The senior editor of The New Republic reflects on President Obama’s first term, assesses whether the present administration has learned lessons about the economy and discusses his book, The Escape Artist.
Journalist Noam Scheiber
Tavis: Noam Scheiber is a senior editor at “The New Republic” magazine and a fellow at The New America Foundation. He is also an author whose new book is causing quite a stir in Washington and beyond. It’s called “The Escape Artist: How Obama’s Team Fumbled the Recovery.” Noam, good to have you on the program.
Noam Scheiber: Thanks for having me.
Tavis: Is this a blueprint for Romney’s campaign strategy this fall?
Scheiber: I don’t think so, because I’m more critical from the left, I think, than certainly team Romney would be. But more broadly, sure, they’re going to try to argue that this thing wasn’t executed as well as it could have been, and on one level, I agree.
There’s a reason that a lot of people still have a lot of anxiety about their economic circumstances, and that’s not to say that team Obama could have made the country completely whole after the worst financial crisis in 80 years. But I think we could have made a bit more progress by now, and again, my criticism is probably from the left rather than from the right, where team Romney is coming from.
Tavis: We’ll get to the two major issues that you raise in the text, about how they fumbled the ball, as it were. I happened to be – where was I at? I was on “Morning Joe” with Joe and Mika the other day. I was in New York for something and stopped by to see them while I was there.
Mika hit me out of the blue with a question that I would never have thought about, and that’s probably why she asked it. She said, “Tavis, let me put you outside of your comfort zone and ask you if you were Romney, what would your strategy be? How would you run against the White House on the economic issues?
I fumbled around for about 10 seconds and what I finally came up with was the Reagan-esque question – are you better off now than you were four years ago. You’ve got to tie it back to jobs and people’s own personal anxiety.
If Romney takes that tack, to ask the American people whatever you think of me, are you better off now than you were four years ago – again, that Reagan-esque question, how does the Obama administration respond to that on this economic issues?
Scheiber: Yeah, it’s very tough. I think they have to make the argument they’ve been making, which is remember how bad it was. Remember how bad it was three and a half years ago, four years ago.
We now know that the economy was shrinking at a 9 percent annual rate in the fourth quarter of 2008. That’s a depression-sized number. The auto manufacturers obviously were on the brink of complete collapse, which would have taken down a whole not just the auto industry, but the whole supply chain in the Midwest.
You go on down the list – the banks were on the verge of collapse. So they have to really remind people about that terror, pure terror, that a lot of us experienced in late 2008, early 2009. That’s a tough argument to make, because Americans have short memories, and once things start seeming okay, they kind of pick up their heads and look around and say, “Well, why aren’t they going better?”
Tavis: I was just about to ask whether or not, to your point now, and I don’t disagree, but the question is whether or not an “it could have been worse” strategy is ever successful politically. I don’t think so.
Scheiber: I think it’s hard. It’s a very hard strategy. Americans tend to want to know what have you done for me lately, and to do the counter-factual you’ve got to go back a couple of years.
So I think it is a tough strategy. That said, this really was bad. This was the worst one of these we’ve had in 80 years, and just as the Depression, the after effects of the Depression lingered for a generation, maybe more, I think the psychological after-effects of this may linger. Maybe not for a generation, but for several years.
I think, while it’s always really tough to make that argument, I think they have a shot at making that argument, because people haven’t forgotten it. It was ugly.
Tavis: This is a bit unorthodox, but while we’re talking about the campaign, let me go to the end of your book and then come back to the two major arguments that you make about how they fumbled the ball.
So again, since we’re on this already, has the president and his team learned enough lessons in this first term to be deserving of a second term? Obviously, the American people will make that judgment, not you or I, but just on the economic issues, have they learned enough to deserve a second term wherein they would do better the second time around than the first time around?
Scheiber: So I think they have learned a couple lessons, and I do talk about them toward the end of the book. The first is I think one of the big problems of the first three years, three and a half years, was they just undershot.
They undershot on stimulus; they undershot on just job growth, jobs being the central question. They allowed themselves to get distracted. So that was the first problem.
The second problem was just this quest for bipartisanship, this desire to negotiate in good faith, quietly, calmly, earnestly, go off in a room with your Republican counterparts and figure things out.
I think time and again they learned that that was not a viable strategy. In the book I argue that it took them way too long to figure that out. But I do say that by the late summer of 2011, after the whole debt ceiling fiasco, after this whole fruitless quest for a long-term deficit deal, that Obama really did seem to understand that he had been banging his head against the wall for a long time.
