a grand alliance and, by some combination of fear or bribery, turn the health insurers into more of a federally directed industry, the administration could use the insurers’ key informational advantage of knowing every dollar spent and its value to drive down costs across the medical landscape.

  Ignagni now clutched the microphone. “We hear the American people about what’s not working,” she said. “We’ve taken that very seriously. You have our commitment to play, to contribute, and to help pass health care reform this year.”

  Obama raised his hands, cueing the audience. “Thank you, Karen,” he said. “That’s good news. That’s America’s Health Insurance Plans!” Then he led the crowd in lusty applause.

  For his finale, Obama took the theater of goodwill up one more notch, strolling into the hallway behind the East Room and emerging with a hobbled Ted Kennedy on his arm. Kennedy, Obama’s early patron and an advocate of health care reform for nearly forty years, was diminished, dying of cancer. But he said he was “looking forward to being a foot soldier in the battle.”

  The crowd broke into applause with renewed vigor and rose to its feet, with Obama acting as the narrator of this participatory moment he himself had invented. It was what he did at countless campaign rallies. It was what he did best.

  But many in the crowd were beginning to wonder, now six weeks into the Obama presidency, how he would direct his inspirational talents in the act of governance. Obama had tried to lift and engage them today, to level with them, as though he were still a candidate and they were still voters, simply citizens on the receiving end of the U.S. health care system. He had tried to talk to them, in short, as human beings.

  Of course, these were lobbyists—many of them compensated quite handsomely not to react as human beings. They were paid to act based on the interests they represented. Filing out, many of them wondered about the point of this big-tent revival, and why Obama hadn’t unleashed invective on them, which was clearly what the voters wanted him to do. As they pondered this, they also wondered if there was something in the way Obama and Ignagni had been smiling at each other during their exchange. Had the two already cut some sort of secret deal?

  Some of Obama’s advisers were puzzled as well.

  “Look, it’s like the president said, you’ve got to be hopeful and you’ve got to include Republicans. You’ve got to include everyone and take them seriously,” Zeke Emanuel, Rahm’s older brother and a longtime health care expert, said. He’d been brought on in January to help guide reform and was pushing through the White House’s front foyer as he spoke. “The system is dysfunctional. The system isn’t working. We need to head in the right direction. Are there different ways of getting there? Absolutely. Do we need to be pragmatic? Yes. I thought the president was pretty clear . . . I mean just look at Orszag’s numbers—his cost projections on Medicare and Medicaid. We have no choice!”

  If Emanuel sounded like he was talking in circles, it was because he knew something only a few others in the room realized: the White House had secretly shelved the best weapons it had for instilling productive fear in this group.

  Though the president had made up his mind in the meeting where he channeled Daschle, and decided to include a $650 billion placeholder in the federal budget for health care, his top advisers subsequently wrestled back significant leverage and latitude. In small group meetings throughout February, Obama’s senior staff had “modeled” the health care initiative off of a variety of pregame assumptions. The conclusions, by Rahm Emanuel and others, were that the “public option”—a basic government-sponsored plan that the insurers feared—was a nonstarter, as were significant cuts in medical costs. Peter Orszag, who had been pushing the idea that cost savings should drive the expansion in coverage, was opposed in meetings by Rahm Emanuel, who thought Obama shouldn’t even attempt health care reform at a time of economic crisis, much less take on the doctors, hospitals, and drug companies about rising costs. A more ambitious game plan, based on flipping and using the insurers, would demand a kind of strategic sophistication that the White House was already having trouble mustering.

  Just a month and a half into his presidency, Barack Obama’s White House was slipping into a kind of dysfunction. In a way, it was not all that surprising that a president who had never managed anything beyond his own personal journey had responded to wild expectations, at a time of crisis, by grabbing hold
of every intractable dilemma in sight. But the improvisational ebullience, and energy, Obama mustered in the first few weeks wasn’t being turned into concrete actions or strategies. As the president tried to rise to the demands of his job, the White House was increasingly being directed by a back-channel union between two forceful men: Rahm Emanuel and Larry Summers.

