Austan Goolsbee Oral History

All right. Let’s go ahead and get started. This Austan Goolsbee interview is part of the Obama Oral History Project. Thank you. We’re in your office at the University of Chicago Business School. We appreciate the invitation to come up, especially since it’s beautiful weather.

Yes, thank you for coming to town. Sorry to keep you on the road.

Well, we’re glad to do it. We’ve already had a brief conversation about ground rules before the recording got started, the most important one being the confidentiality of the proceedings, and I’ll just go ahead and note that. We always like to start with some biography to get to know the people that we’re talking with. Tell us a little bit about your personal background. Did you have politics in the blood coming from your family?

Not especially. I was born in Waco, Texas. My dad’s family was from Waco. My mom’s family was from Abilene. They moved to Southern California when I was a kid, so I was mostly raised in Southern California.

In Whittier?

In Whittier, California, home of Richard Nixon.

Right. I had relatives there.

In Whittier?

Yes.

Really!

Yes. They moved there in the ’50s, and I think still have the same house.

Really?

Yes.

My parents lived there for many years, probably 35 years or something, and then they retired when they both got to retirement age. When my dad first moved to California he worked for his brother, who was running a trucking company. Then maybe the trucking company went broke, or I don’t know what happened, but my dad moved to the other side and he worked as an executive at a company that made the truck trailers. My mom worked at the phone company. She was a trainer at the phone company. When they retired, they moved back to Abilene, Texas, where they still are today. My mom has a firebrand type of personality. She’s always been kind of a rebel, so she likes to be the most left-wing person in the most Republican neighborhood she can find. Whittier was very—

Well, starting in Waco—

Whittier was very Republican, and, as my mom used to say, when they would go down to vote, there were seven booths for Republicans and then there was one booth for Democrats, communists, independents, and everyone else. [laughter] They retired to Abilene, Texas, which is either the reddest or second-reddest city in America. It was also funny, because in Abilene family trumps politics. They didn’t like [Barack] Obama when he was the President, but when I was there, they would come to my parents and they’d say, “Obama’s the worst President ever! He’s ruining this country! We saw your son on TV. He’s doing a great job!”

It’s the Richard Fenno effect.

Yes, right.

They hate the institution, but they love that the local kid made good.

Right. Yes, they like the local angle. It was news in the Abilene Star Reporter: “Local family’s son working in White House.”

As a kid, I was at a school that encouraged students to graduate from high school early to be challenged intellectually. Almost all of my family had gone to Baylor, which is in Waco. That’s where my parents met, and they went to Baylor.

Baptists.

They were Baptists, but religiously the family spread into a bunch of other denominations. My father grew up very poor in Waco. He joined the Marine Corps. In the Marine Corps he started taking some classes. They were stationed in Beaufort, South Carolina.

It was kind of through education that he got out. It was the standard American story kind of thing. My mom’s family were much more learned people. Her father, my grandpa, was a music professor at Hardin-Simmons and ended up being the dean of the music school there. They didn’t have Ivy League backgrounds or anything like that, but their view was that education is the great ticket, and they didn’t have tons of comfort with how the thing was working out. Well, does it really make sense for you to go to college at age 14? And the people from the school—It’s not like they’re going to great colleges—They looked around, and I ended up going to boarding school outside of Boston at a place called Milton.

How old were you then, Austan?

I was 14.

Fourteen. OK.

Or no, maybe 13, 14, something like that.

Had you finished the program in California?

I didn’t finish the program. It was coming up, so it was kind of coming to a head. Are we really going to do this, or should you go to some school that has more academic resources but you can be with people your own age? So we decided to do that.

I don’t know that I’d ever really been east of the Mississippi River before, so it was a very different cultural environment for me. It did sort of change my life and put me on a path where there was an extremely successful speech and debate program at Milton, so in addition to doing math and science—and I kind of got into economics in high school—I also participated in that, and that would end up becoming tremendously useful later in life. The program won the national championship my senior year, and I was the national extemporaneous speaking champion. Then I went to college at Yale.

Austan, excuse me. Before you get to Yale—Your dad, I understand, was more conservative than your mother, would you say?

Yes, but my dad was a Democrat. He was kind of a Texas Democrat. My mom was, if not a radical, more left-wing. She’s a liberal Democrat, and my dad probably a centrist Democrat, if I had to describe it.

Right. But when you—

My mom is interested in politics more than my dad. He follows politics, but my mom later in life becomes a delegate for Obama in the 2012 election, and I see her at the convention. Wolf Blitzer has an interview of me with my mom. [laughter] I was proud of her. There’s Big Country Democratic Women. The area around Abilene is called the Big Country. She says of my dad that when she married him, she thought he was going to be the next Lyndon Johnson, because I guess he was involved in student government or something, but my dad said he had never had any interest in it. It’s been good to see my mom get into this.

That’s a wonderful story. But then when you land at Milton, you’re kind of in the heart of liberal Massachusetts and Kennedy land, right?

Yes.

Bobby Kennedy and Ted Kennedy both graduated from Milton, I think. Certainly Teddy did.

Yes, I think Robert Kennedy was there.

And then some of their kids, I think. Some of Bobby’s kids went there maybe.

I don’t know. Maybe. I don’t know the answer to that.

But in any event, are you aware of—

Not at the time.

Gosh. You’ve gone from Whittier, really conservative, to liberal Massachusetts.

It didn’t feel that liberal when I was there. I don’t know. Maybe culturally it’s because there were a lot of conservative families, or older families, or whatever. The thing about Milton is it’s half day students and half boarding. It’s always kind of a weird—It’s unusual to go to boarding school. I found that the experience of spending your teenage years with people from a bunch of places, that don’t just live in your own neighborhood, was really pretty meaningful for me. But I wasn’t especially political, or I wasn’t that aware of politics in high school, except for the speech and debate stuff.

What did you study at Yale?

I studied economics. By the end of my time at Milton I loved math and science and I loved policy and politics from this speech and debate stuff, and I settled on economics, as it seemed like it was a combination of those. That wasn’t crazy. That ends up kind of being what economics is.

He’s now passed away, but there was a great economist who was at Wellesley, whose wife was the college counselor at Milton. Her name is Susie Case and his name is Chip Case. He’s the guy from the Case-[Robert] Shiller House Price Index. That’s the same Case. When I met with the counselor in junior year of high school or something, she was asking me, “Well, what do you like? What do you want to do?” I said, “I’d like to be an economist.” She said, “Well, my husband’s an economist.” So he helped me, and got me a job as a research assistant at the Boston Fed [Federal Reserve]. I would take the subway over there, and I took an economics class at Harvard. When I started undergrad, that’s what I wanted to do, and that was my thing.

At Yale, I took the final class of one of the great economists, a guy who won the Nobel Prize named Jim Tobin. I ended up becoming his research assistant, and senior essay advisee. I would take care of his house and his dog in the summer, and then when they would go to Wisconsin. He became a dear friend and mentor.

Then we’ll fast-forward. He was on the Council of Economic Advisers under [John F.] Kennedy in the golden age of the CEA, and he would tell me stories about what it was like and why he had gotten into economics, the Great Depression, and how that was the thing that changed the whole profession. All the people like him got into economics to try to understand what had happened and how to deal with it. His overriding principle, or theme, was economics is fun, but it’s not just a game. It’s not, “Let’s work out equations and have purely academic discussions.” It’s most important, in a crisis, to try to prevent that from ever happening again.

So I went through Yale. I kept doing a bunch of debates when I was at Yale. One of the guys I debated against that we defeated to be the national team of the year was [Rafael E.] Ted Cruz, who would later go on to become the Senator.

Good for you!

I have some hilarious stories about Ted as a young man.

And—

You want me to tell them?

Oh, yes.

Let’s hear one.

Yes.

It would not be for this, but Ted could rub some folks the wrong way, even as a young man. People would ask me when he was running for the Senate, and then running for President, “The other Senators say they don’t like him, but he says that’s because he’s an outsider, and he wears that as a badge of honor. Was he more likable in college?” I’d say, “Well, it’s kind of a preppy activity. Everybody wears a coat and tie sort of thing, and at the end of your junior year”—he was one year younger than me—“somebody runs to be president of the league. In fairness, it’s not usually a great debater who is president of the league, because if you’re really good you’ve made enemies. So it’s usually somebody who’s kind of the friendly guy, and everybody’s like, ‘Oh, I love that guy!’”

Ted decides he wants to be president of the league, so he gets up and he makes a speech in front of 500 people or whatever, and he says, “I should be the president of the league. We want to have a great debater represent us at the world debate championships,” or something.

Another guy runs who’s a complete outsider. He’s from Johns Hopkins, which doesn’t have that big of a presence on the circuit at that time. This guy wears ripped jeans. He’s got earrings, he smokes—a total outsider. The guy gets up and he says, “Now, a lot of you don’t know who I am, and you’re asking yourself, Who is he, and what are his qualifications to run for president of the Debate Association? Well, my name is Ted Niblock. My qualification is I am not Ted Cruz.” [laughter] Standing ovation! That guy wins. He becomes president of the league.

That proves your point.

Yes. So I get out of college. I go straight to MIT [Massachusetts Institute of Technology] for graduate school. MIT has one of the amazing departments of the world. I worked with some of the greatest people. Robert Solow, who’s still alive and is toward the end of his career, was a very close friend with Jim Tobin. So incidentally, when I get there my first year, the 1992 Presidential election is in full swing. Bob Solow is somehow connected to the [William J.] Clinton campaign, and he’s asked to do some very small thing about the investment tax credit that Clinton proposes, which, when he wins, doesn’t end up getting enacted. But that was my first tiny, tiny foray into Presidential-level economics.

Can I ask you a question about this, Austan?

Of course.

You indicate that your experience at Yale and your initial foray into economics have a lot to do with the fact that you have an interest in public affairs.

Yes.

But I think I’m correct in saying that that’s not universally how the economics profession views itself.

It’s an interesting idea. Yes, you’re right. There are, and especially here at Chicago, historically a group of people whose view is that economics doesn’t have to be about policy, and there’s kind of a disdain of policy intervention.

Right. Are you having to confront that, or is there enough—

I would say not.

There’s enough of a field—

Not really.

OK.

That was mostly cleared out. It’s funny because Jim Tobin fought those wars, in a way, versus the traditional Chicago school. Tobin was still alive when I took the job here, and he thought, What? What do you mean you’re going to the University of Chicago? But the thing is, in the ’50s and ’60s and into the ’70s the field was more heavily oriented toward macro and more oriented toward theory.

In a way, I guess I would describe it as this: if all your datasets are macro annual datasets—so you basically have 40 data points, there are a lot of theories that could be supported by 40 data points—the arguments become much more political. Maybe it’s a small “p” political, but it becomes more about politics than about purely data. In the ’80s and the ’90s, and for sure it was well established by the time I’m getting out of graduate school in ’95, the field has turned heavily data oriented, and much more micro, which is just not as ideological. There are still huge debates, but it’s not just ideological like conservatives and liberals.

There are people whose views are classic Libertarian kind of views, like anti-market intervention, that are here on the faculty, but there are plenty of people who aren’t, so I didn’t really get much. My dissertation was on taxes and public economics. That whole subunit of the National Bureau of Economic Research, if you looked at the CEA chairs over the years, probably produced two-thirds of the CEA chairs came from either the macro group or the public economics group, so that part’s not unusual.

OK.

Now, it is still true that culturally the University of Chicago is heavily oriented around research. When I came back from Washington, I had colleagues who would say, in almost as many words, “You’ve just blown five years of your life. [laughter] What are you going to do now?” So that was not really ideologically based, but more like academic economics versus policy.

Yes.

Exactly. And you were always fluent enough in the various subfields in the discipline that you could navigate that without encountering—

Yes, probably. It’s not as though I’m a world expert at that.

No.

Maybe it’s because of the Chip Case and the Jim Tobin experience. Jim Heckman was another guy I worked for. He’s here at Chicago. He was at Yale for a couple years while I was an undergrad. Each of them is so much more about “the economy,” rather than about the economists, that that was the tradition that I kind of grew up in.

OK. Thanks.

I’m sure that if you were doing an oral history of what economists thought, you probably would find a bunch of economists who would say, What a loser! That guy gave up. But at least they didn’t say it to me personally.

We’ll work on that project next. [laughter]

Yes.

All right. I interrupted you. You were going through MIT.

So, yes, I go to MIT. I come in thinking I want to do international trade. I exit doing domestic United States tax policy.

I say I met my wife when we were undergrads together—She was a year older than me—but she says she didn’t know who I was. [laughter] So I remeet, or meet, my wife, and we’re out on our first date. She was in Harvard Business School at the time. I’m asking her about her classes. There is a famous class at Harvard Business School that’s about taxes and business, so I ask, “What about your classes?” She says, “Oh, well, I have one horrible class that I can’t stand, which is about taxes and business.” Then there was a kind of silence. I was like, “Uh, that’s what my PhD is about.” She was like, “Oh, oh, a lot of people really like it.”

So I graduated and I went on the job market. I was in an improv group in college, and we went on tour one year and came to Chicago. That was the only time I’d ever been to Chicago, when Second City had this thing. I just took a job here because it’s a great place for economics, and it was the best job I could get.

I kind of fell in love with the city, and I fell in love with the university. It’s a wonderfully intellectual place, and one of the last places in academic Earth where there’s a real, very substantial diversity of views, especially in economics. You’ve got the classical conservatives. You’ve got these behavioral people. Dick Thaler, the behavioral economist, came the same year as me. I came as an assistant professor; he came as distinguished faculty.

It’s the kind of place where people argue very intensely. They’re debating over the nature of the economy. But in the end, it works, because everybody kind of loves each other. Even though they’re arguing about really fundamental things and have fundamental disagreements, it’s not nasty or personal in a way that I found Washington to be. And that ferment, that stew, has been amazing in the profession. They’ve won more Nobel Laureates than any other place in the world, and I think it’s because of that environment.

One irony that’s somewhere along the way, in the early 2000s—I’m at the business school and—

Did you drop your improv work when you got the faculty position?

Well, yes and no. I tell people I learned more for teaching from that improv group than in all my PhD and undergrad combined.

I was saying to Russell on the ride over in the Lyft that your personality so comes through in the briefing book with all of the interviews here, but there’s one place where they label you an “amateur comedian, a stand-up comic.” Is that where that came from? From your improv?

I don’t know. Yes, probably. Many of the people in that improv group—It was called Just Add Water—were really, really funny, and very successful. One of the guys ended up becoming the head writer and then the executive producer for The Daily Show with Jon Stewart. A woman who was in the group runs the Samantha Bee show. So they’re professional comedians. I learned from that that the key was to go into a field where no one’s funny at all, and then if you’re the slightest bit funny people think, That guy’s a comedic genius! So that was accounting, finance, and economics. That was my thing.

Anyway, the irony was that at one point along the way, having been at the business school for several years, I had an offer to go to Princeton. We thought about it, because it would be a totally different world. I decided that Chicago was more my speed, and I stayed. I said that this is a wonderful intellectual environment, and I can’t give that up, even though it means I will have less interaction with the world of policy here than if I went to Princeton.

Yes, which is consistent with my earlier question to you about politics.

Yes, and I had kind of made peace with that. Hey, that’s how it’ll be. Soon after that, maybe that was in the early 2000s, Obama was a professor at the law school. He was my state senator. Now, one of the guys in the improv group was a guy who makes documentary films here in town. His name’s Greg Jacobs. Before he was making these documentary films, he was working as the booker at this radio show on WGN. I think it was called The Milt Rosenberg Show. It was on every day, and the guy who was the host—Basically, if you wrote a book you could get on that show.

Greg Jacobs calls me and he says, “I just talked to a guy who’s going to be President of the United States.” This is like 1995 or ’96 or something. I said, “Who was it? Is it some Governor or some Senator?” “No,” he says, “his name is Barack Obama. He was the first African American editor of the Harvard Law Review. He wrote this book and he came in and talked on the radio show.” I said, “That’s absurd. There’s no way a guy named Barack Obama’s going to be the President of the United States.” [laughter]

Some years go by, Obama runs for Congress, and he loses by like 50 points or something, so of course I’m calling Greg. I’m like, “That’s the guy you said was going to be President. He can’t get elected dogcatcher.” So we come up to 2008, when, as we’ll get into, I’m sure, he’s running against Hillary Clinton. There are various low points. Oh, he’s going to drop out. And Greg was always like, “No, no, he’s going to win. I’m telling you. This is the guy.” And he was right all along.

Obama taught over at the law school, and he was my state senator. I didn’t really know him. My oldest kid, our daughter, is in between his two daughters, and they were all at the Lab School. His friend, Marty Nesbitt, is a good friend of mine. Marty has five kids, and one of them was my daughter’s best friend in school. So I would see the Obamas around at parties. I knew him as a guy from the birthday parties, and he was the state senator.