He basically tells his advisers, look – and it kind of combines both of these criticisms – he said, “Look, the economy’s still hurting, clearly. We need to do more to support job growth. I want you to come up with another stimulus package, but this time I don’t want you to design it as a pre-packaged legislative compromise.
I don’t want you to design it with an eye toward how many votes we’re going to get from Republicans in the House. I want you just to do what you think is the right package.
Tavis: So don’t self-edit this time around.
Scheiber: Don’t self-edit, don’t self-censor, don’t try to do this tactically, how are we going to pick off these couple of Republican votes to make it a bipartisan sell. Just do what you think is right and I’ll go out and sell it to the American people.
Look, they didn’t get that $450 billion jobs act passed, but I think what he did accomplish by going out in the country and really hitting Republicans hard and making the case for this is he got that payroll tax cut extended pretty easily.
So you got another hundred billion or so of stimulus in 2012 that you might otherwise not have gotten had he not gone out on the road and really put some pressure on responsibilities.
Tavis: Okay, so now we are into the two big mistakes that they made in this first term. The first is the stimulus wasn’t big enough, and the second mistake is moving – actually being lulled in, pulled in too easily and too quickly a debate about deficit reduction.
We will of course take them one at a time, and I’m going to sit back and let you have as much time as you want now to explain in short, given the text, how they fumbled the ball so badly on a stimulus not being big enough when there were, in fact, so many people on the inside and on the outside – Christina Romer on the inside, of course, having a fight with Larry Summers, but Romer’s on the inside saying, “It’s got to be bigger,” and Summers is vetoing that.
On the outside you’ve got Paul Krugman and Joseph Stieglitz and so many others saying, “It’s not big enough, it doesn’t fit the size or the scale of the problem.” So how did they drop the ball so badly on this thing not being big enough?
Scheiber: Well, one of the things I write about a lot in the book, and the title almost alludes to it a bit, is you had a group of people, a lot of them men, most of them men, who had done this kind of thing, not the exact same thing, but this kind of thing in the Clinton administration.
So they had a lot of experience in government. Larry Summers had been Treasury secretary, obviously, Clinton; Tim Geithner had been a senior Treasury official.
So they had a certain amount of confidence in their ability to manage these crises, and in some ways I think that was very helpful because there was so much going on, and we talked about it.
The auto industry, the banks, the economy. He had just put out a budget, which in itself is usually a huge task during a transition period. So in some ways it was very helpful that these guys were so experienced. I don’t think they could have really solved the real crisis-level issues that they were facing without that kind of experience.
But on another level I think it made them too confident that they just knew what they were doing a bit more than they did, and I think the stimulus is a perfect example of that.
Because Larry Summers thought that you needed a very large stimulus. He didn’t disagree with Christina Romer, who was the incoming White House economist. He was the top economic adviser; she was the economist. He didn’t disagree with her so much on the size that you would need ideally. His view was that the problem was more tactical.
We could never get Congress to pass what we think we really need, and beyond that, if we come to Obama’s economic advisers, his political advisers, and say, “We need $1.8 trillion, which is what Christina Romer thought it would take, ideally, to get unemployment back to a good place in a couple of years, they’re going to laugh us out of the room. They’re not going to take us seriously.”
Summers’ line to Christina Romer was $1.2 trillion, which is much less than she actually thought was ideal, but it was kind of her compromise number. $1.2 trillion is not planetary. It’s ludicrous, is what he was telling her.
So I think you had Summers, you had Geithner, you had someone like Peter Orszag, who was the budget director, a lot of them thinking kind of they know how to size up the political dynamics, they know how to size up the situation on Capital Hill, they know what will pass muster in a meeting with Obama’s political aides, and this talk about $1.8 trillion or even $1.2 trillion is just a non-starter. You’re going to get laughed out of the room.
So they kind of – we talked about self-censored, they kind of self-censored. Basically Larry Summers got a memo from Christina Romer saying what was going to be necessary, and he sent it back to her and said, “Look, this is non-planetary. We need something smaller so we can actually have a conversation, so they won’t laugh us out of the room.”
So I think a lot of times when they went wrong in the first couple of years it was these guys kind of internalizing these political judgments that really should have been left to the political advisers and to the president himself.
But they were blending political advice with economic advice, and that’s where the process got a big corrupted, I think.
