Review: Ron Suskind's Confidence Men

When I first learned in 2009 that Ron Suskind's next book was going to be 
about the making of a economic policy in the Obama administration, I looked 
forward to it. Previous books about the making of economic policy had 
degenerated into unseemly hagiography (cough Robert Woodward's Maestro 
cough) or into gotcha books (cough Robert Woodward's The Agenda cough). It 
seemed to me that Ron Suskind had done considerably better than "gotcha" 
books -- or had written "gotcha" books that also had immense extra value 
added -- on the Bush-era national security apparatus.

I thought he would do equally well on economic policy.

I thought the Obama economic-policy team was first rate. All five of the 
principals, Benjamin Bernanke, Timothy Geithner, Lawrence Summers, Christina 
Romer, and Peter Orszag, seemed to me among the very best candidates in the 
world for senior economic policymaking jobs in an American administration. 
And they were all my friends, or at least we were friendly. I did think that 
some of them were in the wrong jobs. Lawrence Summers made much more sense 
to me as Treasury Secretary than as NEC chair. Timothy Geithner seemed to me 
much better suited to be NEC Chair than to manage a large department with 
line authority.

Nevertheless, even though the economic situation was horrible, the economic 
policy team looked good to me. I looked forward to a Suskind book that would 
tell of success: smart and serious people who knew what they were doing 
fighting about substance, presenting the president with good options, him 
choosing the best one, and the course of the economy during the Obama 
administration being if not great at least better than we all feared after 
the bankruptcy of Lehman Brothers.

And there is a perspective from which Obama administration economic policy 
has been a considerable success. The banking system collapse was averted. 
The spike of the unemployment rate to 15% or higher was averted. Obama 
passed a pretty good financial regulatory reform. Obama passed a pretty good 
health-care financing reform. Obama passed the largest quick fiscal 
expansion he could get through congress (using the Reconciliation process 
would have taken months and months longer). We are left with a jobless 
recovery, and with crippled mortgage finance and construction, and a ticking 
bomb in Europe. But, one could say that things could have been much 
worse--and would have been much worse had Republicans controlled any 
substantial share of economic policy or been more effective at blocking 
Obama initiatives.

And of the successes of Obama administration economic policy perhaps the 
greatest success was the successful implementation of the "stress tests" of 
the banking system by Tim Geithner and his Treasury Department in the spring 
of 2009. The panic and the downturn could not be halted until finance became 
convinced once again that the key highly-leveraged money-center banks were 
well-capitalized. The government's TARP authority was not large enough to do 
the job. Somehow, private investors had to be convinced that investing in 
the banks was a good idea. The stress tests did that, and played a role in 
restoring confidence in 2009 somewhat akin (albeit on a smaller scale) to 
Roosevelt's abandoning the gold standard in 1933. It was a major 
achievement, well-executed--especially given that Tim Geithner was then 
"home alone" at the Treasury without confirmed deputies.

But this is not the only perspective from which to view Obama administration 
economic policy.

Since the spring of 2009 I have became more and more alarmed by the economic 
policy choices made by the Obama administration. A new administration needs 
to (1) forecast what is most likely to happen, and (2) design and implement 
policies that will deal with what is likely to happen, The Obama 
administration did that. I think that some of its initial policies were 
wrong, but given the press of events I would give the administration 
moderately high marks for the policies it designed and implemented up 
through, say, April 2009.

Thereafter, however, things to me seemed to gradually fall apart. An administration has a third task it needs to carry out: (3) think hard 
about the risks--what if the administration has misjudged the situation? 
what if more things go wrong?--figure out what it needs to do to buy 
insurance against those risks, and do those things as well. It needs to ask 

  • What if we are wrong in our estimation of the situation--what might the 
world then look like three years from now? 

  • What if more things go wrong in the next year or two--what might the world 
then look like three years from now?
  • In those possible scenarios, what will we wish then that we had done today 
to prepare the way for dealing with the situation?
  • The major risks that confronted the Obama administration-to-be in the fall 
of 2008 and the winter-spring of 2009 that are relevant here were:

    1. That the moderate Republicans in the Congress would, rather than engaging 
in normal American governance, join their colleagues out of party loyalty 
and help them wage a scorched-earth war against all administration 
policies--even their own Republican policies--following the Gingrich 
playbook that the road to victory in the next election is to make the 
Democratic President be and appear to be a failure.

