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

by Ron Suskind

  Before the dinner, Jarrett approached Anita Dunn, saying she was “worried people are going to be afraid to speak up. Do you mind saying something to get the ball rolling?” Dunn said she would be fine doing that.

  As the women settled into their chairs, Obama set the table: “I really want you guys to talk to me about this openly because recently there has been this suggestion that there are some issues here. I’d like to know how you guys feel. Valerie felt this was something we should do, and I want to thank her for putting this together.”

  Before Dunn had a chance to chime in, Carol Browner, the director of the White House Office of Energy and Climate Change Policy, kicked things off.

  “Mr. President . . .”

  One by one, the women ticked off examples and frustrations. The problems seemed to be universally agreed upon.

  Obama listened awkwardly, as the women tried their best to present their issues without becoming too personal.

  “It was so clearly about personalities,” said one of the attendees. “And then it ended up being focused around Larry and Rahm, and some Peter. And obviously . . . less about Axe and Gibbs, who were equally guilty but who everybody was terrified of.”

  The president listened, with a posture of “Okay, I hear you,” said another, “though not really offering much in the way of apology or suggestions about what he’d do.”

  Romer stressed that it wasn’t so much overt sexism as “we have a meeting . . . and then . . . discover that after something has been decided at a meeting, Larry sends in a memo. That’s not how things are supposed to work.”

  Romer and others specifically cited situations where Summers would bypass the team, showing his memo to the group before giving it to the president. “You’d get a memo at nine thirty at night saying this is going to POTUS in fifteen minutes, please let me know if you have any input!”

  Dunn, who watched in amazement as the women articulated each issue with precision, still had her own analysis.

  “There are people feeling that the chief of staff . . . the way he manages the place is one where people don’t have the information they need to function,” she said. “There are a very small number of people he tasks with other people’s jobs.”

  That assessment was generous. “There was actually very little management at the White House.”

  At the conclusion of the meal, the president looked around and, in classic Obama fashion, delivered a conclusion that was both placating and earnest.

  “You might think because Axe and Gibbs can walk into my office that I don’t recognize your value. Not true. You’re important to me. You have this perception that they are more important. Just because they are out there doesn’t mean I listen to them on your issues.”

  That explanation was perplexing. Obama seemed to be acknowledging, and tolerating, the problem.

  Inferring that some of them thought he should consider dismissing Emanuel and Summers, Obama paused. “Look,” he said, evenly, “I really need Rahm.”

  “That, to me, was one of the more unsatisfying things. ‘They are really important to me. I know they are assholes but I need them,’ ” one of the women said.

  “After the dinner we [the women] all decided we’d rather have had dinner just by ourselves.”

  Later, when Emanuel was asked in an interview about the women’s group and their issues, he was succinct. The concerns of women, he said, were a nonissue, a “blip.” As to the fact that the White House’s women rather strongly disagreed with him on that point, he said, “I understand,” and then laughed uproariously.

  As the top and bottom of the wider country were pulling in opposite directions, the two capitals, New York and Washington, were at a crossroads.

  GDP was moving ahead now, at a measurable pace of between 2 and 3 percent annually, stocks were up. And unemployment claims were skyrocketing. The unemployment picture was looking worse than the forecasts from the June meeting on jobless recovery. Through October and into November, debates raged in the morning economic briefing. Clearly the stimulus had fallen short. But what to do? There was budgetary pressure: the deficit was huge, and Obama, at heart a deficit hawk, was generally in agreement with Orszag. Showing fiscal responsibility was a top priority.

  Romer pressed a counterpoint. Save money from something else; find some funds elsewhere. People were hurting, after all. This was a crisis.

  Orszag countered that unless they did something large, applying a significant stimulus, on the order of $700 billion, “it wouldn’t jump-start or significantly move the economy”; but $700 billion was politically untenable. In essence, his point was that what they needed to do, they couldn’t afford. Romer said this was the wrong approach. By the estimates of her Council of Economic Advisers, at a cost of $100,000 per job, $100 billion would mean one million new jobs. “A million people is a lot of people.”

  Obama was unenthusiastic. Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or to pitch it to Congress. Her appeals were passionate. She said they were falling into a “the perfect is the enemy of the good” trap. “It’s about doing something, anything.”

  In November, as Obama’s political capital began to wane, he took Orszag’s position at a briefing, reiterating the OMB chief’s view that a small stimulus would be ineffective.

  “That is oh so wrong,” Romer blurted out, surprising herself, and everyone in the room, with her candor.

  “It’s not just wrong, it’s oh so wrong?” Obama queried before launching into an uncharacteristic tirade. “Enough!” he shouted. “I said it before, I’ll say it again. It’s not going to happen. We can’t go back to Congress again. We just can’t!”

  The room went painfully quiet, as a mortified Romer sat quietly. Obama so rarely raised his voice. “He really came down on me,” she later recalled.

  After the meeting, Romer, visibly shaken by the president’s rant, talked with Dunn and was summoned to talk privately in Jarrett’s office. It would be weeks before she spoke again at a presidential briefing.

