In an Uncertain World (22 page)

Although our broad effort at health care reform was not successful, the administration was later able to pass important smaller pieces of legislation—including an expansion of health care coverage for children and portability of health insurance for people changing jobs. I also think that many of the insights, much of the analysis, and some of the specific proposals developed by the health care reform project will be useful in future reform efforts, and I believe at some point circumstances will force the political system to make major change.

   

MY SON JAMIE'S marriage to Gretchen Craft in 1994 was wonderful for them, but also a respite for Judy and me. They had met while both were students at Yale Law School and now were going to be married in Gretchen's hometown of Kansas City, Missouri. Many of our friends flew in from New York City and elsewhere for a lively weekend of parties. Gretchen's parents, Jack and Karen Craft, and her sister, Elizabeth, have become not only relations but friends. Jack is deeply engaged with Republican Party politics—both Republican senators from Missouri were at the wedding—but I think he has adjusted to his daughter's apostasy. Jack is also an enthusiastic (and quite skilled) fly fisherman, and on our various trips we've managed to discuss both politics and fly selection without difficulty.

A particularly memorable event at the wedding that weekend, at least for Judy and me, took place at the rehearsal dinner. Shortly before our irreverent younger son, Philip, was supposed to give a toast, Judy saw him scribbling on a napkin. She asked what he was doing and was horrified to hear that he was just then composing his remarks. When he got up to speak, Judy was in a state of anxious anticipation. He started by saying that his remarks were going to be about cynicism and I thought she would collapse. But Philip's turned out to be the best toast of the evening: a very thoughtful and moving commentary about how Jamie and Gretchen's relationship was the antithesis of cynicism. And so another potential pothole in life was safely avoided.

I then returned to Washington and a world of potholes. On election day in 1994, Democrats lost control of both houses of Congress for the first time in forty years. Not a single Republican incumbent lost a race for congressman, senator, or governor. No independent observer had predicted such a stark result, nor had anyone in the White House. A shell-shocked feeling pervaded the West Wing. I was surprised but not so emotionally engaged to have that kind of reaction myself—my life was economic policy and trying to make the NEC work. Also, I didn't begin to foresee the full consequences of a Republican-controlled Congress.

But I was keenly interested in the arguments about why this had happened and what the administration should do. The day after the election, some of the political people got together in the office of Mark Gearan, the communications director. I wondered if I would be welcome—I wasn't really qualified to comment the way people such as political director Rahm Emanuel, chief speechwriter Michael Waldman, or others were. But someone invited me, so I went.

The essential debate in that meeting, and for some time after the election, was whether to take a more populist or a more centrist tack. Shortly after the election—following a meeting on health care conducted by a new joint process of the Domestic Policy Council and the National Economic Council—I had a discussion with Bob Reich and Hillary about all of this. Bob said the election had shown that the Democratic base wasn't motivated and we needed to move in a much more populist direction. My view was that some of the policies and much of the language that Bob called populism was unwise economically. I respected—and had learned from—Bob's insights on the importance of education and training and addressing inequality, but I felt strongly that the language he and some of the political advisers were eager to use, terms such as “corporate welfare,” could adversely affect the business confidence requisite for economic growth. Nor did I think populism would be effective politically. Hillary agreed, telling Reich, “Bob, the polls and political intelligence we have say that the people we need to reach don't respond well to that kind of populist approach.” She was very pragmatic—she didn't think the approach would work and said so.

But if Reich's interpretation was wrong, what
was
our problem? My own view of the 1994 debacle emphasized five factors. First, by the time of the election, the economy's strength and the contribution made by Clinton's decisions were not yet clear. The second was the mischaracterization of our deficit reduction as a tax increase on the middle class, which proved extremely hard to shake. Related to that was a third factor: the misimpression, fueled by the health care plan, which itself was misleadingly described by opponents, that Clinton was an old-style, biggovernment liberal. Fourth was the effect in some elections of Clinton's advocacy of gun control legislation. A fifth and final factor was a series of issues and episodes, mostly minor but blown out of proportion by the press, manipulated by political adversaries, and, as a contributing factor, sometimes mishandled in some respects by the White House.

Preeminent among these was Whitewater, a numbingly complicated story about a money-losing real estate investment the Clintons had made in Arkansas in the 1980s. For years after
The New York Times
broke the story during the 1992 campaign, investigations by the press and congressional committees cast a shadow over the administration. These inquiries damaged lives and careers and provided an endless supply of ammunition to the President's opponents. But after the expenditure of tens of millions of dollars, the conclusion most sensible people reached—as did, ultimately, the independent counsel—was that the original Whitewater charges against the Clintons had been unsubstantiated. Many felt that the way the White House dealt with the issue made matters worse, although I could understand the Clintons' frustration.