People don’t remember it, but Michelle [Obama] was way more famous than him. She had a huge job at the university. She was a well-known figure. So he starts running for the U.S. Senate. When you run for the Senate, it’s like a Presidential campaign in that you’re asked about all these national issues, but it’s totally unlike a Presidential campaign in that nobody wants to do anything for you, because they’re like, What do I care?

He had a policy director who starts calling around. “Is there somebody who can help us on economic policy?” They call a buddy of mine. This person had gone to the Kennedy School, and so she calls her Kennedy School professors, one of which was a buddy of mine from graduate school named Jeff Liebman. She says, “Will you help on this thing?” And Jeff Liebman says, “I’ve never heard of this person. At least call someone from Illinois.” Like, I’m definitely not going to help you. He gives her my name, so she calls me and says, “Would you be willing to help on this?” I was thinking, You’re talking about Michelle Obama’s husband?!? “Of course! Of course I’ll help.”

I get into the campaign. It was a complex, weird story, how he ends up running for the Senate. You’ve probably already gone through that with some people, but he was running in a crowded Democratic primary. The guy who was leading in the polls was a self-financed multimillionaire named Blair Hull. Late in the primary his divorce records come out or something, and he had threatened his ex-wife. She had a restraining order against him, or something. He basically craters and he’s out.

So then the race opens up, and Obama wins the primary. He’s up against a guy named Jack Ryan, who was a Goldman Sachs investment banker who’s given it up to become a public schoolteacher. That guy had been married to an actress who was on the Star Trek thing, Jeri Ryan. She was a famous actress, and they had been divorced. Because the Blair Hull thing had just happened a few months before, everybody thought there could be skeletons. But he said, “My divorce records are sealed. There’s no problem.” Everybody said, “You’ve got to tell us what’s in there.” After he gets the nomination, it comes out that in the divorce records she said that he had pressured her to go to sex clubs, and that she wasn’t comfortable with going. So the guy, Jack Ryan, drops out.

Now they don’t know what to do. There are five or six prominent Republicans who could get it, but everybody’s pretty clear that whoever goes up is going to be the sacrificial lamb; Obama’s going to destroy them. None of them want it, but none of them want the other people to get it because they think that will position them ahead for the race for Governor.

They collectively agree to bring in Alan Keyes from Maryland, who moves to Illinois and becomes the Senate opponent. It’s totally bizarre. I can’t even believe that I’m saying this, but this was a thing: Alan Keyes, who is African American—One plank of his platform is Barack Obama’s not a real black person because he’s not the descendant of a slave, so he’s not of the true African American experience.

The first thing when Obama’s Senate campaign contacts me, they say, “At a press conference, Alan Keyes was asked about reparations, and he said, ‘We should follow the lesson of the ancient Romans and waive all the descendants of slaves in the United States from federal taxation for two generations.’” I said, “What?” And they said, “Now, do you think you could figure out how much that would cost?” It fit into his thing of, “My opponent would not qualify, because he’s not the descendant of a slave.” They said, “Can you figure out how much that would cost?” I said, “I can’t even tell you how impossible it would be to figure out what it would cost. But I can at least figure out a number with a spreadsheet that’s defensible and you could cite.”

I go get the current population survey, and I figure out the income of African Americans. You’ve got to project how much will it grow, and what taxes do they pay, and blah, blah, blah. So I come back, and I say, “Look, do you want a net present value? Do you want me to just add up 40 years of numbers? How do—?” And they said, “Whatever’s the biggest.” I said, “OK, fine. We’ll just add up 40 years of numbers.” I think the answer was $8 trillion. They said, “That’s perfect!” So I wrote up that memo and I gave them a spreadsheet for if somebody asks you how much it costs, you can say, with a straight face, “That would probably cost $8 trillion, and here’s why.”

Then fast-forward. They call me and say, “Alan Keyes has proposed replacing the income tax with a sales tax.” I said, “Look, this is a common thing. The thing about that is it’s going to be really regressive, and I could figure—” They said, “No, wait. Keyes says he’s going to exempt housing, food, clothing, transportation, senior citizens, and poor people from the sales tax, so what we need you to do is figure out is what will the rate have to be if he does that.”

Again, I say, “What does it mean to exempt transportation? Does that mean buying a car? Does that mean just your subway fare?” and a bunch of stuff. But I said, “Fine, I at least know where to look.” We go get the Consumer Expenditure Survey—What do people spend money on, this and that. I said, “Here’s the thing: in my world, if you put a 30 percent tax on some stuff and zero percent on the other, a bunch of people will shift what they buy. How much of that am I allowed to assume?” They basically said, “We don’t know. Just get a number.” The minimum was like 68 percent or something like that, because that was a lot of spending that he was exempting. If you assumed too much shifting, the answer was you couldn’t raise that much revenue, that it would—

Keyes had been saying to Obama, “You know, you’re at the law school. You should walk across the street and talk to an economist at the University of Chicago, and they’ll tell you that you don’t know what you’re talking about.” That was kind of his line. So they invite me to the debate. There’s a debate down at the old studio; I guess it’s WLS, the ABC [American Broadcasting Company] studio that’s across the street from the old Chicago Theatre. They bring me down there as the weapon.

It comes up in the debate. Keyes is like, “You should talk to an economist,” or something, and, “My plan will do this with taxes.” Then Obama says, “Well, you said that, so I found an economist from University of Chicago, and he says your plan will raise taxes 68 percent.” Keyes says, “That’s not my plan.” That was the whole thing.

I’m sitting with Michelle and Michelle’s mom, and at the start of the debate there’s a camera on a mobile thing. The lights go up, they’re about to begin, and it moves right in front of Michelle so it blocks her view. I said, “Here, do you want my seat?” She says, “No, I don’t need to look at that man,” because Alan Keyes had been saying all of this nasty stuff. It was blocking her view of Alan Keyes, and she was like, I have no problem there. [laughter]

The debate finishes. I’d been sending in these memos from Professor Goolsbee, and Obama and I have not really met face-to-face. They say, “Well, you should go up to the green room and meet him,” so I go up. I knock on the door. He opens it, and he says, “Who are you?” And I said, “I’m Professor Goolsbee.” He’s stunned, and he says, “What? I thought I had a 65-year-old guy with a beard and patches on his jacket. You don’t look anything like a professor. And what is with ‘Goolsbee’?” I said, “Look, you’re going around telling everybody you’re the skinny guy with the funny name. You stole my bit! That’s my thing!” He laughed, but as I say, he never called me ‘Professor Goolsbee’ again for as long as I’ve lived. So that’s how we met.

How did you think he did for the rest of the debate? Obviously, he had your line.

Oh, I think he did pretty well. It was clear he was so far ahead he was going to win. The only question was, literally, is he going to win by 50 points? I think he did.

Wow.

I think it was like 75 to 25. It was at least 40 points he won by. We went to the celebration—which was downtown—when he won, and everybody was torn, because that was the same night that John Kerry was losing the Presidential election, narrowly. But we were overjoyed that Obama was winning.

Before that, though, he’d spoken at the ’04 convention, in the summer prior to the election.

Yes. I was going to say partway along the campaign they announce that Obama’s going to give the keynote address. I was thrilled. I was happy they picked him, and I thought, Where did that come from? How did that—? Then he gave this wonderful speech, and I was super anxious for it because, if you remember, in the first 30 seconds, I can’t remember what, but he kind of flubbed a couple of words. I think that might have been his first speech he ever gave off a teleprompter. I thought, Uh-oh. Oh no! What if this goes down in flames? Shows what I know. By the end it was A Star is Born.

Had you heard him speak before?

Only at local little stuff, but not to a big audience. But all the time when I was working for him then, he was amazing, but I wasn’t thinking, This guy will be the President. I told you that when Greg Jacobs told me that, I thought that was comical. But I will say even then he was a very young man. If you went to a gathering where he was speaking to 50 people, you would be thinking, Who is this guy? That was amazing! Barack Obama. How have I not heard of this guy? So he wins. He goes to the Senate.

When you’re watching the 2004 keynote, you’re watching it on TV, I guess.

Yes.

You’re not there.

No, I wasn’t.

But then when you saw the reaction of the throngs of people, did you say to yourself, Wow, this guy really could be President?

Maybe, but only in a distant way, If there was ever going to be an African American President, maybe it could be this guy. But when he gave that speech, I was just so happy. It was kind of like the world could see what all the local people had thought, that this guy is really, really something special, and then the world saw that. So I was thinking, He could be in the Cabinet. He could be the Governor. He could be something. Maybe someday a guy like that might even run for President. It wasn’t remotely on my radar screen that within four years the guy would be elected President.

So he wins. He hires a bunch of people in his Senate office, some of whom I knew or was friendly with. Periodically they’ll send little stuff: “He’s going to cosponsor this bill on pensions. Will you just look at this and see what you think?” So I would help out in just a minor way. Riley: On a voluntary basis?

Yes. Then sometime in late 2006, maybe before that, he starts thinking about running for President. They call and say something like, “Will you come talk to him about the budget?” Not the budget of the campaign; the U.S. budget: taxes, spending, et cetera. So now I returned a favor and I called back the guy, Jeff Liebman, at the Kennedy School, who was a real budget expert, and we go down. It’s October, November maybe, of 2006. We go talk to him at his Senate office. Maybe it was known by others—but I didn’t know it—but it’s clear to me he’s thinking seriously about running for President. Am I getting the dates wrong? I don’t think I’m getting the timing right.

You can fix it later if it occurs.

Yes. Then I started thinking that it’s great. He should run. I still don’t think he has much of a chance, but I think he would be great. I was, like many people, quite frustrated with the [George W.] Bush administration at that point, and I felt like this would be a total antidote to the pathologies that I don’t like. This is a guy who can reach across a lot of boundaries, and he’s so smart, and he can have conversations with anybody, from Nobel Laureates in science and the economy and social policy and whatever, and just regular folks.

In my head I’ve got my fingers crossed. I thought, You should do it. How great would that be? I’m going to have to check what the timing was. They had some very early debate that was about health care that was in Las Vegas, and it did not go well for Obama.

A debate with Hillary Clinton.

It was with Hillary and John Edwards and some others. Edwards had released a health plan. I’m mixed up in my memory because now we’re 12 years ago, or 13 years ago. I think we had been working already on the health plan. I had helped loop in a guy, David Cutler, who’s also at Harvard and one of the world’s greatest health economists. Edwards came out with a plan—which was very close to what Obama’s idea already was—but he hadn’t released it. Now he can’t just release a plan that’s very close to the Edwards plan.

He goes to this debate, and Edwards has a specific plan. Hillary Clinton does not, but she is so associated with the topic of health care that in a way she can get away with more general statements. Obama says some similar general statements and he’s kind of panned. “Ah, he doesn’t have a plan. He doesn’t know what he’s talking about.” They have a debate prep in Washington to get ready for the next one, and his policy person, Karen Kornbluh, calls me and brings me to the debate prep.

The debate prep goes well enough, I guess. Joel Benenson, the pollster, I remember being there, and David Axelrod, and some folks. It was in Bob Bauer’s law office, I think. Maybe it was at Perkins Coie. It goes well. We go through content, and I remember one of the topics that comes up is about health care. I remember Obama saying, “Look, why should I not be for single-payer? We’ve got all of these plans. Why not single-payer?”

Most of the responses were from political types of the form, “Well, that’s super unpopular.” You could see Obama getting more and more annoyed, saying, “Well, look. I want to talk about content. If you tell me everyone’s in agreement that this is the best thing for America, but it’s just low in the polls, then my job will be let’s go out and persuade people.”

At that point I say, “Look, here’s the thing about single-payer: if you look at countries that have single-payer, they are very low-cost compared to the United States.” And by single-payer, I mean it broadly: a system in which nobody has to get their own health insurance, and you can go to the doctor whenever you want. I said, “The thing is, that involves a massive increase in the usage of the health system, if everybody can go for free.” So I’m making up numbers, but let’s say that’s $800 billion a year more if you add that. Then the question is how do you pay for $800 billion a year? The answer, in the places that have it, is that the cost is so much lower that it works.

The question of single-payer is this: in the U.S. system, if we went to single-payer, do you think our costs would go down to what they are in the countries that have it? If so, it will work fine. If not, then it’s like you just added a $10 trillion thing to the deficit over ten years. And there are complicated issues. One thing that’s true is doctors are paid way less in other countries. Are we going to be able to cut doctors’ salaries in half when we do that? Because that’s going to be controversial. Prescription drugs—Right now, in those countries, they live off the research that’s being done in the United States. Can you impose price controls on prescription drugs that get us those prices? If so, there’s going to be pushback, and people are going to say, “But then they won’t develop the medicines.” I walk him through three or four things, and he says, “Fine. Here’s our content. If we’re not doing single-payer, what about—?” And he outlined something.

From the debate prep, I guess he or Axelrod or somebody thought, We should get that guy to work on the campaign. They call me in—Maybe it’s January or February of 2007? Obama says, “Look, I think I’m going to run for President. Is this something that you would be willing to spend a lot of time working on?” At that moment I said, “Well, I’m going to have to think about it, because my research is really important and I don’t know if I have time to do this.”

I go back and I tell my wife, and my wife says, “Look, you always said this guy was great when he was running for the Senate. You’ve always been for him. If he runs for President and loses, which he probably will—He’s a longshot candidate—wouldn’t you be kicking yourself that it was in your hometown and you didn’t do anything?” I said, “Yes, I probably would.” And she said, “So take six months off and write one less paper and go do this.” I thought, OK, you know what? Yes, she’s right. I’m going to do that.

Because it would be full time.

It basically was going to be full time.

Were you tenured at the time?

I was tenured.

When did you get tenured?

It was 2001, maybe 2000, somewhere around there. So I start working basically full time. I meet with [David] Plouffe and Axelrod. They’re sheepishly like, “How much would we have to pay you to do this?” And I said, “Look, I would like you to put all the money into Iowa, not into me. In a way, life is more complicated for me if I’m actually on the payroll.”

Is that right?

“I would rather just be an advisor, just a helper.”

Did you have to take a sabbatical?

I didn’t take a sabbatical. I taught my class. I just spent a lot of time—

Oh, I see.

—and it was downtown—

Right, and not doing your research.

I wasn’t doing my research.

Right, OK.

So you’re still fully employed here?

I’m still fully employed at the university, but I’m spending tons of time downtown.

Right. You’re basically consulting.

Yes. I’m in the consultants’ office with Axelrod and Larry Grisolano and everybody. It’s an amazing spot to just watch what’s happening, and how the size of the campaign is mushrooming. At the start it feels like there are 20 people in there, and then they’re taking over more floors. So we got started, and then the only complication was that I had gotten a Fulbright to go for two months to London, and I can’t get out of it. They ask me, “Well, can’t you tell them you can’t come?” And I said, “I can’t. I won this, and it was a year ago, and now I’m going.” So I go for two months. That must have been April and May into June, or something. I’m in London.

2007?

Yes. It starts a totally traumatic period for me. My wife and our kids have the greatest time. Every day they go out. They do this and that in London. They were young enough—We had pulled them out of the tail end of a school year. Maybe it was May and June. I’m getting up, going to the London School of Economics, working the day until like 4:30. Then I’m getting on Skype and calling in and having a whole second day on the phone from England. We’re in London for months, and the only thing I saw was the inside of the HMS Belfast. There’s a battleship in the river. I was able to go to that. And I was thinking, I’m so tired. It’s artificial light. I’ve got to go home and take a nap.

That whole thing was a blur. At one point Obama comes out with his health plan. It was in your timeline. They announced it at University of Iowa, I believe. It’s in Iowa City. I fly from England to Chicago, to drive to Iowa City. They roll out the thing and they say, “Now you need to give the background briefing to the reporters. Some of these are political reporters, but there are also health care reporters. You’ve got to answer their questions.” I’m jet-lagged, but we do it. The event seems to go well. He outlines a plan, and many of the ideas are very similar to what ends up becoming Obamacare, the Affordable Care Act.

Lynn Sweet later becomes a friend, but I had never met her. She writes for the Sun-Times, and now she’s at CNN. She’s been angry at the campaign or something; I don’t know anything about it. [Robert] Gibbs says, “Oh, as you’re driving back to Chicago, we do need you to just make one more call. We’d like you to call this reporter, Lynn Sweet, and talk to her about the plan.” But Lynn Sweet has been angered, so when I call, she says, “On paragraph nine it says this!” I’m driving the car, and I say, “I can’t read this.” And she says, “This is what your—!!”

