New Year's Resolution: Clean House
President Obama's own instincts on how do deal with the economy seem to be somewhat better than those of his most senior advisers. At the White House jobs summit in December, he sounded less like Larry Summers or Tim Geithner and more like the man we heard on the campaign trail.
But Obama is under immense political pressure from the center and the right, and from some of his own top aides such as OMB Director Peter Orszag, to put deficit reduction ahead of job creation. Last month, the House Democratic leadership decided to jump the gun on the administration to create some salutary pressure from the left, and put forward a $154 billion jobs package, which included $50 billion in public works plus emergency aid to the states and extension of unemployment benefits.
On December 16, the bill just barely passed, 218-214 -- with several defections of conservative Democrats, and no help whatever from the White House. Had the bill failed, that would have doomed any Obama jobs program as politically unrealistic. Why didn't the president weigh in with wavering Dems?
We will soon find out, in the State of the Union Address, whether Obama will deliver on his promises to do something more about jobs, or whether his more conservative economic advisers will prevail.
If you are a congenital optimist about this president, your story goes something like this: Now that health care is almost wrapped up, and the decision about how to proceed in Afghanistan has been made (like it or not), Obama can turn more of his laser-like attention to the economy. As time passes, the health bill will look better than it does now, because at least it represents the beginning of federal regulation of the insurance industry, and the beginning of the end of employer-provided insurance.
Also, say the optimists, Obama may be losing some public support, but just look at the lunatic Republicans; they have even less support. Finally, some of the greatest presidents looked pretty feeble after just a year. Lincoln was losing the Civil War. John Kennedy couldn't get Congress to act and Nikita Khrushchev had adjudged him a weakling. Give the guy a little more time.
I happen to think that this comforting talk is mostly delusional. The path that Obama is on, unless he alters it fast, will lead to prolonged economic stagnation and Republican champagne next November. If you think a lunatic-fringe Republican party is any protection, look at the blowout victory of Pat Robertson protégé Bob McConnell in the Virginia governor's race two months ago. And this in a blue-trending state.
As Obama famously said when Senator McCain tried to use the financial crisis as a pretext to back out of the debate scheduled for Oxford, Mississippi, a president needs to be able to do more than one thing at a time. This president did not lift a finger as Congress gutted his bill on financial reform. That was the same week that Obama gave a rather calculated interview to Sixty Minutes, in which he blasted the bankers for not doing more about mortgage relief. But he didn't walk the talk. Despite brave rhetoric, the administration's mortgage program is a failure.
A financial industry that is alive thanks only to taxpayer bailouts continues to use its political influence to block reform and the president takes it while his Treasury Department keeps spooning out the help.
One problem is Obama's own penchant for consensus and compromise. As Matt Bai observed in Sunday's Times, Obama's line in the Sixty Minutes interview, "I did not run for office to be helping out a bunch of far cat bankers" just didn't sound like Obama. It "gave the impression of a man trying on an ill-fitting suit." But the next day, when the president sat down for an amiable chat with the same bankers, opined Bai, that was the real Obama.
True enough. But where Bai has it totally wrong is to insist that Obama would be ill-advised to strike a more populist set of rhetoric or policies. Bai contrasts failed "populists" such as Huey Long and William Jennings Bryan with successful "progressives" such as the Roosevelts. But of course FDR sided with the people against the banks. His entirely populist brand of progressivism delivered for regular people. Bankers hated FDR. Obama has yet to earn Wall Street's enmity.
Obama's professorial caution, Bai insists, reflects a leader who is "serious and methodical" about reforming the banks, and that beats hot rhetoric. If only Bai's fantasy were true. All that Obama's conciliatory caution has produced so far is legislation that sells out to the bankers.
What will it take for Obama to recover his footing? Some key personnel changes might be a start. As investigative reporters did deeper into the mess that Larry Summers made of Harvard's finances, you have to be thankful that the man isn't running the nation's economy (oh, whoops, he is.)
Summers reinforces all of Obama's conservative instincts and none of his progressive ones.
Tim Geithner, who was in charge of relations with Congress for Obama as the House deliberated the financial reform bill, weighed in mostly on the wrong side. If Obama is truly to signal a change of course and mean it, one constructive sign would be replacements for Summers and Geithner.
Fed Chairman Ben Bernanke may pay for these sins. Bernanke, needlessly appointed by Obama to a second term, has become the lightening rod for popular frustration at the Wall Street bias of this administration, and there could easily be 35 or 40 Senate votes against his confirmation -- the most in the history of a Fed chairman. A majority of Republicans on the Banking Committee voted no and most Republicans, attuned to this backlash, will likely vote no on the floor. Democrats must decide whether to save him. You can bet Obama will be personally be working this vote.
Thus far at the Obama White House, unfortunately, it's only progressives who get thrown under the proverbial bus. White House Counsel Greg Craig was forced out for the sin of taking Obama seriously when the president promised to close the prison at Guantanamo and end CIA complicity in torture. This could have opened several former top CIA people to acute embarrassment.
Sources tell me that CIA chief Leon Panetta, who as Clinton chief of staff saved Rahm Emanuel's bacon when Emanuel was nearly fired, called in an IOU.
But isn't prolonging the recession by propping up insolvent banks rather than emphasizing jobs and mortgage relief as serious a sin as embarrassing the CIA?
To replace Summers, how about his old nemesis, Joe Stiglitz, author of the superb new book Freefall? And to succeed Geithner, maybe Geithner's most astute critic, Elizabeth Warren of the Congressional Oversight Panel? Or the courageous FDIC Chair who keeps standing up to Geithner, Sheila Bair?
Let's not give up on the promise of Barack Obama. There is just too much at stake, and there is a part of him that has decent progressive instincts. But he is being led to ruin both by the insularity of a circle of advisers too wired to Wall Street, and by his own habitual temporizing. It will take a lot for Obama to change his operating style. Turning to a broader circle of advisers would help.
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