How the Clintonites Launched Obamanomics

It’s well known that Barack Obama stocked his Administration with Bill Clinton’s people, including his extremely Clintonesque Secretary of State and all three chiefs of staff as well as most of his top economists and dozens of other key aides. What’s not known is how the Clintonite takeover of Obamaworld began before the 2008 campaign was even over, shortly after Obama defeated Hillary Clinton in the Democratic primary. A shadow transition of Clinton veterans — led by former Clinton chief of staff John Podesta — began preparations for the new Administration while Obama and his loyalists were busy on the trail. “That’s when the old guard started taking over,” an Obama aide complained to me in an interview for my new book, The New New Deal.

Below is the story of Obama’s shadow economic team in late 2008, which was so overrun by Clintonites that the only interloper, budget expert Bob Greenstein, was teased because his PowerPoint slides weren’t formatted like everyone else’s. “Guys, I wasn’t in the Clinton White House!” he protested. I’ll also post the shadow group’s secret 36-page document — written by Clinton budget director Jack Lew, who is now Obama’s chief of staff — that laid the groundwork for the Obama stimulus. As Bill Clinton makes his pitch for Obama on Wednesday night, it’s worth knowing how his old team paved the way for Obamanomics, with an unexpected twist.

The shadow economic team was a full-fledged Clinton reunion, led by Bill Daley, a Clinton Commerce Secretary, and Josh Steiner, a Clinton Treasury official. It also included Lew; Doug Elmendorf, a Clinton Treasury economist; and Jonathan Orszag, a Clinton White House economist whose brother Peter, another Clinton White House economist, would become Obama’s first budget director. Dan Tarullo, another Clinton economist, and Karen Kornbluh, another Clinton Treasury veteran, were the only representatives from Obamaworld, and Podesta ordered the team to avoid contact with the campaign, which had more pressing work that fall.

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Since secrecy was a must, the team didn’t do much outreach. Its only sounding board was an advisory committee of even-more-familiar Clinton-era faces: Treasury Secretaries Bob Rubin and Larry Summers, Labor Secretary Robert Reich, economic adviser Laura Tyson, Lew (who doubled as an official team member and unofficial wise man) and just one outsider, Xerox CEO Anne Mulcahy. “It definitely felt like we were getting the band back together,” says one participant.

The band was getting together as the world was falling apart. “Everything was going downhill so fast,” recalls Lew, whose employer, Citigroup, was itself clinging to life. “It was so hard for our thinking to keep up with events.”

That was the unsettling backdrop for the team’s key meeting, an Oct. 17 briefing for the advisory board at a Manhattan law office. In a logistical e-mail, Steiner warned that the goal was not to relitigate the Rubin-Reich centrist-liberal debates of the Clinton era. “We are explicitly NOT making recommendations on matters such as how to prioritize between deficit reduction and investment,” he wrote, adding, “This effort is independent of the Obama campaign and the materials presented should not be construed as reflecting the campaign’s positions.”

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That was a useful disclaimer, because Lew’s presentation didn’t reflect the campaign’s positions. Three days after Obama proposed a $175 billion stimulus plan, Lew suggested that as much as $300 billion might be needed. “People were like, S—, that’s a big number,” Podesta recalls. “But it was looking cataclysmic out there. Nobody was saying, Oh, we won’t need that much.”

The group briefly discussed whether 2008 had anything in common with 1993, when Clinton decided to focus on deficit reduction rather than investment, and the consensus was: not really. Even the fervent deficit hawks accepted that a depression or a protracted recession would shrivel tax revenue and create more ink than a hefty stimulus ever could. Ultimately, Lew’s final stimulus presentation to Obama — a “Confidential Discussion Draft” dated two days before Election Day — made the case for an aggressive stimulus, while also foreshadowing some of the problems with it and the arguments Republicans would use against it. It’s a fairly remarkable document, and you can read it here.

There has been a lot of commentary about the influence of Clintonites like Summers, Peter Orszag and Tim Geithner on Obama’s economic policies. Liberals say they were too bank-friendly, too deficit-obsessed, too afraid of full-throated populism. But during the transition, at least, what really set the Clintonites apart from the Obama loyalists was their skepticism about postpartisanship. These political combat veterans remembered how Republicans had blocked Clinton’s effort to pass a mere $19 billion stimulus package. So they suggested that the economic emergency might be Obama’s best chance to pursue his campaign priorities, to make the stimulus a Trojan horse for “change we can believe in.”

Lew recognized the pitfalls of this strategy, including “risk of package growing large and losing control” as well as “risk of driving too much spending to longer-term agenda and not providing sufficient short-term stimulus.” He also foresaw that the rush to fund ready-to-go public works could accelerate lower-priority projects and suggested an “absolute policy of no earmarks” to prevent Congress from larding up the package with pork. But the Clintonites also saw the crisis as an opportunity to keeping Obama’s promises to reform energy, health care, education and the entire economy: “stimulus may be only chance for quick action on longer-term growth and energy/environment agenda.” At the time, Obama wore a halo of hope. Since it probably wouldn’t survive four years of Washington slime, this seemed like a pretty good time to do the things he ran to do.

And in fact, he did. The stimulus included $90 billion for clean energy, when the U.S. had been spending a few billion dollars a year. It included $27 billion to drag our pen-and-paper medical system into the digital age, laying a foundation for his larger health care reforms a year later. It included Race to the Top, the most ambitious education-reform program in decades. It also included the largest infrastructure investments since Eisenhower’s, the largest middle-class tax cuts since Reagan’s and the largest onetime investment in research ever. That was Obama’s agenda. But it was the Clintonites who recognized the urgency of passing it in his first month.