My two years in the White House were a deep immersion course in politics and the workings of Washington. Early in the administration, Clinton said to me that his gays-in-the-military position was really going to hurt Democrats in the South for many years to come.

“Mr. President, that can't be,” I replied. “I mean, that's what happened today, and they don't like it. Tomorrow you're on to the next thing.”

And Clinton responded, “No, this is going to affect how people look at us for a long, long time.”

That's a good illustration of how a decision can have political consequences far beyond what most people could anticipate, and of how someone with political sensitivity can see possible effects that others miss. Bob Strauss once said to me that either you have political feel or you don't. I think that I had some when I began in Washington and that it developed over my time there—though it was never near the President's level or that of some others in the White House.

When I suggested to the President—in various meetings when the 1994 election came up—that health care or gun control had been involved in the debacle, he would remind me of the tax increase or our failure to get our economic message out effectively. I never heard his more considered diagnosis of what went wrong. In the immediate aftermath of the election, he seemed off stride in a way I hadn't seen before. Around that time, I watched him prepare for a press conference. George and others were throwing him questions in the small dining room off the Oval Office. Usually a master of such situations, he wasn't knocking back the warm-up pitches. He seemed down and a little disoriented.

I identified with Clinton based on a feeling that dated back to troubled times in arbitrage or in fixed-income trading at Goldman Sachs. What had worked to make money had stopped working, just as Clinton's political strategy had stopped working, and for a time my Goldman colleagues and I felt we had lost our grounding. It was a sense of bad news compounding, of unanticipated losses on top of unanticipated losses with no end in sight and no clear sense of a strategy for going forward. That feeling eventually gave way to a sense that we were getting a grip on our problems. But as I prepared to move to a new job at the Treasury, Clinton hadn't regained his footing. He hadn't figured out how to operate in this new political environment. And the rest of us hadn't either.

CHAPTER SIX

Confidence and Credibility

IN AUGUST 1994, LLOYD BENTSEN called to tell me that he was planning to resign as Treasury Secretary after the midterm election in November. “I haven't told this to anybody else,” he said. Lloyd explained that he was telling me because he was afraid I might be thinking about leaving the administration as well. If I went to the President with my resignation first, it would make it harder for him to go. Lloyd said he was going to recommend that I take his place at Treasury.

The only person I told about Lloyd's call was Judy. She had mixed reactions. She was pleased that I might have the opportunity to do something I wanted to do. But she had been hoping that after two years in the administration, I might leave and rejoin her in New York full-time. She was also afraid that the job of Treasury Secretary would impose a new kind of formality on our lives. Judy wanted to know if I'd still be able to walk down Park Avenue in an old pair of khakis. I said that whatever happened, I had no intention of changing because I had the job of Treasury Secretary.

Some weeks thereafter, the President asked me to come to his office. He told me what I already knew—that Lloyd was leaving and had suggested that I be named as his replacement. Clinton said something that indicated that he was inclined to take the recommendation—but not without some concern about my leaving the job I was in. He said he felt the National Economic Council had worked well in a White House that continued to face problems of process and organization. For that reason, he had mixed feelings about sending me elsewhere. “You'll be over there, and I'll still be stuck here in the White House,” he said somewhat ruefully.

Shortly thereafter, Leon Panetta, who had only just succeeded Mack as chief of staff, had me over to his office. He said that if I moved to the Treasury, it would leave a problem at the White House, but that he thought the choice would be mine. I responded that I wasn't so sure about that, since the President hadn't yet offered me the job. I was encouraged that Leon thought it would be up to me, but I wasn't going to say I wanted the job until I was certain it was being offered. Instead, I told Leon that I had to think about my own life and what I wanted to do next.

The situation remained ambiguous for a long while. A number of people who knew Lloyd was leaving assumed that I would replace him. But weeks and then more weeks went by and for some reason nothing happened. I never found out if the delay was because Clinton was considering other candidates for the Treasury job, deciding what to do about the NEC after I moved, trying to figure out how to get me to stay where I was, or simply dealing with more pressing matters. The President may also have been avoiding an issue that he wasn't eager to face. Eventually, Leon called to tell me that the President wanted me to take the job and that was that. Clinton himself never formally offered me the position. Erskine Bowles, Leon's then deputy and later White House chief of staff himself, used to joke some years later that if things kept going well for me as Treasury Secretary, maybe one day the President would offer me the job.