So I finish up, we made the announcement on health care, and then I come back. The 2008 campaign circa 2007 was quite unusual. It was different in the following sense: partly, as a blowback against the anti-thinking person, anti-intellectual. I don’t know what the right word is, but the Bush White House has been operating a policy shop based just on power: “We’ll just ram through whatever we want.” They’ve cut taxes for high-income people, saying they’re going to pay for themselves, even though everyone knows they aren’t, and they don’t, and the deficit gets bigger.

The Democratic electorate is starved for policy, and the 2007 primary campaign for 2008 is almost unbelievably policy oriented. The way that the campaigns are going to compete against each other is to have a footrace of who can have the most policy with the most detail and be the best thought through. It makes it both exciting but also really nerve-wracking, because it’s like every day trying—“Well, we came up with this.” “No, but they left out—”

We’re debating economic stimulus, and Obama’s going to be for a tax cut for working people, and the Clinton campaign is going to be for low-income heating assistance, and then we’re going to criticize each other. We’re having TV debates in the primary with an economist for each of the campaigns. We have a series of debates around the country, and they’re sending policy advisors through Iowa. In your timeline I remember there was this policy listening tour, and I go all around Iowa and talk to those people—

Yes, that’s September of ’07. You go to 12 Iowa communities to discuss domestic issues. Goolsbee: Yes, it was just driving around. It was really quite fascinating. I had always, like much of America who isn’t from New Hampshire or Iowa, wondered why so much attention on Iowa and New Hampshire? It doesn’t make any sense. They’re not representative. They’re small. They’re whatever.

I was kind of blown away with the seriousness with which the average Iowa voter took the whole thing. I would be in places where they’d literally ask me questions like, “What does Senator Obama think about changing the measurement of inflation for Social Security COLA [cost-of-living allowance] adjustments?” There are these debates about how should they do the cost-of-living increases. I thought, What? These people are absolutely after my heart. You want to talk about hedonic adjustment in the CPI [Consumer Price Index] and in our current price measurement system.

So we’re going through Iowa. People would ask me at the beginning, “Are you the main economic advisor?” I thought, I might be the only economist he knows. [laughter] So I said, “Yes, I’m pretty sure that I’m the main advisor.” It might be hard to fathom, putting us back in the mentality of that time, but everybody thought Hillary Clinton was going to be the nominee. She was massively the favorite. As a result, almost every economist that had done any time in Washington was already for Hillary Clinton. They had either served in the Bill Clinton administration or thought, She’s going to win, so I definitely want to be on board. Or they were remaining totally neutral and would say, “I’ll answer questions if you want to ask me questions, but I don’t get involved in the primary.”

My challenge as the economic advisor was a much smaller challenge than they believed. I think that the Clinton people believed, Aha. They don’t have anyone to talk to. And what I perceive they didn’t really understand is that 90 percent of the economics profession has nothing to do with Washington, and they’ve never heard of their names, they know nothing about them, but the font of wisdom is so massive that my job was going to be to try to tap into ideas from economists that they don’t know about. I tried to do that, and for macro we were talking to Christy and David Romer, and on financial stuff some of the people here, like Doug Diamond. These are amazing scholars and intellects with great ideas; they just didn’t serve in the Clinton administration.

Several things come to mind. You said that the Democratic base and the activists and maybe even the average voter in the midst of the eight Bush years were hungry for policy.

Yes, they wanted that.

And you have these two people, Barack Obama, who, while he doesn’t have a lot of experience in—

Yes, he’s a huge policy wonk.

As is Mrs. Clinton.

Absolutely. And they forget the same dynamic is going on: Edwards was in third and was kind of behind, and in a way, it was like the Elizabeth Warren role right now that’s going on as we speak. He thought, I’m going to get myself back into the race by coming out with a health plan, a poverty plan, a something. So you had three candidates really putting out lots of not just specific ideas, big ideas, and it was really healthy and exciting that they were debating.

Sidenote: In a way, the golden age of policy probably dates to around this time. It’s growing, the wonks and policy through the Clinton administration, but by 2006, the ’07, ’08 primary, and then the 2009–10 Obama administration, that might be the pinnacle of policy involvement, thoughtful policy in D.C. By the time we get to 2016, Donald Trump flips the script on its head in a really destructive way.

Hillary Clinton runs again, obviously, and she’s running a similar campaign, putting out all this policy and specifics and papers, and the Trump people begin sending out policy henchmen to attack every detail but not putting anything out themselves. So in the primary, and then again when he goes up against [John] McCain, Obama’s in this circumstance where it’s a contest of programs. He says, “Here’s my health plan,” and they say, “Well, here’s our health plan, and ours is better.” “No, it’s not.” We’re back and forth. Trump yanks the rug out from under that. He’s like, “I’m just going to promise I’ll give everyone health care for less money with something fabulous.” Then if you say, “What?” they won’t tell you. They just attack your details.

At least in the near term, you may very well never see a race like that 2008 race again, when someone like Edwards, or like Warren now, comes out with these detailed policies. In 2007 you had to respond, and it was like, “We need our own version of this thing,” or we’re trying to come up with stuff, and as soon as Obama comes out with it, you see the Clinton and Edwards people pick up on their own versions. That may never exist again, or if it does, it’s going to be a while. Debates with Trump are not going to be like that.

So we have a series of debates. Now, you mentioned one at the National Press Club. I don’t remember much about that. I remember making jokes in it. What was the date of it? Was it Mother’s Day? It was something—

November 9.

So, it wasn’t Mother’s Day. It was a holiday or something. I’d made up some limerick in honor of the day.

Can I also ask you, Austan?

Yes.

One thing we haven’t talked about is the impending collapse. I just remember a friend of mine, who was quite a successful businessman, who had gone to Harvard Law School long before I had as a political scientist, thought about subprime mortgages. I remember saying to him, “What are you thinking about for investments, and what could happen to the economy?”

Right.

He said, “You know, I worry about these subprime mortgages.”

Really? He said that?

Yes.

Good for him.

And this was like two years before the collapse. So were you all—

The thing is I wasn’t—

Anything on your radar?

I was at that time writing this column for the New York Times, which was about other people’s research and how it applied to current events. It was called “The Economic Scene” column. I wrote one of those columns about the research of a Princeton economist on housing, which aged so badly and showed what a moron I am.

It’s in the book!

Yes. In fairness to me, it wasn’t an op-ed; it was a column about someone else’s research, and that research was about the 1980s, when they had created the first adjustable-rate mortgages, in which everybody said, “Oh, these adjustable-rate mortgages are the worst thing that’s ever happened. People are getting in over their head.” This person’s research showed that actually it had made the mortgage market work better, that people who were going to have incomes go up in the future were the ones who knew that, and they were able to get these mortgages.

This column basically made the argument of well, maybe it’s this. Maybe this research says that the subprime people getting nervous about subprime—maybe it’ll turn out how adjustable-rate mortgages did, which within a year was totally wrong. That thing was totally wrong, and it was blowing up.

Now, it’s not really a defense to say, “Well, I wasn’t the only one who was wrong,” but everyone was wrong. I’m sitting in Ben Bernanke’s Fed chair—literally, he gave me this chair I’m sitting in. They asked Ben Bernanke, “What do you think of subprime housing?” And he said, “Well, I don’t think it’s big enough to pose a systemic problem.” Because he was thinking of just how big is the subprime market. I think the housing market is $20 trillion, so if there are going to be $600 billion of losses or something in subprime, you could see where the mentality was it’s not going to be as influential as what it turned out to be.

We can get into some details of why that was. Obama was strangely prescient on housing. I don’t know if it’s because it was the Chicago connection, or subprime, or what, but he had written a letter to Bernanke, maybe in 2006, saying, “I’m really nervous about these subprime mortgages, and the Fed should really look into this,” or something.

Fast-forward to the fall of 2007. There are some people on Wall Street who are kind of freaking out. The housing bubble has started popping already. The recession, we now know, began in December of 2007. We didn’t know that at the time, and for sure the Republicans are trumpeting that the economy’s great, and the Democratic primary is kind of about it’s not working for everyone and there are a bunch of problems for the middle class.

Obama’s running on a platform that eventually will come back to be quite central on the economy; it was just we have this diversion of the meltdown. But before the meltdown has begun, he’s saying this is the first boom in American history where the median family income falls $2,000 over the course of the expansion. That’s never happened before. It has always been if the economy goes up, middle class families go up; if the economy goes down, they go down. But now we’ve had this divergence, and in a way, he’s arguing that the squeeze on the middle class is the most important issue facing the country, and that’s why he’s running.

Did he get that number from you or from somebody else?

I don’t know. Physically, he probably got it from me, but I didn’t invent it, I should say.

No, that I understand. I’m just wondering how he comes by that data point and makes something out of it.

Yes, well, I can’t say that this is exactly how it happened, but here’s how it would happen. Axelrod is thinking we want to identify him with middle-class values. We’re going to have a speech. We’re going to make it in Pennsylvania or whatever, if that primary’s upcoming. It’s going to be about the middle class. What policy do you have that either we can announce, or what should we describe? We’ll chew on that and brainstorm. The policy directors—this talented woman, Heather Higginbottom, was bouncing around ideas. Work with a speechwriter. Develop a text. Give them a series of facts or something. They might seize on a fact. They might seize on a story, an anecdote, an industry, and it would filter up to him through that. That’s not exactly from the ground up, but in a way it kind of is.

OK. Thank you.

The other thing is at that time Obama loves one aspect of being out on the campaign trail, which is he’s talking to a million people a day, and he’s absorbing all of this information from those people. He’ll come back and be asking questions of the form, “I saw a person in Nevada who said, ‘Is that a real thing? Are banks cracking down on whatever? Is it true that nobody—?’ They said they asked to refinance their mortgage, but the bank doesn’t own it anymore, and so they said, ‘Oh, our hands are tied. We can’t refinance you.’ Is that a problem?” So that will—

Interesting.

I used to say a lot of times the academics would be asking me in the campaign, and then later in the government, “What is it like? How is it different from academics?” And the one thing in the campaign that I thought was the most different is that to policy people in academics, their view of how a campaign must work is policy people come up with ideas, which they hand to political people and say, “Here, you figure out how to sell that.” That’s not how it works.

It’s the total reverse. It’s the campaign—these are our themes. This is what we want people to know about Barack Obama. This is what we want them to see. These are his priorities: A, B, C. What policy fits in with that?

I used to say the right model of the policy advisor is this: If you ever watch a NASCAR [National Association for Stock Car Auto Racing] race, when they pull in, five people jump over the wall, and they’ve got a tire tool and a gas can, and they’re—[makes revving sound]—and they’ve got the thing, and that’s super important, and their job is to get the driver back out on the road in 13 seconds, and the race can be won or lost by how much time you spend there. But Obama is Dale [Earnhardt] Jr. and you’re a guy with a gas can, you know what I mean? You’re not driving; your job is filling the gas and getting him back out on the road.

And tightening the lug nuts so literally the wheels don’t fly off.

And tighten the lug nuts, exactly right. Exactly right. And that was fine. Once I got that, I love watching those guys in the NASCAR. “Yes! Yes! Get him out there!” So that was fine. Once you recognize that’s the role of the policy person, that’s an important role, and you can see how going and finding people who aren’t on Washington’s radar screen to get ideas, to get insights, to get whatever, it would be useful in an environment where the voters are demanding you show us you have policy chops. That’s what we’re asking of you as candidates. That’s kind of what the race has become by the fall of 2007.

Obama then gives two very important speeches, in retrospect, in maybe September of ’07. They’re back to back. One is at Brookings, in which he announces his tax plan, and then the next day is at Nasdaq, where he announces the thing on financial regulation. I might have it backward, but they’re definitely back to back.

September 17 is the Dow one.

And at the tax one, Obama—we had had an effort in the campaign where a dynamic developed in which Obama’s a little dissatisfied. He doesn’t just want to play small ball and argue about midnight basketball and little programs. He wants bigger ideas. Al Gore was not running, though there were some rumors that maybe Al Gore will enter the race or something. Obama said, like Al Gore had with the environment, that we should think about some big, overriding thing. He’s already launched his health plan, and everybody has health plans, so even though health would be a natural, massive area, he wants a second one. The question is we need a couple of grand themes so that if you say, “Here’s why I’m running; these are the things,” one can be health care, but what’s a second?

The way we tried to think about that problem is if you could wave a magic wand and do anything, what would it be? What actually would move the needle? What are the important issues? So I factored in my mind, this is a $50 billion a year thing, not a $5 billion a year thing. That’s kind of the magnitude of what I’m talking about. We prepared memos of this magic wand kind of project of what would really move the needle, and it would be if you had $50 billion would you want to try to cure cancer, some health thing? Should it be about energy and renewables? And the fracking boom in domestic energy had not yet really happened; that comes later. So there’s an energy possibility, more on health. One of them is about helping the squeeze on middle-class incomes.

That’s where the tax thing comes in, because you could envision with the squeeze on incomes you could cut payroll taxes or you could cut tax for workers. The thing to realize about most tax reform is that for income taxes, they’re progressive, and because of earned income tax credit and other stuff, there are a bunch of people who don’t pay income taxes.

The income tax, like the estate tax, but to a lesser extent, is something that tends to be paid by high-income people. So with any kind of tax reform, you basically have a problem finding a way to make it progressive, or to benefit mostly the middle class. Mostly if you’re going to cut tax rates, you’re going to end up helping high-income people a lot. And for sure, with the experience of the Bush years, Obama was in no mind to say, “Hey, let’s cut everyone’s taxes.” We wanted the tax to go back up on high-income people.

He called for what was effectively a payroll tax cut, but what ended up becoming the Making Work Pay tax credit. You’d get a credit for your payroll tax, then you’d subtract it off of your income tax. He gives that speech at Brookings, saying the middle class—I must have gotten the order mixed up. I think the Nasdaq speech maybe came first, because that was part of the pitch when he goes to Wall Street. We’ll check the time.

His argument is the middle class has been squeezed. The reason the savings rate has gone down to zero, in a sense, he alleges, is they thought their incomes were going to grow with how the economy was doing, and instead their incomes have been going down, so they’ve been pulling out of—they’re like, “I can’t afford to save. It’s moved me to hand-to-mouth.” So his thing was, “I’m going to cut taxes by a lot for working people. We’re going to give a big tax cut to the bottom 98 percent, rather than the top 2 percent.” If you just cut everyone’s tax rate, it tends to be concentrated at the top.

Then he goes to Nasdaq and gives this speech about financial regulation. Almost everything that anyone said before the crisis began looks horribly outdated once the crisis starts. This speech, and a speech a few months later that Obama gives at Cooper Union, both about financial regulation, they really don’t. If you go back and read them, they still feel pretty current, even once you find out what is to come.

We can go through why I think he was able to do that, but the spreads in the repo [repurchase agreement] market—the housing bubble had popped, to get back on our previous thread. It was clear that subprime housing was kind of in trouble. The mortgage-backed securities were now starting to blow up, and in the repo market in August of 2007, which is the lending between banks where they would use securities as collateral, they’d say, “Hey, will you lend me some cash overnight? I’ll hand you—” Could be Treasurys, could be mortgage-backed securities. “I’ll give you this as collateral. You lend me overnight so that I can make a payroll payment or something, and then I’ll give you back the money.”

Everybody starts saying, “I won’t take mortgage-backed securities as the collateral,” so the interest rate that they’re effectively charging on this overnight money starts skyrocketing, what the banks are charging each other. The banks are basically saying, “Hey, we know the shenanigans we’re up to, and so we can only assume you’re up to even more than us. We’re not lending you money! No, no way!” So it was kind of instructive that the most suspicion was between the banks themselves. That should have been the indicator of Uh-oh!

He goes to Wall Street, and he says two things. One: “You may be on an island, but Wall Street is not an island.” In a world in which the middle class is getting hammered and can’t make their mortgage payments, that’s going to come back onto you. You may think you’re on your island, and if those people are suffering, too bad for them. Wall Street is doing well. “But,” he says, “It’s coming for you. I’m going to come out with a plan to help the middle class, and you shouldn’t be against it. You should be for it.”

Your knee-jerk Republican reaction would be like, “What is this? He’s just going to raise taxes on us to pay for everybody else.” But his argument was if you don’t help the middle class with what’s happening now, Wall Street is going to suffer. Not just they are going to suffer; you’re going to suffer, too. And second, he said, “You shouldn’t be against making stronger rules of the road. It doesn’t make you anti-market to be for tougher rules of the road.” That was his message: If you get rid of all the rules—

Part of the reason he’s giving this speech is that on content it’s true, and it’s in the backdrop of you can hear these grumblings starting on Wall Street and you can definitely see that the housing market is beginning its problems. It’s also that this message is about the deregulation of the financial system in the ’90s, which was done by Bill Clinton. So in a way, it puts in stark relief this thing, which unlike almost everything—If Obama says, “I want a tax cut,” Clinton can say, “I want a tax cut.” If Edwards says, “I want to do this health plan,” Obama and Clinton can say, “We have a health plan.” If Obama says, “Part of the deregulation of the financial system was a mistake, and I want to reregulate it,” it’s definitely harder for the Clinton campaign to say, “Oh, yes, it was a mistake. We would do the same thing.” You see what I mean?

