February 28, 2012
Books of The Times
Obama’s Economists, Not Stimulating Enough
‘The Escape Artists,’ by Noam Scheiber
By Michiko Kakutani (02-27-12)
Much has already been written about President Obama’s economic team, and much of it has been highly critical.
Richard Wolffe described it as “the most dysfunctional group of the president’s advisers.” Michael Hirsh wondered why many of the people who “let the catastrophe” of 2008 happen — through their deregulatory policies in the Clinton administration — were back “running the show.” Ron Suskind argued that Mr. Obama’s bold campaign promises to implement a broad swath of new fiscal regulations gave way to Treasury Secretary Timothy F. Geithner’s more tepid, Wall Street-friendly approach. And the economist Joseph Stiglitz slammed the Obama administration for “directing most of its efforts at rescuing the banks” and for a stimulus that was too small and poorly targeted.
“The Escape Artists,” a new book by Noam Scheiber, a senior editor at The New Republic, echoes such sentiments and goes on to provide a depressing account of what the author sees as the Obama team’s repeated failures to grapple forcefully with the economy and unemployment. The book draws on interviews with more than 250 people, including many former and current members of the administration. But its reporting is mixed with Mr. Scheiber’s very decided opinions — about, say, the size and shape of the stimulus and the political feasibility of passing something larger — that some readers will vigorously contest.
When it comes to Mr. Obama himself Mr. Scheiber draws a portrait of a president with a messianic streak, whose “determination to change the course of history” made him reluctant to accept Mr. Geithner’s suggestion that his signature achievement would be preventing another Great Depression. Instead the President insisted on pursuing his vision of health care reform in his first year in office even though many of his advisers were warning that such an initiative would distract attention from the urgent need to focus on the economy and jobs.
This book retraces lots of ground that will be familiar to readers of earlier books and news reports about the Obama administration, but Mr. Scheiber writes with ease and authority about complicated financial matters like the regulation of derivatives and too-big-to-fail banks. What the book adds are more behind-the-scenes details about how the president’s economic team handled the fiscal crisis, especially the initial 2009 stimulus. Mr. Scheiber’s portraits of team members similarly amplify those laid out in earlier books by Mr. Hirsh and Mr. Suskind, but he proves particularly adept at showing how their personalities, philosophies and previous experiences with one another shaped their interactions and the policy-making process.
Mr. Scheiber suggests that in-fighting among members of the Obama economic team slowed decision making and resulted in often muddled policy. He argues that Lawrence H. Summers, the director of the National Economic Council who acted as a sort of gatekeeper for President Obama, was “next to hopeless” when it came to generating a workable plan.
“Summers’s talent was for influencing a particular decision at a particular moment,” Mr. Scheiber writes. “He was not someone with a flair for the long game — for the week-in, week-out slog of bringing colleagues around to his views. His N.E.C. meetings had a persistent aimless quality. The academic-style discourse would drag on for hours without producing a single concrete conclusion; it would yield only increasingly esoteric questions.”
As for Mr. Geithner, Mr. Scheiber says that his background at the Federal Reserve Bank of New York — where he worked closely with Wall Street — indelibly shaped his view of banks. “Geithner’s problem wasn’t so much any one decision as his absolutism,” Mr. Scheiber concludes, “his conviction that anything that might cause the banks discomfort could tip the whole financial system back into chaos.” While “defensible, perhaps even necessary,” immediately after the collapse of Lehman Brothers, which led to a cascading crisis of confidence, “over time it became a kind of crutch, more a matter of emotion than case-by-case judgment.”
Mr. Geithner’s outlook eventually prevailed in the administration, and, in Mr. Scheiber’s opinion, led to reform that amounted to little more than tinkering around the margins: the banks, he says, “won major concessions on nearly every element they’d fiercely resisted.” This not only fueled populist anger against the banks and the administration, Mr. Scheiber argues, but also left in place many of the elements (like poorly regulated derivatives and too-big-to-fail institutions) that had contributed to the 2008 cataclysm in the first place.
“As a package,” he writes, “the reforms might mitigate whatever crisis strikes in the next 5 to 10 years. But they will not prevent it.”
When it comes to questions about the size of the Obama administration’s 2009 stimulus, Mr. Scheiber sides strongly with economists like Mr. Stiglitz and Paul Krugman, the columnist for The New York Times, who have argued that $800 billion just wasn’t large enough to do the job (in contrast to Congressional Republicans who thought it was too expensive and misdirected). This is why, Mr. Scheiber suggests, the recovery has been so slow, why unemployment remains high, why the American public has been so restive and pessimistic. He does not make a terribly convincing case, in these pages, for how the administration could have gotten a larger package through Congress.
As Mr. Scheiber sees it, there were “three giant cinder blocks weighing down the stimulus.” The first, he writes, had been obvious to the Obama brass from the start: the president was unfortunate enough to enter the White House with the economy still “spiraling downward, but well before the average voter grasped the steepness of the drop”; as a result “the ordering of events most people observed in 2009 — first Congress passed the stimulus, then unemployment hit 26-year highs — made it look as if Obama had worsened the problem, when the truth was the opposite.”
Mr. Scheiber regards the two other problems afflicting the Obama stimulus as self-inflicted ones. Although he reports that Christina Romer, chairwoman of the President’s Council of Economic Advisers believed that “it would take something on the order of $1.8 trillion to heal the economy completely,” he says that Mr. Summers dismissed that figure as impractical and regarded even the smaller figure of $1.2 trillion as dead on arrival in Congress. And so the team settled on the more modest number of $800 billion: the president-elect, Mr. Scheiber writes, “had little reason to suspect that this amount was perhaps $1 trillion too small.”
To make matters worse, Mr. Scheiber adds, a flawed January 2009 report from the economic team seriously underestimated the severity of the recession and became a testament to what seemed like “administration incompetence.” The report predicted that the stimulus would hold unemployment to 8 percent or lower, he writes, when in fact the unemployment rate surged “after the president signed the bill into law, reaching 9.4 percent within three months and a high of 10.1 percent in October.”
Echoing other commentators on the left, Mr. Scheiber also argues that the White House was slow to realize that “the G.O.P. had no interest in compromise,” and that it repeatedly caved to the Republicans over taxes, the deficit and the debt ceiling. He contends that Mr. Obama did little to line up Democratic support in Congress for his jobs bill and other policies, and that he “rarely exploited the massive stature of his office as a tool for influencing legislation” during the making of the original stimulus in 2009, during the initial push for health care reform, or during bargaining over the Bush tax cuts and the standoff over the deficit.
Mr. Scheiber’s conclusion? “That Team Obama helped avert catastrophe” — that is, a slide into another Great Depression — is “beyond question,” but despite its heroic efforts, “the Obamans nonetheless failed at the task they set for themselves — of restoring the economy to something resembling its precrisis vitality.” Given that a lot of pre-2008 prosperity rested on shaky grounds (a housing bubble, huge amounts of leverage and deregulatory policies that fueled the Wall Street meltdown), and given recent sprouts of hope on the economic front (a rising Dow, an improving jobs picture), it feels like a glib and premature conclusion to what is a revealing, if polemical, book.