Buyer’s Remorse ONE Budget Battles and the Obama Economy
We start here because that’s where President Obama starts.

In any speech about his record as president, or in response to any question about his economic policies, Obama invariably starts off with some version of: “First, we saved the country from a Second Great Depression.”1

And, in a sense, that’s true. No president since Franklin Roosevelt had entered the Oval Office facing such economic disaster. Thanks to endemic foul play and often outright criminal behavior by leaders of financial institutions, brought on by a relaxing of controls on Wall Street that started under Bill Clinton and continued under George W. Bush, Obama inherited an economy in free fall.

In January 2009, he discovered things were far, far worse than most economists or the Bush administration were willing to admit when the bottom fell out in September 2008. Almost overnight, the GDP contracted by 5.1 percent, making the Great Recession the worst financial crisis since the Great Depression. According to the Department of Labor, 8.7 million jobs were lost from February 2008 through February 2010, and unemployment rose from 4.7 percent in November 2007 to a peak of 10 percent in October 2009.2

Acting quickly, Obama did manage to stanch the bleeding, avoid the “double-dip” recession many feared, and slowly put the economy back on the path to recovery. (European countries were less lucky. Addicted to austerity measures that further contracted the economy, England and the Eurozone experienced a double recession, and only narrowly avoided a “triple-dip.”)3 But, as would prove true of his handling of other challenges during his presidency, Obama’s response to the fiscal crisis was too tentative and too timid. In the end, his actions fell far short of what was needed and not only stunted and delayed the recovery but, in some areas, made matters worse.

As a result, today, seven years later, we are still not completely out of the hole. While financial markets have soared, the overall economy remains sluggish. Progress, while steady, has been slow. The income gap is wider than ever before. Wages are stagnant, and have been for over a decade. Forty-five million Americans are still stuck below the poverty line. As of this writing, job growth still hasn’t recovered to pre-recession levels: We are still 3 million jobs short of where we need to be. Some 8.5 million Americans are out of work. And consumer confidence remains low. Obama will leave office without bringing the country back to full economic recovery. In fact, under his watch, inequality grew even worse.4
Cast of Characters
On these economic matters, there’s little doubt where Obama first went wrong. It all began with the people he appointed to his team of economic advisers.

Trying to pull the country back from the economic brink, of course, was not how Barack Obama wanted to begin his presidency. He had other priorities in mind: health care; climate change; ending the wars in Iraq and Afghanistan; changing the poisonous atmosphere in Washington; and introducing a new era of postpartisan governance. But events forced his hand. With the entire economy about to go belly-up, Obama had no choice but to make that his first priority.

To do so, he needed a lot of help. After all, he wasn’t a businessman, manager, or economist. He had no experience in finance or Wall Street. He needed to recruit his own band of experts. That was not surprising. What was surprising was that, instead of reaching out to new people—fresh faces like him, who represented a clean break from the failed economic policies of the recent past—Obama surrounded himself with a couple of big Wall Street insiders and a gaggle of leftover Clinton and Bush administration officials. In other words, many of the very people whose reckless policies had caused this gigantic mess in the first place. And who now spent more time arguing among themselves than devising a solid recovery plan for the Obama administration.

Leading the team was former Clinton Treasury secretary Larry Summers, whose specialty seems to be pissing people off. Everything about Summers should mark him as the last person on earth Barack Obama would agree to be in the same room with, let alone make his chief financial adviser. At Treasury during the Clinton years, he helped trigger the 2008 recession by advocating repeal of the Glass-Steagall Act, the New Deal–era legislation that had put up a wall between commercial and investment banks to prevent reckless speculation. He also blocked efforts by the much-more-prescient Brooksley Born, head of the Commodity Futures Trading Commission, to regulate derivatives, the financial instruments that did so much damage in 2008.5

He spent his next five years as president of Harvard, before being forced to resign after making disparaging remarks about women and African-Americans, while losing Harvard about $1.8 billion through risky investments. Summers then moved to Wall Street, where he made millions as partner in a hedge fund, advising major financial institutions including Goldman Sachs, JPMorgan Chase, Citigroup, Merrill Lynch, and Lehman Brothers—the very firms he was expected to crack down on later. But didn’t.6

Given that checkered past, you’d think Larry Summers would be persona non grata around the Obama White House. Instead, he emerged as Obama’s first choice for Treasury secretary, and probably would have landed the job were it not for Hillary Clinton. Once she emerged as the leading candidate for secretary of state, Obama’s advisers decided it wouldn’t look good to have two top Clintonites in the cabinet. So Summers was named chairman of the president’s internal, powerful National Economic Council, instead.7

Note: Whatever magic Summers worked on Obama did not dissipate even after two contentious years as chair of the NEC. In mid-2013, Obama stunned the financial world by openly floating the name of Summers as a leading candidate to replace Ben Bernanke as chairman of the Federal Reserve. A vocal outcry from progressives, the media, and veteran Fed-watchers finally forced him to throw Summers overboard and nominate Janet Yellen.8

Obama’s number-two choice as Treasury secretary was Tim Geithner, another Clinton alumnus and Wall Street insider—and another big mistake. During the Clinton administration, Geithner had worked briefly at Treasury under Summers and Secretary Robert Rubin (the two guys we have to thank for financial deregulation) before becoming head of the New York Federal Reserve. In his book Revival, Richard Wolffe reports that another reason Geithner became Treasury secretary was that he told Obama that was the only job he’d leave the New York Reserve for—whereas Summers, desperate to redeem himself after his humiliating departure from Harvard, was willing to take anything.9

Still, Geithner was a strange choice. At the New York Fed, he had worked closely with Treasury Secretary Hank Paulson on two major decisions in the early crisis period: letting Lehman Brothers collapse, yet bailing out the giant insurance company AIG. Major AIG shareholder Hank Greenberg alleges that Geithner, Hank Paulson, and Fed chair Ben Bernanke actually acted illegally by deciding to “rescue” AIG, while in effect funneling whatever financial resources the company still held to big banks. In June 2015, federal judge Thomas Wheeler agreed with Greenberg that the Fed had exceeded its legal authority, arguing that “there is nothing in the Federal Reserve Act or in any federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner.” In addition, Judge Wheeler concluded that “the Government treated AIG much more harshly than other institutions in need of financial assistance” and that this treatment “was misguided and had no legitimate purpose.” As of this writing, the case is under appeal.10

In any event, at Treasury, Geithner was expected to coddle his former Wall Street drinking buddies. Which he did, and then some.

And Geithner wasn’t a one-off. Late in his term, Obama tried to smuggle Antonio Weiss, another Wall Street insider, into his administration. A senior investment banker at Lazard, Weiss was nominated as undersecretary of Treasury for domestic finance, but he was shot down by Senators Elizabeth Warren and Bernie Sanders, who claimed he didn’t have enough regulatory experience and was too close to the financial industry. In January 2015, realizing he could never win Senate confirmation, Weiss withdrew his name from consideration and accepted a position as counselor to Geithner’s successor, Treasury Secretary Jack Lew.11

Back to 2009. Three more Clinton White House survivors also made the president’s economic team: Gene Sperling, Bruce Reed, and the aforementioned Jack Lew. Having once helped Bill Clinton reach a historic budget compromise in 1997 with Newt Gingrich, this trio of Clintonites believed they could pull the same rabbit out of the hat with John Boehner, and convinced Barack Obama to try, time and again. As we will soon see, that was a nonstarter. Republicans in Congress were now much more extreme than before. So extreme, in fact, that Speaker Boehner was unable to deliver his own caucus for any deal he might want to make with the president. But that didn’t stop the White House from trying. And trying. And trying.12

One addition to the gaggle of leftover hard-liners was Peter Orszag, who left his job as head of the Congressional Budget Office to become Obama’s first director of the Office of Management and Budget. He quickly gained a reputation as the administration’s chief deficit hawk. He even looked the part. And he gets credit or blame for convincing Obama to accept cuts in Social Security benefits and extension of the Bush tax cuts as part of a compromise with congressional Republicans.13

Rounding out the team were two new faces who brought a more practical and progressive approach to economic policy, and who often disagreed with Summers and Geithner. Austan Goolsbee, chief economic adviser of the Obama presidential campaign, moved into the White House as one of three members of the Council of Economic Advisers. And Christina Romer, economist from UC Berkeley and expert on the Great Depression, was appointed chair of the Council of Economic Advisers. She, especially, clashed with Summers, as we will see in a moment.14

What was Obama thinking? Take the most serious crisis facing a new administration and put a motley collection of economists who don’t like or trust each other in charge—and what can you expect? The result was what Wolffe calls “the most dysfunctional group of the president’s advisers.” Senator Elizabeth Warren summed it up best, when she told Salon magazine: “He picked his economic team and when the going got tough, his economic team picked Wall Street. That’s right. They protected Wall Street. Not families who were losing their homes. Not people who lost their jobs. Not young people who were struggling to get an education. And it happened over and over and over.”15
First Round: The Stimulus
Obama not only inherited a state of economic disaster from George W. Bush. He was also saddled with a major element of Bush’s unfinished economic agenda: the $700 billion Troubled Asset Relief Program, passed by Congress and signed into law by Bush in October 2008. As sold to Congress, the purpose of TARP was to protect the economy from total collapse by bailing out Wall Street firms and buying substantial shares of their equity and troubled assets.

Bush Treasury secretary Hank Paulson (and later Larry Summers) touted TARP as a clever, but expensive, way to save the financial industry and make a handsome profit for taxpayers at the same time. By January 2009, 61 percent of Americans opposed TARP, viewing it as nothing more than a plan to reward Wall Street firms with bailouts and bonuses in return for criminal behavior. Despite serious questions about how the money was distributed, who benefited from it, what lies were told to secure its passage, and the fact that its end result could only mean that banks would be bigger than ever, Obama, who had voted for TARP as a senator, decided not to interfere with the program—either because he felt the horse was already out of the barn, or because he didn’t dare take on the big dogs of Wall Street so early in his presidency.16

Instead, he decided to focus on the rest of the economy. His answer: the American Recovery and Reinvestment Act of 2009, or “Stimulus,” which he signed into law on February 17, 2009—a $787 billion program to create jobs and spur new investment, which passed the Senate with only three Republican votes.

