Obamanomics 2.0

Meet the team running economic policy in the president's second term


"America's possibilities are limitless," President Barack Obama told the country during his second inaugural address. And so, one got the sense, was his agenda. In February, during his State of the Union address, Obama began to flesh out the details: tax reform, pruned-back entitlement payouts, an increase in the minimum wage, tens of billions in new infrastructure spending, perhaps even a stab at a long-elusive "grand bargain" to steady federal finances into the future.

The two speeches made it clear that Obama's second term, like his first, would focus on domestic policy, with a handful of big-ticket reform items competing for attention against a backdrop of continuous haggling over the size and shape of the federal budget. Along the way, he will rely on an economic team that has been almost completely overhauled since he first took office. 

Who are the president's top wonks? At first glance, they're a bunch of ex-Clintonites steeped in Third Way centrism and deficit hawkery. But a closer look reveals something else. The keepers of Obamanomics 2.0 are above all political appointees designed to defend a status quo that has very little to do with the comparative golden years of Bill Clinton.

The Paper Deficit Hawk

In theory, Jacob "Jack" Lew is the deficit hawk's best friend in the administration. As White House budget director from 1998 through 2001, Lew presided over the Clinton surpluses. During that time, he repeatedly insisted that fiscal discipline was necessary to achieve liberal policy goals. Indeed, Lew was so adamant about the need for budget restraint that when he was nominated for the top spot at Treasury this year, some liberals quietly grumbled that he might be too concerned about the deficit.

They don't have much to worry about. It's true that Lew spent much of his career managing highly charged budget negotiations, first as an aide to Democratic House Speaker Tip O'Neill in the early 1980s and under Clinton. But Lew has always viewed budgets as messaging first, math second. The budget, he once wrote, is "not just a collection of numbers, but an expression of our values and aspirations." Elsewhere he has described budgets as "a tapestry, the fabric, of what we believe."

It's clear enough what Lew believes about the current budget. He's a lifelong defender of the big-ticket entitlements that are the largest drivers of the nation's long-term debt, a true believer in the goodness of government who agonizes over even the tiniest program cuts, and a budgetary sleight-of-hand artist who helped the Obama administration sell fake spending cuts during the 2011 debt limit fight.

Under Clinton, Lew sold surpluses as a way to preserve the welfare state: "Fiscal discipline is essential to protect Social Security and strengthen Medicare, so that both will be there in the years ahead," he told Congress in 2000. Entitlements have long been a key issue for Lew; under O'Neill, he helped broker a bipartisan deal to reform Social Security financing in 1983. In 2012, former GOP senator (and Budget Committee chair) Judd Gregg told National Journal that Lew's top priority is shielding Medicare and the rest of the entitlement firmament from change.

The mere mention of entitlement cuts has been known to drive the reportedly even-tempered Lew into fits of rage. During the summer 2011 debt limit negotiations, he reportedly lost his cool when the subject of reducing Medicaid spending came up. "No!" he yelled on a conference call with colleagues, according to a report by Bloomberg News. "We're not doing that." Eventually, Lew reached an agreement with Republicans that raised the federal debt limit but did not cut Medicaid. 

In an April 2011 budget negotiation, Lew helped buy Republican support with a package of "cuts" to spending that either never was going to happen in the first place or already was scheduled for the chopping block. As an anonymous senior White House official bragged to The New Republic in January, "Boehner and his guys got snookered" by the empty cuts Lew helped cook up.

The result was that the White House got a deal on a continuing resolution for the 2011 fiscal year without giving up anything it considered important, and the GOP got, well, "snookered." It's a story that helps explain why some Republicans in Congress'"and House Speaker John Boehner in particular'"seem to dislike Lew so intensely.

It also suggests how averse Lew is to any significant spending cuts. That aversion was driven home in a 2011 New York Times op-ed in which he described the "tough choices" that would be necessary to get the nation's fiscal house in order. "Make no mistake," he wrote, "this will not be easy." In order to illustrate how hard it would be, Lew singled out cuts the administration had made to community service block grants, a separate community development fund, and the Great Lakes Restoration Initiative. The total savings from those allegedly tough choices? Just $775 million. With an "m." 

Lew used those as examples of the $20 billion in cuts he said the administration had proposed; the point was to highlight the grave difficulty of even the most minor budget trims. It's a view that equates any reduction in federal spending, no matter how small, with an act of savagery.

As the federal government continues on an unsustainable debt trajectory driven largely by the unchecked growth of entitlement spending, this is who the president has chosen for a position that The Washington Post describes as the administration's "leading spokesperson for the economy," as well as its senior advocate in the budget negotiation process.

