Obama's Economic Circle Keeps Tensions Simmering
President Obama was getting his daily economic briefing one recent morning when a fly distracted him. The president swatted and missed, just as the pest buzzed near the shoes of Lawrence H. Summers, the chief White House economic adviser. “Couldn’t you aim a little higher?” deadpanned Christina D. Romer, the chairwoman of the Council of Economic Advisers.
Mrs. Romer was joking, she said in an interview, adding, “There are only a few times that I felt like smacking Larry.” Yet few laughed in the president’s presence.
If the Oval Office incident was meant as a lighthearted moment, it also exposed the underlying tensions that have gripped Mr. Obama’s economic advisers as they have struggled with the gravest financial crisis since the Depression, according to several dozen interviews with administration officials and others familiar with the internal debates.
By all accounts, much of the tension derives from the president’s choice of the brilliant but sometimes supercilious Mr. Summers to be the director of the National Economic Council, making him the policy impresario of the team. The widespread assumption, from Washington to Wall Street, was that the job would be Mr. Summers’s way station until the president could name him chairman of the Federal Reserve when Ben S. Bernanke’s term expires early next year.
But Mr. Bernanke’s aggressive response to the crisis has so improved his reputation that people close to Mr. Obama increasingly suggest the president could well reappoint him in the interests of financial stability — just as Presidents Ronald Reagan and Bill Clinton retained Fed chiefs who had been picked by predecessors of the other party.
As for Mr. Summers, even as top administration officials acknowledge the occasional strains among economic advisers, they say the president is thrilled with the job Mr. Summers is doing in his current post.
When Mr. Obama named his economic team last November, even some within his circle questioned whether Mr. Summers, given his prickly personality, could be an honest broker of other advisers’ ideas, as National Economic Council directors are supposed to be. Mr. Summers also had made it clear that he wanted to be Treasury secretary again, as he was in the Clinton administration.
As messy as the process has sometimes been, officials say Mr. Summers and his colleagues have worked through their differences. Often arriving and leaving in the dark, sustained by coffee and the Diet Cokes that fill Mr. Summers’s office refrigerator, they have produced in six months an array of economic rescue plans that would be daunting if spread over six years. With those, and the Fed’s efforts, the economy shows signs of new life.
Along the way, Mr. Summers has forcefully debated the Treasury secretary, his onetime protégé Timothy F. Geithner, over what to do with troubled banks. He has clashed with Peter R. Orszag, the budget director, over fiscal and health policy issues. He has collided with Austan Goolsbee, an economist on the Council of Economic Advisers, over whether to rescue Chrysler. And he and Mrs. Romer have squabbled over how best to make the economic case for overhauling health care.
His argumentative style has contributed to delaying some actions, officials say, like the Treasury-led overhaul of the bank bailout program that was inherited from the Bush administration and an overhaul of the financial regulatory system, which is now expected later this month.
The disagreements are only natural, White House officials say. The issues are big, and so are the personalities, as Mr. Obama intended. He has said he wanted advisers who would be teammates as well as rivals, long on experience and brainpower and able to air all sides of an issue to help him decide.
“You can’t assemble a group of really brilliant people, and deal with some of the most complex problems in our lifetimes and not have disagreements,” said David Axelrod, Mr. Obama’s senior political strategist who, with the White House chief of staff, Rahm Emanuel, plays a big role in mediating among the economic advisers and helps shape the decisions.
The president “invites debate but he doesn’t tolerate factionalism. And ultimately everybody on the economic team knows that at the end of the day we’re going to hold hands and jump together,” Mr. Axelrod added.
People familiar with the deliberations say that Mr. Summers has been more populist than they expected for a right-of-center economist, siding often with Mr. Obama’s political advisers. That has given rise to speculation among colleagues, associates and banking representatives that Mr. Summers is trying to win the Fed seat.
Mr. Summers, in an interview, dismissed such talk as coming from “people who disagree with me.” He added, “The advice I give is based on determining the right course of economic action, recognizing all the political factors.”
Some advisers complained that, under Mr. Summers, meetings became “endless debating sessions,” a phrase used separately by two aides who asked not to be named given the delicacy of internal matters. As Mr. Summers sees it, his penchant for debate — he was a standout member of the debate team at the Massachusetts Institute of Technology — fits the job.
“My approach in these things is to always be raising objections and concerns,” he said, “because if you haven’t anticipated the objections and concerns, you haven’t minimized risks.”
Even colleagues who have tussled with Mr. Summers say the president was right to bring him in to the White House inner circle amid the global crisis.
“Larry Summers is one of the world’s most brilliant economists,” said Mr. Orszag, who along with Mr. Geithner, successfully resisted Mr. Summers’s attempts early on to control their access to Mr. Obama. “He enriches any discussion he participates in, which is particularly valuable given the complexity and importance of the challenges currently facing us.”