Pumping $787 billion into the economy? Sounds like a lot of money, and it is. But that stimulus was actually much smaller than many leading economists—including Martin Feldstein (previously the chair of Ronald Reagan’s Council of Economic Advisers), the White House’s own Christina Romer, and the Nobel Prize–winning Paul Krugman—recommended at the time. In fact, debate over the size of the stimulus represented the first real test of Obama’s economic team—and in many ways revealed a weakness in governance that would mar his entire presidency.17

At his first meeting with his entire team of economic advisers in Chicago on December 16, 2008, President-elect Obama was handed a fifty-seven-page memo that described the serious fiscal crisis the nation faced and laid out two proposals for dealing with it: a $600 billion stimulus, or a $850 billion stimulus. However, as reported by both Ryan Lizza for the New Yorker and Noam Scheiber for the New Republic, by that time Obama was already shooting too low. He was working from options representing less than half of what Christina Romer had originally recommended as necessary.18

In the first draft of her memo to Obama, Romer proposed setting their sights high: “An ambitious goal,” she wrote, “would be to eliminate the output gap by 2011-Q1 [the first quarter of 2011], returning the economy to full employment by that date.” Getting there, she noted, would take a bold plan of action: “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes, and transfers to states and localities would require a package costing about $1.8 trillion over two years.”19

But Obama never saw those words. Putting political considerations above economic necessity, on the unproven theory that not even Democrats in Congress would vote for a stimulus so big, Summers rejected Romer’s $1.8 trillion target as impractical and bound to face certain defeat in Congress. In a second draft Romer pared the proposed stimulus down to $1.2 trillion, which Summers also dismissed as “non-planetary.” In the end, Romer reluctantly offered Obama only the two options noted above: $600 billion or $850 billion. Obama settled for $787 billion.

This was still $1 trillion short of what was needed, according to her estimate and those of many others, to jumpstart the American economy in this time of crisis, and it represented both an economic and political failure of leadership. Economically speaking, stimulus spending is based on the well-proven idea that the government must be the spender of last resort when the rest of the economy is in dire straits—the deeper the crisis, the greater the need for “countercyclical spending.” Besides, as any progressive or businesswoman worth his or her salt can tell you, money invested now in priorities like infrastructure, education, and energy efficiency will pay back massive dividends down the road.

As for the politics—and this would also be a common failing of this administration—neither Obama nor Summers seemed to understand the simplest fundamentals of haggling. When working toward a compromise, you start with a very big number so you end somewhere close to where you want to be. You don’t make your final compromise the opening position. In this case, Obama and Summers bartered themselves down to an inefficient stimulus, right out of the box.

While she never complained about it publicly, that lesson was not lost on Christina Romer, especially when leading economists later criticized the stimulus as too small. Larry Mishel of the Economic Policy Institute, for example, estimated that a larger stimulus would have created an additional 5 million new jobs, which would have made a big difference for those workers and, through the multiplier effect, for the entire economy.20

Not only that, Romer knew Larry Summers was wrong on the politics of the issue. Obama could have easily won the necessary three Republican votes for a stimulus package twice as big. Or, at the very least, bargained down to a much higher number than what was eventually passed. It wasn’t the size of the stimulus most Senate Republicans voted against. It was the fact that, unlike TARP, the stimulus was a Barack Obama program—and they didn’t want him to succeed at anything, not even saving the nation from economic collapse.

Before long, the White House was on the defensive for not proposing an even bigger stimulus. Already on February 4, 2009, Martin Wolf, chief economics commentator for the Financial Times, had written: “Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused.” Obama had proven himself to be “too cautious in fearful times,” Wolf complained, and predicted the result would be a sluggish recovery marked by a lengthy period of weak growth and high joblessness. Which proved to be spot-on.21

The debate led to one tense moment reported by Noam Scheiber for the New Republic. As part of preparations for her appearance on one of the Sunday morning talk shows, Christina Romer was hammered with questions by top political adviser David Axelrod. Here’s one question you’re bound to get, said Axelrod: “Was the stimulus big enough?” “And here’s what I’m going to say on national television,” Romer shot back: “Abso-fucking-lutely-not.” According to Scheiber, Axelrod was not amused. Romer never said it. Publicly, that is.22

But its insufficient size wasn’t the only problem with the stimulus. Two other factors also set it up for failure: Half of it was devoted to tax cuts. And there was no follow-up.

In an early indication of how he would deal with Congress on other major issues, and how naïve he was about the hostility of House and Senate Republicans, Obama decided to craft the stimulus in such a way that it should have been guaranteed to win Republican votes. Remember, to placate the opposition, his team had already cut the stimulus from $1.8 trillion to $787 billion. Now he decided to sweeten the pot even further. His theory: Since Republicans like tax cuts, let’s give them tax cuts. And he did.

Progressives often likened this constant tendency of Obama to try to appease the unappeasable to Charlie Brown’s experience with a football in the old Peanuts cartoon strip. Time and time again, Lucy would convince Charlie to kick the ball while she held it. And, every time, she’d pull it away at the last second and Charlie would fall on his back. So, too, with Obama, who never seemed to understand, until far too late, that he was trying to strike a bargain that could never be struck. Republicans held the football.

In any event, as part of the American Recovery and Reinvestment Act, $116 billion went directly to American families in the form of tax cuts: up to $400 a year for individuals and $800 a year for married couples. The way it was designed, nobody actually got a check from the federal government—unlike rebate checks sent out by the Bush administration in 2008. Instead, under the Obama plan, less money was withheld from monthly paychecks, giving the average family an extra $65 a month.23

Great idea. In theory. But there were three real-world problems with the Obama tax cuts. First, that was a whopping $116 billion that did not go into job creation, the most pressing need of the moment—and the primary purpose of the stimulus.

Second, the tax cuts did not serve their main purpose. They did not win Obama any extra Republican votes. Republicans still attacked the stimulus as too much big government. For Obama, it was another preemptive compromise made for nothing.

Third, and perhaps most important from a political perspective, because of the stealthy way in which they were distributed, most Americans never even realized they got a tax cut under the stimulus. At the time, I remember appearing as a guest on the Ronn Owens show on KGO-AM in San Francisco. Ronn’s one of the best, and most well-informed, talk show hosts in the business. But when I mentioned that 95 percent of America’s working families had already received a tax cut under President Obama, he didn’t believe it.

When I backed it up with evidence, telling him about the “Making Work Pay” tax credit included in the stimulus, he asked: “Why didn’t I know about this?” Good question. For Obama, the sad fact was that nobody knew about it because, again, of the way it was distributed—and because the administration itself kept it such a secret. In a September 2010 New York Times/CBS News poll, fewer than one in ten respondents knew the Obama administration had lowered taxes for most Americans. Half of those polled said they thought their taxes had stayed the same. A third of Americans thought that their taxes had actually gone up.24

For Obama and Democrats, this was the proverbial tax cut that fell in the forest. Nobody heard it. Consequently, it never gave them the boost they were counting on in the 2010 midterm elections.

Despite its weaknesses, a half-baked $787 billion stimulus plan might still have worked—had it been followed by a second or third stimulus, which Christina Romer and many other leading economists were calling for. That never happened. As reported by Noam Scheiber in the New Republic, when Romer proposed a second stimulus to President Obama, he shot it down with the observation: “The American people don’t think it worked, so I can’t do it.”25

Curiously enough, Romer had an ally at this point in Larry Summers, who joined her call for sticking it to Republicans with a defiant, follow-up stimulus. But the two of them were outmaneuvered by OMB director and deficit hawk Peter Orszag, who insisted that any new stimulus be combined with deficit reduction. Enough with spending, said Orszag, let’s start cutting. Obama agreed. And that, of course, led to another disaster.26

In October 2012, Christina Romer, then back at UC Berkeley, finally broke her silence about the stimulus in an article for the New York Times. The stimulus was too small, she wrote, and relied too heavily on tax cuts. She also regretted the program did not include any direct funds for public employment, like FDR’s Works Progress Administration (WPA). And, with so little money going to job creation, she noted, even after passage of the ARRA, the economy still lost an additional 9 million jobs.27

Before moving on, it’s important to pause and reflect on what we learned from President Obama’s first crucial public policy test. We saw here a pattern of governing—marred by a series of missteps, a weakness in decision-making, and a failure of leadership—that would be repeated throughout his presidency, in dealing with everything from health care to bombing raids in Syria.

On the stimulus package, instead of meeting the fiscal crisis of 2009 head-on and taking full advantage of his decisive victory in November 2008, President Obama:

• Settled for half a loaf, before even fighting for a whole loaf,

• Offered major compromises to Republicans, without getting anything in return,

• Didn’t sell the benefits of his program to the American people, and

• Failed to follow through.

It’s not how FDR would have handled it. Historians say that much of the success of the New Deal lay not so much in the programs themselves as in the fact that FDR did such a good job of selling them to the American people. In his fireside chats, he assured Americans that he would fight a weak economy with the same strength he’d muster to fight a foreign foe. And the American people thereby gained confidence in FDR’s ability to get the economy back on track. Even though the Depression didn’t end until World War II—thanks to the massive stimulus afforded by war production—the American people knew the president was working hard, every single day, to turn things around.

President Obama, for his part, started out with an inferior product, and then never made the sale. At this first moment of crisis, Obama and his economic team failed the test. They proposed a stimulus that was too small, even according to some of their own advisers. They relied too heavily on tax cuts, all to appease Republicans, who attacked the stimulus regardless. And they failed to keep momentum going with a second or third stimulus.