Lew's elevation to the top spot at Treasury says plenty about the administration's intentions on budget policy. He will be the administration's point person on issues relating to the budget and economy, the strategist and negotiator tasked with overseeing the sure-to-be fractious showdowns with Republicans over debt and deficit issues. In the battles over the budget, Lew will be Obama's top general.

It's also a telling reflection of how the president himself views our current budget problems. Lew is often reported to be almost entirely in sync with the president on budget policy values. Both men sometimes talk up the need to get the nation's fiscal house in order. But both would rather protect federal spending than find ways to cut it. 

The Minimum Wage Enthusiast

Obama often seems to view economic policy in symbolic terms, so it's fitting that the choice of Alan Krueger to head the Council of Economic Advisers (CEA) was in some sense a symbolic choice, designed to send a message that the administration would prioritize job creation over deficit reduction. Krueger, a Princeton economist who was installed in the CEA job in August 2011, is a well-known and well-regarded labor economist with a reputation for both empirical rigor and clever thinking. He's also one of the most important minimum-wage enthusiasts in the country.

Before taking over at CEA, Krueger worked for two years at the Treasury during Obama's first term. Before that, he was chief economist for Clinton's Department of Labor from 1994 to 1995. His academic work is unusually varied, covering everything from the economic factors associated with terrorism to the follies of occupational licensing, the toll of long commutes, and the market fluctuations of scalped concert tickets. But as a labor economist, Krueger is first and foremost a jobs wonk.

Krueger is most famous for his work on a policy that numerous economists left and right have historically agreed results in higher, not lower, unemployment: the minimum wage. In 1995, he coauthored Myth and Measurement: The New Economics of the Minimum Wage with his Princeton colleague David Card. The book offered an extended, empirical argument against the prevailing wisdom that hikes in the minimum wage reduce employment. Instead, the pair surveyed a variety of studies as well as their own research to argue that the available research provides "fairly compelling evidence that minimum wage increases have no systematic effect on employment." Not only that, but in some circumstances, they contended, a hike in the minimum wage could actually increase employment.

Other liberal economists soon followed Card and Krueger's lead with more studies purporting to show no negative employment effects arising from increases in the minimum wage. Those studies were called into question by, among others, a January 2013 National Bureau of Economics Research paper from the University of California, Irvine economists David Neumark and J.M. Ian Salas and the Federal Reserve economist William Wascher, who jointly argued that the pro'"minimum wage research designs all suffered from "serious problems," and that the best evidence "still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others."

Krueger has maintained his confident support for a higher wage floor over the years, pushing the policy from his perch in the administration. In a February interview with National Public Radio, he went so far as to suggest that a higher minimum wage would actually benefit employers by reducing employee turnover. His advocacy paid off in a public way when Obama proposed in his 2013 State of the Union address an increase in the federal minimum wage to $9 a hour, indexed to inflation.

Yet the payoff, like Krueger's nomination, was mostly symbolic. Two months after the speech, the administration had all but dropped the issue, and there were no signs that the measure had anything close to the legislative support needed to get through the Republican-controlled House of Representatives. 

That left Krueger with the unenviable task of defending the president's ongoing failure to boost the nation's employment numbers. The April 2013 jobs report published by the Department of Labor was hailed as evidence of recovery, yet it found that the economy had created only 165,000 new jobs'"barely enough to keep up with new workforce entrants. The report also showed an increase in "involuntary part-time workers," and a sizable reduction in the number of hours worked. The labor force participation rate, meanwhile, was the lowest since 1979. Overall, the economy was still missing two million of the jobs lost in the recession.

Those are tough numbers for an administration economist to defend. But for as long as he sticks it out in the administration, that's what Krueger will likely be: the erudite jobs wonk tasked with explaining an administration that has consistently failed to make good on its promises to create jobs.

The Salesman

Looking only at his credentials, Gene Sperling might appear to be the administration's internal check on economic policy: its conscience and critic, the killjoy whose job it is to deliver hard truths when no one else will. 

On paper, Sperling, the new director of Obama's National Economic Council, comes across as a sort of third-way Clintonian, growth-focused and disinclined toward the scrum of partisan rhetoric. His White House bio touts eight years of experience as an economic adviser in the Clinton administration, including work on the Deficit Reduction Acts of 1993 and 1997. Between administrations, Sperling spent time at the center-left Brookings Institution and the liberal Center for American Progress, where he wrote a book titled The Pro-Growth Progressive, which hails dynamism, globalism, and economic acceleration while taking to task fellow Democrats who lack "a deeper appreciation of the inevitability of change, the benefits of open markets, and the upward aspirations and entrepreneurial nature of Americans."

