The Price of Politics (5 page)

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n Capitol Hill, the final version of the stimulus package was being hammered out, and negotiations were getting intense. In early February, Reid and Pelosi summoned Emanuel and Orszag to the speaker’s office in the Capitol.

Emanuel and others had been urging Obama to get involved, to weigh in, engage with Congress. Yes, the final bill was going to be written on the Hill—because legislation written on the Hill by the majority will pass—but the tension was so high that it could unravel. The president needed to show his commitment.

The president’s advisers arrived in Pelosi’s office, with its breathtaking view of the National Mall and the towering Washington Monument, to find Reid and Pelosi in full deal-making mode. The economy was falling off the cliff and the Republicans were not cooperating, so the Democrats at least had to come together.

Reid and Pelosi knew they needed to cut a deal on the actual numbers that would avoid a Republican filibuster in the Senate while retaining Democratic support in the House. It was the 11th hour, and they were down to the details. Numbers were flying around the office. How about $4.1 billion for school renovation? A little more? A little less?

At this moment, Obama called into the speaker’s office and Pelosi
put him on the speakerphone near the window so everyone could hear.

He delivered a high-minded message. They were going to save the economy with this bill, everything was at stake, unity of action, unity of purpose.

Thank you, Mr. President, thank you, said Reid.

Pelosi thanked Obama. We understand. We get that.

But the president wasn’t finished. Warming to his subject, he continued with an uplifting speech.

Pelosi reached over and pressed the mute button on her phone. They could hear Obama, but now he couldn’t hear them. The president continued speaking, his disembodied voice filling the room, and the two leaders got back to the hard numbers.

• • •

It took days more, but on February 13, both the House and Senate passed the final $787 billion stimulus bill.
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All 177 House Republicans again voted against it.
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It included $288 billion in tax cuts, $224 billion more for entitlement programs, such as extending unemployment benefits, and $275 billion for contracts, grants and loans. The bill was 1,100 pages long.

At a signing ceremony in Denver three days later, Obama said, “Today does not mark the end of our economic troubles.
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 . . . But it does mark the beginning of the end.” The plan “will create or save 3.5 million jobs”—squishy language, as it would be difficult to identify specific jobs that had been saved.

• • •

“Absolutely, we need earmark reform,” candidate Obama had said in the first debate of the presidential campaign in 2008.
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A typical feature of most spending bills, earmarks are provisions added by individual senators and congressmen directing specific
amounts of money to specific projects in their states or congressional districts.

“And when I’m president, I will go line by line to make sure that we are not spending money unwisely.”

Less than a month after he signed the stimulus bill into law, Obama was staring at a massive appropriations bill that had passed Congress and was awaiting his signature.

Reid wanted the president to sign it, but the bill had 8,570 earmarks adding up to $7.7 billion in spending, much of it on easily ridiculed hometown pork and pet projects.

The president balked. He wanted to take a stand.

Republican leaders in Congress were howling for a veto and claimed anything less would be a violation of Obama’s campaign promise.

House Minority Leader John Boehner’s spokesman reminded reporters, “The president has made some very specific promises when it comes to earmarks, and in order to keep them he is going to have to stand up to Democratic leaders on Capitol Hill.”

Reid was incensed. Members saw that spending as key to serving the needs of their constituents, and Congress actually had reduced the number of earmarks compared to previous years. Politically, a veto of the bill would blow up months of painful negotiations, opening previously settled issues to another round of debate.

In a meeting with Obama, Reid said, Look, this is our prerogative. I understand you don’t like earmarks, but they serve an important purpose, and if you get rid of them all, you’re not going to get anything else done.

Reid’s threat left the president tense and frustrated. In public, he tried to make the best of it.

He signed the bill, in private, on March 11, 2009. At the same time, he issued a statement proposing increased safeguards against abuse in the future.
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Republicans hammered him for breaking his word. And the president’s erstwhile allies, congressional Democrats, fumed over what they saw as White House overreach.

House Majority Leader Steny Hoyer, a Maryland Democrat, all but
dared Obama to try reforming the process, telling the press, “I don’t think the White House has the ability to tell us what to do.”
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For the Obama true believers, those who saw him as a reformer, it was, perhaps, the first hint of disillusionment. He had promised things would be different.

To those members of the administration new to the executive branch, it was an early indication that the inside game of governing was very different from the outside game of campaigning.

• • •

On Tuesday, November 24, 2009, just before Thanksgiving, Senator Kent Conrad headed down Pennsylvania Avenue for a private meeting at the White House with his former colleague, now the president. It was another step in a career-long effort of what could be called “The Project,” or “The Mission.” Conrad, the head of the Senate Budget Committee, believed the country was heading off a fiscal cliff. He could prove it, and he was going to fix it.

His intense, scholarly look inspired one Senate colleague to refer to him as “The Auditor.” But the 61-year-old North Dakotan also had an honorary tribal name given by the Sioux Indians in his home state: It translated as “Never-Turns-Back.”
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From his five years as state tax commissioner to his 23 years in the Senate, Conrad was the quintessential fiscal hawk. He had been the second senator to endorse Obama for president, and the two had a friendly, though not close, relationship.

In the Oval Office with Obama and his economic troika, Geithner, Summers and Orszag, Conrad warned that federal debt and spending posed a long-term threat, more now than ever. The country’s present course was not sustainable. And that’s not just my view, he said. It’s the view of your budget director, Orszag. It’s the view of the head of the Congressional Budget Office. It’s the view of the Federal Reserve.