To be fair, even the smaller stimulus did a lot of good. The nonpartisan Congressional Budget Office determined that it saved the economy from sinking into a full-on depression; created or saved an average 1.6 million jobs over the span of four years; raised economic output by 2 to 3 percent from 2009 to 2011; and kept the unemployment rate from soaring to 12 percent.28

At the same time, it fell way short of expectations. It didn’t go nearly far enough, and it ended too soon. The country needed more, but Obama wasn’t willing to go there. And his failure to do so had major consequences. A bolder approach to the stimulus would have rewritten the entire story of the Obama presidency for the better. But as it happened, in the words of Robert Penn Warren in All the King’s Men, “the crystal was in the steel at the point of fracture.” This original failure would redound through the rest of Obama’s tenure in office.29

Instead of moving forward with more stimulus spending, Obama did a total 180. He became a zealous deficit hawk. It was almost as if he’d changed political parties, shedding his Democratic suit for a Republican sackcloth—and made cutting the deficit, not creating jobs, his number-one priority.

With that new focus, Obama’s worst tendencies came to the fore. He became compromiser-in-chief. He embarked on a series of capitulations, each one more damaging than the last, resulting in one disaster after another, which had the cumulative effect of slowing the recovery, seriously eroding the social compact, and leaving the economy sluggish and uncertain.
Obama the Deficit Hawk
So, with the stimulus winding down, and the economy still on life support, Obama’s economic team suddenly shifted gears in the second half of 2010: from using the power and resources of the federal government to stimulate the economy to shrinking the size of the federal government in order to encourage private investment.

Across the board, economists today consider that move a serious mistake with even graver consequences. As Paul Krugman wrote in the October 23, 2014, edition of the New York Review of Books, “the stimulus could easily have been bigger and gone on longer. What we got instead, however, was a wrongheaded obsession with deficits and unprecedented fiscal austerity which greatly deepened and extended the slump.”30

To make things even worse, this was all eminently predictable. In 1937, believing the economy was showing signs of health again at last, Franklin Roosevelt also made the decision to pare back government spending. The result was the “Roosevelt Recession” of 1937–38. The economy subsequently stalled out once more, and did not return to health until the massive federal investments that accompanied the World War II production effort. Unfortunately, Barack Obama was not looking to learn from the FDR model. Overnight, he threw FDR under the bus and embraced the rhetoric of Ronald Reagan. He abandoned job creation and adopted deficit reduction.

The rhetoric, but not the reality. For decades, ever since Reagan, deficit reduction or balancing the budget had been the mantra of the Republican Party. Of course, as the numbers show, while Republicans talked a good game about balancing the budget, they never actually did anything about it. Take Reagan, for starters. While giving lip service to a “Balanced Budget Amendment,” he actually racked up the biggest federal deficits of any president in history, only to be surpassed by George W. Bush, who mushroomed the deficit by sponsoring two rounds of tax cuts for the wealthiest of Americans, and then starting two wars and expanding Medicare to include prescription drugs (without letting Medicare negotiate their price). And he didn’t raise revenue to pay for any of it. He just charged everything to the federal credit card, like Reagan before him.31

To the dismay of progressives, even before Republicans took over the House in 2010, Barack Obama began to embrace their narrow-minded “let’s cut spending” agenda—at the very time when, according to the proven rules of Keynesian economics, the federal government should have been spending more, not less, in order to kick-start the economy.

This obviously upset Democratic leaders in Congress. For them, even conceding the Republicans’ argument that debt was the most important issue facing the nation was pure nonsense. After all, Republicans themselves had created the deficit problem with Bush’s trillion-dollar tax cuts for the rich and two disastrous wars. Now they were attempting to use the very debt they had rolled up as an excuse to cut long-standing social programs for the poor and middle class. Congressional Democrats didn’t want to let them get away with it. In fact, they hoped to turn it around and use Republican efforts to cut Medicare and Social Security as campaign fodder for Democratic candidates in the 2010 midterm elections.

But Obama simply ignored their concerns. Determined to be the nation’s first “postpartisan president,” he dove into deficit-cutting full-bore, and spent much of the next two years in countless, pointless meetings with Speaker John Boehner and other Republican leaders, trying to negotiate a “balanced” budget deal consisting of both new spending cuts and new revenue.

Time and time again—Charlie Brown and the football!—Obama’s attempts to reach any reasonable compromise were rejected by the GOP. Meanwhile, by embracing the Republican game plan and abandoning federal government intervention in favor of the Republicans’ deficit-cutting agenda, Obama left the economy sputtering. He also opened the door to three potential economic disasters in a row: the wildly overrated Simpson-Bowles plan; the so-called grand bargain with Speaker John Boehner; and the dreaded Sequester, still in place.

It was a change in direction that several key administration players, including Jared Bernstein, soon came to regret. Bernstein was Vice President Joe Biden’s chief economic adviser at the time. Looking back in February 2014, he told the New York Times: “A deeper understanding of the economic damage should have prevented the precipitous pivot away from stimulus toward deficit reduction.” Obama’s team got two things wrong, according to Bernstein. They got the politics wrong, coming to believe that “the public disliked the growing deficit a lot more than they liked the stimulus.” And they got the economics wrong, fearing that “debt markets would respond to the deficit by pushing up interest rates.”32

I watched Obama pivot toward deficit reduction close-up while attending his administration’s daily press briefings, in my role as a member of the White House press corps. Covering the White House in those days was like taking a graduate course in belt-tightening. I can’t tell you how many times during that period I heard President Obama, in the Briefing Room or East Room, lecture the nation on how the government had to cut back on spending in hard times, just as families did. In his interview with the Times, Bernstein shattered that myth once and for all: “By the way, in those days I learned the power of the single worst analogy I know: ‘Just as families have to tighten their belts in tough times, so does the government.’ It’s not just that this is wrong; it’s that it’s backward. When families are tightening, government (including the Federal Reserve) must loosen, and vice versa. But the phrase, uttered by no less than the president himself at times, makes so much folksy sense that it, too, infected the policy and precipitated the pivot.”33

Bernstein, of course, was speaking with the benefit of hindsight. Other economists, such as Nobel Prize winner Paul Krugman, didn’t wait that long to blast Obama’s sudden debt obsession. In his weekly radio address on July 2, 2011, President Obama sounded the familiar family-must-cut-back theme: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”34

That very same day, Krugman put out a blog post ridiculing the president as “Barack Herbert Hoover Obama.” Noting that Obama had evoked “the false government-family equivalence, the myth of expansionary austerity, and the confidence fairy, all in just two sentences,” Krugman warned: “This is truly a tragedy: the great progressive hope is falling all over himself to endorse right-wing economic fallacies.”35

It makes you wonder: Why wasn’t Paul Krugman in the White House as Barack Obama’s chief economic adviser, instead of Larry Summers, Peter Orszag, or Timothy Geithner?
Simpson-Bowles: Two Unwise Men
In Washington, D.C., a terrible idea often goes around the Beltway several times before the right policy can get its boots on. And so government outlays under the stimulus were barely under way before Obama’s economic team in the White House, plus many Republicans and conservative Democrats in Congress, got cold feet on spending and caught the deficit-cutting fever.

Wanting to do something to look busy, but knowing they could never craft a viable deficit plan on their own, a bipartisan group of senators came up with the classic, time-honored government response: create a commission. In this case, the National Commission on Fiscal Responsibility and Reform, now known forever as the Simpson-Bowles Commission, after its two designated chairmen, former senator Alan Simpson, Wyoming Republican, and former White House chief of staff Erskine Bowles, North Carolina Democrat.

Under the original bill, members of the commission were charged with recommending how to keep government running at a reasonable level while resolving the problem of the national debt. But with this unique twist: The legislation also required that all recommendations of the commission receive an up-or-down vote in Congress, with no amendments allowed. Afraid of this potential Frankenstein’s monster—a commission whose suggestions must be accepted and voted on as is—six Republican senators who had sponsored the bill changed their minds and voted against it, and it went down 53–46.

Enter President Obama. By now, he’d decided to lead, not just join, the deficit-cutting parade. And here was his opportunity. In January 2010, he created the same Simpson-Bowles Commission by executive order, named its eighteen members, and charged it with determining “policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”36

On the economy, filling his team with ex-Clintonites was Obama’s first big mistake. Putting forth a half-baked stimulus was the second. Shifting priorities from growing the economy to cutting the deficit was number three. And naming the Simpson-Bowles Commission was big mistake number four. He brought that Frankenstein’s monster to life. And now, in the name of “fiscal responsibility,” Obama had tied himself, at least indirectly, to efforts to gut every middle-class social insurance program that Democrats had fought for over the last eighty years, which he had promised to protect.

Eleven months later, in December 2010, the commission completed its final report. Only eleven out of eighteen commission members voted for it, three shy of the fourteen votes required. So the report was never officially adopted. But it took on a life of its own after it was released as a draft by Messrs. Simpson and Bowles, who spent the next two years trumpeting its recommendations nationwide and basking in the glory of their new reputation, in Politico’s words, as the “wise men of Washington.”37

Simpson-Bowles, the creation of that erstwhile progressive hope Barack Obama—even though he never officially endorsed it—was the repudiation of everything Democrats stood for. It threw away the baby with the bathwater. In order to reduce the deficit, they proposed, among other draconian measures: eliminating almost all tax deductions, including those for home mortgage loans and employer health-care plans; slashing military pensions and student loan subsidies; cutting Medicare and Social Security benefits; raising the retirement age from sixty-five to sixty-nine; and mandating a 15 percent increase in gas taxes. And yet, they somehow still found room to cut the top federal income tax rate to 24 percent, and the top corporate rate from 35 to 26 percent.38

Notice how a commission ostensibly designed to increase federal revenue to close the deficit nonetheless chose to advocate lower tax rates on corporations and the super-wealthy. Some might say the fix was in.

