According to Summers, “excessive pragmatism” meant Obama’s views and actions were not easily pigeonholed, leaving the chief advocates from both the left and right perpetually unsatisfied.
But the president was not satisfied either, Summers said. “Obama really doesn’t have the joy of the game. Clinton basically loved negotiating with a bunch of other pols, about anything. If you told him, God, we’ve got a problem. We’ve got to allocate all the office space in the Senate. If you could come spend some time talking to the majority leader in figuring out how to allocate office space in the Senate, Clinton would think that was pretty interesting and kind of fun. Whereas, Obama, he really didn’t like these guys.”
• • •
Another problem for the president and his economic team was brewing in the House. The new Budget Committee chairman, Paul Ryan, seemed determined to challenge the president on basic federal budget issues, especially spending on Medicare and Medicaid.
When he had first come to Congress in 1999 at age 28, Ryan had been so youthful-looking he had problems getting into the House
chamber. His slight frame and a mop of dark hair led the Capitol police officer guarding the door to assume he was staff.
Ryan believed his most important challenge was learning how to be an effective lawmaker, and he began charting a path right away. Having lost his father at the age of 16, he had always sought mentors, working as a speechwriter for former Republican Congressman Jack Kemp and former Reagan Education Secretary Bill Bennett. Now he reached out again, asking a number of the House’s senior members to breakfast or lunch, seeking guidance.
He sat down at one point with Representative Barney Frank, the Massachusetts Democrat known for his biting wit and powerful intellect. Though they were ideological opposites, Frank gave him what Ryan considered the best advice he got about how to be an effective congressman. Be a specialist, Frank told him, not a generalist. Focus on one set of issues. Get on the committee that you care about, and then learn more about the topic than anybody else.
Ryan also sought out Bill Thomas, the Republican chairman of the powerful House Ways and Means Committee. Talk to all the experts you can find, Thomas told him, and read everything you can. Know these things inside and out.
Having majored in economics and political science as an undergraduate at Miami University of Ohio, Ryan didn’t take long to decide that the Budget Committee was where he wanted to be.
Following the advice of Frank and Thomas, he threw himself into the world of economic policy wonks, consulting with experts and issuing detailed legislative proposals for balancing the budget and getting the federal debt under control.
Ryan had come into Congress thinking that health care was a Democratic issue, and not so much a financial one. But the more he pored over budget numbers, the more he came to believe that unless drastic changes were made to health care spending, the United States could never get its budget under control. This isn’t a social issue, he concluded, this is an economic issue. On one level, it was not complex—the drivers of runaway spending were Medicare, Medicaid and Social
Security. Spending on these three entitlement programs would double in the next 10 years.
By 2007, the beginning of his fifth term, he had worked his way up to the highest position available to a Republican on the Democrat-controlled House Budget Committee: ranking member.
Some congressmen aim for such titles because they covet prestige or authority. Ryan coveted computing power.
As ranking member, he gained access to the actuaries and economists at the Congressional Budget Office. His research requests would be honored, and he could test his budget plans against the powerful computer models used by CBO staff to analyze federal spending.
In 2010, still in the minority, Ryan released his “A Roadmap for America’s Future”—a plan he said would bring the federal budget into balance by the middle of the century, eventually eliminating both the debt and the deficit.
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The centerpiece of the “Roadmap” was a plan to replace the existing Medicare system with vouchers that recipients could use to purchase health insurance on the private market. The plan drastically cut federal spending on Medicare in the coming decades. But the method raised howls of protest. The value of the vouchers would grow at a rate lower than the rate of health care inflation, meaning that unless growth in health care costs suddenly slowed, recipients would have to use more of their own money each year in order to maintain the same level of coverage.
In a hearing on February 2, 2010, Democratic Representative Allyson Schwartz of Pennsylvania said the Ryan plan would “end Medicare as we know it,” a phrase that would become a standard talking point for Democrats.