I did have a variety of concerns about becoming Treasury Secretary. I had learned in my two years at the White House that, while the substance of the issues was most important, presenting positions in a way that was clear and precise and would also resonate with the public was also critical. At the NEC, I'd noticed that those who were really skillful at framing issues often didn't just have a gift for communication. They were people such as George Stephanopoulos, Gene Sperling, and Sylvia Mathews, who also understood policy and were able to think several chess moves ahead, anticipating the likely reaction to a comment and the possible reactions to that reaction.

One of my biggest worries in moving to Treasury was how to find that quality of advice about communications and political strategy away from the White House. To be fair to the NEC, I had said I wasn't going to take anyone but Sylvia with me to Treasury. But that meant I would have to build an entirely new team. I was especially concerned about how I was going to function effectively without Gene, the person I relied on most heavily in those areas. As it turned out, Treasury had a number of people with strong political and communication skills combined with policy expertise. But I didn't know that before I got there.

When I discussed this problem with Leon, he suggested that I take along David Dreyer from the White House communications office because he was unusually bright and had an especially good feel for framing issues. With his beard, ponytail, diamond-stud earring, and American flag necktie (usually worn with a denim shirt), David was not your typical Treasury official. What's more, he had a reputation as being one of the more liberal members of President Clinton's political team. I once gave Alan Greenspan a good fright by introducing David—who was dressed even more outlandishly than usual that day—as a close adviser of mine. The chairman stared at David as if he were a visitor from another planet.

I found that Treasury was different from the White House in all sorts of ways. At one level, my role, while broad, was more defined. I was the head of an immense enterprise that, while obviously answerable to the President, also functioned in many respects as a freestanding subsidiary, with established statutory responsibilities. These included supervision of (though with varying degrees of authority over) large agencies, including the Internal Revenue Service, the Customs Service, the Bureau of Engraving and Printing, the Secret Service, and the Bureau of Alcohol, Tobacco and Firearms. Much more central to the life of the Secretary, Treasury also has several big policy shops. International Affairs deals with international economic policy and with representing the United States at the IMF, World Bank, and other multilateral institutions. Domestic Finance handles debt management, oversight of bank and regulatory functions, and much else. Tax Policy is central to any administration's economic strategy. The Economic Policy Group provides analysis on a broad range of issues. All told, I was now in charge of 160,000 employees.

In another sense, though, my position as head of a cabinet department was much more exposed and precarious. At the NEC, I had been one member of a group of people who helped to formulate and advocate the administration's economic policies. Now I was publicly and politically accountable in a way I hadn't been at the NEC. Because of his extensive knowledge and deep involvement, Bill Clinton remained the real leader of his own economic team—as well as being the decision maker with the ultimate responsibility. That notwithstanding, I was now also in some measure the personification of the administration's economic policies. That meant that if the performance of the U.S. economy deteriorated in any way in terms of inflation, unemployment, productivity, trade, or the strength of the dollar, I would be viewed as in some sense responsible—certainly for the policy response and probably to some extent for the problem as well. It also meant that those who objected to the administration's economic policies now saw me as the personal expression of them, not just as a part of a White House process that devised them. In short, I was now in the line of political fire in a way I hadn't previously been and hadn't really recognized as part of the Treasury Secretary's job until it became mine. And just when I took that job, the fire became a good deal more intense, thanks to the Mexican crisis.

The experience of serving as Treasury Secretary brought me closer to two related concepts that had already become central to my Washington experience: confidence and credibility. At the NEC, I focused on confidence and credibility as they related to the President and his policies. My first job at the NEC had been to assist in designing an economic plan that would lead to the kind of business, consumer, and financial market confidence that were necessary for Bill Clinton to succeed in his economic goals. I also helped advise him on ways to increase—and avoid diminishing—his public credibility as an economic policy maker and leader. An administration's policies are by far the most important determinant of its economic credibility. But how an administration speaks about economic issues, both in tone and in substance, affects its reputation with businesses, consumers, and markets as well. And that reputation is important. If an administration is viewed as generally sensible on economic matters, that contributes to confidence. If, on the other hand, an administration is viewed as not sensible economically, that diminishes confidence.

