Confidence Men Part 21

How had the providers been allowed to walk away from their many flip-flops on cost-reduction promises? And now this was being used to demolish insurance? Obama had made his move; the cost-versus-coverage debate had s.h.i.+fted completely. Back in February, when the president first decided to make health care reform his number-one priority, the view was that attacking rising costs, which were crus.h.i.+ng both businesses and families, had the potential to be a truly bipartisan issue. Now that line of attack, never really tried, had been officially buried. It was all about expansion of coverage, and the insurers got to play the villain.

It was Ignagni's job in many ways to be the bad actor. That didn't bother her. It would be hard for anyone not paid by the industry to argue with a straight face that insurance companies were not a huge part of the problem. But Ignagni's strategy-to align with, rather than against, the White House-was a missed opportunity to fix the most fundamental issue in health care: cost.

Now the White House could attack someone, the insurers, with an attractively high negative rating. The fact that insurers were talking about rigor on costs was beside the point. They were not to be trusted. That much was now clear.

When Orszag thought of Summers's "home alone" riff, he came back again and again to the morning economic briefings, an anchor of the president's official duties almost every day. "The president thought those morning briefings were the best of the best, the finest economic minds that could be a.s.sembled. He'd say it all the time, how he's consulted with the best experts. But it wasn't the case." Orszag found the meetings less and less useful. Some mornings he simply chose not to attend; on those he did, he often felt it was not time well spent.

Krueger-who would sometimes fill in for Geithner, or visit the morning briefing to present a specially tailored research project-remarked that "Larry would frame an argument as A versus B, and that would sound right unless you were someone with deep enough mastery of an area to know that position D represented the real counterpoint and the best policy position was probably C."

The process inside the NEC was not all that strong. This was never Summers's suit. In some instances, the topic for a briefing would be selected late and the materials swiftly and haphazardly prepared. In one such instance, in July, Krueger got a late-afternoon call from Jason Furman, Summers's deputy at NEC. The next morning's briefing was to deal with immigration. Could Krueger pull something together? It was already dinnertime. Krueger said he taught a cla.s.s on immigration issues, and some of the economic effects, to Princeton freshmen. "I could bring some of those materials," he said. Furman said that would be fine.

Summers, with his rhetorical acrobatics, could paper over such gaps in preparation. This, in fact, was a point of great pride.

Or so he explained in the fall of 2009 to Andrew Metrick, the Yale economist whose father had been number two at Bear Stearns. Metrick had joined Romer's staff as chief economist. One day he found himself walking over to the Treasury Department with Summers, who'd taken a mentor's s.h.i.+ne to the youthful Metrick.

"Larry was complaining about the position Treasury was taking on some issue, and how he couldn't dislodge them from their position, that they just wouldn't budge. I said, 'Well, Larry, maybe they're right.' He just looked at me and said, 'That's not an issue. I can win any argument. I can win arguing either side. But then I sit back and think, "Which side did I win more soundly and fairly?" That's usually the right answer.' "

Metrick then recalled stopping and saying, "Larry, that sure places a lot of might on your internal discretion, and what you decide you want to decide."

Obama, propelled to office both through creating and being created by the bold expectations of a terrified nation, could hardly resist the neat fit Summers provided. Larry could win every argument, never flinched. As long as his own ambitions were salved, he'd make sure Obama felt sufficient confidence: that he had mastered the seminal issues, that as a young president he could succeed in office. But it was never enough to make the sweeping decisions that drive history's arc. The president hewed more to a split-the-middle brand of blended solutions: a little of this offset with a little of that.

Of course, Obama, with his great talent for spotting the play of historical forces and distilling it elegantly in his speeches, had to know deep down that blended, split-the-middle solutions allowed for three decades of disastrous drift in the health care and financial sectors and, more broadly, the U.S. economy. The problem now was that he had been found out. A select group of people who'd earned the certainty to make sweeping recommendations-such as Volcker, Warren, and Gensler-had stepped into the breach. All three of them, with their earned confidence and high purpose, raised questions about Obama's claim to either quality.

While Summers wrestled with his discontent, Volcker had been all over the airwaves, and in the magazines, from the day of the Frank hearings on. Summers was opposed to Volcker's idea of banning banks from proprietary trading. He had called around, and friends on Wall Street told him it was untenable to draw such a line with the volume and diversity of a major bank's trading portfolio.