Mr. Summers, the only top economic adviser with a West Wing office, sees the president more than the others and controls the daily economic briefings. By all accounts he has worked hard to disprove early talk that he would not be good at the job, even poking fun at himself.
Just after his 54th birthday on Nov. 30, when the new team was working in Mr. Obama’s transition headquarters in Chicago, Mr. Geithner brought a cupcake and the group sang “Happy Birthday.” As they ended, Mr. Summers rang out, “for he’s an unpleasant fellow,” instead of “for he’s a jolly good fellow.”
Geithner vs. Summers
Few issues have been as contentious as the effort to overhaul the bank bailout program. Mr. Summers left some colleagues believing that he favored nationalizing some big banks, as many liberals wanted. Insiders say that Mr. Geithner would counter that nationalizing banks might sound appealing politically but where would the government get the legions of bank managers it would need? And what would be the exit strategy?
In the interview, Mr. Summers denied that he favored nationalizing banks but acknowledged that he explored the idea so that the president had all options. At the time, the Treasury and the Fed were conducting “stress tests” of the big banks’ books, and it was not clear that some banks would be judged viable.
“Nationalization is a term that has become meaningless because people use it in different ways,” he said. “I certainly favored identifying every possibility and presenting every option to the president in response to possible contingencies.”
Mutual acquaintances say that the longtime friendship between Mr. Summers and the 47-year-old Mr. Geithner has been strained, but that their relationship would be even worse were it not for Mr. Geithner’s even temperament and his history with Mr. Summers. “I am completely comfortable pushing back at him,” Mr. Geithner said in an interview.
“Larry will come to any issue and say, well, here’s all the 16 reasons why there’s problems with that proposal. If he’s got ideas, particularly if I think they won’t work, I say to him, ‘Well, why don’t you make the case against it, Larry, because you’re pretty good at making the case against anything.’ ”
But, Mr. Geithner said, that trait makes Mr. Summers a good director of the economic council because “he is better than anybody else on the planet at framing the case for and against any particular issue and reducing something to a set of concrete options.”
Mr. Summers and Mr. Geithner have generally agreed that the government should not dictate executive pay and other management policies at companies receiving government aid.
Mr. Axelrod and other political advisers generally have taken the other side, joined by Austan Goolsbee, the former University of Chicago economist who was Mr. Obama’s campaign adviser and now sits with Mrs. Romer on the Council of Economic Advisers. If taxpayers bail out companies, this group says, then the government should set tough conditions on pay and dividends.
Mr. Goolsbee and Mr. Summers also clashed in March over whether to bail out Chrysler and ease its merger with Fiat, or to let the automaker fail.
Mr. Summers, along with Mr. Geithner and the political advisers, favored giving Chrysler a second chance. “My judgment, and Tim’s judgment, was that given all the equities involved, and given the potentially traumatic effects on confidence, that it was much better to try to save Chrysler if a reasonable merger agreement could be reached,” he said.
Mr. Goolsbee argued that rescuing the financial system was one thing, since credit is the economy’s lifeblood, but the government should not run an auto company. Saving Chrysler, he added, could further harm General Motors, which stood to gain market share.
The arguments became so heated that Mr. Summers stormed from one meeting, a witness said. While he later included Mr. Goolsbee’s objections in a memorandum for Mr. Obama, he excluded Mr. Goolsbee from the decisive meeting with the president.
More from CNBC.com:
- Soros: China Influence to Grow Faster than Most Expect
- China to Buy Up to $50 Billion IMF Bonds: Lipsky
- US Treasury Bloodbath Soaks Fund Managers
There, Mrs. Romer expressed the objections from the Council of Economic Advisers, but made a point of naming the absent Mr. Goolsbee. That prompted Mr. Obama to ask, “Where is Austan?” He had the aide summoned to state his case, in what some aides took as a rebuke to Mr. Summers. The discussion continued that evening, and Mr. Obama decided on the course Mr. Summers supported.
Mrs. Romer, the only woman among the top advisers, said that Mr. Summers, as a fellow economist, had been “incredibly inclusive” and “listens to the economic arguments.” Their clashes have come when he takes a more political view.
A recent example involved a report by Mrs. Romer, released last Tuesday, that analyzed the administration’s economic case for overhauling the health care system. Mr. Summers pressed Mrs. Romer to make the argument that health care reforms could make American businesses more competitive globally, adding that it was among the political advisers’ favorite “talking points.”
He did so again when Mrs. Romer outlined her final draft at a recent well-attended meeting. She cut him off, saying that some of his own staff agreed the point did not belong in the paper.
“I’m not going to put schlocky arguments in there,” she said.
“I’m not making a schlocky argument,” he replied.
Mrs. Romer said later that the exchange was “good-natured,” no different than “a typical seminar where I come from” in academia. The point Mr. Summers sought was not in her paper on Tuesday.