At Treasury, I retained those same responsibilities as part of the President's economic team. But I had a new role as well. The most important factor in an administration's economic credibility is what the President does and says. But how the Treasury Secretary handles himself in office is also meaningful. As the administration's lead economic spokesman—a role long enshrined in practice—I had direct, as well as indirect, responsibility for furthering confidence in the U.S. economy. That meant that my credibility now mattered for more than personal reasons. And, as I quickly discovered, my credibility was at constant risk from substantive mistakes or careless words—or even from carefully crafted words that people didn't relate to in the way I had anticipated. I also faced the new hazard of what were sometimes harsh personal attacks as an inherent part of my new job.

There was a critically important paradox at the heart of my new role, one that unfortunately is not always well understood. At one level, confidence and credibility are issues of perception—perceptions about how strong economic conditions are, how well an administration is handling economic policy, how successful the President is in his job, and how effective the Treasury Secretary is in his. But to say they are perceptions does not mean that they're based on illusions or that they can be manipulated for any length of time. While economic confidence and an administration's economic credibility might at times and in certain ways diverge from reality, they are ultimately grounded in reality. For that reason, pursuing confidence and credibility as goals in themselves is largely futile. Trying to create an impression of economic strength will almost surely backfire. Public relations efforts or attempts to “jawbone” the economy or markets don't change the underlying realities. They only diminish the credibility of anyone who tries—whether a President or a Treasury Secretary—and erode his ability to instill confidence.

In other words, while confidence and credibility were constant concerns, they weren't objectives that someone in my position could pursue explicitly. Ultimately, confidence would come from the policies we pursued. And managing the politics well would be critical to what we could accomplish in an era of Republican control of the legislature.

   

THE STRUGGLES THAT PLAYED OUT in the course of 1995 and early 1996 between President Clinton and the new majority in Congress were about issues of great and fundamental importance: What functions should government perform? How large a role should government play in society? How much should the government help the poor? In retrospect, what was happening in those days is much clearer. Bill Clinton was in the midst of turning back a powerful antigovernment effort by the victors in 1994 congressional elections. At the time, however, it just felt like bitter fighting over everything.

Internally, the Clinton administration continued to face a conflict over how to respond to the Republicans. On one side was the argument that we needed to be more populist, to energize the Democratic Party's base. That view was best exemplified by Secretary of Labor Robert Reich, who was now speaking publicly about the need to cut what he termed “corporate welfare.” I shared the view that public subsidies for profit-making enterprises, many of which were embedded in the tax code, were often wasteful and unjustified. But I also thought that using the term “corporate welfare” was inflammatory and could adversely affect how the President was seen and, as a consequence, the economy itself. In addition, I had sat in on enough discussions about swing voters to feel that this crucial section of the electorate reacted badly to anything that sounded like class warfare. President Clinton had gone a long way toward countering the old stereotype of Democrats as being antibusiness. To a surprising degree, he had gained the confidence of the business community and financial markets. Using language that sounded hostile to business could undermine that confidence, harming both the economy and the administration.

On top of these substantive and political disagreements, there was a process issue. Throughout the first two years of Clinton's first term, Reich had been an especially good team player inside the administration. As someone who had a close personal relationship with Clinton going back to their days together at Oxford, he could easily have gone around the NEC process. As far as I could see, he never did that. But now he was venturing into new rhetorical and substantive territory on his own, without any internal debate. To me, that seemed inconsistent with our understanding. Our agreed-upon process was that if people on the economic team differed and couldn't work out their dispute on their own, they should take the issue to the President, through an NEC process, for him to decide. Then we could all publicly support whatever the decision was. What Bob was now doing left me, as someone who strongly disagreed with him, in a troubling position. If he alone spoke about these issues, he would appear to represent the administration's position. But if I spoke on the other side, it would look as though the administration were divided. Process can be a fragile thing; I couldn't do what Bob was doing without creating a mess. After some discussion, Bob—who, like the rest of us, was very supportive of our all working as an economic team—agreed not to use that kind of language. We agreed to conduct a public conference on the related issue of corporate best practices.

Around the time this was going on, debates inside the White House began to be affected by the invisible hand of Dick Morris. In the spring of 1995, people at the White House were stunned to discover that the President had created an entirely separate advisory team led by Morris, a pollster and political consultant who had worked for him in Arkansas. Though I didn't have much interaction with him, I thought some of Morris's perspectives, such as his focus on swing voters, made sense politically. But the problem once again was the need for a regular process. It made sense for the President to solicit views from whomever he found helpful. But there should have been a way to do that without circumventing the regular structure of the White House, which created all sorts of problems.