Memo to Obama: Don't narrow your options
Politico, December 8, 2008
How to avoid the mistake presidents don't realize until it's too late
As President-elect Barack Obama crafts an economic plan for a country in crisis, he faces a risk that presidents often don't appreciate until it's too late: Options presented to presidents are narrowed before they ever reach their desks.
This happened to President-elect Bill Clinton in 1992 in a way that is instructive for Obama's new economic team and for Democrats who hope to fix the economy while advancing progressive goals.
While every presidential transition is hectic and prone to second-guessing, it seems clear in hindsight that internal debate over Clinton's original economic plan focused on options that weren't different enough to offer truly alternate paths. As Bob Woodward later reported, the transition discussion quickly became organized around several options for what the budget deficit would be four years later—ranging from $195 billion to $240 billion. In long meetings, Clinton's team debated which scenario was best in terms of the economy, Clinton's campaign pledges and the amount of new public investment that these constraints would accommodate.
Yet the fabled duels between the "deficit hawks" and the "progressives" on Clinton's team masked a deeper, surprising consensus. The difference between their options was about $45 billion in four years. That's an $11 billion or so difference per year—less than 1 percent of the federal budget at the time. This early narrowing of options—which then framed all subsequent discussion—arguably left the president with the worst of both worlds: He ended up shortchanging his planned investments in infrastructure, education, and research and development, even as he was forced to spend most of his presidency wrestling the deficit to the ground. It's hard to know if bolder options might have led to different choices, but such options weren't presented to him.
Today, the risk for Obama is similar. Obama has an ambitious progressive agenda, must manage the country through an economic crisis and inherits a tide of red ink much larger than the one Clinton inherited. Yet there are pluses, as well. A consensus has emerged on the need for a serious new stimulus for the economy, while economists of all stripes say we should put off near-term worries about the deficit until the storm has passed.
But this consensus still leaves an enormous range for potential action. The difference is vast between what an Obama administration can do while running deficits of $800 billion and $1.3 trillion, or even (hold your hat) $2 trillion, for a couple of years. The temptation may be for his incoming team to narrowly examine options within a deficit constraint that seems tolerable because markets already expect it—say, $1 trillion over the next year or two. I believe Obama should ask to see options that include deficits (meaning spending boosts and tax cuts) much bigger, and also much smaller, than this.
The guiding question should not be, "What deficit number do we think is politically tolerable?"—though the optics here will obviously come into play. The questions should concern (1) what level of new government-generated demand is needed, and for how long, to offset the coming contraction in private sector demand; (2) what other parts of his agenda Obama believes the country can accomplish in his first term, as well as what groundwork can be laid for accomplishment in a second; and (3) how might this be sustainably financed, even if the answers go beyond the boundaries of what has been deemed politically or economically possible.
Once meaningfully different packages are presented, Obama can decide how he will weigh the trade-offs, how he'll make the politics work and which size "sandbox" he really wants to be playing in. (He can also offer a framework for long-term fiscal sanity by proposing various "triggers." For example, once unemployment returned to below 6 percent, it might take a supermajority vote of Congress to run deficits above 2 percent or 3 percent of the gross domestic product.)
The silver lining of today's crisis is that it should free Obama and his team to think more broadly about these basic questions. The need to forestall a calamitous economic meltdown, and the ability to finance large deficits temporarily in ways not foreseeable 15 years ago, means Obama doesn't have to be trapped in the vise that left Clinton famously grumbling by the end of his first year that he had been reduced to an "Eisenhower Republican."
Because groupthink and extraordinary time pressures can lead even talented, well-intended advisers to push the discussion too narrowly, too soon, Obama should insist on a broader set of options today. That will assure the next president that he won't have Clinton's regrets in a few years.
Politico, December 8, 2008
How to avoid the mistake presidents don't realize until it's too late
As President-elect Barack Obama crafts an economic plan for a country in crisis, he faces a risk that presidents often don't appreciate until it's too late: Options presented to presidents are narrowed before they ever reach their desks.
This happened to President-elect Bill Clinton in 1992 in a way that is instructive for Obama's new economic team and for Democrats who hope to fix the economy while advancing progressive goals.
While every presidential transition is hectic and prone to second-guessing, it seems clear in hindsight that internal debate over Clinton's original economic plan focused on options that weren't different enough to offer truly alternate paths. As Bob Woodward later reported, the transition discussion quickly became organized around several options for what the budget deficit would be four years later—ranging from $195 billion to $240 billion. In long meetings, Clinton's team debated which scenario was best in terms of the economy, Clinton's campaign pledges and the amount of new public investment that these constraints would accommodate.
Yet the fabled duels between the "deficit hawks" and the "progressives" on Clinton's team masked a deeper, surprising consensus. The difference between their options was about $45 billion in four years. That's an $11 billion or so difference per year—less than 1 percent of the federal budget at the time. This early narrowing of options—which then framed all subsequent discussion—arguably left the president with the worst of both worlds: He ended up shortchanging his planned investments in infrastructure, education, and research and development, even as he was forced to spend most of his presidency wrestling the deficit to the ground. It's hard to know if bolder options might have led to different choices, but such options weren't presented to him.
Today, the risk for Obama is similar. Obama has an ambitious progressive agenda, must manage the country through an economic crisis and inherits a tide of red ink much larger than the one Clinton inherited. Yet there are pluses, as well. A consensus has emerged on the need for a serious new stimulus for the economy, while economists of all stripes say we should put off near-term worries about the deficit until the storm has passed.
But this consensus still leaves an enormous range for potential action. The difference is vast between what an Obama administration can do while running deficits of $800 billion and $1.3 trillion, or even (hold your hat) $2 trillion, for a couple of years. The temptation may be for his incoming team to narrowly examine options within a deficit constraint that seems tolerable because markets already expect it—say, $1 trillion over the next year or two. I believe Obama should ask to see options that include deficits (meaning spending boosts and tax cuts) much bigger, and also much smaller, than this.
The guiding question should not be, "What deficit number do we think is politically tolerable?"—though the optics here will obviously come into play. The questions should concern (1) what level of new government-generated demand is needed, and for how long, to offset the coming contraction in private sector demand; (2) what other parts of his agenda Obama believes the country can accomplish in his first term, as well as what groundwork can be laid for accomplishment in a second; and (3) how might this be sustainably financed, even if the answers go beyond the boundaries of what has been deemed politically or economically possible.
Once meaningfully different packages are presented, Obama can decide how he will weigh the trade-offs, how he'll make the politics work and which size "sandbox" he really wants to be playing in. (He can also offer a framework for long-term fiscal sanity by proposing various "triggers." For example, once unemployment returned to below 6 percent, it might take a supermajority vote of Congress to run deficits above 2 percent or 3 percent of the gross domestic product.)
The silver lining of today's crisis is that it should free Obama and his team to think more broadly about these basic questions. The need to forestall a calamitous economic meltdown, and the ability to finance large deficits temporarily in ways not foreseeable 15 years ago, means Obama doesn't have to be trapped in the vise that left Clinton famously grumbling by the end of his first year that he had been reduced to an "Eisenhower Republican."
Because groupthink and extraordinary time pressures can lead even talented, well-intended advisers to push the discussion too narrowly, too soon, Obama should insist on a broader set of options today. That will assure the next president that he won't have Clinton's regrets in a few years.