Nonetheless, editorial writers, most of whom probably never read the report itself, were rhapsodic in praising the bipartisanship, balance, and fairness of Simpson-Bowles. Even the supposedly liberal New York Times praised the plan for doing “what any successful deficit reduction plan must do: It puts everything on the table, including tax reform to raise revenue and cuts in spending on health care and defense. It even dares to mention the need to find significant savings in Social Security, Medicare and other mandatory programs.” Simpson and Bowles were almost universally praised for putting forth a plan based on “shared sacrifice.”39

Nonsense. Just like the economic policies of George Bush and Dick Cheney, the Simpson-Bowles plan heavily rewarded those at the very top of the ladder, while cutting what little benefits are still enjoyed by those at the bottom. More than two-thirds of its proposed savings came from cutting domestic spending, not getting rid of tax loopholes. Remarkably, repealing the Bush tax cuts for the top 2 percent of Americans, which cost $4 trillion over a decade, did not even make the list of cuts. Nor did the report include a widely recommended new tax on financial transactions. But it did call for major cuts to Social Security, which is solvent for at least the next twenty-five years and which does not contribute to the deficit at all.40

And remember, because he had created the commission, its report was considered Barack Obama’s own.

Progressives went ballistic over Simpson-Bowles. Dean Baker, codirector of the Center for Economic and Policy Research, argued that the commission’s entire focus on deficit reduction was wrong, since our economic woes were the result, not of a looming deficit, but of an $8 trillion crash in financial markets—with the resulting loss of personal savings and millions of jobs. Robert Kuttner, economic columnist and coeditor of the American Prospect, agreed. The most dire problem facing the country was not what the deficit might be in 2020 or 2030, he argued. “For most people, the crisis right now is lost income, lost jobs, lost homes.” This should have been self-evident, not just to progressives, but to everyone.41

For Paul Krugman, Simpson-Bowles was simply “terrible.” It missed the target in several ways, he wrote. “It mucks around with taxes, but is obsessed with lowering marginal rates despite a complete absence of evidence that this is important. It offers nothing on Medicare that isn’t already in the Affordable Care Act. And it raises the Social Security retirement age because life expectancy has risen, completely ignoring the fact that life expectancy has only gone up for the well-off and well-educated, while stagnating or even declining among the people who need the program most.”42

Writing in the New York Observer, journalist Kevin Baker summed it up best and most colorfully. He called Simpson-Bowles “a prescription for hunting every last remaining vestige of the middle class in this country and beating it to death with a stick.”43

Fortunately, despite the Beltway ballyhoo behind it, Simpson-Bowles mercifully did not go anywhere in the end. It was never endorsed by President Obama, Senate Majority Leader Reid, or Speaker Boehner. It never became law. And Republicans—loath to increase revenues in any way, shape, or form—soon fell in behind the spending-cuts-only plan of Congressman Paul Ryan instead. But it still had a significant impact. It shaped the economic debate for well over a year, and helped prevent the spending needed to get the economy really moving again. Only when the “Occupy” protests broke out in the fall of 2011 did the spell it held over Washington seem to waver. Until then, it helped Obama and others shift the focus of discussion from job creation to deficit reduction. And it served as the template for negotiations between President Obama and John Boehner over what became known as the “Grand Bargain.”44
Embracing Republican Ideas
On November 2, 2010, Obama suffered an enormous political setback. Republicans won sixty-three seats in the midterm elections and easily took back leadership of the House of Representatives, which they had lost to the Democrats four years earlier. But even before John Boehner was sworn in as new Speaker of the House, Obama decided to offer up some more preemptive compromises—as if to prove he was a bigger deficit hawk than Republicans were. He called for a three-year freeze on domestic discretionary spending, claimed he’d saved $20 billion by eliminating unnecessary programs, and identified another $150 billion in savings from correcting improper payments in programs like Medicare, Medicaid, unemployment, and the Earned Income Tax Credit.45

Obama also signed an executive order slapping a two-year freeze on wages for civilian federal workers. That move angered labor leaders, who pointed out that the $5 billion Obama would save by cutting federal employee wages wouldn’t even make a dent in a deficit that had exceeded $1 trillion for the last two years. “Sticking it to a V.A. nurse and a Social Security worker is not the way to go,” fumed John Gage, then-president of the American Federation of Government Employees. But Obama, while praising federal employees as “patriots who love their country,” still insisted that they had to tighten their belts, just like everyone else.46

Which might have made a little more sense, if not for what occurred shortly thereafter. In December 2010, Obama stunned Democrats by signing the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act—which extended the Bush tax cuts for the wealthiest of Americans for another two years. That move didn’t save money. It cost $60 billion a year. Obama, in effect, was saying that everybody had to tighten their belts—except millionaires and billionaires.47

Ending the Bush tax cuts had been one of the major promises of candidate Barack Obama. Just two days before Election Day 2008, campaigning in Colorado, Obama blasted the Bush-McCain idea that “we should give more and more to millionaires and billionaires and hope that it trickles down on everybody else.” Yet now, less than two years into his presidency, Obama had unilaterally agreed to preserve the tax cuts. Again, at a cost of $60 billion a year.48

So why’d he do it? Only because Obama wanted to show that he was willing to do anything—even violate one of his most sacred campaign promises—in order to make a deal with the new Republican leadership in Congress. Which he then spent years trying to do.
The Grand Bargain
Nothing illustrates Obama’s shortcomings as president more than the time he spent, and wasted, trying to strike a deal with John Boehner on a compromise budget plan. Not only did he swallow the ridiculous Republican agenda of debt reduction über alles hook, line, and sinker, he tried to make a deal behind the backs of Democrats in Congress. And he did so with a Speaker of the House who could not even control his own caucus.

From beginning to end, efforts to reach the so-called grand bargain was a comedy of errors.

As Matt Bai later reported in the New York Times Magazine, Obama began formal negotiations with Speaker Boehner and Majority Leader Eric Cantor in the spring of 2011, in plenty of time to strike a deal before the August deadline for raising the debt ceiling by another $2.4 trillion.49

Every time it came up for a vote in Congress, raising the debt ceiling used to prompt the same old Kabuki dance. Members of both parties made angry speeches and put out press releases denouncing reckless federal spending and vowing never to raise the debt ceiling again, but then they held their noses and voted for it, anyway, just so the United States could pay its bills. At least, most of them did. One notable exception was Senator Barack Obama, who voted against raising the debt ceiling in March 2006.

The debt ceiling had been raised seven times under President George W. Bush, each time by a bipartisan vote with no strings attached. But now, for this first debt ceiling vote under President Barack Obama, House Republicans added a demand: They’d vote against any increase in the debt ceiling unless an equal amount of spending cuts was included in the deal. In effect, they announced they were going to hold the nation’s credit rating—and by extension the entire American economy—hostage unless Obama acceded to their demands.50

And so, negotiations began, and soon fell apart. Obama agreed to $2 trillion in cuts, but insisted on adding new revenue from closing certain tax loopholes. Cantor, speaking for Tea Party members of the House, flatly rejected any new revenue from taxes, even by closing loopholes. Talks between the two sides broke down in June.51

But that was just Round One. Without telling Cantor or Democratic leaders of Congress, Obama and Boehner had begun their own round of budget negotiations in secret meetings held at the White House and during one round of golf and drinks at Andrews Air Force Base. Both men agreed to think big and were determined to shape a deal that included fundamental “reforms” to both social insurance programs like Social Security and the tax code. Unlike Cantor, Boehner even agreed to raising $800 billion in new revenue by eliminating tax loopholes and subsidies for some special interests.52

On the surface, it looked as if a historic deal—the “grand bargain”—was in the works. There was only one problem: Boehner couldn’t deliver the votes in his own caucus without Eric Cantor’s blessing—and Cantor, upset at being cut out of the one-on-one talks, once again rejected any new revenue from closing tax loopholes, which he considered the same as raising taxes. On July 9, believing he had a deal, President Obama went off to Camp David for the weekend—only to receive a phone call from John Boehner that evening telling him the grand bargain was dead.53

Except it wasn’t. Players simply moved on to Round Three. Five days later, July 14, Boehner called the president and suggested they try again, this time meeting with Chief of Staff Bill Daley and Treasury Secretary Tim Geithner, instead of Budget Director Jack Lew and Legislative Affairs Director Rob Nabors. Boehner and Daley met the next day and agreed on a general set of principles. On Sunday, July 17, Boehner, Cantor, Daley, and Geithner met at the White House. Obama joined them after church. Within a couple of hours, they actually shook hands on a deal, with Boehner and Cantor agreeing to $800 billion in new revenues from closing tax loopholes, and Obama accepting $450 billion in cuts to Medicaid and Medicare. The president also agreed to a new and much more narrow way of calculating Social Security benefits based on inflation called “Chained CPI,” which was anathema to progressives since it was tantamount to a $200 billion annual cut in Social Security benefits.54

They all left the White House that Sunday thinking they had a deal. All they had to do was sell it to their counterparts in Congress. But such was not to be—this comedy was just beginning. While Obama and Boehner were cooking up a deal, a bipartisan group of six senators was working on their own plan, which they now threw into the mix, catching Obama and Boehner off guard.

The “Gang of Six” was made up of Democrats Dick Durbin, Mark Warner, and Kent Conrad and Republicans Tom Coburn, Saxby Chambliss, and Mike Crapo. Their proposal was much more ambitious than what Obama and Boehner had tentatively settled on: $3.7 billion in spending cuts, and a whopping $2 trillion in new revenue, much more than the $800 billion Boehner had agreed to with Obama.

The mere existence of another budget plan was confusing enough. But then Obama made things even worse by immediately endorsing the Gang of Six plan as the kind of “balanced approach,” a mix of spending cuts and new revenue, he’d been seeking for months. For Obama and his economic team—who just wanted a compromise with someone, anyone—endorsing the Gang of Six plan was a serious miscalculation: All it did was put Obama’s weight behind a proposal that had no chance of passing the Senate, while pissing off Boehner in the process. The Speaker, indeed, felt betrayed, and told the White House all bets were off. Whereupon Obama invited Boehner to a two-hour, one-on-one Oval Office meeting on July 20 to, once again, try to hammer out their differences.55

But by this time it was impossible to put Humpty-Dumpty back together again. Boehner left the White House, telling Obama he wanted to sleep on the latest proposal. He never got a chance. Cantor killed the deal as soon as Boehner briefed him on it. And Boehner knew that, without Cantor’s support, he could never round up enough votes in his caucus.