So he gives this message, and of course in every campaign there’s tons of—maybe “drama” is the right word. There are just so many voices, and sometimes the voices are contradictory. He has a bunch of Wall Street supporters who are people that we talk to for advice and input and stuff like that on the economy, because they’re leading businesspeople.

In Obama’s message at the start of this thing, when he’s going to give this speech at Nasdaq, he says, “I want this to be a tough-love message. There’s an important role for the market, but I want it to be tough love.” We’re going through drafts, and Jon Favreau is writing it. First, you’ll get the group that says, “What is this love part? Why is there any love? We need tough! What we need is tough!” So there was this, and then it’ll go to the economic advisors. There are some academic economists, but they’re businesspeople. And they say, “What is this tough? We need love! Where is the love? Look at the problems Wall Street is having. We do not need to be hammering them at a time when there’s a borderline crisis.”

So they go through, but Obama really threads the needle in a way that’s pretty instructive. It said in there [gestures at briefing book] that it was input from me and Bill Daley. We talked to Bill Daley—He was then at Chase—but it was more that a lot of the ideas from that and Cooper Union were me talking with Dan Tarullo, who later becomes, effectively, vice chair of the Fed for supervision. He wasn’t technically vice chair of the Fed, but he was kind of the go-to guy on supervision. Over the course of this thing we’ve cultivated Paul Volcker, so we get tons of input from Paul Volcker. Maybe it’s the time to take a brief diversion onto the story of Volcker’s involvement.

OK, good.

And then we’ll come back to the time—

You need a break? Are you all right?

I’m fine. Early on, there has been no financial crisis yet, and kind of the canonical economic advisor, not an economist, is Bob Rubin, in 1992, for Bill Clinton, who brings both fundraising and knowledge about the financial system. So they’re trying to identify—It’s very early.

The Clinton campaign is, I would say, scared of Obama. They don’t espouse it, they don’t state it that way, but they’re playing extremely hardball with the donor community. They’re saying to the people, “You’re going to max out for us right now, and you’re not going to give one dime to Barack Obama, or you are dead to us. You will never get an invitation to the White House, and you’re going to have decide for yourself who you think is likely to be the nominee, because if the nominee is Hillary Clinton and you have done this, we’re going to consider that you betrayed us.”

They’re really putting the heavy pressure, because at the first fundraising thing Obama’s raised an astounding amount of money, virtually equal to what Hillary Clinton raised. That was the first thing that put people on notice of maybe he’s a serious candidate.

David Plouffe comes to me and says, “We need to figure out who could be our Bob Rubin. What is our thing? We need to publicly say what heavy hitters we have that support us.” So I said, “Do you have a list of who’s gone to our events?” They had an event in New York. They get the list, and I’m looking at the list, and there are some hedge fund people. And it says Paul Volcker. What? Is this the Paul Volcker? I’m calling the people who ran this event, and I say, “I need some clarity. Was Paul Volcker in attendance at this event?”

Big Paul Volcker.

I said, “Was this a 6' 8'' guy who’s like 80 years old?” “Yes! It was a bald guy.” I said, “Oh my God. Is he for Obama?” And they were like, “I don’t know. He didn’t give money, but he attended.” And I thought, Wow. So I go to Plouffe and I say, “Paul Volcker was at this meeting! We have to go talk to Paul Volcker!” Plouffe says, “Oh, do you think you can raise a lot of money from him?” And I said, “We don’t need to raise money from him. We need to pick his brain. Paul Volcker himself!”

Mike Froman, who later becomes U.S. Trade Rep [Representative] and head of international, is a guy who went to law school with Obama and is one of the big economic advisors on the campaign. Mike and I go over there. I’m blown away. Oh my God, we’re going to meet Paul Volcker.

We come in, and Volcker kind of mumbles a little. He says things, asides to himself. “Ha, ha!” He’d tell little jokes, and laugh and say things, and you’re like, I didn’t hear him. What did he say? He had his own tensions with Milton Friedman and the University of Chicago economists back in the day. As I come in, they’re like, “Ah, here’s a University of Chicago economist.” And he’s like, “Well, a University of Chicago economist for Barack Obama. Ha, ha.” He’s kind of laughing to himself, like, What is this? He seems maybe suspicious, but then I see as you come in there’s a bronzed fish that he has, and it turns out Volcker is a massive fisherman.

Is this in his residence?

No, it’s in his office. He loves fishing. Now, I don’t really know that. I knew he was maybe a fly-fisherman or something, but there’s a big fish on his desk. Somehow, we get into a discussion and I say, “I was captain of the Yale fishing team.” He says, “What?” I said, “And it turns out we won the fly-fishing championship, and I still don’t know how to fly-fish.” And he’s like, What does that—?

So I tell this whole story that I’m a Yale student. I’m a sophomore. I’m riding on the train, and I sit next to some guy who’s a Yale graduate, and he says, “Are you a student?” I’m going to New Haven. I’m on the train. I said, “Yes, I’m a student.” He said he was class of whatever. “You’ve got to go join the fishing team. It’s amazing. They travel all around. They have an endowment or something, and it was all-expense-paid trips to this thing.” I said, “Really?” He said, “Yes! You’ve got to get in on this!” So I go look it up. Sure enough, there’s a fishing team, and they have a rule that you can’t join the team unless you take a fly-tying class. Fine. Whatever. I’d take a fly-tying class. I’m tying horrible flies.

The guy who’s the coach pulls me aside and he says, “Would you want to go with us to South Carolina for this huge fishing tournament? It would be during vacation.” I said, “That sounds awesome, and I would love to do that. But look. The thing is I don’t know how to fly-fish.” He says, “That doesn’t matter. I can teach you how to fly-fish. We’re not that good anyway. There are people who really are great. The main thing is we’re going to be out on this boat for a week, and if you’re a jerk, it ruins the trip for everyone. You seem like a nice guy, so I’ll show you how to fly-fish. It’s just this tournament.” I said, “I’d love to!” It was great.

So we drive to Myrtle Beach, South Carolina, which is where it’s going to launch, only they were listening on the radio and Hurricane Hugo is headed for South Carolina. All the way down, I’m telling the coach, “Is this a good idea? I mean, this doesn’t seem—” “No, no,” he says, “I got the weather radio. It’s going to go the other way. It’s going to hit Florida. It’s not going to affect us.” We get down and it’s the day before. “Hurricane Hugo is aiming for Myrtle Beach, South Carolina.” I’m thinking, We’ve got to get out of here. This is bad. It was windy and eerie. We’ve got to get out of town!

We wake up in the morning and we go to what’s to be the start of the tournament, and the guy who runs the tournament says, “The guy in the boat refuses to take us out.” Their theory was if we get out in the water, then the waves will go under us and we’ll be fine. He’s like, “They won’t take us out!” So the tournament is canceled. The first prize was a thousand-dollar fishing rod, and so they said, “We’re going to have a lottery over the fishing rod.” They hand out the thing and say, “Number three.” I say, “I’m number three!” So they give us the fishing rod. We’re like, “Whoo-hoo! We’re the champions! Now get in the car! We’ve got to get out of town!” So we drive back.

I tell Volcker the story. “That’s how I became captain of the championship team, even though I never learned how to fly-fish.” He was both outraged and disgusted, but also, he loved the story. So that’s how we broke the ice. I start talking to Volcker periodically. I’m talking to him, and the guy is, as you might imagine, unbelievably wise and prophetic. He’s not a 100 percent familiar with the latest financial instruments, but has deep insights into the big ideas of what’s happening—And what’s happening is banks don’t have enough capital. The savings rate has gone to nothing. This thing is going to blow up. There’s going to be a big problem, and you better be ready for it. And the deregulation, and here’s what went wrong.

There was a line in the Nasdaq speech that said something like [Carter] Glass-[Henry] Steagall was outdated. It was made in the ’30s. There were a lot of things wrong with it. The problem wasn’t that they got rid of Glass-Steagall. The problem was everybody wanted to get rid of Glass-Steagall and they didn’t put anything in its place, and that unleashed the kraken to devour us. A lot of that theme came from Volcker.

We slowly worked on him, worked on him, and then eventually they got to something—All through that early primary period they were trying to get senior officials who had served in government or whatever to say, “These people are for Obama.” Volcker wasn’t ready to do that, but then in the end he wrote a letter saying that he was endorsing Obama. It ended up being quite important, I think, maybe just for a certain generation, but for a certain group of economic-minded voters.

Years later I saw Leo Melamed, the guy who ran the CME [Chicago Mercantile Exchange], the big options exchange, and he said that when he saw Volcker’s letter, he told his wife, “Oh, Obama’s going to win. If he got Paul Volcker to endorse him—” It seemed improbable, because Volcker was a greatly respected figure by Republicans and by Democrats, and he didn’t seem like a guy who was especially liberal or something. So for him to endorse a young African American Senator that people were saying didn’t have enough experience, it counted for a lot.

Now let’s go back on the path. That was on Volcker. Let’s go back on the path of—Obama gives this speech at Nasdaq and says, “I’m going to raise your taxes to pay for a middle-class tax cut, and you shouldn’t oppose that. You should be for it, because if you don’t have a strong middle class, it’s going to lead to a crisis. You should absolutely be for tougher rules of the road.” He says something to the effect of, “In a world where you can’t trust the information that you’re getting in public markets, everybody’s going to pull their money out.”

That was partly what was happening in the repo market in August, even though nobody in the general public was really seeing that that was happening. So it kind of was to Obama’s credit. He was going and doing events, and then the people were coming up to him, our people who were involved in Washington were saying, “Nothing like this has ever happened. This could be a horrible, horrible sign of what’s to come.” He picked up on that, and his antennae were raised.

So he gives this speech. Both of those speeches look really great in retrospect. They were just totally spot-on. It’s just a funny anecdote—It has no broader historical meeting—but for the Brookings event, now he’s gotten big enough that they’re leasing a jet, so we fly there. He’s going to give this speech, and my role is to give the background briefing to the reporters about the content.

We have a fact sheet and we have a background briefing, and the press people are saying, “Look, it’s going to be super important in this background briefing that who’s going to be in attendance are not tax reporters. These are going to be all the political reporters. You need to lay out here the three things he’s doing and why they’re important, because they’re basically just going to report on that and if you don’t give it to them, they will just write a mindless horserace story, so we really want you to talk about content.”

I get there and the briefing’s going to start in 30 minutes or something, and I ask, “Where are the handouts? Where are the fact sheets?” They say, “We don’t know where they are.” What?! So then we’re panicked. “I have one copy. We need to make copies. Make 50 copies, stapled, and bring them over here.” They go out. The person comes back, and they say, “Here are the copies. Oh, the stapler was broken and they’re not collated.” So they hand me this thing, and I think, Oh my God, we’re going to start in 20 minutes. I need to prepare the background briefing, but we have a stack of papers like this. So I run around saying, “Does anybody have a stapler?” They give me a stapler. So I start, and I take one, take one, staple; take one, take one, staple. I’m looking around. This isn’t going to work. I’m not going to finish.

There’s one field guy who’s just sitting there, not doing anything. I go up to that guy and I say, “Look, I’m not asking you anything that I myself am not willing to do. I’m 100 percent willing to do this, but I have got to prepare this background briefing. Can you just staple these things? We’ve still got 45 left to staple. Can you just take one of each stack and staple them?” The guy says, “That’s not my job.” And I said, “No, I understand it’s not your job. It’s not my job, either. We really, really need to do this.” He said, “Look, I’m busy. I can’t do that.” I’m thinking, You’re busy? You’re just sitting here! There’s nothing happening!

The head field person walks in, and I tell her, “I’m asking this guy to staple the things. We have 10 minutes, and he won’t do it!” She’s says, “That’s the Secret Service.” [laughter] The guy was actually trying to be as polite as possible. “That’s not my job. I’m not here to do the staples,” and I’m like, Come on! So we end up with a bunch of them just folded, or we have a stack, “Please take one of each.”

We come out of that, and Obama has kind of identified that his two things are going to be health care and the middle class squeeze. Roll the tape forward to maybe it’s January. Do you have the Cooper Union speech in the thing there?

I remember seeing it, but I don’t think it was in this—

In the world of economics and finance, Bear Stearns happens, and they’re forced into a shotgun marriage. JP Morgan Chase takes them over, buys them. Not knowing any of the stuff that was to come in the fall—Lehman, or even before that, AIG [American International Group] and all that stuff, this is one of the most momentous things that the Fed has been involved in for a long time. It’s very controversial that the Fed has actually put taxpayer money at risk by giving a guarantee to make this transaction take place, and they don’t want to admit that they have done that. Now, it becomes kind of quaint when we have TARP [Troubled Asset Relief Program] and we have hundreds of billions of dollars in bailouts, but this is the first time really that that’s ever happened.

This chair is beginning to warm up a little bit.

Yes, right. Exactly.

So this is March of ’08. Right?

Yes, March of ’08. Is that when it—?

Yes.

Does it say Cooper Union is March of ’08?

I’m not seeing Cooper Union, but it’s the Bear deal.

The Bear deal is March.

That’s page three.

Then it must be March of ’08. Hold on, I’ll find it.

I think the Cooper Union speech we have in the book. I know I’ve read it. I’m just not seeing it in a timeline.

Yes, it’s March of 2008, so it’s following this Bear Stearns. In the detailed world of economics and finance, events are happening, but in the wider world no one is paying attention. Like with the repo thing that happened in the previous August, this is absolutely on the minds within the community that works on that, but to the wider world is nothing.

He gives this speech at Cooper Union. It’s a detailed speech about financial regulation, and it lays out the bones of what is to become [Christopher J.] Dodd-[Barney] Frank. Volcker is there. Bill Donaldson, who had been a Republican SEC [Securities and Exchange Commission] chair, is friends with Volcker, and was brought in. We talked to him. We talked to Volcker. We talked to Tarullo, who was heavily involved. He lays out a bunch of important principles of financial regulation.

Obama gives this speech. To political reporters, their reaction was basically, What the hell was that? He’s talking about liquidity requirements and stuff, and they’re thinking, What the hell is this, and why is Barack Obama talking about financial regulation in a detailed way? It’s not that it was panned at the time. It wasn’t panned, but it was viewed as, What a weirdo. Why is he spending any time doing that?

Now, fast-forward to the summer, and stuff starts going really wrong. That’s why I say, looking back, Obama proves remarkably prescient in each of these things. You start poking into subprime, and actually, Obama in 2006 sent a letter to Bernanke warning him about subprime. Then as the financial system starts to melt down, they ask, “Who knew about this? Who called for financial regulation?” Actually, in the fall of 2007, and then again in March of 2008, Obama was out in front saying we need tougher rules of the road or there could be a crisis. The middle class has been squeezed, and it’s going to affect you, Wall Street.

And you’re not taking any credit for this.

I’m not really taking credit, because it’s Obama who’s identifying that this is important.

It was his idea, right? First.

That it’s important is Obama’s idea, and Axelrod is saying, “Look, we want to say something about Wall Street,” and that Axelrod is identifying that this politically helps us, too, because this is one area of policy that the Clintons kind of can’t go there on, or if they do they’re in a tougher spot. So my role is to work with all these other people and to try to get good ideas that will fit into that framework, like the guy with the tire tool.

I’m working closely with Volcker at that time, and he comes to be a hero of mine. It’s funny: he also is so ahead of the curve, so when Bear Stearns happens, Volcker is himself clearly really agitated by that, because he cares so much about the Fed’s reputation and the fact that the Fed has put United States taxpayer money on the hook and stretched its authority to the edges of its authority—

Would he have just let Bear go under?

I’m not 100 percent sure, but I’ll tell you the conversation I had. He has an interview with Charlie Rose around this time that’s worth finding, if you’re interested in it, in which he’s clearly agitated. His thing is if the U.S. taxpayer’s going to be on the hook, the Treasury, somebody elected, should be the one saying this has to happen, because if the Fed is doing that on their own, it’s going to put the Fed at risk of attack. If it goes wrong, they’re going to come back and say, “The Fed did this.” Somebody elected or somebody who works in the administration should be the one on the hook for saying, “We need you to put U.S. taxpayer money on this.”

As part of the thing, Bear Stearns is swallowed up, and a few days after they change the policy at the Fed to allow investment banks, not just commercial banks, to come to the discount window in a crisis. Now, the most sacred insurance policy that a central bank has is who can go to the discount window, because it’s like telling them if it all hits the fan you can come to us for a lifeline. If you have collateral, we will lend to you. That’s the most gold-plated life insurance policy that exists. So to extend that to investment banks, a) you can see why the Bear Stearns people get upset, because they think, Why didn’t you come up with that policy before? You only come up with that after we’re dead! We would have come down to the discount window and borrowed a whole bunch of money.

