Jonathan Chait Reads More American Enterprise Institute Research so We Don't Have to
Twitterstorm delong: November 3, 2011

Ezra Klein Writes the Review of Ron Suskind's Confidence Men That I Wish I Had Written...


Obama’s Flunking Economy: The Real Cause: Ron Suskind’s Confidence Men… is an investigation. The crime is homicide… the victim… Barack Obama’s presidency…. The villain… “the boyish man in the too-long jacket at Obama’s right hip, bunched cuffs around his shoes, looking more than anything like a teenager who just grabbed a suit out of his dad’s closet.”… “That’s Treasury secretary Tim Geithner,” Suskind says, “looking sheepish.”

That “looking sheepish” is a common Suskind trick. His book doesn’t just have good guys and bad guys. It has good guys who look like good guys, and bad guys who squirm beneath the weight of their badness…. Of Larry Summers, Obama’s first director of the National Economic Council, Suskind says that his personality “recalls that of Nixon and Henry Kissinger, or, more recently, Dick Cheney.”… By contrast Peter Orszag, Obama’s first budget director, “could think in numbers, talk in full sentences, and work nonstop.”… When Treasury economist Alan Krueger passes around a pack of slides, each is “a chart of blazing, graphed insight.”…

I mentioned this was a murder mystery…. Suskind’s investigation leads him right to Obama’s senior staff…. [N]o single adviser better encapsulates Suskind’s criticisms, and the contradictions in his argument, than Larry Summers….

It is not enough, of course, to say that Summers’s personality is reminiscent of Richard Nixon’s, or that “people think he knows more than he does.” What Suskind needs to prove is that Summers, as director of the National Economic Council, gave Obama bad advice…. [If] Summers used his influence to steer Obama toward better ideas, we should be applauding him.

Suskind ultimately identifies two opportunities…. [Suskind] says a successful nationalization of Citigroup would been the moment when “the American people would see that ‘government could do this right’”…. Summers, contrary to what you might gather from Suskind’s description, was in favor of nationalizing Citigroup….

Suskind recounts a White House meeting in which Romer tried to persuade the President to pursue a second round of stimulus…. Obama harshly dismisses her. In the next passage, however, Suskind reports on a subsequent meeting when “Summers stepped up, offering, almost word for word, the position Romer had voiced previously.” So if Summers was really the Svengali Suskind presents him as, if he really had such mastery over the President and the policymaking process, Citigroup would have been nationalized and the administration would have been more aggressive in its pursuit of more stimulus. Neither happened…. Summers wasn’t persuasive enough to save Obama’s presidency….

In his conclusion, Suskind seems appreciative of the replacements Obama chose. “Following the midterms,” reports Suskind, “the president seemed to be assembling the team he’d originally wanted.” He quotes an anonymous Obama adviser who says, “Rahm and Larry especially, but others on senior staff as well, didn’t have a strong appreciation of what got [Obama] elected, the power of it and how to harness it.” He says that the housecleaning left Obama looking “oddly liberated.”… That was almost a year ago. Today, President Obama’s poll numbers are weaker than ever….

The truth of the matter is this: every member of the White House’s economic and political team was closer to every other member than any of them were to the swing votes in the Senate. Tim Geithner and Christina Romer have their differences, but they’re mostly talking the same language. Put them in a room with Senators Ben Nelson, Scott Brown, and Susan Collins—all of whom would have rejected a strong new stimulus—and they may as well be Martians.

It is easy to tell the story of what the White House did wrong in its response to the financial crisis: it underestimated it…. But early mistakes can be corrected…. The problem is political. Having very publicly passed a very big policy that you promised would revive the economy, the country blames you when the economy does not, in fact, revive. Your policies are discredited and your opponents are emboldened….

The combination of stimulus, TARP, and aggressive monetary policy quickly broke the recession. We went from losing 800,000 jobs a month in January 2009 to losing 39,000 jobs a month in January 2010. By March 2010—the same month Obama signed his health care bill into law—we were adding jobs again….

It’s possible that if Obama had chosen a different set of advisers, they could have changed the outcome around the margins. The initial stimulus could have focused more on jobs and less on tax cuts, and the President could have emphasized that more would likely be needed. The Obama administration could have moved more quickly to nominate its own director for Fannie Mae and Freddie Mac back when Democrats had sixty seats in the Senate, and that would have given it more freedom to ramp up its housing policy even in the absence of congressional action.

But… the fundamental constraints… have… been… political. They know they need to act. But they can’t act, or at least they can’t act at the scale necessary to really change the economic situation. Republicans won’t let them….

The question, then, is whether the administration could have done more to plan for its inevitable political weakness when it was at the height of its powers…. A major omission in Suskind’s book… is that it makes little mention of the Federal Reserve…. The White House made two major mistakes here. One was leaving two seats on the Fed’s Board of Governors unfilled…. [T]he White House was slow to nominate…. [T]he most straightforward path to energizing the Fed isn’t adding two new members to its Board of Governors, but replacing its chairman. And the White House had an opportunity to do so in 2010…. Obama chose to renominate Bernanke…. Bernanke has been much more cautious in accelerating the recovery than he was in combating the initial crisis…. At this point, even quite mainstream voices have come to worry over Bernanke’s apparent timidity….

This raises the question of whether the Obama administration made a mistake in reappointing Bernanke…. As it is, both major channels for economic change are clogged, and there appears to be little immediate hope of unblocking them. The president is but one actor in the drama of American politics, and he is quite constrained in his capacity to make—or remake—American policy…