The next morning, President Obama called Boehner to check in, and ended up leaving a private message on his cell phone. He sensed he might be in trouble when, hours later, Boehner still had not returned his call. He learned it was all over when Boehner held a news conference that afternoon, accusing the president of negotiating in bad faith. The grand bargain was finally, mercifully, dead.56

As it turned out, Obama and his team of deficit hawks may have been the only Democrats in Washington disappointed by the collapse of the grand bargain. As more details leaked out about how far Obama was willing to compromise, more and more outrage was heard from progressives. Political analyst Ezra Klein, then still with the Washington Post, reported that Obama had offered to raise the eligibility age for Medicare from 65 to 67, in addition to adopting the “Chained CPI” Social Security cut. Senior advocacy groups calculated that, because of Chained CPI, a 75-year-old would lose $650 a year in benefits on average, an 85-year-old $1,150, and a 95-year-old $1,600 a year. All of this while the wealthiest of Americans continued to enjoy their Bush-given and Obama-extended tax breaks.57

Rather than being angry with him for killing the deal, Klein observed, “liberals should be sending Eric Cantor a fruit basket.” After all, he “saved them from a deal they’d hate.”58

Investigative reporter Bob Woodward, who excels in developing the best network of sources in any administration, actually obtained a copy of the memo President Obama sent to Speaker Boehner outlining his proposed $4 trillion grand bargain. As Woodward described it on Meet the Press: “It shows a willingness to cut all kinds of things, like TRICARE, which is the sacred health insurance program for the military, for military retirees; to cut Social Security; to cut Medicare. And there are some lines in there about, ‘We want to get tax rates down, not only for individuals but for businesses.’ So Obama and the White House were willing to go quite far.”59

Much too far, in fact, for liberal economist James K. Galbraith, writing for the Next New Deal blog, who blamed Obama for selling out his own party: “What do we have, from a President who claims to be a member of the Democratic Party? First, there is the claim that we face a fiscal crisis, which is a big untruth. Second, a concession in principle that we should deal with that crisis by enacting massive cuts in public services on one hand and in vital social insurance programs on the other. This is an arbitrary cruelty.”60

Despite having been stabbed in the back by both Boehner and Cantor several times, Obama still clung to his dream of a balanced and bipartisan budget plan. It was almost as if he were trying to channel Richard Nixon. Just as only Republican Nixon could go to China, only Democratic Obama seemed ready to dare to slash Social Security and Medicare, the two greatest Democratic achievements of the twentieth century and the bedrock social insurance institutions of modern life. In desperation, he next turned to Congress with a Faustian pact: You come up with a deficit solution in five months—or else. Whereupon Congress did what everybody in Washington said was impossible and everyone else knew to be inevitable: They ended up settling—for “else.”
The Sequester
While Obama and Boehner were going through their fruitless, months-long attempt to strike a grand bargain, the clock was still ticking on raising the debt ceiling before the August 2011 deadline.

Both sides were locked in. Democrats simply wanted to raise the debt ceiling with no drama, as both parties had always done in the past. Republicans continued to insist on dollar-for-dollar cuts in spending. If we’re going to have spending cuts, Democrats countered, then we also need to close some special-interest tax loopholes. No, that’s the same as raising taxes, complained Republicans, which we will never agree to.

You can see why the media started calling this a disaster in the making. And it proved to be just that.

On August 2, President Obama, ever willing to compromise, responded to the crisis by signing the Budget Control Act of 2011. Actually, he didn’t just compromise. He gave away the store. While the legislation did, in fact, immediately raise the debt ceiling by $400 billion, with another $500 billion hike authorized in 2012, it contained an even larger amount of spending cuts, $917 billion. It did not, however, include any new revenue from higher taxes or tax reform. Obama was so eager to make a deal that he simply caved in on that demand. In their appraisal of the “terrible deal,” the New York Times called it “a nearly complete capitulation to the hostage-taking demands of Republican extremists” that would “hurt programs for the middle class and poor, and hinder an economic recovery.”61

But even that act of surrender wasn’t the worst of it. Another big feature of the Budget Control Act was a ticking time bomb: the creation of the Joint Select Committee on Deficit Reduction, or “Super Committee”—twelve members of Congress, six from each party—given the task (because Simpson-Bowles had worked so well!) of producing by November 23, 2011, a grand plan to reduce the deficit by $1.5 trillion. Congress was then charged with voting on the plan, with no amendments or filibuster permitted, by December 23.

But here was the real kicker: If Congress did not agree to the Super Committee’s recommendations, a round of nondebatable, across-the-board “sequestration” cuts of $1.2 trillion over the next eight years (2013 to 2021) would automatically kick in on January 1, 2013—one-half of the cuts in nondefense spending; one-half at the Pentagon.62

The logic behind the Super Committee was simple, if flawed: These proposed wholesale cuts would be so bad, so destructive, so draconian, so ill-informed, so harmful to the military, as well as to important social programs, that Congress would never, never, never let them kick in. They were bound to approve the Super Committee report, no matter how odious.

That was the logic. So simple, yet so hopelessly naïve. Because what Obama and others miscalculated was that for Tea Party Republicans, this was exactly the opportunity they were looking for. Obama had “thrown them into the briar patch,” as it were. They had come to Washington to shrink the government, if not destroy it, and this was their chance. They didn’t care about the military, and they certainly didn’t care about social programs. They were more than willing to gut both military and social spending with no consideration of which programs were worth saving and which were not. Their number-one goal was to shut the entire government down.

America remained on edge while the Super Committee got down to work, but it wasn’t long before it became apparent that the grand strategy had failed. Democrats insisted on a “balanced” approach of spending cuts and new revenue. Republicans demanded spending cuts only, and again rejected any new sources of revenue as raising taxes. Not even the sword of Damocles, aka “sequester,” hanging over their heads could force the two sides to bridge their differences.

On November 21, members of the Super Committee threw in the towel with a statement that began: “After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.” The committee was formally disbanded on January 31, 2012, and the $1.2 trillion sequester—those terrible, no-good, draconian cuts that Obama assured us Congress would never let happen—became the law of the land, effective January 2013.63

The deep, across-the-board sequestration cuts also paved the way for the next potential economic disaster: the “fiscal cliff” of January 2013, when the weak economic recovery risked being further undermined by the double blow of expiring tax cuts (meaning less personal spending) and the sequester kicking in—less government spending, too.

Campaigning for re-election in 2012, President Obama and members of Congress had spent most of their time trading accusations about which party was responsible for failure to reach a budget deal. When they returned to Washington in mid-November, the bickering only intensified. Neither side would budge. The deep sequester cuts were only a month away. It looked like Armageddon. Yet, just when we were about to go over the cliff, President Obama caved to the hostage-takers again, and made yet another bad deal with Republicans.

At midnight on January 1, 2013, the very day the government would run out of money and the dreaded sequester cuts were supposed to kick in, Congress passed the American Taxpayer Relief Act of 2012, which President Obama signed into law the next day. The ATRA provided some temporary relief, by keeping the government running and delaying the sequester for two months, until March 1. But it also contained many deeply harmful provisions, both to the economy in general and to middle-class Americans in particular.

Most notably, while the ATRA ended certain tax privileges for millionaires and billionaires, it still left 82 percent of the original Bush tax cuts in place. These cuts were made permanent for single people making less than $400,000 per year and couples making less than $450,000 per year—not exactly the middle class—and eliminated for those above the line. According to the Congressional Budget Office, that move cost taxpayers $2.8 trillion from 2013 to 2022. In other words, it didn’t reduce the deficit, it actually added $2.8 trillion to the deficit.64

With his signature on the ATRA, President Obama adopted lower tax rates for dividends and capital gains—which was excellent news for the Mitt Romneys of the world—and left the vast majority of the Bush tax cuts, originally scheduled to sunset in 2010, permanently locked in place. Yes, those same tax cuts candidate Obama had pledged to eliminate. Under Bush, they were one of the major factors in shifting from a surplus to a deficit economy. Now, under Obama and his successors, they would continue to add to the deficit for years to come. No wonder conservatives rejoiced while Democrats cringed. “After more than a decade of criticizing these tax cuts,” crowed Republican Dave Camp of Michigan, then-chair of the House Ways and Means Committee, “Democrats are finally joining Republicans in making them permanent.”65

What puzzled and angered progressives was why Obama signed the ATRA in the first place. So what if Republicans were threatening to shut the government down? Let them do so, many Democrats advised Obama. Led by Speaker Newt Gingrich, Republicans tried that once, in 1995, under Bill Clinton, and it blew up in their faces. People will clearly blame Republicans if they shut down the government again.

Besides, even if he didn’t realize it, Obama was dealing from strength. He’d just handily won re-election by campaigning with a pledge to raise taxes on anyone making over $250,000 a year. So why not call their bluff? Dare Republicans to shut down the government. Let them take us over the cliff—and then watch them deal with the public’s wrath. Instead, he folded, made a bad deal, and let Republicans off the hook by raising taxes only on individuals making over $400,000 a year, Obama’s new definition of middle class.