“Kent,” Obama said, “I’ve seen your charts.”

Everyone laughed. Conrad’s charts were notorious. He used so many on the Senate floor and in committee hearings—more than all the other senators combined—that he had earned his own printing
equipment. He could wear out even the most dedicated green eyeshade with his presentations of the nation’s finances and their descent into oblivion.

“You convinced me long ago that we’re on an unsustainable course,” Obama said.

The reasons to rein in the deficit were abundant and obvious. The public debt was now approaching $12 trillion, about 85 percent of the Gross Domestic Product (GDP), the sum of all goods and services in the American economy. Just paying the interest on the debt cost the country hundreds of billions of dollars per year. The question, the president said, was how to do it? How to get the Republicans involved? And what is the timing, since the short-term economic problems are hardly over?

Conrad didn’t want to impose fiscal austerity in the midst of a downturn. That would only lead to a bigger downturn, more deficits, more debt. The trick, he said, was to take steps to strengthen consumer demand, as they had with the stimulus bill, and to improve job creation and economic growth.

Standing in the way was a legislative process that, Conrad was convinced, had completely failed. The Senate had been squabbling over the federal budget for six months with no result, and government funding was now dependent on stopgap, short-term continuing resolutions. It was chaos.

“I believe so strongly in what you’re saying,” the president said, “I’d be willing to be a one-term president over this.”

It was a stark private declaration that Orszag had heard from the president before. But the president’s assurances weren’t enough for Conrad.

About a dozen senators, Conrad warned, felt strongly enough about the issue that they were going to take it to the next level by insisting that Congress create a commission to tackle the problem. Until the commission was in place, they would block any increase of the debt ceiling.

It was a clear threat. The debt ceiling placed a limit on how much the Treasury could borrow, and failure to increase it could lead to a catastrophic
default on U.S. debt. Raising the debt ceiling was normally a routine matter, but Conrad was determined to change that. “Unless we get a commission we’re just not” raising it, he said flatly.

“I agree with you so strongly,” Obama repeated, “I’m prepared to be a one-term president. But we’ve got to deal with some practical situations—of timing, of how we construct such a commission.”

The president and his senior staff had good reasons not to resist Conrad’s pressure to create a fiscal commission. First, there was the possibility that a commission might actually produce something. Second was the president’s promise to set the country on a fiscal path leading to deficits of less than 3 percent of GDP. The economic team couldn’t agree on how to get there, and a commission would buy them valuable time.

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early a year into Obama’s presidency, the nation was not on the strong path to recovery the president’s advisers had anticipated—and that Obama had pretty much promised.

The economy had been in much worse shape than they realized when Obama took office. Revised economic growth numbers for the last three months of 2008—the end of the Bush administration—were now showing negative economic growth of nearly 9 percent. A decline in real growth of 10 percent is often considered an economic depression. Now, in late 2009, the unemployment rate had risen to 10.2 percent, the highest level in 25 years. Republicans were beating hard on the administration, repeating their slogan, “Where are the jobs?”
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Whatever bump the president’s stimulus package had given the economy had been inadequate.

Geithner, Orszag and Summers went to work on a strategy for the next year’s presidential budget request, which was due to Congress in early February 2010. They had to produce something that would show Obama was equally serious about deficit reduction and job creation. Back and forth they went, debating, defining and calculating. It was dizzying.

“Let’s sort of just gimmick it up,” Larry Summers said to Orszag at one point.

In a memo to the president dated December 20, 2009, they grimly set the scene for the president.
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Economic deterioration was so much worse than anyone realized that since Obama took office the “unfavorable economic and technical re-estimates have worsened the deficit outlook by a total of $2.2 trillion” over the next 10 years—a whopping number. The memo ran to eight pages, and included several ideas for achieving federal budget savings.

Their first proposal for deficit reduction was to “impose a three-year freeze” on the budgets of departments like Transportation, Agriculture, Interior, Labor, and Housing and Urban Development. The freeze would also hit smaller agencies, like the Environmental Protection Agency.

This was practically nothing—savings of $20 billion each year.

Orszag realized it was insignificant. It was a symbolic gesture that would give the deficit hawks in the Democratic Party, like Conrad, something to talk about without actually taking much money out of the economy. It was one of the “gimmicks” Summers had proposed.

Summers thought it was a worthy gesture, if only that. In the end, whatever the Congress decided could be undone by a future Congress anyhow.

The president approved it, putting a check mark next to the proposal in the memo.

Item two was “reduce the allowance for disaster costs to $5 billion per year.” That would save $19 billion in 2015 “based on the statistical probability of a major disaster requiring federal assistance for relief and reconstruction.” In 2005, Hurricane Katrina had cost the federal government $108 billion. The Obama team was now acting as a weather forecaster.

“Pure gimmick,” Orszag declared. But they put it in the memo anyway, and the president put a check mark beside it.

Item three was “assume a deficit neutral extension” of keeping Medicare payments to doctors at current levels. The Balanced Budget Act of 1997 had established the Medicare Sustainable Growth Rate (SGR) formula, which was supposed to reduce government payments to doctors who saw Medicare patients—“a blunt tool,” as the memo
said. It had been an ambitious cost-cutting proposal—overly so. Medicare reimbursement rates were already low compared to private insurance, and the SGR cuts turned out to be so draconian that Congress had intervened every year to avoid implementing them—a practice that had come to be known as the “Doc Fix.”