But Volcker says to me, “Once you’ve done this, now you’ve bailed out investment banks, and they weren’t on the hook. We’re on the hook to bail out commercial banks, and as a result they’re subject to lots of regulation. Investment banks are supposed to be on this side of the wall, and they do riskier stuff. They don’t have the regulation, and they don’t get bailed out. Now that they’re bailed out,” he said, “I don’t see how, if it gets worse, you’re not going to bail out Fannie [Mae] and Freddie [Mac], and the life insurance companies, and the auto companies, and the farmers, and everyone else. They’re going to line up and say, ‘We’re super important to the economy. We need a bailout.’”

His fundamental thing was that there’s not a framework here. They’re doing it by the seat of the pants, weekend by weekend, and that’s going to lead to problems. I said at the time, “Ah, you’re being too pessimistic, Paul. [laughter] They’re not going to bail out all these—That’s not going to happen.” Then over the course of months they bail out AIG in life insurance; they bail out Fannie and Freddie; they bail out the auto companies. So then I used to call him and start joking, “I’m just waiting for them to bail out the farmers, and then your entire prediction’s going to become true.”

We go through the spring. Obama’s won Iowa. We can come back to Iowa if you want. Super exciting. What a night! He wins Iowa, and we think he’s going to sweep—but we go to New Hampshire. He loses New Hampshire. Then he loses Nevada. Then he wins South Carolina. We start this whole chain. At least in my knowledge, there’s never been a primary like that. It goes the distance in a way that the voters just aren’t ready to declare him the nominee or her the nominee. They want it to keep going.

As this goes along, I couldn’t be more impressed with the political people, and especially David Plouffe and David Axelrod. I’m trying to get a sense at the campaign how people are good at their jobs. I have no idea. I know how to evaluate economists, whether they are they good at their jobs, but all of these people, I don’t know. I start asking myself whether, if I dedicated two months of my life to this, whatever the person’s doing, could I envision being able to do their job the way they’re doing it? Oppo [opposition] research, yes, maybe. Maybe fundraising or fieldwork or whatever. You could envision, If I studied long enough on that, I could do it.

Axelrod, no way. The guy has a certain genius about him. You could spend a year of your life trying to think up themes and principles, and you would not do as well as what Axelrod did. And Plouffe had a certain organizational genius. I think it was Super Tuesday, which was relatively early, and confusing—We have the four early primaries, which they split. Then Super Tuesday happens. Hillary Clinton’s campaign declares that they’re the winners of Super Tuesday. They won all these contests and something. If you look at the delegates, actually Obama has a very respectable showing coming out of Super Tuesday, so it’s kind of like, well, what does this mean?

Plouffe comes to the consultants’ office, writes on the board, and says, “We need to open an office in North Carolina.” It’s the day after Super Tuesday. The North Carolina primary would not be until May. It’s not my place—I’m just sitting there working—but I’m thinking, North Carolina? Come on. This whole thing’s going to be done in a month or something. But actually North Carolina becomes critically important, and he had worked out—In fact, there’s even a memo where they block out every primary and caucus, and they say then we’re going to go to Maine, and she’s going to win in this state, and we’re going to win in this state, and this and something. He’s worked it all out, and it’s going to come down to—North Carolina’s going to be super important. So the day after Super Tuesday, it’s “Go open the North Carolina office,” and they start campaigning.

So we’re going through the spring. Tons of intense policy debate back and forth on a health plan, on an energy plan, on all sorts of stuff. The wider economy is getting worse and worse. They still haven’t declared that the recession has begun, but it already started in December. And for sure lots of parts of the country are feeling it. The housing market has started into full-on freefall in a bunch of places, like Nevada, Florida. A bunch of places are going to matter in the election. Obama is organizing these calls, kind of update calls. Very prominent economic thinkers are getting in on these calls.

It’s hard for me to remember exactly, but somewhere along the way it becomes clear Obama’s going to be the nominee. Hillary still stays in for another month or something, even though she can’t win, but she wants to get to the end or whatever. Once he’s the nominee, then all of her people want to join in. They’re calling in, saying—

[BREAK]

So through the summer the Clinton people came.

I was going to say, before we get there, the Canada issue. Anything to add?

That was mainly in March. Just the actual events that happened were completely different than what the brouhaha was. The TV station that broke that story later came back and issued a retraction. They had a public thing, “Oh, this wasn’t what happened,” and I got an apology from the Prime Minister’s office and from the Canadian Ambassador’s office. But it was my introduction to when these things occur. It doesn’t make any difference what actually happened, or if it’s as described. So in this case, that whole thing happened around the time of the Ohio primary, which I remember being in March.

In January, around the time of the Iowa caucus, the Canadian consulate was nearby to the campaign downtown, and they kept trying to get me to come over. They wanted to set up a lecture for the deputy minister of something at the business school on North American competitiveness. They gave me a bunch of material about Canadian exports and imports from the U.S., and they asked about the Democratic Party: “Are they protectionists?” because as they looked at the Democrats—Edwards, Clinton, Obama, and especially Edwards—it seemed like the Democratic Party was protectionist. That was the thing I said to them. I said that it feels to me like it’s more of a populist food fight in Iowa, but that’s not really about policy.

There ends up being a memo, and if you go read the memo, my line is, “He says Obama’s position is not to abolish NAFTA [North American Free Trade Agreement], but to put labor and environmental standards into the core of the agreement, that it should be restructured,” which was his position.

But months go by. It turns out there’s a bunch of internal politics in Canada that I know nothing about at the time. The Canadian government is a right-wing government, and they’re trying to mess with Obama and Democrats, so they privately leak a selective thing about the Democrats, and make it seem like it’s happened at the time of the Ohio primary, even though this was months before, and I didn’t say what they had accused me of saying.

There was a brouhaha, and the press staked out the—I mean, if Twitter was a bigger thing then, it would have been just your garden-variety media frenzy. My view was this isn’t what happened. They contacted me and why would the Obama campaign possibly care what the Canadian government thought to bother to alert them to something?

As I said, the guy who was my debate partner in our days, who debated Ted Cruz, was the one who said, “Well, this was crazy, but you’ll find some way to turn it around and make it funny. You’ll look back on it as a joke. ‘Top ten things never to say to Canadians.’” Then I told my wife. My wife said, “Yes, and No. 1 is ‘Hello.’” [laughter]

A [David] Letterman skit.

Yes. In a way, I wouldn’t wish an experience like that on anybody, because it’s very stressful, but in a way it’s good to have gone through one, because that’s the way of politics now. And Tony Lake, who had been the National Security Advisor under Clinton, was a big Obama supporter. When that was happening, he called through, and they put him in touch with me. He said, “Look, I know what you’re feeling now. You feel bad.” I said, “Yes, this was terrible. This isn’t what happened, but it’s hurting Obama. He’s getting asked about it, and it’s awful.” And he said, “Well, look, I know you feel bad. If you screw up enough times, like I have, how long you feel bad will get shorter and shorter.” He said, “You’ll probably feel bad for like two weeks. I’ve gotten it down to where I can feel bad for like one hour.” [laughter]

I will remember that.

He said, “The second thing is just remember this isn’t about you. The only reason this is a thing is they’re trying to get Obama.” I wasn’t employed by them, so it wasn’t like I could really be fired, but I called David Axelrod and I said, “Look, just announce that I’m fired. Obama shouldn’t be spending any time working on this.” And Axelrod, who is a dear friend, said, “Don’t think I didn’t recommend that. [laughter] But Obama doesn’t want you to go.”

Did you have to talk to then Senator Obama about it directly?

I did. I talked to him directly, and I said, “What they’re saying, that’s not what happened, but it was stupid. I should have just blown these people off.” Obama didn’t have to be, but he was very gracious. Like I say, I would have stepped aside instantly if it would help him, but he said, “If you work with me, then everybody’s going to take whatever you say as being from me, so you’ve just got to be careful.”

All right, so where did we leave off?

Soon after that, then, was the Reverend [Jeremiah] Wright thing. The wheel constantly turns. There’s always something. They had organized these calls. He wins the primary. All the Clinton people come in. They start sending structural change memos to the campaign: “What this campaign needs is some economic officials who’ve served in the government.” Basically, “People like us should be moved in at the highest level of the campaign.”

As things start getting worse and worse in the economy and the financial markets, Obama has a series of calls, and on these calls will be Volcker, Larry Summers, Joe Stiglitz, Warren Buffett, Robert Reich—major names. They’ll say, “Does this problem have legs? Is this getting worse? What’s happening?” As it develops into more and more of a crisis, they kind of become crisis calls, and they start happening with frequency. Volcker doesn’t have a cell phone at that time, and we basically have to make him get a cell phone so that we can reach him. Then it comes down—I’m trying to think of the exact timing. A couple of the really big ones happen, maybe it’s right after Lehman. Obama is in Florida, giving some event at Miami Dade College or something. I’m at the time doing a policy event tour in all these towns in Montana.

Not fly-fishing.

Not fly-fishing. I went to Nevada to go around Nevada. I went to Texas before that one to go around Texas. So I’m in Montana. Some crisis happens. They say, “Obama wants to have a meeting of the economic advisors in Miami. You have to get there by 9:00 in the morning.” It’s 3:30 in the afternoon, which is 5:30 East Coast time. I’m outside of Bozeman, Montana. How would I get there by 9:00 in the morning? We figure out something where I fly from Montana to Salt Lake City. Then there’s some Salt Lake City flight to Las Vegas. Then I can get a red-eye. If I change the terminal, there’s some Spirit Air red-eye or something.

So you have to go west first?

Yes, so I go down, then west, then red-eye. I get off. I walk into the panel. I haven’t slept. I hate red-eyes. I can’t sleep on the plane. Basically, I look horrible. I shave. I splash my face with water in the airport, and then we go to this event. That’s the event at which Warren Buffett raises the idea that, essentially, in the same way there’s a run on banks before there’s FDIC [Federal Deposit Insurance Corporation], there starts to be a run on money market funds. And he says, “I think you’re going to have to give FDIC-type protection to money market funds, too. Otherwise, once we get into these kinds of things all the money’s running for the exits.” I also distinctly remember going to the debate prep, but by then we’re in the general campaign.

Anything from the convention that’s worth touching on?

The only thing that I—It’s not really worth touching on, but it was fun for me. One of the tiny policy platforms that Obama had developed was for people who start a business. You would basically get no capital gains taxes on the back end for a business that you started, trying to encourage people to form businesses. Or they could have a cap, but basically trying to encourage—and at Obama’s convention speech, which was in whatever stadium—

Oh, yes, arena.

The weather was perfect, and he was speaking, and there’s cheering, whatever. Then at one point he said, “And cut the capital gains rate for people that start their own companies.” The entire audience is thinking, What is a capital gains rate? But I stand up. Oh my God! “Yes!” So he got one cheer.

We’ll go back and look at the tape.

Yes.

OK. So now the debate prep.

So we go to debate prep. It’s somewhere in Florida, Clearwater or something, for the first debate. We’re going through—And the policy role in a debate prep is very much secondary. It’s kind of helping prepare debate prep books, and then if there’s some dispute on factual whatever, what the policy should be. Well, in between sessions everyone gets up and walks to the corners, and it’s like something crazy is happening. I don’t know it, but John McCain has suspended his campaign and has called off the debate because Lehman has happened. We’ve had this whole thing.

He said he wouldn’t come, right?

Yes. He was suspending his campaign.

And he would not come.

He wasn’t going to come to the debate because they had to deal with the economic crisis, and he was going back to Washington. We’re at the debate prep and this happens. Well, now what’s going to happen? The first one was supposed to be about foreign policy. So now everybody says, “Well, are there going to be any debates? What’s going to happen?” And the people from the Senate office, one is this guy, Ian Solomon. You should probably try to talk to Ian Solomon if you can.

He was just named the head of our leadership school, the Batten School at UVA.

Oh, really?

Yes.

Oh, fabulous!

Yes. He’s really good friends with Chris Lu.

Is that right?

Yes. He just started.

Oh, terrific.

They were in the Senate office. Ian goes with Obama to the White House, and he’s at that meeting where it becomes clear it was a stunt, because McCain doesn’t have a plan. And look, we had, through these series of crisis calls, been going through it. Obama’s extremely well versed in what’s happening, both on financial markets and in the wider economy.

Now this starts happening and they’re like, Whoa, hold on. This guy gave speeches on financial regulation from 2007 saying how it was so important to do it. There are tons of things when you get to the crisis. You have to do stuff that is awful and that you would never want to do, but what are you going to do when the house is on fire? So it felt like maybe it was a stunt that McCain said he’s calling off his campaign to work on the crisis, because what would be the—? We’re now in a world of really awful, no-win-scenario-type trade-offs, so what is his big thing? And the answer was he didn’t have one. So they go back, and it becomes clear—

We’ll see if we can talk to Ian, but were you in on any strategizing about—Obama knew what he needed to say about how to approach the meeting—

Only in general, yes, but it wasn’t about how to approach a meeting. It was how should we think about financial crisis. Hank Paulson, to his credit, was in the administration, and his view, I think, was that one of these two men is going to become the President, so we’re going to brief them and keep them totally updated on what we’re doing, and apprise them. Paulson called to all but beg Axelrod and Obama, “Please don’t demonize the TARP and these bailouts. I know it would be easy, but this could really be the end of the world, and we need this money.”

Was he hearing from you?

He was talking to Obama, and—

Right, but my question is were you saying, “Oh, Hank’s full of shit,” or were you—?

No. All the economists thought this was a big-time deal.

This was it.

In the run-up with AIG and up to Lehman, stuff’s getting worse. Volcker’s saying every one of these is seat of the pants. They don’t have a framework, and they’re going to need a framework. Otherwise, the question of what are the limits to the bailouts is going to become bigger and bigger. We had discussions like that. Then Lehman happens, so then it’s really about how do we save the system from collapse.

Obama has a deep responsibility gene, so even though it would have been the easiest thing in the world, and not completely without merit, to say, “Look, the Republican philosophy is exactly what brought us this, and deregulation brought us this, and put the whole focus on high-income people without paying close attention to how the middle class is doing. That’s what brought us here.” It would have been totally natural to say, “And that’s why the TARP is terrible.” But Obama wouldn’t do that, because he knew that if they blow this rescue then we’re going to have a depression.

I’ve got a bunch of economic historian colleagues saying, “Obama keeps saying that his No. 1 goal now is to prevent the next depression.” I said, “That is his goal.” And this person said, “It’s too late. We’re going to have a depression. He should be saying, ‘I have a plan to get us out of the depression.’”

If you go look at the numbers, the drop in the wealth of households in the United States was bigger in 2008 than the hit in 1929, and finance, as a share of the economy, was a bigger share of the economy now than it was in 1929. So there should have been a depression, and there wasn’t. And that there wasn’t, it’s not all because of Obama, by any means. Bernanke was hugely important. Paulson and the Bush administration were important. But we should not overlook the magnitude of that challenge and that achievement. Obama did a bunch of things that were important, but I still view that as the most important and impressive thing he did.

So at the debate prep, my view was actually we should declare the debate to be about the economy, and just have it. Susan Rice was there, obviously leading, because it’s foreign policy—and she was so angry I thought she was going to kill me. They said, “But we haven’t prepped that debate. All of these books are about foreign policy, and we’re not ready for that.” And my view was, true, but he, Obama, knows all about this issue, and John McCain doesn’t. If we have a debate tomorrow about the economy, even without prep, it will be obvious Barack Obama should be the President, because he knows how to deal with this crisis.

And you were making this case to—

Just to Axelrod and the people sitting around, idly speculating, “What are we going to do now? Now what happens?”

We know how Susan felt. What were they saying to you? Good idea? Bad idea? Let’s not—?

I was 100 percent overruled, so they must have thought it was a bad idea, but I still think it’s true: it would have shown what all the meetings and all the advisors and all the reactions that Obama had shown. People will ask: how important was the economic crisis to the election? I actually think in one way it wasn’t important, and in a different way it was super important. So the kind of revisionist McCain—McCain’s chief economist is a good friend of mine, this guy Doug Holtz-Eakin. I used to debate him on TV over and over through the campaign.

I was friendly with, and still am, Doug Holtz-Eakin. I think Doug’s view is, well, it was a close race, and then the financial crisis hit, and then there was nothing we could do. I don’t think that’s actually true. I don’t think that the fact that the economy was doing worse is what moved the polls.