  By March they had each begun to establish control of the two main sides to any presidency: policy and politics. Summers, fortifying his position as policy gatekeeper for all things economic, had become something of a domestic policy czar. He attended the important policy meetings and frequently talked to the president in private, framing the intellectual parameters on an array of complex issues. On the other side was Emanuel, who decided what agenda items were politically feasible and constructed the tactical plans for their execution. Emanuel had never been known for his long-range, strategic sensibilities. He was rather a man of decisiveness—or, depending on how you saw it, impulsiveness—and action.

  But as important as what either man said directly to the president was what each said to the other. The two met often and talked after meetings with the president or the economic team, with Summers wandering down the hall to the chief of staff’s office. Normally, Emanuel was wary of what he disparaged as the “pink-sheeters”—what he called people who, he quipped, read the Financial Times and passed time at places such as the Aspen Institute. Summers, with his rhetorical gifts, knew how not to come across that way. He talked tough. He talked politics.

  “Larry fancies himself very good at politics,” said Christina Romer, “and he wanted to please Rahm. That created problems in terms of how things were decided.”

  Decided by Summers and Emanuel, with or without the president.

  Rahm Emanuel didn’t come to the Health Care Summit, but Larry Summers did. He ran one of the breakouts, in fact. As the summit ended, just after 3:00 p.m., he was standing on the grass in front of the White House tapping on his BlackBerry. His comments there revealed the subtle complexities of how he saw the world and framed arguments, with him often taking both sides and then deciding which he liked best.

  “We’ve gone from a moment when we’ve never had a less social-science-oriented group,” he said coyly, referring to the Bush administration, “to a moment when we’ve never had a more social-science-oriented group. So . . . we’ll see what happens.”

  As the self-styled leader of this latter camp, Summers expanded on this line of thought, remarking that health care presented “some difficult-to-ponder judgments. You can look at nine different hospitals with some heart procedure, and you can see it’s working twice as well in some of them as it is in others. You can see what ‘best practice’ is, and that should propel the market to separate the best providers—whose services will be in highest demand—from the worst. Of course, hospitals and doctors will resist this sort of accountability,” he added. “That’s why it’s going to be pretty tough. The market is tough. It’s going to be a difficult shakeout.”

  A moment later, though, he said he was unconvinced that even the most heavily vetted evidence on these issues, from places such as Dartmouth, would be adequate to drive action. Nonetheless, he felt that government’s role should not go much beyond simply making sure such pertinent information was widely available to the public—that that would have to suffice.

  “One of the challenges in our society is that the truth is kind of a disequalizer,” Summers said. “One of the reasons that inequality has probably gone up in our society is that people are being treated closer to the way that they’re supposed to be treated.” The hard, disequalizing truth of the past forty years, of course, was that those unfettered free markets had become increasingly borderless—a global regimen that had generally proven profitable for a minority of already advantaged Americans and, on balance, brutal for the majority of the U.S. workforce. The world caught up after several decades of post–World War II American economic hegemony, and the response of large U.S. firms, especially in the deregulated post-Reagan era, was to accept capital, in both investments and fresh debt, to fuel their operations overseas. A decade into the new century, office towers of trademark American companies on both coasts were facing outward, using the cheap labor and lax regulations across the world to make strong profits, which flowed to the top corporate officers at twice the rate of even the 1990s. Meanwhile, they turned their backs on much of what once passed for the U.S. economy. Yes, shareholders were advantaged, but a full 60 percent of Americans held few or no securities, while the greatest beneficiaries of all were the “allocators” of capital in the financial services industry. In 2007, this sector accounted for a startling 41 percent of corporate profits, a feat achieved in large part by accelerating the steady inclination toward overseas investment and spreading elegantly packaged debt across the ever more burdened U.S. landscape. The notion that this is the way many Americans “are supposed to be treated” might be seen as a pretty harsh prescription.