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• • •
But not all Democrats had trashed Ryan’s ideas. The president had appeared at a House Republican retreat in Baltimore on January 29, 2010, where he praised parts of Ryan’s proposal.
Ryan posted a clip from the event on YouTube.
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What mattered for
Ryan was Obama’s tone. The president sounded like he wanted to avoid partisan trench warfare.
Obama called Ryan’s Medicare plan “a serious proposal. I’ve read it. I can tell you what’s in it. And there’s some ideas in there that I would agree with but there’s some ideas we should have a healthy debate about because I don’t agree with them.”
The president indicated that he and Ryan were on the same page when it came to understanding the federal spending problem. “The major driver of our long-term liabilities, everybody here knows, is Medicare and Medicaid and our health care spending. . . . Nothing comes close. That’s going to be what our children have to worry about.”
In the videotaped discussion, Ryan made it clear to Obama that under his plan those currently 55 or older would see no change in conventional Medicare, but those who were younger would pay more. “It has to be reformed for younger generations,” Ryan said, “because it won’t exist. It’s going bankrupt.”
“As I said before,” Obama continued, “this is an entirely legitimate proposal. There is political vulnerability to doing anything that tinkers with Medicare. And that’s probably the biggest savings that are obtained through Paul’s plan. And I raise that not because we shouldn’t have a serious discussion about it; I raise that because we’re not going to be able to do anything about any of these entitlements if what we do is characterize whatever proposals are put out there as, ‘Well, you know, that’s the other party being irresponsible . . . the other party is trying to hurt our senior citizens.’
“That’s why I say: If we’re going to frame these debates in ways that allow us to solve them, then we can’t start off by figuring out a) who is to blame and b) how can we make the American people afraid of the other side. And unfortunately that’s how our politics works right now. Every time somebody speaks in Congress, the first thing they do, they stand up, have all the talking points, I see [pollster] Frank Luntz up here, he’s already polled it. . . . I’ve done a focus group, the way we’re going to box Obama in on this one, or make Pelosi look bad on that one. That’s how we operate. It’s all tactics. It’s not solving
problems. And so the question is: At what point can we have a serious conversation about Medicare and its long-term liability, or a serious conversation about Social Security or a serious conversation about budget and debt in which we aren’t simply trying to position ourselves politically?
“That’s what I’m committed to doing.”
It was a remarkable on-the-record olive branch, and Ryan took the president at his word, hoping for a real dialogue and negotiation.
• • •
On April 5, 2011, Ryan, now chairman of the powerful Budget Committee, released an updated version of the “Roadmap” called “The Path to Prosperity.”
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He highlighted stark differences between his plan and the annual budget request that Obama had sent to Congress earlier in the year.
The administration had claimed its plan would reduce the deficit by $1.1 trillion over the coming decade. The Ryan budget claimed to cut the deficit by $4.4 trillion.
The administration proposal would continue deficit spending indefinitely. The Ryan budget would create a budget surplus by 2040.
Ryan had provided the plan to the Congressional Budget Office in advance and simultaneously issued the results of the office’s analysis.
The CBO largely confirmed Ryan’s claims about cutting the deficit and bringing the budget into balance.
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But it warned that Ryan would accomplish that by pushing a large and growing share of health care costs off the federal government’s balance sheet and onto individuals and states.
“Under the proposal,” the CBO found, “most elderly people would pay more for their health care than they would pay under the current Medicare system.” Ten years into the Ryan program, total spending on Medicare patients would be higher, because private plans do not hold costs down as effectively as Medicare. The government would save money only because its share of those increased costs would be much smaller. The CBO found that the percentage of total costs paid
by seniors enrolled in Medicare would increase from 25 percent to 68 percent.