I think that the thing that moved the polls is one of the critical components of the President’s job description of how well would they handle a crisis. It was basically a trial run, and they got to see Obama’s approach to crisis. He’s not a panicker. He has a lot of great advisors. They’re not all from one point of view. He has very different points of view. And he handled himself in a way that people kind of concluded, yes, look, he’ll be the first black President; yes, he’s a young man, and he hasn’t been in the Senate that long or whatever, but he comports himself in a way that makes you feel better at what’s a very scary moment.

As those things happened in the campaign, that first day they voted on the TARP I think the stock market collapsed 500 points, which was a lot of points at that time. People were really down in the dumps. I had done an event in Kentucky for a guy, Matt Barzun, who later became Ambassador to Sweden and then Ambassador to the UK [United Kingdom] He was a young guy. He was very innovative, and he would have all these campaign events and fundraising events and all this stuff. As a thank you he had sent—His family or his in-laws or something ran Brown-Forman, the distillery company.

You’re correct. I’m from Louisville. He married into the Brown-Forman family.

OK. So he married somebody from that family. He had sent as a thank you a very fancy bottle of bourbon that I had just sitting on the shelf there, and people would ask, “What is this bourbon?” So this happens, and everybody’s thinking, What are we doing? And I thought, Wow, if there ever was a day to break out the emergency bourbon, it’s today. So everybody went and got a little dixie cup out of the bathroom, and we poured one thing, and we were like, “Wow, let’s hope this never happens again.”

The next day, another 500 points. We have to change it so it’s no longer points, it’s percent. We make it 5 percent, because once it goes down enough, 5 percent is less than 500 points. Fast-forward a few weeks and another awful thing happens, and it goes down again, and they say, “I guess we have to break out the emergency bourbon.”

I said, “The bottle’s empty.” [laughter] I have this photo of just an empty bourbon bottle sitting next to a ticker screen, like the market’s just down and there’s no bourbon. So it was definitely nerve-wracking. We were talking to informed people, economists, who are basically saying, “This could be the end. Obama needs to figure out what to do.” We weren’t really in agreement with the Bush people on what they wanted to do.

Is that right?

They announced the TARP to be the buying up of toxic assets, and that they were going to use the money to go buy up these toxic mortgage-backed securities. The thing is, if you thought about that, it didn’t make sense. It doesn’t work, because there are a bunch of institutions that are in trouble that are not owning them, and there are a bunch of institutions not in trouble that do own them. It’s inefficient. And, if you’re buying it, at the least you’ve got to overpay to try to inject capital into the system. You’d be better off putting the money directly into the institutions, rather than buying up the assets. So the first round was going to be that, but at least we understood.

Then, responding to criticism for overpaying, the administration announced that no, we’re going to buy up the toxic assets, but we’re not going to overpay for them, at which point that almost generated a bank run on its own, because the banks said, “If we have to mark everything to market—” which you do; if you sell an asset, then whatever you sell it for becomes the market price, and you have to value everything on the balance sheet at the new prices. “Valued at those prices, we’re all insolvent. We’re going to die. That’s going to blow up the world.”

This transpires over the course of I don’t know how long, a couple of weeks, where we’re objecting. We’re having these calls, and we’re talking to Obama, and saying, “I don’t know if buying up toxic assets is the right idea. It’s not going to work.” I was invited to give this lecture at Reed College in Oregon, and it ends up being the day after they announce what the TARP is going to be or something. I go there to talk about something totally different, and everybody says, “What’s happening? Talk about the crisis!” So if there is video of that, there is, in real time, documentation that we did understand. “Look, wait a minute. Buying up toxic assets isn’t going to work—” But Obama did not want to publicly go out and criticize the TARP, so that’s where the tension arose.

Now, interestingly, I found out later—not from them directly, but I have friends who are Republicans and friends with the people in Treasury. According to them, Paulson’s experience calling, and the administration calling, Obama and McCain led almost all of those people to vote for Obama, because they thought, This is the worst thing that’s happened in the financial system, and he has to be the President, not the other guy. We don’t agree with him, but he knows what he’s doing.

Yes. I think I can say without violating confidence from Bush interviews that there was enormous frustration with McCain.

Yes, because it wasn’t McCain’s thing. McCain’s not interested in the economy.

No.

So it was kind of a series of stunts. In many campaigns, by the end, the people who work on the campaign have seen the feet of clay of their candidate, and they have grown in a way to despise the candidate. They can just see the frustrations and everything. The Obama campaign was nothing like that. It was absolutely a mission of the people who were there. We were 100 percent, This guy needs to be the President. And as that went on, he just rose in estimation. By the end, in the campaign, in no way were they critical in private or something. It was even more, We’ve got to win this election. The stakes are so unbelievably high.

Now, interestingly, right after the convention they named Sarah Palin as the Vice President. And if you remember, the polls close immediately, and they might even be ahead by one point in the immediate polls. So I go to my friends—a bunch of Clinton people have joined the Obama campaign. I go to them and I say, “This is temporary, right? These bumps, this Palin thing, this goes away, doesn’t it?” And Neera Tanden, who was a friend of mine, says, “Yes, well, that’s what we thought about Obama. [laughter] Our whole thing was, well, this is a blip and it goes away.” And then I panic. Oh my God. Is this the Republicans’ Obama?

Then I realized if you had called me in 2004, or anybody from Illinois who was involved in 2004, and you said, “We’re thinking of naming this person you’ve never heard of to be the Vice President, Barack Obama,” everyone here would have told you, “That guy is 100 percent for real. You keep your eye on him. That would be a great move.” Within the state, he was known.

Then I realized I’ve got to find someone from Alaska. I’ve got to talk to them. Is this woman Barack Obama? I don’t know anybody from Alaska, but I knew somebody who knew a guy who was an executive at the Alaska phone company, and I talked to that guy. “Is this person Barack Obama?” He said, “No! Not at all!” At least his view of Sarah Palin was this was not. Her people were not like, “Oh, this is the brainpower. She’s going to light the world on fire.” So then I thought It’s going to be fine. He’ll be fine.

We have crisis phone calls, two o’clock in the morning kinds of things, thinking through what is the right way to address this crisis, what can be done. They don’t say it this way, but effectively the Obama campaign makes a deal with the Bush administration that says let’s do the TARP in two parts. You can spend the first half of the money however you see fit, and then save a second half of the money. If there are going to be problems, then we’ll use it our way.

Now, on a relatively rapid basis, the Bush administration comes around to seeing that these other ways are not going to work, so they start putting money into the banks directly. They take out warrants so that if the banks pay back the money the government will stand to benefit. And already an issue comes up. Multiple issues come up, some of which come from—I told you I talked to Doug Diamond, the great finance faculty member here, and he says there are virtually no conditions on the money that they’ve been given. OK. That issue comes back to haunt the Obama administration, the American people, et cetera, in a huge way. It’s in a crisis that they give them money; they ask very little in return because it’s in a crisis.

I later ask both Geithner and Hank Paulson why not have more conditions, and I think their view was if you attached too many conditions at the beginning, they might not have taken the money, and you would get the very thing that you’re trying to avoid, regardless. Doug Diamond observes that the thing is, it doesn’t forbid paying out dividends, for example, or there aren’t many restrictions on paying out executives. He says if you go look at the Depression, there was a moment when the government makes it clear that it’s going to wipe out the banks, and so what they do is they pay out a massive dividend. They basically unbolt everything from the floor and sell it and pay out the money before the government is able to do that.

So he said, “You’d better think about this. That seems like a big problem.” In a way, the economy gets fortunate, as we’ll describe in a little bit, once Obama comes in, so that when they finally do the stress test and they open the books, and they say, “We’re going to reveal what the true condition is of the banks,” it’s better than people feared. It didn’t have to be.

It could have been worse. And if it had been worse, or if the—There were a lot of groups arguing in the White House about what should be done, and there were prominent people saying, “Nationalize the banks.” If you had done that, the problem of the lack of conditions in the original bailout would have absolutely come to a head, because if you were going to nationalize the banks, they would have uprooted everything they had and paid it out, I think, in dividends and payments to the executives, and then all hell would have broken loose. You can remember the anger over the AIG bonuses, and then imagine if it was the banks themselves.

So we kind of diagnose—What does he want to do? There’s a bunch of discussion among the economists about 1932, because all of this is happening in a period where there’s an election. Then he wins the election, and there’s a transition, and that was just like 1932, and it was going wrong, and Franklin Roosevelt, not exactly to his credit—They explicitly let it get worse. Herbert Hoover says, “What do you want me to do? I’ll do it.” And Roosevelt says, “I don’t want you to talk to me at all. You’re the President, and I’m going to do something when I get there.” The economy gets worse and worse, so he comes in triumphantly. He doesn’t want to get associated with anything that Hoover’s doing.

And a longer transition period, too.

It was a longer transition, yes.

Didn’t come in until March.

But that aspect of the crisis—I don’t know for sure but I suspect it’s not a coincidence that the two great financial crises of the last hundred years or whatever happen and deteriorate in exactly this weird period where it’s like, well, who’s in charge and what’s going to happen?

Right, the transition.

So I do think that’s an issue.

But let me press you on that just a little bit, because what I’m trying to get my head around is what you’re suggesting pre–President Barack Obama could have done under those circumstances. There would not have been any constitutional warrant for this, so it would have had to have been—

Yes. In these discussions Obama is coordinating somewhat closely with the Bush people.

Right. Josh Bolten—

They come Hoover-like and say, “You’re going to be the President. Tell us what to do.” Now, the policy shop is not ramped up enough to literally answer that, but Obama actively decides on these calls. The discussion comes up of maybe it would be more advantageous to just say, “You guys are on your own. You got us into this mess; you get us out of this mess, and then we’ll deal with it when we show up.” Again, Obama says, “No, I don’t want to do that. If the economy’s about to go into a depression, we must stop it. That’s what I always said is my first goal.” So, like I say, there was a loose alliance: Fine, you do it your way with the first half of the TARP, and we’ll do it our way with the second half.

The way they do it ends up not buying toxic assets—parentheses, good. But there are very few conditions—parentheses, bad. Then they vote the second half of the TARP, and basically spend almost all the second half of the TARP. Obama’s not even there yet. So now we come into office.

We can back up in a second to talk about the transition, but when we come into office the overriding reality is that all the TARP money is out the door, and there were no conditions on that money. Now Obama wants to do, say, foreclosure prevention, but he can’t tell the banks what to do. Everybody says, “You tell those banks to go refinance people,” but they say, “We have the money, and there’s nothing in this contract that says we have to do that.” So we have to spend our time dreaming up incentives to pay them to convince them and incentivize them to follow whatever policies.

OK. So your argument is that there was a missed opportunity with the TARP?

Yes, absolutely. Every day that we’re there in the first month we’re living with the overriding, massively unpopular fact that the banks have been bailed out and they’ve been asked to do virtually nothing in return. Then everybody’s saying, “Obama, why don’t you make the banks pay for that?” We have no way to make them pay for that. We’re designing incentives, and people are like, “Why are you paying them to do this? They should be kissing our feet! We saved their bacon!” And they’re not wrong. That is the thing that is the most infuriating about the bailout.

But again, they—

But that’s it. Once you’re there, what are you going to do? That’s what it is. It’s just a bunch of no-win scenarios of horrible choices between A and B. And if you look at the auto rescue, here it’s no longer true. The Bush people see that they’re running out of money, and the auto industry’s problems are long-standing. They come from falling market share, the price of gas has been really high, they’ve got big SUVs [sport utility vehicles] and trucks, and they didn’t invest in gas mileage, so the Bush people are kind of like, Well, what do we do?

They decide, Let’s let Obama deal with it. They literally give them money to burn to stay warm until we can arrive. The way I know that’s what they did, we get in at the CEA, and the CEA staff is nonpartisan and goes on an academic year, not a calendar year. So when the new administration comes in, you have all the staff from the previous administration. They’re not yet replaced.

We’re cranking through all the details and numbers of what should be done on the auto rescue, and we’re trying to figure out the question if Chrysler were to go under, what share of people that would buy a Chrysler will buy a Ford or a GM [General Motors], what share will not buy a car, what share will buy a foreign car. Because if you think about it, the job impact makes a huge difference for which of those three it is.

If literally every single Chrysler buyer instead buys a Chevy, then, in a way, you can afford a liquidation of Chrysler without having a big spillover impact on the rest of the industry, because it would just shift who it was buying from. So we’re trying to answer that question. We’re trying to figure out what are the fixed costs, and basically the triage question of, if we do a rescue will it work, or are they doomed anyway? Is the market not big enough to sustain three automakers?

I asked the staff, “Look, you were here; did you guys not make these calculations of what levels of cost will make GM sustainable or make Chrysler sustainable? What did you do?” The person who was on the staff said, “Oh, you know, it’s funny. It was totally different. They didn’t ask us to analyze stuff like this, like what’s a substitution of demand. They just asked us how much money would they need to survive to the last week of January, and that’s what we figured out.” [laughter] And I said, “That’s what they said? That was literally what they said?” So that money everyone understood will never be paid back. It was about $18 billion.

In the Obama part of the rescue, each time the dynamic was the automakers try to jam the government and say, “If you don’t give us money, then by Friday we’re going to have to liquidate and fire everyone.” And the government says, “Here. Here’s the money.” They had to make a report. They had to make a plan to improve. The plan comes in. I think Chrysler’s cover letter had a typo in it. So it kind of laid out to you that the plans were totally unrealistic.

GM, they’ve had 40 years of market share decline. Their plan is we’re going to reverse that and start growing their market share, and by four years with that growing, plus the market getting bigger, everything will be fine. Chrysler was similarly unrealistic. They put out those plans, and they say, again, “You’ve got to give us the money, or else we’re going to go into liquidation.” Now they need the money, so the Obama administration can attach whatever conditions it wants, and it can say, “If you want this money, then you have to do A, B, and C.”

The requirements that the Obama administration ultimately puts in are really tough requirements. They fire a third or half of the senior management. They have really tough restructuring in which they have to get their costs down. They do a bunch of things that they only do because they wanted the money, and they desperately needed the money.

I still wonder why couldn’t we have done that in the financial rescue at the end of 2008. That’s where, to me, it kind of bleeds over into maybe it’s precisely because it’s the election time and the transition. Maybe it’s just that that was the Republican philosophy of we’re not going to adopt a bunch of conditions like this. But that becomes a major monkey on the back of the next administration, dealing with that.

The Tea Party gets created in a thing that I found stunning. If you asked me, I said this at the time of the crisis, almost everything about this is bad, but the only silver lining is that for as long as anybody lives who has lived through this, we will never again hear the worldview, “Oh, all we need to do is deregulate everything and cut taxes for high-income people, and that will be the miracle.”

I thought that it would be like my grandparents lived through the Depression in Abilene, Texas. I’m graduating from graduate school. My grandpa’s an old man. He pulled me aside: “Don’t ever invest in the stock market. Whatever you do in life, don’t ever invest in the stock market. We knew all the people that were wiped out. They were ruined. They had nothing.” There have been economic researchers who have studied the behavior of people who lived through the Depression, and it changed their behavior for the rest of their lives, so I thought that would be true.

We’re not a year into the financial crisis, and already the Tea Party is born. They kind of reinvent—Oh no, Republicans, you can’t hold us at fault for everything that’s happening, because actually we hated them. We hate bailouts. We hated the Bush and the Obama White Houses, because they’re all about bailouts. They spin in the public mind the decisions about financial rescue and bailouts, into it was Obama who did it, which is insane. It was just—You’ve got to be kidding me!

Somehow they were able to do that, and by the time of Dodd-Frank, two years in, you’ve got a huge contingent of people who are the same people, back saying the same thing. “What we need to do is deregulate the financial industry. We don’t need regulations. We need to abolish Dodd-Frank and go back. The government caused the crisis. The banks didn’t cause it. It wasn’t lenders that caused it.” That was a frustrating mess.

So why is it? Why didn’t you see people change their behavior and their worldview?

I don’t know. That’s the fundamental question of politics these days. Maybe it’s the media environment. Maybe it’s that with the way social media works; everybody can surround themselves and communicate with people who say, “Oh, you’re right, we’re so right. Those other people don’t—” But whatever it is, I guess my own theory is just our partisan divisions are so much deeper than we acknowledge or we want to say, and in the end it’s not really about content.

At the time, I thought it was about content. We’ll talk about issues of the deficit, “Oh, the deficit is big and we have to do a grand bargain. We have to cut entitlements. We have to do all this stuff to get the deficit down.” At the time I was arguing, “Wait a minute. The deficit’s only big because this is the worst recession of our lifetimes. That has nothing to do with our long-run fiscal trajectory.” I thought it was about content, but it really wasn’t. It was just about they wanted to oppose Obama. They wanted to oppose the Democrat.