  A few weeks later the economic team was back to the discussion of stimulus versus deficit reduction. The October jobless figures, out in mid-November, were now clear: unemployment had jumped to 10.2 percent. On the issue of finding some sort of small stimulus, even $100 billion, now Summers stepped up, offering, almost word for word, the position Romer had voiced previously. This time Obama listened respectfully: “I know you’ve got to make this argument, Larry, but I just don’t think we can do it.”

  As they left the meeting, Romer—who was happy to have Summers speak up for a small stimulus rather than leaving it all to her—said, “Larry, I don’t think I’ve ever liked you so much.”

  “Don’t worry,” he quipped. “I’m sure the feeling will pass.” But then something dawned on Summers, who’d never seemed sympathetic to the women’s complaints: “You know, he sure was a lot more generous with me than he was with you.”

  It was an important moment. “That was the turning point,” Romer later said. “After that, [Larry and I] really started to have a decent working relationship.”

  Both, in fact, were concerned by something the president had said in a morning briefing: that he thought the high unemployment was due to productivity gains in the economy. Summers and Romer were startled.

  “What was driving unemployment was clearly deficient aggregate demand,” Romer said. “We wondered where this could have been coming from. We both tried to convince him otherwise. He wouldn’t budge.”

  Summers had been focused intently on how to spur demand, and on what might drive a meaningful recovery. Since the summer, in meeting after meeting, he’d ticked off the possible candidates, and then dismissed them—“it won’t be construction, it won’t be exports, it won’t be the consumer.” But without a rise in demand, in Summers’s view, nothing else would work. What’s more, in such a sluggish, low-demand environment, Summers felt that banks probably shouldn’t be lending. “No one wants banks to
offer credit to people who shouldn’t be taking on more credit.”

  But productivity? The implications were significant. If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

  The two economists strained their shared memory of dozens of meetings: had they said something he’d misconstrued? At one point, Summers had mentioned how Keynes once wrote in a 1938 letter that the labor movement depressed productivity, and maybe Obama saw that the disruptions in the economy from the Great Panic gave employers an opportunity—an excuse, essentially—to harvest latent productivity gains.

  After a month, frustration turned to resignation. “The president seems to have developed his own view,” Romer said.

  By Thanksgiving, the dysfunctions inside the president’s economic team, and the policy drift, had grown acute.

  On one hand, there was Obama thinking that, despite the pain millions were feeling, this was the way it was supposed to be—a leap forward in productivity that might mean employment problems resistant to any stimulus. On the other hand sat Summers, who believed that without a rise in demand—not expected anytime soon—almost all efforts were futile.

  Romer, Bernstein, Krueger, Gene Sperling, and others got to work, putting out proposal after proposal. Summers would shoot them down. The president, though eager for something to work on the jobs front, did little more than say, “Think of something.”

  The most ambitious proposal was an employer tax credit by Krueger and his team that offered firms a credit for each new job created. The legislative and political teams liked it: as a tax break for business, paid only if they hired, it slipped between the partisan bunkers, appeasing each encampment. The challenge, as with any such stimulus, was a careful design so that the government did not end up paying for something that would have happened anyway.

  It was trickier than it looked, and Summers had always sided with the proud claim of businessmen that they never did anything, whether increase hiring or start a new initiative, because of a government handout. But tax credits, properly constructed, could be effective. Krueger was sure of this, and sure the data would bear him out. The problem was that there weren’t any pertinent data to be gleaned from inside the government. Without that, Summers wasn’t budging. “These things just don’t work,” he said over and over.

  Other members of the team began to coalesce behind Krueger. They had a chance of getting this though Congress, and they knew the dynamic. Summers, the professional contrarian, had done very little original research in two decades. Krueger was still a player, publishing papers that bled with fresh concepts. “There was a little bit of a good and evil thing going on,” said one of the regulars at the economic briefing. “Look, everyone loves Alan. Brilliant, of course. World’s nicest guy and sort of oddly ego-less when it comes to searching for the right answer. Nothing he likes better than to have the facts, the data, prove him wrong, even if he’s invested in the opposing position. Then there’s Larry, who is, well, Larry. A gravitational field. The fucking Death Star of ‘no,’ unless he decides it ought to be ‘yes,’ which sometimes just has to do simply with what’s good for Larry.”

  And, of course, the two men had their history. As the jobs tax credit languished, Krueger couldn’t help but think back on an incident at Harvard, more than two decades before. There was a mathematical sticking point at the heart of a problem the two men were working on. The issue, having to do with GDP growth, was maddeningly complex. Krueger thought Summers’s position was wrong—that he was wrong on the math. They argued it for weeks and couldn’t agree. Finally, they decided to call in a mathematician, a whiz from Harvard’s math department, as an arbiter. He worked the problem for a few days and decided in favor of Krueger. “But even after all that, Larry still wouldn’t give,” Krueger said, with a chuckle, thinking back on it and seeing how little had changed. “He still thought he was right. Probably still does.”