Tavis: Three things, and I’ll put them out there and you respond however you want. In no particular order, number one, and I’m not the only person to make this argument, this president seems to be too easily impressed with braininess. I’ve made that argument many times.
Others, Frank Rich in “The New York Times” and now at “New York,” I’m not the only person who made the argument repeatedly that he’s too easily impressed with braininess, number one, and that’s what you’re talking about, these folk that he brought in. That’s the first issue.
Scheiber: Yup, yup.
Tavis: Second issue is these same people – I almost said “fools,” God forgive me – the same persons he brought in the second time around were the people that did this deregulation mess during the Clinton era, so that cuts both ways.
Yes, they have experience from the Clinton era, but it’s the wrong experience. They’re the ones that got us in this mess. So they started the fire, and now you’re wanting to bring these people, you trust these same folk to come in now, to come in and put out the fire.
With regard, thirdly, to Mr. Emanuel, who he chooses as his chief of staff, Rahm is a political hack. That’s what this guy is. So Rahm’s attitude is we’ve got to win by any means necessary. We’ve got to put a number on the table that we can win; we’ve got to get something through. We’ve just got to win, baby. We’ve got to get this thing passed.
All of that goes against your earlier argument of how bad things were. If things really are that bad, if the situation really is that horrific and that dire, then go for what you need. Go for broke and let them talk you down. But you don’t negotiate against yourself.
So again, I’m just a guy on public television, but I don’t get how you put all three of those things together and have any sympathy for what happened inside the White House.
Scheiber: No, I agree. Look, I think your point about braininess is absolutely on target. One of the real problems was that Summers himself was seen as such a heavyweight intellectually, such a heavyweight economist, possibly the most brilliant economist of his generation.
Obama really was taken with that, he absolutely was. I think the probably was Obama, and to some extent, Emanuel, David Axelrod, the other political advisers, didn’t understand that Summers was combining this political advice with economic advice.
So when Summers said something they just assumed it was the best economic judgment that a president could have. In fact, he was distorting that economic judgment with the political judgment that he was adding on, and whatever you think about Larry Summers as an economist, I think we can all agree that he’s not the best political operative in the world. So that was a real problem.
Tavis: Ask the professors at Harvard, they’ll tell you.
Scheiber: Exactly. So I agree with you – Obama was sort of in a way blinded by his braininess, not realizing that there was something else going on there, which was this political tactical judgment that he was imposing on the economic judgment.
On the deregulation – no question about it. There’s just no way around it. A lot of Democrats, prominent Democrats actually conveyed this point to Obama during the transition, when names like Larry Summers and Tim Geithner would be raised.
I describe one in the book where a prominent Democratic senator who had fought against this stuff since the Clinton era says, “Look, as you say, these are the guys who helped create this problem,” and Obama was receptive and understood the criticism, but says, “Look, I’ve talked to Larry, I’ve talked to Tim. They’ve changed. They’ve changed,” and the senator said, “No. Cats don’t change their stripes. They just don’t do that.” Obama really didn’t want to hear it.
Tavis: I’m not trying to demonize the president, but that almost speaks to a certain level of naïveté that I don’t even want to acknowledge that my president has.
You really believe that in Washington people change their stripes? Put another way – and again, if you’re taken with his brilliance and his braininess, I get that. But if you’re running on a platform of hope and change, and these ain’t the only smart cats in Washington, they’re not the only bright folk in the room, so why not bring in some other smart people, since you’re talking about doing things differently, and changing the way the system works? Why bring in the same old guys if your mantra is “change?”
Scheiber: Yeah. Look, I think one of the things that we have to understand about Obama is even though he ran as this insurgent, he ran as a guy who was running against the establishment, he’s very much an establishment guy himself. Obviously he was president of “Harvard Law Review,” which is not exactly an outsider position.
When he first started running for Senate in 2003, Illinois, for U.S. Senator for from Illinois, he had an aide call up the Harvard economics department and say, “Who can you send me to advise me on economics?” They said, “Well, we don’t really advise state senators on their Senate campaigns, but you might want to call somebody in Illinois, and this is how he ended up with a guy named Austan Goolsbee from the University of Chicago.
Then when they started to run for president in 2007, they were floating names, again, for economic advisers, like Alan Blinder, who had been a vice chairman of the Fed, who had headed Clinton’s Council of Economic Advisers. Very much an establishment guy. A Democrat, but an establishment guy, and a kind of long-time Democratic hand in Washington took them aside and said, “Look, you’re not going to get Alan Blinder. All that talent, all the establishment talent is with Hillary.”