  But Summers’s belief in the efficiency of markets was, and had long been, focused on the drive to get ever-more-precise and accurate information into the hands of what he still believed were mostly rational actors, and let them do what they would. He continued to view people as rational, even as the behavioral revolution launched by Daniel Kahneman and his partner, Amos Tversky, and last fall’s economic meltdown showed how irrational and self-destructive people could be.

  To help decipher Summers’s comments—a snapshot of the complex brew he was, at this point, serving to the president—were two people within a stone’s throw. One was Billy Tauzin, a lobbyist of similar stature and craftiness to Ignagni. A long-serving Louisiana representative who switched from Democrat to Republican in the 1990s, Tauzin had pushed through one of the most expensive pieces of legislation in American history: the Medicare Prescription Drug Improvement and Modernization Act of 2003. Costing $500 billion over ten years, it is considered by many to be a massive handout to the pharma industry, which in return hired Tauzin as their lead Washington representative.

  Tauzin, tellingly, was now in concert with Summers. As he walked from the White House to his waiting car, he averred that the drug companies were all for evidence-based medicine, but that the data should be simply a guide, offered up for the marketplace to handle as it pleased. Even the substantial evidence already available, of course, had had little effect on medical practice. Nonetheless, Tauzin, like Summers, had great faith in the market—or at least professed to—and little faith in government acting as an arbiter. On that score he had a new fine-feathered arrow in his quiver: in the past few years he had survived intestinal cancer.

  “Listen here,” he said. “There are 226 cancer drugs that are not accepted in the UK—based on the ‘evidence-based’ decisions of their government-run health plan—and one of them is the drug that saved my life. And if the government starts making life-and-death decisions based on a claim to perfect knowledge, then it’s doing what God does,” he said, laughing, and offering a glimpse of what would soon be the “death panels” attack. For both him and Summers, only the unfettered marketplace could stand in for God’s judgments.

  But there was no one in D.C. with more insight into Summers than Alan Krueger, who slipped outside right before the afternoon’s dramatic high point—the introduction of Ted Kennedy—because the Treasury’s chief economist felt lightheaded.

  A small but telling oversight: the president had invited 137 important guests over to his house for the hours from just after midday until the midafternoon and no one seems to have considered the concept of food.

  While Summers was holding forth, Krueger was half a block away, hunched over a Formica table in the basement cafeteria of Treasury. He’d bypassed the special restaurant/lounge for senior staff because he was starving and in an acute rush: he had a pile of work before he was due to attend a 5:00 p.m. meeting of the National Economic Council. It was one he didn’t want to miss.

  The topic was “too big to fail,” and Summers would be there. K
rueger, Summers’s ablest interpreter and, in some cases, opponent, made a point of never missing a meeting where he might sit with his old chum and onetime mentor. They were first together at Harvard for four years, when Summers was building his reputation on original research, rather than government service, and Krueger, six years his junior, was his star graduate student. After Krueger took his Harvard PhD and went on to become a professor at Princeton, the two remained close, corresponding regularly, seeing each other at every opportunity, playing tennis when possible, and sharing many mutual friends at the top of the economics profession.

  As is the nature with old friends, Krueger’s affection for Summers is not in spite of his friend’s flaws but, rather, because of them, even if it is hard to appreciate the way Summers can frustrate a hard-nosed social scientist like Krueger. When he’d hear Summers doing his “disequalizing” riff—one of Larry’s favorites—Krueger would think back to days, in the late eighties, when his friend was forming the view:

  “Larry felt that it didn’t make sense that while he was being paid well by Harvard, some other professors were being paid in his ballpark. After all, he was Larry Summers, and who the hell were the rest of them? He began to study structures, like unions, that compressed wage distinctions in ways that went against the market. Of course, some of those compressions are meant to soften the blow of such distinctions, mindful of a complex array of factors, many uneconomic, that go into who gets paid what. But that’s part of the point. Larry believes that the goal is to make everything more brutally ‘truthful’—in terms of the market being basically right in how it values people and trying to make it more so—and that process shouldn’t be tampered with unless there is overwhelming, indisputable evidence that the market is not working. After a few decades, Larry has gotten very good at undercutting arguments for any government intervention into free markets.