  Now, with so much at stake, Krueger trekked back to Princeton, pulled together a team, swiftly tapped into some university funding, and produced a specialized data set showing that if only 10 percent of employers opted to use the tax credit—a figure well below the norm—it would more than pay for itself and have a strong stimulatory effect. He added data that showed distinctions between large employers and small, with the latter, in a significant survey sample, saying they’d use this credit. What’s more, the projected cost per hire was about $60,000, much better than the stimulus package projections, in which each added worker cost roughly $100,000 in federal money.

  When Krueger presented the data at a morning economic briefing, said one participant, “it was like an intellectual sporting event.” Summers gathered himself and began to summon a fresh counterargument. There was a five-on-one revolt. A pile-on. Summers backed off, but only left room for a later counterattack. Meanwhile, the president, with his newfound theories on productivity gains, was bending toward the idea that companies were acting to heighten valuable efficiencies with the layoffs, and might not soon be hiring, government tax credit or not. And around they went, one “relitigation” to the next. Obama was back to square one, dead in the water. He thought of the Economic Summit in February. The Health Care Summit in March. Both events had stirred him up. Maybe he could get something started with jobs. He approved the idea of a Jobs Summit.

  Economists and employers flooded into Washington on December 3. Krueger had plenty of supporters in the room, including Princeton’s Alan Blinder, the former vice chairman of the Fed. He and others spoke favorably of the jobs tax credit.

  In his wrap-up address, Obama said, “Economists seem to like this tax credit, and I suppose I do, too.”

  The jobs tax credit got the green light.

  Hours after Obama left the summit, Romer came to a briefing in the Oval Office with some terrific news. The economy had only lost eleven thousand jobs in November, many fewer than economists’ projections of more than ten times that many job losses.

  “Does this mean we’ve turned the corner?” Obama said, looking at the briefing sheet.

  “Maybe so,” said Romer. Obama got up and hugged her. And then he hugged her again.

  None of the economists on the president’s team wanted to tell him it could have been a gremlin in the numbers. Neither did Romer. He was a man reaching for a life preserver. Let him have one.

  Obama rushed out to board a plane to Allentown, Pennsylvania. It was the first of a series of outings that Axelrod dubbed the “White House to Main Street” tour. It started in the town where, in the words of Billy Joel, “they’re closing all the factories down.”

  Obama was ebullient, dancing across the stage at Lehigh Carbon Community College: “This is good news, just in time for the season of hope.”

  He was no longer the “no drama” president, looking down from Olympian heights, thinking about his place among history’s giants, about his legacy. No, he was improvising, reaching back to earlier versions of Barack Obama, all the way to the often-effusive community organizer, heart on his sleeve. “I’ve got to admit, my chief economist, Christy Romer, she got about four hugs when she handed us the report.”

  The crowd of two thousand erupted in cheers. “But I do want to keep this in perspective. We’ve still got a long way to go.”

  But, of course, he wasn’t keeping it in perspective—not in the perspective that had largely defined his presidency. He couldn’t afford to.

  Alongside the stage, Axelrod leaned against the press riser. “He’s been in the bubble of the White House, arguing policy. The situation in Washington, with Congress, is gridlocked. And there’s not a right answer on policy; it’s a roll of the dice. He’s not comfortable with that, and he’s starving in there. The idea is to get him out, have him meet people and remember how he became president, what got him here.”

  After he effused for twenty minutes, his tenor changed. Unemployment here was off
icially 10 percent, but real unemployment—including all those, no longer counted, who’d given up looking for work—was closer to 20.

  “I know times are tough,” he said softly. “I know.” The gymnasium was quiet. There were people packed tight. Some bit their lips. A man in the front row, tattooed, wide as a tree, wiped his eyes. They’d missed this guy, wondered where he’d gone. “Michelle and I were talking the other day—there are members of our families that are out of work. We’re not that far removed from struggling to pay the bills. Five, six years ago, we were still paying off student loans. Still trying to figure out, ‘If we pay this bill this month, what do we have to give up next month?’

  “We’re not that far away from there.”

  Axelrod pocketed his ever-present BlackBerry for a moment and watched from the wings. “That’s him, right there. That’s him.”

  Part III

  THE EDUCATION OF BARACK OBAMA

  15

  Lost and Found

  Barack Obama, the master of elegant integration, never managed to bring together Allentown and Washington.

  He returned to town, and the bubble, and just fought his way forward through deepening mire.

  The ebullience he’d felt, hugging Romer and rushing off to Allentown in early December to tell that hard-hit city the economy had “turned the corner,” was being thoroughly mocked by a new set of numbers released this morning, January 8.

  Joblessness rose by eighty-five thousand in December. November was an anomaly. Mark Zandi, Moody’s sober economist—trusted by both left and right—said he expected unemployment to rise from its current 10 percent to nearly 11 percent in 2010. He pointed out that, adding in those who’d dropped out of the workforce or were underemployed, the current rate was 17.8 percent. Even Zandi, a deficit hawk, was recommending an additional $125 billion in stimulus.