And so the Tea Party was, in many ways, an ingenious invention to allow the Republican Party to disclaim all affiliation to the financial crisis, the bailout. The very things that it had done, it then said, “Oh, that was the other Republican Party. We had nothing to do with that,” and then, in the most nefarious, sneaky way, they try to staple it to Obama. “Actually, it’s the Democrats, with the old Republicans. They did this.” Which is insane, but they generated a lot of noise, and that, in a way, dominated a lot of the discussion for a couple of years.

Yes. I’m going to drag you back to talk a little bit about the transition.

Yes.

But what strikes me in listening to this is this evidently was an active discussion going on in 2008, before you came in.

Totally.

And a phrase comes to mind from Tim Geithner, who’s somebody we’ve got to dissect here, when he kept saying people wanted Old Testament justice, and he was battling against the Old Testament justice point of view sometimes.

Yes.

And, in fact, if you’d had some Old Testament justice, you might have been able to inoculate yourself from—

Maybe. Maybe what you’re saying to me is I’m espousing an Old Testament justice point of view, and I might be. My view was I understand why we have to have a rescue, and it’s going to be worse for the world if there isn’t, but in my world they would have had conditions that were so awful that the word would go out: “Don’t ever do this unless you’re faced with death, because look at all the horrible things you had to do.” I guess in my heart of hearts that is my worldview.

But there’s not anything wrong with the claim that—

There’s not anything wrong, though I do think it is worth taking seriously the question: if you applied too much Old Testament justice, would you have blown up the rescue?

Right.

And they would have literally refused the—

I think that was Geithner’s argument, right.

And you might have. I don’t know. So maybe there is a flaw in my worldview, but overall—

No, I’m not suggesting that there is—

—my worldview is that a little Old Testament justice was important.

Right, and—

Now, that said, you’re not going to hear me criticize Tim Geithner. I firsthand got to observe the way that he did not panic in the most horrible crisis of our lifetimes. You can quibble here and there at various things that people did, but fundamentally there was no depression, and that was a signal, massive achievement that is made the more impressive by how improbable it was ahead of time to expect that you would be able to avoid a depression. So we go into the transition. Obama wins.

That night?

Oh, God, that was such a great night. I was standing in Grant Park. I was 20 feet from Obama and Michelle. It was gorgeous. The weather was gorgeous. The whole city turned out. My wife and I were standing 20 feet from the speech. It really felt like you’re going to save the day, and we need saving, on a lot of dimensions. The transition started here, in Chicago. That political high was juxtaposed against the scariest, most awful economic conditions and developments. And if you remember at that moment, the wider perception was this is a problem of Wall Street. The economy hasn’t turned down, and there was a view of Wall Street created this problem; ha, ha, they deserve it. The only way you could think that is if you did not understand that the economic data come out with a lag. So all the economists understood it’s about to go down the tubes.

What’s about to go down the tubes?

The GDP [gross domestic product], the real economy, is going to go down the tubes. The public is kind of like, Hey, doesn’t seem so bad. Wall Street’s the one suffering, and they caused the problem, so who cares? So Obama names all the senior economic officials. The first meeting is at the beginning of December.

Are you consulted on those appointments?

Not really.

Do you get what you want?

Well, I thought I would be the CEA chair. I’m not named the CEA chair. The transition is staffed by former Clinton officials, and most all of the jobs are filled by former Clinton officials. So most of the Obamanauts, the Obama lifers, are looking at each other in the transition like, Wait, what happened? Who knew that this was going on? It turns out there had been a whole transition planning effort going that many of the Clinton people—

Podesta.

—were like, “Hey, you guys go ahead and work on the campaign, and we’re just going to work on this stuff.” So then it was like, yes, we won. It wasn’t about the economic team, but at one point, one of the transition things—There were these Obama policy people who had been with him from the beginning, and, I might be conflating two different stories, but one was about some bill that was about classifying people as you’re in a gang if you’re wearing gang colors or gang paraphernalia or something.

Obama had run for the Senate, and basically, when this bill had come up he had told one of the policy writers, “Opposing things like this is why I got into politics. It doesn’t make you a criminal or a gang member because you’re standing on a corner in a red t-shirt that says Portland Trailblazers. This law should not exist.”

They come in, in the transition, and they say we need to call for the whatever law. And this person is like, “He’s totally opposed to this! This is not his program! What is this?” At some point, the person gets kneecapped in internal deliberations—Here’s where I might be confusing two different things—and the jaded Clinton hand says to the person who’s had their legs sawn out from under them, “Welcome to the NFL [National Football League].” [laughter] It was like, Wow, this is how it’s going to be. So there was some element of that.

They name the head officials—Geithner, Summers, et cetera. Oh, in a funny—Back in Bear Stearns, in March of 2008, the Fed takes an action, which, I told you, at this time this was a really major action. I wanted to make sure that Obama had a handle on what was happening, so I called two people in the Federal Reserve System to describe to Obama—kind of give him an overview, not secret information or whatever, but just kind of describe what the Fed was thinking and why it did this.

The two people I got to talk to him were the head of New York Fed, Ted Geithner, and the head of San Francisco Fed, Janet Yellen. Geithner was maybe close to the vest or something. He didn’t say much. But that is where he and Obama first spoke. Janet Yellen was wonderful. I knew she had been an excellent teacher at Berkeley, and she was very clear. When they got off, Obama was like, “Who was that? She was really something!”

Fast-forward, and Geithner’s named. He tells everyone that the first time he ever met or spoke to Obama is when he’s interviewed for the job in fall of 2008. I said, “That’s not true.” And I went to Tim. I said, “You told everybody that?” I said, “It’s not correct. I put you on the phone with him March of 2008.” Geithner said, “That can’t be true. That can’t be right. This is the first time I talked to him.” I said, “It’s not! I was on the call with you.” He’s like, “No, your memory has to be mistaken.” I don’t know why, but it was important to him that that was the first time he met him, but it wasn’t. I got him on the phone, and he talked to Obama March 2008.

Well, he can be forgiven for having—

Yes, right, it was a stressful moment.

Stressful 365,000 moments.

But I thought it was a good sign for my antennae of connecting him to people. It was Janet Yellen who was a regional bank president in San Francisco. That’s not the height; the New York Fed is the center of financial stuff. She becomes head of the Fed later. They were the right people for him to talk to.

OK. So it’s the start of January. All the economists know this is going to be bad. We don’t know how bad it’s going to be, but it’s going to be really bad. They call the first meeting once the team’s been announced. They’ve set up that I’m going to be a member at the CEA. The hard thing is they’re balancing out a whole bunch of stuff when they’re choosing that. He names Christy [Romer], a person who I’m friends with and have brought into the campaign—she and David—to be the chair, but she’s never met Obama. So they say, “Will you be the member of CEA?” And the thing is they’ve named Larry to be head of the NEC [National Economic Council], who is a very strong figure, and he can be difficult. I deeply respect Larry. He can also be a difficult person to work with.

We’ve heard. [laughter]

And I say, “It doesn’t make sense to be the deputy to somebody who you’ve never met, because what you need is a truthteller.” I had this conversation with Obama, and I said it in the following way: “Look, you’re taking a huge bet on the Bob Rubin worldview. Bob Rubin’s deputy, Bob Rubin’s Under Secretary, and Bob Rubin’s protégé from the Hamilton Project, Peter Orszag, are the three members. They think in a similar way, and that might be right, but it might not be right, and you’re taking a big bet on that worldview.”

I said, “So you’ve kind of got the mafia, and you are going to need some truthtellers.” Obama said, “Well, why don’t you just be the truthteller?” I said, “Because without a protector, truthtellers in the mafia get killed.” [laughter] He said, “Well, I’ll be the protector.” And I said, “It feels like you’re going to be kind of busy.”

So at first, I don’t want to do it. They come back and they knew how much I admired Paul Volcker, and he said, “I’m going to ask Paul Volcker to head this outside committee with CEOs [chief executive officers] and labor leaders and thinkers. How about if you were a member at CEA and joint chief economist for that?”

I’m back and forth on it. Obama calls me a couple of times. Finally, my wife says, “No offense, honey. I love you, but who do you think you are? [laughter] The President of the United States called you multiple times saying he wants you to do the job. I kind of think you’re doing it.” So, fine, we sign up.

But there’s always a backdrop of bureaucratic infighting and whatever. My summary of that is friends would ask, “How is it?” and I would say, “Well, it turns out politics is very political.” That was my one discovery. Or they’d say, “Are you having fun?” and I’d say, “I didn’t come for the fun, and I haven’t been disappointed.” [laughter] So we go to this first meeting.

This transition meeting.

It’s a transition meeting.

Is this the December 16 meeting?

It’s in December, yes, in Chicago. A snowstorm hits. It’s been written—Flights massively delayed. Volcker can’t get in with a cab, so he has to take the subway. So here’s a six-foot-eight, 80-year-old guy traipsing through the snow to get over to this building. It was in the GSA [General Services Administration] building. First, we have a meeting with Axelrod—Obama’s not there yet—in which we say, “Look, here’s what’s about to happen. This is going to be bad.”

Axelrod says—there’s an irony to it, too—“You’re telling me that we’re going to do the biggest stimulus in history, even as a share of the economy, bigger than the New Deal, and the unemployment rate is still going to go to 8.5 percent?” Because that’s what the forecast is. And we said, “Yes, and if you don’t, it’s going to be even worse.” And Axelrod says, “Well, that’s going to be a fun messaging project.” [laughter] And he summarizes, “The problem here is America has not had a ‘Holy shit!’ moment in which it looks around and says, ‘Oh my God, we’re going to die, and so we have to do this.’ They still think that it’s going pretty much fine in the economy, and that this is a Wall Street problem.” We say, “That’s only because the data hasn’t come out yet. Just wait a month, two months, and the data comes out. It’s going to be bad.”

So Obama comes in. Each person’s assigned something to talk about. I’m to talk about housing, and I say, “This is the biggest drop in housing value, consumer wealth, that has ever existed. It’s bigger than 1929. House prices are down,” whatever they were, “10 percent, and they might go down another 10 percent. There’s $700, $800 billion of negative equity. And if people walk away—There’s virtually no research about how people will react when they’re underwater and their house is worth less than their mortgage. If they all walk away, which they have the right to do, then it’s going to dump $800 billion of losses onto the banking system, and then game over.”

“We don’t know what’s going to happen, and millions of people are going to get foreclosed on in this. Even if you identify foreclosure prevention, no matter how you do it—You could save millions of people from foreclosure, but there are going to be even more millions who still get foreclosed on. That seems bad.”

Then Geithner talks about the financial system. “Look, they’ve spent virtually all the TARP money, and probably half the biggest financial institutions in the country are insolvent. We may need another $800 billion of TARP, and you better be prepared for it, because if we need it, the same way we needed the first round, you simply will have to come up with it.” Christy Romer talks about the GDP. “It’s going to plunge, and we’re going to need the biggest stimulus of all time.” Rahm is giving her the stink eye the whole time. “Really, bigger than the New Deal.” He’s like—[growls]

The thing finishes, one depressing thing after another. It was horrible. To break the tension, at one point Obama’s like, “Is it too late to call for a recount?” [laughter] And so the meeting’s done, and that’s when I walk up to him as we’re walking out, and I say, “That’s got to be the worst briefing that an incoming President’s had since 1932, maybe since Abraham Lincoln in 1860.” He says, and he’s not even joking, in all seriousness, “Goolsbee, that’s not even my worst briefing this week.” And it was like, Holy crap, you do not want this guy’s job.

So, much of the debate in the transition is about stimulus. OK, so we know they’re going to do the biggest stimulus ever, and for the people who look back now and say it should have been a trillion dollars bigger, it had to get to 60 votes, it came down to one vote. All the marginal voters, Democrats and Republicans, it’s worth remembering—the Democrats come in. They have 59 votes in the Senate. But two of those Democrats are from North Dakota. Two are from Louisiana. There was somebody from West Virginia, from Nebraska. There are a bunch of red-state Democrats in the Senate, and they don’t end up even getting all their votes. They end up having to get three Republicans to vote for it.

All the marginal voters wanted a stimulus smaller, and with less spending, with more tax cuts. This was the biggest stimulus ever as a share of the economy. It was far bigger than had ever been proposed by anyone. And on the day of its release, you remember, John Boehner stands up and says, “Oh my God,” as his response.

The discussion in the transition, in a way, was about the question of what should the nature of the stimulus be, and it was a battle of worldviews. One worldview said deep downturns are followed by fast recoveries, so this is probably going to be a V-shaped recovery, and if you’re going to have a stimulus, it should be timely and targeted and temporary. The last thing you want to do are huge spending things that go well into the future, because by the time those start coming online the economy’s already going to be growing. They’re just going to be inflationary. That’s the kind of the usual economist’s critique of fiscal stimulus, that the timing is always wrong. So those advocates pushed for a bunch of things to move the “activity,” let’s call it, from 2010 into 2009.

And who’s in that camp?

At the time, it’s hard to fully figure that out, because much of that discussion starts from the ground up. There are all these staff. The staff go to deputies. The deputies go to the principals. The principals meet with the political people and the press.

Later he will end up being converted and changing his mind, but Larry Summers is the guy who came up with the phrase “timely, targeted, and temporary,” so he’s kind of associated with that view in the moment. Let me characterize who the three camps are, and then we can get to the discussion and fights about the deficit.

One camp is the short run. Stimulus should be about short run. Then there’s a camp that’s like, no, let’s do smart grid. Let’s build the infrastructure. Let’s have a ten-year plan to do the things that we couldn’t do before. And in that group were some people who thought this was a financial crisis, so maybe it won’t be a V-shaped recovery. Those people are arguing that stimulus should be long-lived, have a super long tail, and not be concentrated as much.

The short-run people are kind of like, if you have $700 billion, put the $700 in right away and you’ll have a far bigger impact than spreading it out over ten years, when most of the money’s going to come online, when you don’t even need it. Then there was a third camp, which was mostly fueled by the political people, who said, “This has to pass, so can’t we just make it all tax cuts? Let’s do something that could get 75 votes in the Senate. And, yes, fine, tax cuts, maybe they’re not the greatest form of stimulus, but they are stimulus, and maybe we could sell Republicans on the fact that it’s stimulus.”

So we’re kind of back and forth. You could have fights over the details, but really they’re kind of fights about a worldview. And the Washington way, as I characterize it, is one in which the answer is everybody gets a third of what they want. That’s basically what happened in the stimulus. They reached the agreement: OK, we’ll make it one-third tax cuts, we’ll make it one-third short run, we’ll make it one-third long stuff, and so that’s what it became.

To Obama’s credit, it was totally obvious from the very beginning, and in our meetings with Obama we would lay out, “You could do one of two things. You could do something that’s easy to explain, that the whole stimulus is about smart grid, or the whole stimulus is about this thing, and that will be a PR [public relations] victory, but that will not be of the magnitude of the problem. The problem is in the trillion-dollar range, and that stuff is in the $200 billion range. If you want to do something that’s the magnitude of the problem, then it’s going to be a collection of dog’s breakfast of a whole bunch of things. We know it’s going to be hard to explain what it is, because it’s going to be so many things. That’s the only way you get to a number that’s big enough to talk about avoiding a depression.”

From the very beginning he said that whether it’s a PR loss or not, we have to do the thing that’s big. If we have a depression, it’s not going to make any difference that we got credit or that we got capital or—so that was the whole effort, and it was tasked out of tons of subunits. Everybody’s coming up with ideas, and let’s come up with those—

Austan, could I ask?

Yes.

I’m intrigued by the one-third/one-third/one-third. In this setting, when each of the three camps would present to the President, did he make those choices to say, “All right, let’s do a little bit of this and a little bit of that?”

Pretty much. It would go to principals meetings, where they would argue—and that’s why I say on the ground the arguments would be about the fundamentals, like should there be a cash-for-clunkers program; should there be a first-homebuyer tax credit. The people who are oriented around short term will be like, “This is a great thing,” and then the people who want long term will be, “No, no, we shouldn’t spend money on that. We should make it more long.” And so it would work, and then it would go up to principals. The principals would argue about that at a high level. Ultimately, then, it would go to the President, but once the President—

In what format?

They would be broad. He would essentially get briefing memos, decision memos, that would have an appendix with all the details, and then there would be a higher-level thing of do you want to spend money on these, do you want to spend money on those? The bigger think issue of how big do you want this to be, once the President decides I want to go big—in a way, that’s kind of answered a bunch of those other questions, which is, we’re going to do a lot of stuff. Then it’s kind of like, well, you come up with some, and you others come up with some, and you come up with some, and some can get bumped out, and some can be included, but basically it’s going to be a collection of all of these subunits’ work.

There was a discussion at some point, and I can’t remember where I’ve read this, one of you may recall, where the President was told that the main thing on his agenda early in his Presidency was preventing the next depression.

Yes.

