The optimism gap

Normally, were I to find myself inclined to agree with John Boehner, my first impulse would be to call a neurologist and arrange for a CAT scan. There are few more compelling reasons for America to resist turning the House of Representatives back to the Republican Party than the prospect of Speaker John Boehner. What could be more cynical than elevating a man to the third most powerful post in the land whose primary contribution as a politician — beyond illustrating the perils of over-tanning — has been his vigorous commitment to doing nothing?  In the chamber that made Daniel Webster great, he is the Jerry Seinfeld — except instead of creating a sitcom about nothing, he seems dedicated to an effort to create a Congress about nothing.

Yet, today, by accident, he stumbled upon an idea that had some merit.  He advocated the resignation of Tim Geithner as treasury secretary. Boehner’s reasoning was, as usual, not reasoning at all but pure, undistilled partisan boojwah. But the idea that the time has come for a change atop Obama’s economic team is absolutely right.

Obama made a concerted effort to hire the best and the brightest and I consider both Tim Geithner and Larry Summers to be members of that group. What he neglected to do, however, was to hire the most compassionate or empathetic. (As I have said before, when David Halberstam coined the phrase "the best and the brightest"  it was not a compliment but a cautionary term.)

This county is in a dark place economically unlike any I have seen in my half century or so of life. While I worry about the fiscal deficit and the trade deficit, we have seen those before and handled them. The more serious deficit we face is one that cuts to the very core of America’s character: it is an optimism deficit.

It is not an abstract concept. It is a tangible, palpable fact that average Americans deal with every day. Anyone who is an over thirty adult in the United States was raised in an America in which the heart of the dream was a better future. If you worked hard and followed the rules, while there may not be game show moments of ecstasy for everyone, you would end up offering a better future to your kids. 

If like Boehner, for political purposes, you choose to focus on today’s headlines, you can find plenty to work with to suggest that’s no longer the case.  Take the announcement today that existing home sales were down 27 percent in July or recent unemployment data suggesting that we’re stuck at around 9.5 percent "officially" out of work, over 15 percent real unemployment and with local numbers in some demographic groups running in the 20s and even the 30s. We will see as many as three million foreclosures this year and, now, according to a speech today by the president of the Chicago Federal Reserve Bank, Charles Evans, "Job loss and unemployment are now causing more defaults than imprudent lending."

But the problems go back further, back to a time before Obama was a politician, back before Boehner was, back even before Obama entered the workforce. The dream has been eroded by "leave it to the markets" policies that favored the rich and powerful and tilted the American playing field in unprecedented ways. Since the 1970s, inequality has been gradually and ineluctably growing in America.  In fact, the gap between the top 1 percent and everyone else is worse now than it has been since the 1920s. Since the late 80s, the top 1 percent have seen their share of capital income steadily rise to the point today where it is almost three times that of the bottom 80 percent, a group whose share has steadily declined. Since 1990, average workers’ pay has remained essentially flat while CEOs have seen their pay triple — despite regular outcries and efforts to control executive compensation.  (Efforts that often backfired — like the move that pushed chief executives toward more options-oriented compensation packages). For a quick summary of these facts, go to this Business Insider compendium of charts and tables from a few months back.  For a thoughtful reflection on one tax policy implication of all this, see James Surowiecki’s recent piece in the New Yorker, "Soak the Very, Very Rich." Or you could read my book, Superclass, but I digress.

Despite all this, optimism survived.  For most of the 80s and the go-go 90s, there was still a sense, illusory though it may have been for the vast majority of Americans, that there were still brass rings to be grabbed. But then about a decade ago, came one bust, then another, then another. As my friend Susan Levine, a former senior Clinton administration Treasury official who now works in investment management, put it to me at breakfast today, "If you put $100 in the stock market a decade ago, it would be worth $85 today. If you put $100 into your house, it would very likely be worth less. That’s not what we were raised to believe would happen."

The problem for Obama and the Democrats — the one creating the opportunity for Boehner despite the emptiness of his track record and the role his party also played in creating this mess — is that they are in charge at a time when people are losing faith in the system. This is a problem compounded by the fact that for all the earnest effort of the president’s economic team to contain the crisis they inherited, they have been bedeviled by two bigger problems. The first is that they are playing with an old, admittedly bi-partisan, Reagan-Bush-Clinton-Bush playbook that has gradually been discredited by the results it has produced at home and its inability to make America more competitive globally.  That playbook needs major revisions.  (The subject for future posts.)  The second is that for all their considerable gifts and initiatives, Obama’s economic team led by Geithner and Summers have been woefully bad at the two critical elements of connecting with the American people on these issues: at listening and at responding in a way that seemed as though they had been listening.

Further, from the beginning, they have had the wrong jobs. Geithner should have run the National Economic Council (NEC).  Given his connection with Obama and his ability to be perceived by all as an honest broker, he would have been the economic Brent Scowcroft the process needed. Summers was more of a natural for the job he already had, Treasury secretary. There he could have been employed his brilliant, blunt-force mind and his international reputation effectively…in contrast to the problems those traits continue to cause for him in running the NEC. Both and Obama would have been served by this a
rrangement not only because it plays more to their strengths, but because a Geithner-led NEC would be far more likely to let other voices be heard alongside his and Summers, to foster the kind of real economic big tent that a crisis environment like this demands.  Instead we have the two of them, some top economic officials already gone, others marginalized and contemplating departure and an NEC process that is dysfunctional. (As a sign of that dysfunctionality, the NEC process compares badly on many levels to the National Security Council process in this White House … even with the defects obvious in the NSC’s Afghanistan and Iran reviews, among other missteps.)

Indeed, a stronger, more robust NEC with multiple leading players is what this administration desperately needs. Among those players should be people with real job-creation experience  (like business leaders) and some who would be more effective front people for the administration’s policies, especially given that Summers and Geithner are much better at interacting with elites than with regular people. A real, strong strategic communications mechanism within the NEC would be not only a political benefit to the White House, it would also be a vital tool in combating that third, most threatening deficit we face, that optimism deficit that cuts to the heart of what made America what it was and what will be essential if we are ever to lead again.

So, President Obama, perhaps it’s time to listen to Boehner. Move Tim Geithner out of Treasury and to the NEC. Move Larry Summers back to his old job. And if you can’t get him confirmed there, find something else for him. He’s too valuable an asset not to have a job at a time like this — but it needs to be the right job. And then find a commerce secretary, a U.S. trade representative, a labor secretary, a chairperson of the council of economic advisors and others who are — unlike the current crop — every bit their equals and who are even better when it comes to connecting with average Americans. Don’t wait. Don’t leave this to chance or the vagaries of who comes and who goes "for family reasons." This is the critical challenge confronting this administration. Get it wrong and this administration will play a featured role in the opening chapters of that best-seller of a few years from now, The Dispensable Nation: How America Stumbled.