  • That the Federal Reserve would ignore half of its dual mandate, and be 
satisfied with policies that avoided deflation now matter what unemployment 
rate or capacity utilization rate those policies brought. 

  • That the recovery that would follow once the recession was over would be 
a slow, hesitant, "jobless" recovery. 

  • That the initial shock to the financial system and downturn would be much 
larger than anticipated as of early December 2008. 

  • That mortgage finance might not resolve itself, and that construction 
might remain deeply depressed for a very long time.
  • That government attempts to support weak banking systems would set off a 
wave of sovereign debt crises that would then deepen the global downturn.
  • That repeated waves of expansionary policies might set off a dollar and 
sovereign debt crisis inside the United States.
  • To deal with all of these, Obama needed to staff his administration up--to 
choose and nominate officials and, if the Senate did not confirm them in a 
timely fashion, recess-appoint them.

    To deal with the first of these seven, the Obama administration needed to 
set up the Budget Act Reconciliation process and to husband executive branch 
authority so that it could conduct large-scale expansionary economic policy 
via Reconciliation and loan guarantees and quantitative easing if 
Republicans filibustered and the economy was still in the dumps in 2010 and 
2911. To deal with the second, the Obama administration needed to rapidly 
nominate and get confirmed Federal Reserve governors and a Federal Reserve 
Chair who would take the Federal Reserve's dual mandate very seriously 
indeed if unemployment was above 9% and stable or rising in 2010 and 2011.

    To deal with (3) and (4) the administration needed to prepare the ground by 
doing more of what it had done to buy insurance against (1) and (2)--by 
warning at every opportunity that the first round of expansionary policies 
might not be enough, by preparing the ground via Reconciliation and by 
husbanding executive branch authority, and by making sure not to abandon the 
fight against unemployment for the fight for long-run fiscal stability until 
the recovery was well-established--lest the administration wind up in 2010 
and 2011 with a jobless recovery and few remaining tools to expand demand. 
To deal with (5), the administration needed to prepare the ground for using 
Fannie Mae and Freddie Mac to essentially nationalize, refinance, and work 
out mortgages nationwide, should it turn out in 2010 or 2011 that the 
recovery was not strong or sustained.

    To deal with (6), it would have been wise on day 1 to promote the IMF to the 
role of global technocratic crisis manager, and to get commitments from 
major credit-worthy economies that they would back the IMF with sufficient 
resources for it to actually handle the situation. should the 
mortgage-induced banking crisis of 2008-9 set off sovereign debt crisis in 

    I wasn't a genius to see these as the risks. They were, at least in the 
circles in which I moved, obvious.

    Yet the only risk that the Obama administration has appeared to even think 
about guarding against is (7)--which is the one risk that has not come home 
to roost big time.

    For me the big question since the summer of 2009 has been: Why? Why didn't 
the Obama administration make any significant effort to purchase insurance 
against risks (1) through (6)? Those were the questions that I hoped Ron 
Suskind's book would answer for me.

    And, alas, it does not do much to do so. Instead, it falls into the Woodward 
The Agenda trap: it is a story of strong and colorful personalities 
knifing each other in internal bureaucratic bar fights with little sense of 
what the substantive policy arguments were, of the arguments' merits and 
demerits, and of the stakes.

    Moreover, the book falls victim to the Teddy 
White disease: a reporter taking the time-colored recollections of 
individuals and turning them into a third-person omniscient capital "T" 
Truth, giving the narrative an authority it does not deserve.

    This is further compounded by Suskind's having the implicit viewpoint of the 
third-person omniscient narrator jump away from one source to another when 
the first source tells a version of the story that Suskind does not want to 
highlight. References to seventeenth-century muzzle-loading musketry 
technology become in Suskind's retelling references to twenty-first century 
pornography. People who steamrolled the entire Democratic coalition to get 
policy ideas that had their origins in the hard-right Heritage Foundation 
enacted into law are in Suskind's view too weak to stand up to the big boys 
of the administration. Suskind wrongly thinks people who skip meetings to 
deal with crises are demonstrating their disloyalty to the president, when 
Obama would have been the very first to say: "What are you doing here? You 
need to be firefighting!" And Tim Geithner dresses badly and will never make 
the cover of the Financial Times "How to Spend It" supplement.