Meanwhile, the dark cloud of “sequestration” loomed larger and larger. Every day, cabinet secretaries and other top administration officials would come into the White House briefing room and outline for us reporters the disasters that would befall their agencies—Transportation, Health and Welfare, Housing, Education, Homeland Security, Environmental Protection—if the $1.2 trillion sequester cuts actually happened. But nobody believed them. Republicans tried to amend the sequester legislatively by dropping cuts to the military. But Obama vowed to veto any such legislation, absent a “balanced” deficit reduction plan of spending cuts and new revenue to replace it. If you don’t want the hatchet to fall, Obama admonished legislators, “work with a scalpel” to come up with a better plan.66

Of course, they didn’t. D-Day, March 1, arrived full of doom and gloom. With no deal reached, President Obama signed an executive order late in the day making the sequester cuts official and triggering $85 billion in program cuts between March and September. The impacts were immediate and widespread: Federal employees in every agency were forced to take furloughs with no pay; control towers in 149 regional airports were closed (although Congress later passed emergency legislation exempting air traffic controllers); national parks closed visitor centers or opened for fewer hours; White House tours were canceled; navy ships stayed in port; the air force grounded pilots and training flights; two of five mine-safety offices were closed; and federal unemployment checks were cut by 10 percent.67

According to a report issued by Congresswoman Rosa DeLauro (D-Conn.) and Congressman George Miller (D-Calif.), more than fifty-seven thousand children were dropped from the early education program Head Start in 2013 because of sequestration; and more than 5 million fewer meals were served to seniors living in poverty through the Meals on Wheels program. Speaking of severe cuts to education and innovation, MIT president Leo Rafael Reif called sequestration “the single biggest threat to our future success.”68

The worst part is, although its short-term impact was somewhat mitigated by the budget deal brokered by Senator Patty Murray and Congressman Paul Ryan in January 2014, the sequester is still with us—and will be, unless Congress has a sudden change of heart, for the next decade. Which means that every federal agency—Justice, Agriculture, Education, FDA, Commerce, Homeland Security, NIH, the Pentagon, you name it—will be forced to operate under artificial spending caps and cut back essential services. Because they often need the help the most, these cuts will fall especially hard on the backs of the poorest Americans, though everyone will feel the pinch, from cancer patients to preschool kids to our men and women in uniform.

Under “sequestration,” cuts must be made across the board, with no consideration of which programs work and which ones don’t. All of which is already having serious side effects on the economy: reduced purchasing power by federal employees; fewer contracts available for private companies doing business with the government; generally lower consumer spending; and higher unemployment. According to the Congressional Budget Office, sequestration cuts cost as many as 1.6 million jobs through 2014 alone, with a reduction in GDP of 0.7 percent.69

A sad, ironic footnote to all the years wasted and damage caused by deficit hysteria is the tale of Harvard economists Carmen Reinhart and Kenneth Rogoff. In early 2010, Professors Reinhart and Rogoff published an enormously influential study, “Growth in a Time of Debt,” which looked at the economic performance of various countries around the world and asserted that, once the debt of a nation reaches 90 percent of its GDP, its economy basically stops growing—“median growth rates fall by 1 percent, and average growth falls considerably more.” At the time, America’s debt-to-GDP ratio was 100 percent. “The sooner politicians reconcile themselves to accepting [fiscal] adjustment,” the two economists concluded in an op-ed based on their study, “the lower the risks of truly paralyzing debt problems down the road.” Even though Reinhart and Rogoff were using publicly available data—the historical record—no other economists could match their findings. But no matter—the Reinhart-Rogoff study said exactly what deficit hawks wanted to hear, and soon this report was being brandished all over Washington by Simpson-Bowles, Paul Ryan, and sundry other deficit scolds. High debt kills economic growth—Harvard said so! We have to cut, cut, cut!70

Except there was a big problem—several, in fact. After three years of devastating austerity both here and abroad, graduate students at University of Massachusetts-Amherst attempting to re-create Reinhart and Rogoff’s findings asked the two economists for their data set. They found that the study suffered from a simple Excel coding error that drastically changed the results when fixed. Instead of stagnating or shrinking as Reinhart-Rogoff claimed, economies with a 90 percent debt-to-GDP load grew at an average of 2.2 percent—quite a difference! Even more troubling, the data had been selectively weighted, and many examples that ran counter to the “high debt equals no growth” hypothesis had just been inexplicably left out.71

In April 2013, Thomas Herndon, Michael Ash, and Robert Pollin wrote a rebuttal exposing these fundamental errors in the Reinhart-Rogoff report, setting off a firestorm in the economics world. “Did an Excel coding error destroy the economies of the western world?” queried Paul Krugman of “the Excel Depression.” “How much unemployment was caused by Reinhart and Rogoff’s arithmetic mistake?” asked Dean Baker of the Center for Economic and Policy Research.72

So did Washington’s deficit hawks hang their heads in shame at this news? Of course not. “I have obviously read the [Reinhart-Rogoff] report and have referenced it a number of times,” said Erskine Bowles of the dynamic Simpson-Bowles duo. “What [this revelation] doesn’t change is the common sense and my own personal experience in both the public and private sector that when any organization has too much debt,” etc., etc. For his part, Paul Ryan had cited the “conclusive empirical evidence” of Reinhart-Rogoff as justification for his absurdly retrograde budget—as the U-Mass economists pointed out, it was the only study he cited to make his case that high debt damages growth. He did not recant, either. (Of course, back in 2000 when President Clinton had created a budget surplus, Paul Ryan used to fret that the national debt wasn’t big enough—“It’s too small. It’s not big enough to fit all the policy we want”—so his credibility on these issues has always been only a little north of zero.)73

This would all be a tempest in a teapot if not for one sad fact: Reinhart-Rogoff was a favorite of the Obama administration, too. “I don’t think it’s too much of an exaggeration to say that everything follows from missing the call on Reinhart-Rogoff,” Peter Orszag exclaimed in 2011. “I didn’t realize we were in a Reinhart-Rogoff situation until 2010.” After the study was exposed in April 2013, Richard Eskow of Campaign for America’s Future told of a closed-door August 2010 meeting where Treasury secretary Tim Geithner argued that Social Security just had to be cut, so America could fall below the magic 90 percent debt threshold. Geithner, recalls Eskow, “was fixated on lower debt as a percentage of GDP. That’s pure Reinhart/Rogoff.” “Eight months after the 90 percent figure was published,” Eskow sums up, “it had already become an article of faith in Washington, D.C. . . . their inaccurate paper fueled and amplified a debt panic among leaders and advisors in both parties, and helped the tide in favor of austerity.”74

And now, sequestration and artificial spending cuts appear to be here to stay. Despite a modest increase in defense spending in the 2016 budget deal, the sequester has, in fact, become the new normal. For all intents and purposes, as David Dayen put it in the New Republic, it is a never-ending government shutdown. The sequester, he writes, is “already redefining the role of government, rolling back the ambitions of the past, and constraining needed investments in the future.” We may have learned to live with it, but the sequester remains a serious drag on growth. As long as sequestration cuts remain in force, the economy will never fully recover.75

And it’s all part of Barack Obama’s legacy. The sequester may not be what he wanted, but it happened on his watch. He was the one willing to compromise. He signed the legislation. And he bears responsibility for the budgetary calamity we still live under.
Government Shutdown
Naturally, as deep as they were, not even the meat-ax sequester cuts were enough to satisfy the zealotry of Tea Party Republicans. With another debt ceiling deadline looming in October 2013, they threatened to take the nation over the cliff again and shut down the government unless they got their way with another round of deep spending cuts, including no funding for the Affordable Care Act and no compensating revenue from taxes.

This time, Democrats in Congress held firm. And, more surprisingly, so did President Obama, perhaps burned too often after five years in office, or perhaps—finally—taking his cue from President Bill Clinton. In 1995, facing a similar threat from House Republicans led by Speaker Newt Gingrich over cuts in Medicare, Clinton refused to budge. The federal government shut down for a total of twenty-seven days. And the whole move backfired against Republicans. In an ABC News poll, 46 percent of Americans blamed Newt Gingrich and House Republicans for the shutdown; only 27 percent blamed Clinton.76

Fearing a repeat of 1995, many Senate Republicans worked hard in 2013 to avoid a shutdown. So did Speaker John Boehner. But freshman Texas senator Ted Cruz, the Tea Party’s hero, successfully lobbied conservative House Republicans to buck Boehner. Unable to reach a deal, Congress again shut down the federal government, this time for sixteen days, October 1 through October 16, with severe cutbacks in public services. Eight hundred thousand federal employees were furloughed; another 1.3 million were required to go to work with no guarantee of when they would get their next paycheck. The Grand Canyon, the Statue of Liberty, the White House, Washington’s World War II Memorial, and other iconic parks and monuments were closed. National parks received 8 million fewer visitors in 2013, which cost neighboring communities an estimated $414 million in lost tourist revenue.77

The shutdown triggered a bitter debate between House Republicans and the Senate. A bipartisan majority in the Senate endorsed a plan to lift the debt ceiling and leave spending at the new, low sequester levels. House Republicans, goaded on by Ted Cruz, insisted they would accept no deal that did not include defunding Obamacare. After years of negotiating with President Obama, they were accustomed to taking hostages and getting rewarded for it. But this time, Senate Democrats and Republicans rejected their demand. So did President Obama, who vowed to prevent “one faction, of one party, in one house of Congress, in one branch of government, [from shutting] down major parts of the government—all because they don’t like one law.”78

Finally, on October 16, Speaker Boehner broke with his caucus and scheduled the compromise Senate bill for a vote in the House, where it was approved 285–144, with the help of 198 Democrats and only 87 Republicans.79

The government shutdown of 2013 was over, but not without dealing a major hit to the economy. In a statement released on October 17, the financial ratings agency Standard & Poor’s estimated the shutdown had taken “$24 billion out of the economy,” or $1.5 billion a day, and “shaved at least 0.6 percent off annualized fourth-quarter 2013 GDP growth.”80

As in 1995, Republicans’ approval ratings took a big hit, too. According to an NBC News/Wall Street Journal poll, 53 percent of Americans blamed Republicans for the shutdown, while only 31 percent blamed Obama—an even greater margin than Bill Clinton enjoyed in 1995. Approval ratings for Congress sank to a near all-time low, at 11 percent. And only 24 percent said they had a favorable view of the Republican Party. The president’s approval rating remained at 44 percent, exactly where it was before the shutdown began. And, curiously enough, the battle over funding the Affordable Care Act only increased its public approval, from 31 percent to 38 percent. (More on that law in the next chapter.) As it turned out, America didn’t take kindly to the Republicans’ hostage-taking—if only Obama had learned that lesson sooner.81
The Incredible Shrinking Deficit
Since the government shutdown of 2013, the economy has limped along in a slower recovery than what’s needed while Congress, through a succession of short-term continuing resolutions, or “CRs,” has kept the government sputtering along at record-low sequester rates—and while the Obama administration holds out as “Austerity Central,” maintaining its primary focus on deficit reduction, not economic growth.