The Ryan proposal would also turn Medicaid into a block grant program, with the amount of money given to the states each year increasing at a rate slower than the expected increase in health care costs. The proposal gave states more choices about how to spend the money, the CBO found, but:
“Even with additional flexibility, however, the large projected reduction in payments would probably require states to decrease payments to Medicaid providers, reduce eligibility for Medicaid, provide less extensive coverage to beneficiaries, or pay more themselves than would be the case under current law.”
In the end, the elderly and the poor would pay more for their health care, and the government less. Would this be manageable for seniors and the poor? Ryan hoped that it would be made so by an economic renewal that he expected to result from stabilizing the federal deficit and cutting taxes.
But many Democrats, like Chris Van Hollen, the ranking member on the House Budget Committee, thought it was fantasy.
The CBO had noted that when the plan was in full effect in 2022, the average Medicare recipient would be receiving $25,560 in annual Social Security payments. These would be retired seniors with few potential sources of additional income. Even if an economic boom were to occur, it was hardly going to change their circumstances. The Ryan plan would increase their health care costs by more than $7,000 a year.
• • •
Congressional Republicans had their hands on a political atomic bomb.
The legal limit on government debt, which was currently set at $14.7 trillion, would have to be increased in the spring or summer. If not, the United States would default on its obligations. Financial markets considered U.S. Treasury securities the world’s safest investment.
Investing and trading strategies around the globe were built on the assumption that they were essentially risk-free assets. If the U.S. stopped paying its bills, confidence in Treasuries would be shaken, and the economic turmoil that would result was almost unthinkable.
In a January 6 letter to Harry Reid, copied to all members of Congress, Treasury Secretary Geithner warned, “Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs.
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Even a very short-term or limited default would have catastrophic economic consequences that would last for decades.”
For most of the past decade, increasing the debt limit had been a routine matter. That had changed significantly in 2009, when Senator Conrad’s group of Democrats held it hostage in order to force Obama to appoint the Simpson-Bowles fiscal commission.
Now Republicans led the House, and the takeover had been spearheaded by candidates affiliated with the Tea Party, whose opposition to deficit spending animated their campaigns. With the Treasury nearing the debt limit again, House Republicans were certain to up the ante and use the extension to extract spending and tax cuts. Boehner had for months made it clear that a debt limit increase would only pass if it were accompanied by real spending cuts and serious deficit reduction.
The White House had a more immediate problem: funding the government through the rest of the year. Without a budget, the country’s day-to-day operations were funded under a series of short-term “continuing resolutions.” Each time one neared expiration, Republicans warned of a looming government shutdown.
There was a new team at the White House. Emanuel had returned to Chicago to run for mayor. He was replaced by former Clinton Commerce Secretary William Daley, 62, an affable lawyer who had strong business contacts and sympathies.
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Born into the legendary Chicago political family—his father, Richard J. Daley, served 21 years as mayor, and his brother Richard M. Daley served 22—Daley’s background was business. He had been president of SBC Communications and a member of the executive committee at JPMorgan Chase.
Jack Lew was now head of OMB, a job he had also held during the Clinton administration.
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A strong supporter of Hillary Clinton during the 2008 Democratic primary, Lew had followed Clinton to the State Department, where he served as deputy secretary for management and resources for two years. Lew, 55, was a Harvard graduate who wore round wire-rimmed glasses, and had a head of thick black hair streaked with gray. He was a committed progressive, unafraid of wading into political fights. A soft-spoken budget technician, he had been trained in the office of House Speaker Tip O’Neill, where he had been deeply involved in negotiating the 1983 deal between President Reagan and O’Neill to save Social Security. The deal included an acceleration of a planned increase in payroll taxes from 10.8 percent to 12.4 percent. Lew had taken away a key lesson. O’Neill publicly described it as a tax increase and Reagan as a benefits cut. As long as neither challenged the other’s statements, the deal was accepted. Lew kept a picture of himself and O’Neill in his office. Next to it, under the frame, was a personal “Dear Jack” letter of thanks from Reagan, dated April 26, 1983.