    And so what I at least regard as the big stories and mysteries of economic 
policymaking under Obama are largely passed by.

In my view, Suskind's greatest achievements in the 2000s came in stories 
where his third-person omniscient camera followed a single smart, talkative, 
quirky, and angry individual--John DiIulio, or Paul O'Neill--through the 
Bush administration. His narratives then acquire a kind of authority as one 
player's view. And the damage done by the assumption of the third-person 
omniscient viewpoint is thus limited. But that is not the kind of narrative 
we have here.

    I had hoped to learn from Confidence Men why Federal Reserve Chair Ben 
Bernanke shifted from being the activist crisis manager and the advocate of 
aggressive quantitative easing that he was before mid-2009 to a man who does 
not take the Federal Reserve's dual mandate to focus both on price stability 
and full employment seriously. And I had hoped to learn why Obama chose to 
renominate Bernanke Federal Reserve Chair over a candidate--Larry 
Summers--who had reason to think he was the default choice for the job and 
who does take that dual mandate seriously. I had hoped to learn why Barack 
Obama had been appallingly slow at nominating candidates to fill empty slots 
among the Governors of the Federal Reserve. I learn nothing substantial 
about any of these.

    I had hoped to learn why Tim Geithner had been strangely loathe to engage in 
large-scale quantitative easing using Treasury resources. Why wasn't the 
PPIP developed and expanded further? I had hoped to learn why Geithner was 
loathe to even to set up the game table for the possibility that it might 
become advisable to use Fannie Mae and Freddie Mac to intervene in the 
mortgage market on a large scale. People, after all, had been discussing 
using them as a "in case of emergency break glass" option since at least the 
Bear Stearns bankruptcy of early 2008. I learn nothing substantial about 

    I had hoped to learn why the Obama administration had not done the natural 
thing--the thing that I had been told on my first day in the Clinton 
administration was the right way to do economic policy--and load as much as 
possible of your core agenda into the streamlined budget Reconciliation 
process, as a way of evading congressional procedural roadblocks. I learn 
nothing about this.

    I had hoped to learn why the Obama administration kept trying to make deal 
after deal with a unified Republican caucus that was following the Gingrich 
playbook that the road to victory in the next election is to make the 
Democratic President be and appear to be a failure by denying him everything 
that the press might call a success for the president. I learn nothing about 

    So what do I learn?

    I learn that Barack Obama was very worried about the budget deficit and the 
rising national debt very early--so much so that he short-circuited his own 
bureaucratic processes and ordered reports from deficit hawk and OMB 
director Peter Orszag routed to him around the NEC process. And I learn 
that, perhaps as a consequence, Obama appears never to have registered how 
far off any possible Treasury bond crisis was. The message Obama needed to 
hear was, I think, something like:

    Analogies between today and the early 1990s, when immediate deficit reduction set off a strong recovery, are likely to be wrong. At the start of the 1990s the 10-year Treasury bond commanded an interest rate of 9%. Today it commands an interest rate of 3%.

    As of early 2009, or indeed as of today, a Treasury bond crisis is not one 
of the ten biggest dangers facing the United States economy.

    I do learn that the "do less" or "do no harm" Geithner-Emanuel alliance 
regularly kneecapped a Romer-Summers "do something" alliance--perhaps 
because Summers' and Romer's small CEA and NEC staffs could only come up 
with outlines and proposals rather than plans--which only the Treasury with 
its ample staff could produce--and, as Geithner liked to say, "plan beats no 

    Suskind writes that Geithner thought Romer was of "no value on policy issues 
[of] financial rescue", and that:

    Larry and Rahm were the only one's that mattered. Larry's problem was that he had no alternative, ever... never came up with an alternative strategy...