Meanwhile, a strange thing happened. Because of a combination of factors—some new tax revenue, a pickup in the economy, the Affordable Care Act, and, yes, spending cuts—the deficit shrank more and more until, the CBO reported in October 2015, it had reached the lowest point since 2007.82

At that point, on February 4, Obama dispatched Jason Furman, chairman of the Council of Economic Advisers, to meet with us reporters in the White House Briefing Room and brag about the administration’s success. But the longer I listened to Furman touting success in reducing the deficit, the more I wondered why they were still on such an austerity kick. Which led to this exchange:

Press: “You said we are now at 4.1 percent of GDP with the deficit, and heading toward 2.6 percent. What is the ideal considered among economists as a percent?”

Furman: “The most important thing is that you’re getting your debt down as a share of the economy, and that—that it’s on a downward path says that you’re fiscally sustainable. And deficits under 3 percent of GDP are generally consistent with getting your debt down.”

Press: “So I guess my question is, if you’re already at 4.1 percent and you’re heading to 2.6 and you’ve got 15 million Americans out of work, why the fixation on more deficit cutting? Why not an emphasis on more stimulus or more spending to boost the economy? It seems you can afford it. You’ve succeeded in getting the deficit down.”

Furman: “Again, if you looked at the State of the Union, the President was talking about things like more investment in infrastructure, about other fiscal policies that would help growth and help job creation. And in the past, we’ve always shown how you can do that while also, over the medium and long run, dealing with your deficit.”83

Pure talking points! In other words, Furman was saying, you can have it both ways. You can have stimulus and deficit reduction at the same time. You can be both John Maynard Keynes and Milton Friedman at the same time. Except you can’t.

By the way, the deficit has continued to shrink. Furman returned to the briefing room in December 2014 to report that the budget deficit for November was $56.8 billion, down 58 percent from the $135.2 billion reported one year earlier. By January 2015, President Obama could rightly brag that the deficit had dropped by two-thirds since he took office. Unfortunately, the size of the deficit was never even close to being our real economic problem during his tenure. A lower deficit may make the Simpsons and Bowleses of the world sigh in satisfaction, but it is cold comfort for all those left jobless, hungry, and desperate by years of inadequate recovery.

Ironically, Obama’s obsession with deficit reduction failed in another way, too. As noted, one of the reasons President Obama shifted so dramatically from growing the economy to reducing the deficit was that Peter Orszag and others convinced him that this was one way to win over swing voters, who were turned off by too much government spending. There was zero evidence to support that premise, but this is something that so-called Serious People in Washington tend to believe, all evidence to the contrary.

Once attempted, of course, it had just the opposite effect. In February 2014, with the deficit at its lowest point in six years, a Huffington Post poll showed that 54 percent of Americans thought the budget deficit had actually increased since Obama took office—and blamed him for it. Only 19 percent of respondents knew it had decreased. From a political point of view, all that compromise and pain had been for nothing.84
Wall Street Rules
While the economy limped along at its very sluggish pace, there was another part of President Obama’s response to the 2008 financial crisis that perplexed and outright infuriated many progressives. The entire collapse of the economy was triggered by reckless, if not illegal, trading of worthless securities by some of the nation’s biggest financial institutions. Yet what did President Obama do to crack down on the malefactors of Wall Street? Almost nothing.

His first attempted reform of any kind, in July 2010, was to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act, aka simply “Dodd-Frank.” This may have been the toughest legislation reformers were able to get out of Congress, though many would argue otherwise, but it still did nothing to punish those responsible for the crash. Indeed, it left all the major players and institutions in place, thereby offering zero protection against the same calamity happening again.

In July 2013, former senator Ted Kaufman, a member of the Senate Banking Committee during his brief time serving the remainder of Vice President Joe Biden’s term, was asked to assess the results of Dodd-Frank for USA Today. “Three years later,” Kaufman concluded, “Dodd-Frank is a failure.”85

Kaufman listed two main problems with Dodd-Frank:

1. Delay in new regulations. Rather than lay out new rules for Wall Street, the legislation left that task up to various federal agencies, which, as a result of either bureaucratic inertia or intense pressure from Wall Street lobbyists, were in no hurry to get the job done. When Kaufman penned his article, only 155 of 398 new rules required by Dodd-Frank had been finalized. The legislation’s crown jewel, the so-called Volcker Rule, designed to limit risk-taking by banks, was not finalized until December 2013, more than three years after the bill was signed into law.

2. Banks are still gambling with FDIC-insured money. Because of a giant loophole in the law, Wall Street firms can still trade in the same kind of derivatives that contributed to the crash of 2008—as long as they do so in overseas markets and not in the U.S.A. JPMorgan Chase learned that the hard way in 2012 when one of its London traders, quickly dubbed the “London Whale,” lost $6.2 billion for the company and shareholders through trading in worthless securities.86

Despite progressives like Senators Elizabeth Warren and Bernie Sanders pointing out that Obama has actually done quite little to re-regulate financial institutions, the White House still views reform of Wall Street as one of the signature achievements of the Obama administration. On October 6, 2014, Press Secretary Josh Earnest told us reporters: “The President has been pleased with the progress that the regulators have made in implementing the law. The implementation of Wall Street—well, let me start at this place. The passage of Wall Street reform is actually going to be one of the most prominent aspects of President Obama’s legacy.”87

It’s hard to see what that confidence is based on. For the most part, Wall Street firms are as little regulated as ever. Most of the banks and financial institutions that created the fiscal crisis of 2008 are still up to the same old tricks. The same CEOs are still at their posts. If anything, banks are bigger and badder and making more money than ever before. And there is no guarantee that the whole house of cards could not collapse again at any moment.

An interesting insight into Obama’s unwillingness to stand up to Wall Street is revealed in A Fighting Chance, a memoir published by the new Massachusetts senator Elizabeth Warren in April 2014. As a consumer activist and Harvard professor, she was the first to talk about the need for a Consumer Finance Protection Bureau, which became a key element of Dodd-Frank. And Obama hired her at the White House as an adviser on the legislation.

It was widely assumed that Obama would name Warren herself, “mother” of the CFPB, as its first chair. But in 2010, according to Warren’s memoir, Obama called her into the Oval Office and informed her he dared not appoint her to that position because she made Senate Republicans and Wall Street bankers “very nervous.”

A few weeks later, Warren recounts, Obama called her back in and asked her to do the setup work for the new agency—even though, again, she would never lead it. When she declined, Obama told her testily: “Elizabeth, you’re jamming me.” He wanted the political appearance of cracking down on Wall Street, without the actual crackdown.88

As weak as it had been, Dodd-Frank got even weaker in December 2014 when congressional Republicans, yet again, took the economy hostage to further their policy goals. This time, they added a rider gutting one of Dodd-Frank’s major provisions in the so-called $1.1 trillion “Cromnibus” bill, hammered together—in another eleventh-hour desperation move—to fund the federal government through September 2015.

“Cromnibus” represents the worst of Washington-speak. It’s the amalgam of a Continuing Resolution, or CR, to keep the government funded, plus an omnibus budget package. Under the proposed Republican amendment, reportedly written by Citibank lobbyists, taxpayers would once again be on the hook, responsible for bailing out banks for any losses suffered from gambling in derivatives—the very practice that caused the 2008 fiscal collapse.89

Progressives in Congress denounced the amendment as a “Wall Street give-away.” Former congressman Barney Frank condemned Republicans for trying to gut the regulatory legislation he had coauthored. Opposition in both the House and Senate was led by new Massachusetts senator Elizabeth Warren, who thundered from the Senate floor: “Who does Congress work for? Does it work for the millionaires, the billionaires, the giant companies with their armies of lobbyists and lawyers, or does it work for all the people?”90

In this case, apparently, Congress worked for the billionaires. And so did President Obama. Any strength of the opposition collapsed when the president announced he would sign the Cromnibus bill, with its pro–Wall Street amendment attached. He defended his decision as demonstrating his willingness to compromise—which, in fact, had never been in question. In fact, he even personally lobbied for the bill, as did Jamie Dimon, the head of JPMorgan Chase.91

Most shocking of all, in the wake of the 2008 recession, not one Wall Street executive has been charged with a crime, even though they knowingly peddled worthless securities to trusting investors and drove this nation into the worst fiscal crisis since the Great Depression.

In contrast, after the Savings and Loan scandal of 1990, the FBI opened up over 5,400 criminal investigations, which resulted in 1,100 prosecutions and more than 800 convictions. This time around, nobody went to jail except Bernie Madoff, who was running his own Ponzi scheme, and was not really one of the big bankers responsible for the collapse of the national economy. He made the mistake of stealing from other rich people. President Obama, meanwhile, continued to hold special meetings at the White House with the same crowd of financial CEOs who had toppled the American economy through greed and outright corruption.92

At first, when people started to ask whether anyone would be held responsible, we were assured that the Department of Justice was on the case. At a 2009 Finance Committee hearing, then–assistant attorney general Lanny Breuer assured senators that high-level prosecutions were being “pursued and investigated.” It just takes time, he explained. “The folks who perpetrated a lot of these crimes, to the degree they were crimes, took a long time in hatching and developing them, and bringing the cases will take a long time, but they will be brought.”93

That was then, this is now. The DOJ has successfully filed a number of civil lawsuits against financial institutions, including Bank of America, Goldman Sachs, and Citigroup—and won as much as $66 billion in fines. That, to these megabanks, is a mere pittance—just the cost of doing illegal business.94

However, despite widespread evidence of wrongdoing, not one criminal case has been filed against those on Wall Street most responsible for the activities that directly caused the collapse of 2008. In both Iceland and Ireland, bankers were charged, tried, convicted, and imprisoned for the same kind of criminal activities that wrecked their economies. Yet in this country—after taxpayers spent $700 billion bailing out Wall Street and saving it from total collapse—not one major Wall Street executive has been charged or gone to jail for knowingly selling worthless securities. Quite the contrary, they’ve been continually invited to White House meetings.95

JPMorgan CEO Jamie Dimon made sixteen visits to the White House during Obama’s first term, meeting with Obama himself three times. He was, in fact, known as Obama’s “favorite banker” until JPMorgan’s embarrassing “London Whale” trading loss in 2012. And today, Dimon and his Wall Street friends are still on the job, making more money than ever, with little government oversight.96

“It’s a gross miscarriage of justice,” says Dennis Kelleher, president of the financial reform group Better Markets. “How can you have the biggest crash since 1929, causing the worst economy since the Great Depression, and not a single person at a major, politically-connected, too-big-to-fail Wall Street bank is held accountable?”97

Failure to act was bad enough. Attorney General Eric Holder twisted the knife when he tried to explain why. On March 6, 2013, in testimony before the Senate Finance Committee, he told Iowa senator Charles Grassley: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”98

Holder later tried to walk his comments back, but it was too late. Senator Elizabeth Warren had already tagged him—and President Obama—for believing that Wall Street banks were not only too big to fail, they were now also “too big to jail.”
The HAMP Disaster
One of the least successful aspects of President Obama’s economic program was also one of the least reported-on: the administration’s initiatives to deal with the home mortgage crisis.