As the head of the National Economic Council, a role he also held for four years under Clinton, Sperling is responsible for coordinating the administration's economic policy process, which includes playing the role of "honest broker." The ultimate goal is to ensure that Obama hears all of the relevant viewpoints on any given issue. It's a job that makes him an adviser, a manager, a filter, and a firewall on economic policy. 

Yet somewhat curiously for a man who has now twice run the White House's economic policy apparatus, Sperling is not an economist. He holds a B.A. in political science from the University of Minnesota and a law degree from Yale, so it's perhaps not surprising that he often acts more as the administration's public advocate'"an economic salesman who has become known for his vigorous defenses of administration policy. 

Sperling ascended to the top of Clinton's economic team on the strength of what a 1996 New York Times article described as his "aggressiveness in selling President Clinton's economic agenda," launching detailed criticisms of GOP presidential rival Bob Dole's tax plans before those plans had even been released. Under Obama, Sperling has continued to engage in the same sort of aggressive spin. He is a frequent guest on Bloomberg TV, where he provides viewers with up-to-the-minute guides to the latest in administration talking points.

Those talking points are frequently designed to portray Obama as a centrist deficit hawk. At the end of November, as fights loomed over the fiscal cliff and debt limit, Sperling declared that Republicans "should recognize that the president has a very detailed plan, that it will bring our deficit and debt down as a percentage of the economy, and it's balanced." In January, with the fiscal cliff deal negotiated, he had updated his rhetoric, highlighting the "two and a half trillion dollars in deficit reduction" the White House had already achieved because the president engaged in "good faith compromise and very tough negotiations."

Sperling's messaging often shows a knack for lawyerly nuance. As the sequester'"a package of automatic spending reductions that came about as part of the 2011 debt limit deal'"kicked in at the beginning of March, he was the point man for the administration's argument that Republicans thought of the idea first and thus should bear responsibility for its effects, despite journalist Bob Woodward's reporting that the sequester was first proposed by the administration. Sperling's response was to insist that Republicans had been adamant that the sequester could not include tax hikes, hence it was the GOP's fault that the sequester took its final form.

At other times, Sperling, who is known for his willingness to work extreme hours, seems intent on simply exhausting his opponents. In April 2012, he authored an unusual document, first delivered as a speech to the Washington Association of Magazine Media, titled "The Case for Shared Sacrifice." It was a 17-page attack on the budget plan of Republican House Budget Committee Chairman Paul Ryan, as well as on the media commentators he accused of lazily relying on "pox on both your houses" analysis.

Sperling never quits. Even on television, he speaks almost entirely in run-on sentences. These often play like an endless loop of Beltway bromides. In a February Bloomberg spot, Sperling began his response to a question on the coming sequestration cuts with: "All it takes for us to avoid this type of self-inflicted wound on our economy, on children's mental health services, on our national defense, is for both sides to be willing to come together with the type of bipartisan compromise you need in divided government, and you know I think what's been unfortunate is that our Republican colleagues in the House of Representatives have now gone to a very absolutist position'"some may believe it very sincerely'"but the idea that you shouldn't have even one single penny of tax expenditure reductions or loophole reductions that would raise even a penny of revenues, that's very unfortunate.…" At this point the anchor began to interrupt. Sperling kept going.

Clinton's Ghost

Invariably, Sperling wraps his machine-like recitations of administration talking points in a thin veneer of Clintonism: appeals to the necessity of compromise and bipartisan negotiation, descriptions of opponents' plans as far-right or extreme, and self-congratulation for occasionally irritating his fellow Democrats. It hardly needs to be made explicit. Sperling, Krueger, and Lew all served in the previous Democratic administration, and their presence in the White House of 2013 seems intended to signify a continuity with the economic good times that the Clinton years have come to represent.

But Obama's economy is not Clinton's economy, Obama's bureaucracy is not Clinton's bureaucracy, and Obama's budget is not Clinton's budget: The 44th president spends more, borrows more, sees fewer jobs created, and shows no appetite for the kind of bipartisan compromise to reform federal benefits programs that made the 42nd president's welfare reforms possible. 

It is somewhat ironic that a president whose re-election campaign slogan consisted of a single word'""Forward"'"has put together an economic team designed to evoke the past. But perhaps that is because there is nowhere left to go. Obama's grand second-term ambitions are almost certain to be stymied by partisan differences, small-bore budget squabbles, public resistance to additional spending and taxation, and the decline in his own powers of persuasion.

Considered in that context, the administration's second-term economic team reveals a roster built not for offense but for defense'"protecting the status quo on entitlements and spending, explaining away the continually weak economy, dutifully making the Oval Office's case on the news of the day. America's possibilities may indeed be limitless. But at this point, the administration's are looking smaller by the day.