    Suskind then quotes Treasury Assistant Secretary Alan Krueger's thoughts on 
the issue:

    Alan Krueger said one reason Treasury dragged its feet on constructing a plan for Citigroup's resolution was Sheila Bair. They would have had to consult the FDIC chairwoman... her agency is in the business of closing banks. "The fear was that Sheila would leak it... there'd be a run on Citi." He added that this was one of many reasons:

    The bottom line is that Tim and others felt the president didn't fully understand the complexities of the issue, or simply that they were right and he was wrong, and that trying to resolve Citi and then other banks would have been disastrous.

    Krueger, for one, disagreed...

    I think that Alan Krueger is wrong here. First, in the early stages of any Democratic administration, the Treasury is overwhelmed with work. Assignments coming in are regularly dropped on the floor. Only the most immediate priorities of the Treasury Secretary get pushed through the bureaucracy. This was the case in 1993 when Treasury Secretary Lloyd Bentsen had a full mesnie of confirmed assistant and undersecretaries to deploy. This was more the case in 2009 when Tim Geithner had no confirmed deputies at all.

Second, Tim Geithner had, when he was President of the Federal Reserve Bank 
of New York, tried to get tough on the banks. That was what the Lehman 
Brothers bankruptcy was. It backfired, catastrophically. After that 
experience, Geithner was bound to seek policies that would restore 
confidence, recapitalize the banking system, and halt the panic without 
frightening or angering bankers. From his perspective the risks involved in 
trying to get tough on banks were so great that such policies were, if not 
unthinkable, simply not a high priority. Had Obama wished a Treasury 
Secretary enthusiastic enough about being tough on banks and bankers to push 
plans for doing so through the bureaucracy, he needed to have chosen another 
and very different Treasury Secretary.

    I learn that Barack Obama was attracted to the idea that on top of our 
business-cycle demand-driven downturn was a longer-run trend rise in 
technological unemployment that virtually guaranteed that the recovery would 
be "jobless":

    [Summers and Romer] were concerned by something the president had said in a morning briefing: that he thought the high unemployment was due to productivity gains in the economy. Summers and Romer were startled. "What was driving unemployment was clearly deficient aggregate demand," Romer said. "We wondered where this could have been coming from. We both tried to convince him otherwise. He wouldn't budge." Summers had been focused intently on how to spur demand, and on what might drive a meaningful recovery.... [W]ithout a rise in demand, in Summers's view, nothing else would work.... But productivity?... If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise. The two economists strained their memory... had they said something he'd misconstrued?... After a month, frustration turned to resignation. "The president seems to have developed his own view," Romer said.

    And I learn that the team of Orszag-Obama starting from this position 
effectively kneecapped proposals for follow-on expansionary policies to 
boost employment in late 2009 and early 2010, letting the best be the enemy 
of the good.

    Orszag countered [in November 2009] that unless they did something large... $700 billion, "it wouldn't jump-start or significantly move the economy"; but $700 billion was politically untenable.... Romer said this was the wrong approach.... $100 billion would mean one million new jobs. "A million people is a lot of people." Obama was unenthusiastic. Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or to pitch it to Congress. Her appeals were passionate. She said they were falling into a "the perfect is the enemy of the good" trap.... In November.... [Obama] took Orszag's position at a briefing.... "That is oh so wrong," Romer blurted out.... "It's not just wrong, it's oh so wrong?" Obama queried.... "Enough!" he shouted. "I said it before, I'll say it again. It's not going to happen. We can't go back to Congress again. We just can't!"... Romer, visibly shaken... was summoned to talk privately in Jarrett's office....

    A few weeks later... Summers stepped up, offering, almost word for word, the position Romer had voiced previously. This time Obama listened respectfully: "I know you've got to make this argument, Larry, but I just don't think we can do it." As they left the meeting, Romer... said, "Larry, I don't think I've ever liked you so much." "Don't worry, [Summers] quipped. "I'm sure the feeling will pass..."