So part of the insurgency aspect of his campaign, part of his decision to run against the establishment wasn’t because he was naturally an antiestablishment guy, it was because the establishment wouldn’t be with him. It was with Hillary. So it was by necessity.
I think what you saw in some sense during the transition and during this presidency was a reversion to kind of his establishment disposition, when by this point those people were available to him.
So it’s not like he rejected them out of hand. They just weren’t available to him, and when they were available he accepted them.
Tavis: I understand clearly how Washington works, but this conversation is missing one key component in terms of facts on the table, and that is that when the president is trying to push through this stimulus package that Summers and others said was too big, we would get laughed out of the room, they were going to get laughed out of the room, ostensibly, by Democrats.
They controlled the House, they controlled the Senate. It always troubles me when we have these conversations. People act as if he was arguing with Republicans. He had the House.
Scheiber: That’s right.
Tavis: He had the Senate. If you can’t push something through then, when are you ever going to push it through?
Scheiber: I agree, and I tell a story in the book where they had all this anxiety about are we going to propose something too big? Is Congress just going to reject it out of hand? So they settled on $775 billion was the number they settled on in their internal meetings.
So Larry Summers and Rahm Emanuel go up to Capital Hill and they meet with Nancy Pelosi and Harry Reid, the two Democratic leaders, and they’re incredibly worried. Are they going to tell us this is too big, we’re crazy for asking for $775 billion.
So they’re very nervous and they finally present the number, and Nancy Pelosi says, “It’s fine with me. I’d go up to $1 trillion.” So they totally out-thought themselves. (Laughter) They were too clever by half. If they just put it out there, what they thought was necessarily, it’s possible they could have started at $1 trillion rather than $775 billion, and maybe we would have gotten a couple hundred billion dollars more there at the outset.
Tavis: I was fascinated to read that piece, and that’s why I raise it. These were Democrats. So again, negotiating against yourself when you control the House, when you control the Senate – but I digress.
The second issue on which you go deep in “The Escape Artist” that the Obama administration fumbled on in this first term is deficit. Again, I don’t get this, because there are people everywhere saying you can’t let these Republicans pull you into a debate about deficit reduction. Now is not the time. The economy can’t handle it. Our system right now economically is too fragile.
Yet they get pulled into this debate anyway about deficit reduction. How did that happen?
Scheiber: Well, it really happens for a couple reasons. One is I think you have to start with the president himself. The guy is a fiscal hawk on some level by disposition, and I tell a story in the book. It’s November of 2009, so late in the first year, and two of his aides, a guy named Phil Shiliro, who was the congressional liaison and Peter Orszag, who’s the budget director, have this idea that – they develop a plan for basically ending not just the upper-income Bush tax cuts, but basically all the Bush tax cuts.
It’s a little bit convoluted; it would take a couple of years, but basically, that was the gist of the plan. The idea was that was the way that you were really going to balance the budget. It was hard to do it any other way. The other effect would be, according to their plan, which would require if you wanted to continue the budget cut, the tax cuts, you’d have to offset them with other revenue or other spending cuts.
They though there would be a political benefit to this, which would be make Republicans kind of have to own up to the cost of these Bush tax cuts. They never had to own up to them.
So they developed this plan and they take it to Obama in this meeting in the Oval Office in November of 2009, and a lot of the rest of the economic team isn’t sure about this, because they know that Obama has run on never raising taxes on the middle class. He wants to keep the middle class portion of the Bush tax cuts.
Orszag and (unintelligible) present it, and Obama was actually very intrigued. He starts asking a lot of encouraging questions, how would this work, he’s very taken with both the effect on the deficit, which would make it a lot easier to balance the budget, and with the political effects of making the Republicans own up to the cost of the Bush tax cuts.
So he’s very taken with this precisely because he’s this deficit hawk, and what ends up happening is a lot of the political hands are made nervous by this, because he’d be reversing himself on a very big campaign pledge not to raise taxes, and the Vice President Biden actually even talks to one of the economic principles after the meeting and says, “This is crazy, we’ve got to put a stop to this right now.”
But you just see this insight into the guy who’s actually willing to entertain going back on probably the most politically sensitive of his campaign promises for 2008 if it means putting yourself in a better position to balance the budget.