But as Volcker was being lionized in public, Obama began to double back, wondering what his team thought of Volcker's idea. Biden, who was an old friend of Volcker's, stepped in during a White House meeting and said that the banks were strong enough to take some medicine now, even if it wasn't fundamental change. They were making money again, gambling with depositors' funds and with implicit, or explicit, support of the taxpayer. It wasn't right. Obama nodded. Joe had said it, straight and true.

On November 2, at a meeting of the PERAB, Obama called Volcker, Robert Wolf, and Summers together and said he wanted to try Volcker's idea. It was clear that Wall Street was taking advantage of its protected status, drawing free money from the Fed window and making more risky bets with it. "They did this to themselves," Obama said. The logistics of separating a bank's trading accounts from those of its clients was difficult but doable, Wolf said. He'd help to work out the details.

As they left the meeting, Summers turned angrily to Wolf. "You're taking his side!"

Wolf would have none of it. "Larry, I'm telling the president what I think. I'm not taking anyone's side-not yours or Paul's."

On November 5, the women prepared for their big night in the West Wing. After nearly eight months of growing strife in the White House's so-called gender wars, the president was finally engaging.

What had forced the issue? An October 24 New York Times story by Mark Leibovich t.i.tled "Man's World at the White House?" Several of the women, who generally did not speak for attribution, were aggrieved about a mid-October basketball game held with congressional members and Hill staffers in which no woman was invited to play on either team. Obama immediately called the accusations "bunk," saying that the players were largely drawn from a revolving congressional game, a list that had been reviewed by women on his staff.

The day after the article appeared, Obama invited Domestic Policy Council chairwoman Melody Barnes to join him for a round of golf-the first time he had included a woman in an outing all year-and it was decided that the women would join him for a dinner in the residence to air their concerns.

Several hours before the dinner was to begin on the fifth, the president was confronted with a disaster. Nidal Malik Hasan, an American-born Muslim army major, had allegedly opened fire at Fort Hood, in Texas, killing thirteen and wounding twenty-nine others. Obama, having been briefed throughout the day, spoke at a previously scheduled event at the Department of the Interior and called the attacks "tragic" and "horrific."

"My immediate thoughts and prayers are with the wounded and with the families of the fallen and those who live and serve at Fort Hood," he said. "These are men and women who have made the selfless and courageous decision to risk and at times give their lives to protect the rest of us on a daily basis. It's difficult enough when we lose these brave Americans in battles overseas. It is horrifying that they should come under fire at an army base on American soil."

A dozen women, including virtually all the president's senior female staffers, were sure the dinner would be canceled. But they gathered anyway for c.o.c.ktails in the residence, a nice opportunity for all of them to be together, only to be surprised, and delighted, when the president managed to arrive twenty minutes late. Their meeting with him was clearly a priority, and it was not the first time Obama had heard directly about the gender issues. In June, the afternoon of the jobless recovery meeting, Valerie Jarrett told the president he needed to meet with Romer and that a s.p.a.ce had been cleared on his schedule. Romer talked about the boys' club problem for many of the women-the way they were excluded from key meetings or ignored when they attended; the bullying atmosphere that prevailed-as well as the specific issues for her. "Have you ever tried to get a word in edgewise when Larry and Tim get going?" The president was skeptical about there being a problem, but attentive. Romer brought matters full circle to him: "If you give power to Rahm or Larry," she said, pointedly, "you're responsible for their actions."

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 s.e.xism 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 bypa.s.s 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 a.n.a.lysis.

"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 a.s.sessment was generous. "There was actually very little management at the White House."

At the conclusion of the meal, the president looked around and, in cla.s.sic Obama fas.h.i.+on, 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 a.s.sholes 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 Was.h.i.+ngton, 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 pa.s.sionate. 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 pa.s.s." 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 relations.h.i.+p."

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, publis.h.i.+ng 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 f.u.c.king 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 partic.i.p.ant, "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 Was.h.i.+ngton 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 Was.h.i.+ngton, 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 officially 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. "Mich.e.l.le 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 Was.h.i.+ngton.

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