    Now I know that one major reason why Orszag at least was insufficiently 
panicked about the unemployment situation in late 2009 was that he was still 
confident that the U.S. economy was about to undergo a rapid recovery--that 
we would see a "V" rather than the "L" that we are currently suffering 
through. If you have high confidence that a "V" is on the way, then it 
indeed makes little sense to devote limited presidential time and limited 
administration bandwidth to lobbying for a $100 billion fiscal expansion. If 
a bill producing such shows up on the president's desk, of course the 
president should sign it--but from Orszag's perspective it was not worth 
spending energy. I thought at the time that Orszag and Obama were wrong. 
But Suskind does not help me understand why Orszag and Obama were so 
confident that the "V" was coming--he doesn't even hint that they had an 

    And, as 
Ezra Klein points out, the stories Suskind does tell repeatedly 
undermine his global narrative claim that the administration's big problem 
was that Lawrence Summers was (a) too sure of himself, and (b) so good a 
debater that he won internal arguments he ought to have lost. If Larry 
Summers had been winning all the internal policy arguments, Ezra points out, 
then administration policy would have gone in "the direction Suskind clearly 
wishes the White House had gone."

    I learn that, somehow, Tim Geithner managed to kneecap Barack Obama's 
initial enthusiasm for Elizabeth Warren's consumer financial protection 
agenda as a major administration initiative. Obama started out impressed 
with Warren. Suskind writes that Obama:

    ... was particularly taken with Elizabeth Warren.... "Wow, she's really something," he said.... "Really good, we should get her out there more often." Larry Summers and Anita Dunn... discussed for a moment how to get Warren more TV.... Alan Krueger smiled to himself. It was good Geithner wasn't present. He despised the crusading Warren...

    And lots of people respected and approved of Warren--including, eventually, 
Christina Romer:

    Warren was caught off guard by Romer's intensity, and her thoughtfulness.... Question after question, the two engaged in an intellectual thrust-and-parry, until finally... Romer broke her stride. "Why is it always the women?" Romer said. "Why are we the only ones with balls around here?" That night Warren got a call from Valerie Jarrett. "Wow, you really turned Christy Romer around."

    But Obama would not appoint her to the agency whose creation she had worked 
so hard for:

    August 13 [2010], Warren finally got her meeting with the president.... The president offered a long explanation of the complex logistics whereby Warren would stand up the agency and become a special advisor... that way she wouldn't spend months... on ice...

    I think I understand why Geithner viewed Warren's potential appointment as 
too dangerous--the shadow of Lehman Brothers again, and Geithner's judgment 
that the catastrophic reaction to not bailing out the creditors of Lehman 
Brothers was a powerful wakeup call on the costs of "tough on bankers" 
policies. But a reader of Suskind would not learn anything about Geithner's 
reasons, other than Suskind's claim that Geithner--who has so far never 
worked for a Wall Street firm for a day in his life, and who was one of the 
three who pulled the plug on Lehman--is a tool of Wall Street.

    Ex ante, I would have given long odds that Ben Bernanke would not forget 
about the Federal Reserve's dual mandate. Ex ante, I would have bet long 
odds that Tim Geithner would not have turned into "Dr. No" in a situation as 
desperate as the one the Obama administration has faced. Ex ante, I would 
have given long odds that even if Geithner had started 2009 much too 
optimistic that he would have quickly marked his beliefs to market. Ex ante, 
I would have given long odds that Summers would have wiped the floor with 
Orszag and Geithner were the collegiality of the NEC process to break down 
and turn into out-and-out bureaucratic war.

    Why Obama chose the policies he did, why Geithner and Orszag and company were so optimistic in 2009, why the Reconciliation process was not teed up for emergency expansionary fiscal policy action if it turned out to be necessary, why Fannie and Freddie were not teed up for emergency mortgage action if it turned out to be necessary, why the administration turned so decisively away from unemployment and toward long-term deficit reduction in early 2010, why Summers and Romer did not wipe the floor with Geithner and Orszag in the 
long twilight bureaucratic struggle when NEC collegiality broke down, and 
 why Bernanke forgot about the employment and output part of the Federal 
Reserve's dual mandate - these are all questions that I would dearly love to 
know the answers to.

    Two and a half years ago I would have given long odds that Ron Suskind's 
book would provide me with a lot of the answers to these questions.

    It does not.