So he’s very much a deficit hawk, and I think you see that current running almost from the beginning of the administration. They do this big stimulus, but even weeks after the stimulus they’re already starting to think, okay, what are we going to do about the deficit? How do we make sure we’re not totally vulnerable on the deficit?
So that’s one. Number two, Peter Orszag, budget director, is really very exercised about this. So as early as the summer of 2009, he’s already convening meetings, saying, “This thing is just going to dog us for the rest of the administration. We’ve got to do something now, otherwise it’s going to be hopeless.”
So he starts convening meetings and he is pushing to put out a new set of budget proposals in August of 2009 that would impose some real constraints on the deficit, and this is, like, six months ahead of when these proposals are normally put in.
It normally happens in February, he wanted to do it in August, and this got pretty far, actually, in the administration. A number of meetings convened with the economic team, and ultimately they decided well, we can’t do this at the same time we’re doing healthcare.
You’ll remember the big healthcare push at the same time. So they abandoned it, but you just see the level of kind of intensity of the focus from Orszag at this point.
So I think those two things kind of combined, and what you end up seeing is over the course of the next six months Orszag is kind of waging this battle within the administration, and Obama himself is pretty receptive to it, that we have got to start doing things to get the deficit under control.
That plays out over the course of the fall and into the spring, and what ends up happening is, of course, they don’t actually produce a proposal on the deficit, but they go around and around in circles.
Summers, actually, to his credit, favors more stimulus immediately, Romer favors more stimulus immediately. Orszag, who’s not opposed to stimulus but just thinks the deficit should be the higher priority, really goes to the mat for that, and they end up just going around and around in circles, to the everlasting frustration of the president himself, who walks out of a meeting at one point I describe in December of 2009, saying, “Look, we’re just having the same conversation we’ve been having for weeks and weeks and weeks. Talk to me when you guys have figured it out.” Unfortunately, they never figure it out.
Tavis: Since you raised the Bush tax cuts, what do you make of the former president’s remarks the other day that he wished they weren’t called the “Bush tax cuts?”
Scheiber: Well, I find it a bit ironic. If you make a set of tax cuts the signature initiative (laughter) of your presidency, I think “chutzpah” is the word to then want to disclaim ownership of those same tax cuts.
So I think I wasn’t the only one who found that a little strange, that he would now want to distance himself from these things.
Tavis: For those who clearly understand, in not the detail that you have written about, but understand clearly in layman’s terms that the president had a whole lot on his plate and there was a whole lot happening in the economy that he couldn’t control and he put himself up to run for office and has done his best against all the odds, what’s the best case that he makes, again, for getting reelected this time around?
Scheiber: Yeah, I think it’s twofold. I think it’s one; we were dealt this terrible hand. It really was a terrible situation, and no one can deny that. This idea that he had somehow – that Romney is putting forth that he has somehow made the situation worse is preposterous.
They really were dealing with a crisis situation, they solved the crisis. So the way I like to think about it is they got the patient out of the ER, and that was to their everlasting credit, but in the kind of physical therapy and the recovery portion, getting full use of your former faculties, they still left a little bit to be desired. So I think they have to do that, remember how grim things looked when we were in the ER.
The second thing is I think he has to emphasize, which I think he’s done pretty well in the last six, eight months, is look, I’ve learned that dealing with these guys in a kind of naïvely bipartisan way is just not going to get me anywhere, and from this point forward, if I want to get something done, I’m going to take my case to the American people and really make that case and put pressure on them from the outside-in.
I think he’s done that well. We saw that really play out in this payroll tax cut that they got renewed for this year. I’m really hopeful that should he win reelection he’ll stick with that model, because I think that’s the model that actually is effective at getting things done, whereas the kind of earnest, bipartisan, good faith negotiation just wasn’t very effective for two and a half years.
Tavis: I’m not real fan of Tim Geithner, with all due respect. That said, one of the ironies in this book that you talk about is that Geithner says to the president one day, “Your legacy is going to be that you kept this country from falling into another Great Depression,” and the president says, “That ain’t enough.” What a difference four years makes.
Scheiber: No question.
Tavis: They’re talking about this inside the Beltway and beyond. It’s the new book from Noam Scheiber. It’s called “The Escape Artist: How Obama’s Team Fumbled the Recovery.” Noam, good to have you on. Thanks for your work.
Scheiber: Thanks so much for having me, I appreciate it.
Tavis: Appreciate you. That’s our show for tonight. Until next time, keep the faith.
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