The housing bubble was a major contributor to the 2008 recession: Millions of Americans who had been granted fantasy loans to buy homes with no money down soon found themselves “underwater” and unable to keep up with mortgage payments, while their worthless loans were being repackaged and sold as derivatives by Wall Street banks.

In 2009, to address this problem head-on, President Obama created the Home Affordable Modification Program, or HAMP, as a follow-up to the Wall Street bailout known as TARP. Launched with much fanfare, its announced goal was to help homeowners get back on their feet by being able to renegotiate terms on their home mortgage. But that’s not how it worked out. In the end, HAMP made it easier for banks to squeeze money from troubled home mortgage loans, but often only made things worse for homeowners. Contrary to what HAMP promised, in other words, bankers got bailed out, homeowners did not.

By 2012, even the Treasury Department acknowledged that HAMP had fallen far short of its goal of helping 3 to 4 million homeowners avoid foreclosure. Only slightly more than five hundred thousand home loans had been renegotiated under the program, 40 percent of which Treasury expected to default anyway. Far more borrowers dropped out of the program, or were denied eligibility, than successfully achieved loan modifications. Those who did end up with a new loan, along with those who would later default, were often left with larger outstanding debt, worse credit scores, and less home equity.99

The problem, as reported by economics writer David Dayen in The Guardian, was how the program was structured. Instead of just giving struggling borrowers the cash they needed to better handle their mortgage payments, HAMP offered incentive payments to banks and their mortgage servicers to modify the loans. That left the decision on whether to accept homeowners into the program, and at what rates, entirely up to the banks—which sometimes saw more profit in kicking people out of their homes. Dayen calls it “the government program that failed homeowners.”100

By 2014, five years after its creation, 1.3 million homeowners had benefited from modified mortgages under HAMP, but 350,000 of them defaulted again on their mortgages and were evicted from their homes. By early 2015, fewer than one million homeowners remained in the HAMP program—just a quarter of its original target—and 28 percent of all modified loans had slipped back into default, including nearly half of those loans modified in 2009, at the height of the foreclosure crisis.101

When confronted with such dismal results, Treasury Department officials insisted that their actual goal was not to help 4 million people stay in their homes, but only to delay foreclosures until the market could better absorb the glut of vacant homes—which, again, did nothing to help beleaguered homeowners. In other words, originally sold as a plan to help homeowners, HAMP was actually a program to help banks deal with the flood of foreclosures—and then–Treasury secretary Tim Geithner admitted as much. In his book, Bailout: How Washington Abandoned Main Street While Rescuing Wall Street, former TARP inspector general Neil Barofsky recounts a 2009 meeting between Geithner and Elizabeth Warren, who was then head of the Congressional Oversight Panel. When Warren pressed Geithner for what impact HAMP would have on banks, Geithner explained: “We estimate that they can handle ten million foreclosures, over time . . . this program will help foam the runway for them.”102

This was the moment we learned that HAMP was actually designed to help banks, not homeowners. In fact, homeowners were quite beside the point. Regardless of how bad off they were, in Geithner’s world, they would end up just one of 10 million foreclosures. By setting up HAMP, Treasury’s goal was merely to space out the foreclosures and give banks time to earn their way back to health, mostly through the other parts of the bailout, which enabled them to earn profits.

In any case, there was no sense of urgency to help homeowners. By mid-2010, only $250 million of an earmarked $75 billion had been spent on the homeowner program. By 2013, just $3 billion. As part of President Obama’s plan to help homeowners recover from losses suffered in the crash of 2008, HAMP was a colossal failure. Which is probably why he never talks about it.103

As for bringing banks to justice for widespread mortgage and foreclosure fraud—manifestly criminal behavior which included forging documents and titles to more easily evict Americans from their homes—Obama and his advisers opted for another pittance of a settlement. Once again, nobody went to jail, and the bad behavior continued.
The Bottom Line
By law, it seems, every article on the economy must end with the phrase “bottom line.” So here goes.

Bottom line: President Obama’s record on the economy is a series of missed opportunities.

Yes, he inherited the worst financial crisis since 1929, but he made the mistake of hiring a team of Wall Street insiders who could not be counted on to solve it, and his ensuing economic record is a string of serious mistakes and costly compromises.

Yes, he saved the country from a second Great Depression, but the stimulus, his initial response, was far too timid and far less than what the situation demanded, or what he could have achieved at the time. He fell short, in other words, by not reaching high enough.

Yes, he tried to bring leaders of both parties together, but he ended up swallowing the Republican Kool-Aid, buying into voodoo economics, and accepting Republican claims that, in light of our economic problems, our number-one priority should be deficit reduction, not job creation.

Yes, he was always willing to compromise, but that’s the problem. He was always willing to compromise, even when the other side was not, and he therefore wasted too much time trying to get them to make a deal and settled for many bad ones. In the end, there was, sadly, little Obama did not compromise on, including extending the Bush tax cuts and even supporting cuts in Social Security and Medicare, ignoring his campaign promises not to.

Yes, the economy has recovered some from the crash of 2008, but only very slowly and unsteadily. Seven years later, some economists still say we will never fully recover. There are some positive signs: The unemployment rate continues to drop; more than 13 million new private-sector jobs have been created since October 2010; new housing starts are up; the Dow and the S&P averages have soared to record highs, more than doubling under President Obama. Yet 8 million Americans are still out of work; millions more are underemployed in part-time work, but would prefer to work full-time; except for top white-collar workers, wages for those lucky enough to have a job remain stagnant; and the federal government is still operating under strict sequester limits that cripple the economy, prevent many government agencies from doing their jobs, endanger our military readiness, and have put hundreds of thousands of Americans out of a job.104

For a while, it was convenient for President Obama to blame George W. Bush for our economic problems. But that no longer works. While it was Bush who put us in the hole, it’s Obama who’s been too slow in bringing us out of it. And the American people sense that. In an October 2014 CNBC survey, only 24 percent of Americans said they are extremely or quite confident in President Obama’s economic leadership. Forty-four percent said they had zero confidence in Obama on the economy. And, in that supposed fifth straight year of recovery, only 18 percent saw the economy as excellent or good.105

Perhaps the most devastating indictment of Barack Obama’s economic stewardship is that income inequality—which he once called “the defining challenge of our time”—has only grown worse during his time in office.

In July 2014, MSNBC contributor Timothy Noah reported on the findings of the nonpartisan Tax Policy Institute on the widening income gap: “The top one percent gobbled up 22.46% of the nation’s collective income in 2012, the last year for which we have data. The comparable figure for 2009 was 18.12%.”106

Noah also noted another measure of the rise in income inequality, known as the “Gini Index.” He explains: “The Gini measures equality of distribution on a scale of zero to one. Zero would mean everybody received the identical income; one would mean a single person received all the income, leaving nothing for anybody else. For U.S. households, the Gini was 0.477 in 2012. In 2009, it was 0.468. That’s a significant increase.” In layman’s terms, under Obama, the rich have been getting ever richer in comparison to everybody else.107

No less a figure than Federal Reserve chair Janet Yellen has joined the chorus of alarm over income inequality. In an October 2014 speech at the Federal Reserve of Boston, she revealed that the gap between the very wealthy and everybody else had widened to the greatest point since the nineteenth century, the days of John D. Rockefeller. She told the Boston bankers: “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.”108

Yellen also pointed to data compiled by the Fed showing that the bottom half of homeowners by wealth lost more than 60 percent of their home values between 2007 and 2013, while the wealthiest 5 percent lost only 20 percent of their home equity.109

That point was underscored in May 2015, when New York mayor Bill de Blasio, Senator Elizabeth Warren, and Nobel Prize–winning economist Joseph Stiglitz unveiled a National Progressive Agenda at the National Press Club. “Why are we all so focused on inequality all of a sudden?” Stiglitz asked. “Part of the answer is it’s gotten so much worse.” He pointed out that 90 percent of all gains in the three years after 2009 went to the richest Americans and that the minimum wage, when adjusted for inflation, had fallen to about where it was forty-five years ago.110

The facts don’t lie. Under Obama’s presidency, income gains have been concentrated at the very top, and are practically nonexistent for those Americans in the middle and at the bottom. That may not be entirely Obama’s fault, there are many economic factors involved, but he has done little to slow down or reverse the trend.

Again that bottom line: On the budget and economy, Barack Obama’s performance fell far short of what was expected from the great liberal hope of 2008. And former Treasury secretary Tim Geithner has his own theory on why that was so.

In Stress Test, his memoir of his days in the Obama administration, Geithner writes: “Sometimes I thought he wore his frustration too openly. He harbored the overly optimistic belief that since his motives and values were good, since his team was thoughtful and well-intentioned, we deserved to be perceived that way.”111

Geithner’s observation might be a reflection of the entire Obama presidency. But it clearly rings true here. On the economy, good intentions were not enough. Bold leadership was needed. But Barack Obama did not provide it. And the economy still suffers.