And reportedly his response was, “That’s not enough. I don’t want to be remembered for what we avoided, but for doing big things as well.” He was looking for big accomplishments—

Is this when we were debating the health stuff?

Maybe so.

I don’t know. It’s possible I wasn’t at that meeting, because there are definitely meetings that are—

It could have been in a private conversation with somebody that got reported then someplace. But does that resonate? Did—

Yes. I’ll get to that in a second, when we talk about health. He did want to do more, but there was no question that he had intense focus on this question of avoiding a depression and avoiding the financial crisis. He had identified in the campaign, that’s my No. 1 priority. But he for sure wanted to do more than that.

Right, but what you seem to be saying is that the opportunity cost for avoiding a depression is an inability to focus a lot of Presidential time and attention on something that’s more, for lack of a better term, constructive, maybe like health care.

I guess I would say the following: Going into the election, before the crisis began, and then as you go into the crisis, if you had looked at the campaign and said what are Obama’s three biggest priorities, I think you would have said: avoid the depression; pass either universal health care or give a million people health care; reregulate the financial sector; and maybe, if you add a fourth thing, it would be do some kind of cap-and-trade or some energy bill.

That’s kind of what the priorities were, and that’s the order they did them in. And they did, I think to his credit—I basically think on the question of what is Barack Obama’s legacy, it’s those three things, which were identified in the campaign. He said, “Here’s what I’m going to do,” then he comes in and those are the three biggest things that he does. I guess my frustration a little bit with the political system was he said he was going to do it, he was elected to do it, he did it, and then they were like, “Look what he just did!”

And the Supreme Court upheld it, twice.

Yes. It was like, What did you think he was going to do? That’s what he told you he was going to do.

Go ahead. I’m afraid I distracted you from your—

So track one, and consuming much of the transition, was this stimulus discussion, because it was so in our face. Then the numbers come in. I think the first reading of that fourth-quarter GDP number was like -3.5 or -3.8 percent, which is epically bad, really horrible, and then for the next two years it gets revised, and I think it’s now almost -9 percent that the fourth quarter of GDP, or it’s at least -8 percent.

That’s why the forecast was made by Christy Romer and Jared Bernstein, which the Republicans kept trotting out. “You said that with the stimulus, unemployment wouldn’t go over 8 percent.” It’s like they had a number of how much would unemployment go up if there were no stimulus, and I forget—maybe that was what was 8 percent. It had already hit that before the first dollar of stimulus had even gone out the door, so what happened was we did not realize—We assumed the baseline was bad, but the baseline was so much worse even than what we were afraid of at that moment. That’s the overwhelming pressure that I remember feeling every day, every week, coming in: Oh my God, what’s getting announced today? Minus 800,000 jobs for the month. GDP down, incomes down, exports down. Everything really going horribly.

Phil Schiliro came in in the transition and they had shown him the plan. Phil Schiliro’s job is to go lobby to get the votes. He comes in and he says, “Here’s what I want to tell you. This is going to be a tough vote, very close. For a bunch of members, this is going to be the most important vote they take in their entire lives, and we’ve got 60 freshmen who, what they’re thinking of right now—”

It’s January of 2009. Obama’s not yet there. It’s still the transition. “They’re trying to hire a chief of staff, they’re trying to get furniture in their office, and you’re going to them with a super complicated thing that’s bigger than anything that has ever been voted on, and you’re asking them to take the biggest vote of their lives in favor of something that they don’t understand. This is going to be a really, really heavy lift.”

I’m sure you’ve talked to them, but it was such a signal political achievement. They get the vote. It comes down to one vote in the House. They get one over the required 60 in the Senate. The thing passes. It’s not an irony, but there’s an interesting wrinkle that’s noted by Rahm Emanuel at some meeting. He says, “The thing is, the last two Presidents to come in at a time of perceived economic trouble were Bill Clinton and Ronald Reagan.” And leave aside the question of when Bill Clinton comes in, actually the economy has been doing fine, but the whole election was about the recession of 1992. The recession ended in 1991. But those were the two who came in.

Rahm said, “The thing is, in both of their cases it took them almost the entire first year, until the fall of their first year, to get their bill passed. But that allowed them to say, ‘Look at how bad it is! Look, it’s getting even worse! You’ve got to pass my bill!’”

The curse of Obama for the stimulus was, in a way, the same thing that was admirable. The fact that we’ve got to get this passed as fast as possible made it so that by the fall of the first year it had none of the—It wasn’t like Bill Clinton. You couldn’t say, “Oh, look at how bad the economy’s doing. You should pass my bill.” Instead, it opened the door to, “Well, they passed the bill as soon as they got here. Why is the economy so bad?” It was like that flipping of the script that you’re going to be held to account, even though if you take a step back and look objectively, the economy’s in freefall as he comes in, so you can’t really blame the freefalling nature of the economy on what he did. But that was sort of lost.

Everyone remarks on this comment that [Addison Mitchell] McConnell made very early on, in which he said his No. 1 goal was to prevent Barack Obama from being reelected. In either the same interview or one around the same time, Mitch McConnell also said the thing of evil genius: “We realized that if we, the Republicans, could hold together, then by definition Barack Obama could never be a bipartisan figure.”

Actually that, in my view, better characterizes what happened than just that they were trying to defeat Obama. It was that Obama comes in explicitly wanting to try to get out of some of the ruts that had been established first with Clinton, then Bush, very partisan, every vote seeming like it comes down to 51-to-49 kind of thing. I don’t totally know how they did it, but the Republicans were able to say, “Hey, we’ll hang together,” and then the American voter, who’s maybe not following all of the details of the policy, they just look and they say, well, it must be some wacky liberal policy, because why would 100 percent of Republicans, and even a few of the Democrats, be against it?

They held up our nominations from the very beginning. So the argument—Some people say, “Oh, no, it was Obama’s fault that they did that.” It wasn’t. It wasn’t anything Obama did. They were literally holding up virtually all the appointments from the first day, and they were making it very hard to get anyone through. Everybody had to wait. And so in those early months, to add on top of the pressure that the economy’s going down the tubes, was also the fact that most of the jobs weren’t filled, so you’d say, “Call whoever’s the head of domestic finance at Treasury.” Ring, ring. “There’s no one there.” “OK. Call somebody else. Call whatever. Is anyone there? Who is there?” Everybody’s doing three people’s jobs.

The Trump administration has had its own problems, and they’ve just wholesale adopted, “Well, we’ll just appoint acting whoever we want.” The Republicans in Congress would not allow it, and I don’t think the administration was inclined to do that, so it was short-staffed, and there was a lot of tension about—Just thinking of these issues: a) we’re doing stimulus; b) we’re simultaneously thinking about these questions of the financial rescue and what to do; c) we’re dealing with the autos; d) health care’s coming up. Any one of these would be a full plate, a major accomplishment for an administration, and we’re doing them all at the same time.

Was there ever any conversation—because I can remember criticism as the unemployment rate went up, and what you just described—about the problem of the stimulus almost coming too fast. People who had voted for the President and were lifelong Democrats and liberals, I can remember some people criticizing and saying it was great that he went for health care, but why didn’t he—

Why didn’t he focus on the recovery?

—focus solely, like a laser, on the economy.

There were many people who said that.

Was there ever any talk in the inner circles about doing that?

Yes, plenty, but it’s an unfair characterization in the following sense. What would it mean? Say you didn’t do health care and you said, “I’m just going to fix the economy.” OK, what would that mean? The same people saying that were the people who objected to the stimulus, and most of the economy is not something that’s controlled by the White House. So I thought that that betrayed either a certain naïveté about economic policy, or, looking back, I’m pretty sure that it more just kind of feeds into my thinking that it wasn’t really about the content.

The people who tended to say that tended to be Republicans who were seeking some reason why they didn’t like Obama, and they were going to secretly support the Tea Party, or even not secretly. If somebody quizzed me, “Well, how could you do that?” They’d say, “Well, it’s because Obama disappointed me. He didn’t care about the economy. He only cared about health care.” It’s clearly not true, I think, if you just go look at the facts of the passing of the stimulus, or the fact that they were working on these other things simultaneously, like autos and housing and a bunch of those.

Do you want to drill down on your thoughts on the—It seems like “animus” is not too strong a word for people who were so critical of the President. Do you want to go down the race road?

Yes, we can.

I’m just looking for your thoughts.

I’m in no way an expert. I was just watching what was happening. I was deeply confused. The Tea Party itself begins, if you remember, in a rant from Rick Santelli on TV, and I spent a lot of time on CNBC [Consumer News and Business Channel], oftentimes arguing with Rick Santelli about the housing program, which I knew a lot about.

We had designed that program specifically not to do what Santelli gets up on TV and says it’s doing. He says something like, “Your deadbeat neighbor is going to be subsidized to add a bedroom on their house that they can’t afford.” The policy was critiqued from the other side: “You’re not going to do enough to help people, and you can only get the subsidy from the government if you make your payment.” So it wasn’t a deadbeat who wasn’t making their payment who would get a subsidy. If you were defaulting, you got nothing. You only got this match to reduce your payment if you remained current and kept making your payments. But that didn’t stop him from getting up and saying that, and it didn’t stop all these people from saying, “You know what we hate about this?”

They started in on the “Aren’t you sick of the tax increases of the Obama administration?” That was fundamentally a complete lie. We had passed in the stimulus the single largest middle-class tax cut in the history of America, and Obama had said, “For only the top 2 percent am I going to raise taxes,” and he hadn’t even done it. He had postponed it. So for 2 percent of people, they had no tax increase. For 98 percent of people, they had received the biggest tax cut in the history of the middle class.

There was a poll. We’re a year in, and in the polls it was something like two-thirds of people agreed with the Tea Party that they were sick of the tax increases that Obama had put in, and the other one-third of people thought their taxes had stayed the same. So it was just completely not accurate. They had gotten a huge tax cut, and didn’t know that, and just being told that your taxes went up had inflamed a bunch of people.

I thought at that time that it seemed like there was a racial component. Separate from the whole birther movement, which was obviously racist in its tone and nature, just the fact that a person says they want to help get people health care—and they’re literally painting pictures of Obama like he’s [Adolf] Hitler, giving him a Hitler mustache, and they say he’s trying to take over the health care system and socialize medicine, when the actual health care bill was rooted in what had been market-based Republican policies. It was totally not taking over the health care system. How were they getting as worked up as they were? I think some component of it was just about partisanship. They were pretty negative in their attacks on Bill Clinton, where it wasn’t about race.

But in the area of telecom, which was another space that I have done some things in, they would run these ads—In the stimulus there was stuff about rural broadband and expansions of programs that already existed, and there was a video that was circulating on the Internet of an obviously poor black woman who was missing some teeth who was saying, “I got my Obama phone! I got a free Obama phone!”

The propensity to circulate that video in these memes was obviously racial in content. It was all but explicitly suggesting Obama’s giving black people a bunch of free stuff that you’re paying for. I wasn’t surprised because we had faced a bunch of that in the campaign, and people kind of forget that. At that time it wasn’t happening on Twitter, and less on Facebook. There were these awful memes going around on email. People would get these, “Did you know Obama’s Muslim? Did you know Obama worships Satan? Did you know he did this and that? He’s piping money to African Americans,” whatever.

There were two minds in campaigns about what to do. One was, don’t bring any attention to these things; trying to rebut them just calls attention to them. But the other, and what the campaign did, is they set up this website, Fight The Smears, and they asked people, “If you get them, please forward them to us so we can at least post things and try to rebut them.” Having seen that for two years in the campaign, I wasn’t surprised that they were going to slime him that way, but it’s not like I’m an expert on that topic.

I want to ask you a question about how well you think the decision-making machinery worked in the economics realm. You’re under this enormous duress—

Yes, I was going to say, one thing is under the backdrop of enormous duress. If you take a step back there were pathologies, and different things did go wrong in how the economic officials were getting along with each other, and in the advice they were giving to Obama. But in a broader perspective, that’s always true, and in a way, this was just made more tangible because there was so much duress outside.

Overall, the best thing that we had going for us is that Barack Obama’s a man of really good judgment, and in the end, if we came down and we were arguing about something, if it warranted getting to the level of the President, he would usually weigh in in some way that didn’t split the difference but that broke us out of an argument. He would say, “I’ve heard you. I understand your things. Now, here’s what I want to do.” It would work out OK almost always.

Tangibly, the formal structure had some flaws ever since the creation of the National Economic Council under Bill Clinton, which, my understanding is, was only created because they wanted to find a role for Bob Rubin. They couldn’t make him the Secretary of the Treasury, so they invented that.

There has been organizational tension on a number of issues. Who’s in charge of the process? What’s the role of the NEC? And, in particular, what’s the role of the NEC Director? At various times in the Clinton administration they had made an explicit agreement that there would be no PhD economists at the NEC, that that kind of function of economic advice would stay at the CEA, and that the NEC would just have a more honest-broker role. And Bob Rubin was everybody’s classiest act of the great, honest broker who could bring in the different voices.

Mostly that continued in the Bush administration is my understanding, but sometimes not. Sometimes the NEC directors would be economists, or people who had a firmly held opinion on what should be done. That creates the inherent tension: if the NEC’s in charge of the process, then should they play a role of incorporating everybody in the process? Or if the NEC Director has a strongly held opinion, should they override the process and say, “Mr. President, here’s what I think you should do.” That, in a way, comes to a head with Larry Summers, because you’re never going to find a smarter economist than Larry Summers. The guy’s an award-winning academic economist with a PhD who goes to the NEC.

There are a few things. One, the question of why did Obama appoint the people he appointed rather than his own people. As I said, I wasn’t in the transition part, so I don’t know. I wasn’t in those discussions. I convinced myself that what it had to be is if you looked at every new President that came in, from Reagan to Clinton to Bush, within the first six months they made some major stick-their-foot-in-it kind of error, and descended into, “These are amateurs, and they don’t know what they’re doing.” It was kind of like the getting up to speed takes a half year. It must have been that Obama decided that he didn’t have six months to float around, that we were teetering on the edge of a depression, so he had to bring in people who had been there before and knew the levers of government and what to do.

That said, it could make it difficult on a number of issues to be in a structure like that, where particularly Larry has a firmly held opinion. And I should say, in fairness, I came to find out that when Larry was offered the job of NEC chair it wasn’t like he violated the job description. He said to President-elect Obama, “I don’t know that this really makes sense for me to come in. I don’t plan to be the neutral arbiter just running the process,” and Obama knew that when he appointed him.

That said, we come in and we have things, like we’re going to have a discussion about the budget. I should mention this started in the transition, but it carries into the future. I would say everybody agreed that essentially what we needed was a short-run stimulus, and eventually think about long-run fiscal imbalance coming from the aging population. So in the long run, think about deficit reduction, and in the short run, the opposite.

There needs to be stimulus. But the whole debate then became when does it convert from short run to long run? Given the ramp-up time, the budget has to be done well in advance. So you’re in October, preparing a budget for February, which is going to be for the following year. It’s going to be a multiyear budget. So there is this question of when should the stimulus part stop and the deficit cutting begin. In 2009 we’re essentially having the debate about this. Is 2011 when it should be, or should it be 2012 or 2013? It’s bonkers to have that, but that’s just the way it is.

By this time it’s shifted, and it’s Larry, the NEC, and the CEA who are like, “We need more stimulus,” and it’s Treasury and the OMB [Office of Management and Budget] that say, “No, at a sooner rather than later date we should commence the budget cutting.” So we would go back and forth about details, but fundamentally they were about this.

We have arguments, and the OMB—I couldn’t tell what the whole dynamic is, but you got the strong sense that Peter and Larry had tensions, because they would call a meeting. The NEC would send a thing: “We’re having a meeting about the long-run budget.” We would show up at the meeting and there’s no one from the OMB there. And we’d be like, “How do we talk about the budget? There’s no one from the OMB here.” Then we’d get a notice the OMB is running the budget meeting, and we’d show up there, and the NEC’s not there. So we’re totally confused. The CEA is trying to weigh in on what we think about how the economy will be, and about the budget.

Something’s gone terribly wrong in the process, and in a way, that one you’ve got to blame higher up, because ultimately if two parties are fighting and they say, “I’m in charge,” “No, I’m in charge,” “No, I’m in charge,” somebody has to say, “No, I’m making you in charge.” Maybe they wanted the tension or something, or maybe they were too busy, so much stuff is going on.

But that’s a predictable problem, given who they put at the head of the NEC.

It’s kind of a predictable problem, yes. And, as I say, I respected Larry a great deal. I don’t know that he necessarily felt mutually that about me. I got the strong sense that, in a way—Larry is a brilliant economist, and I could walk through numerous examples where, on content, the country is lucky that Larry was there, because he helped us avoid $50 billion, $100 billion terrible mistakes and stuff like that.

At the same time, he definitely has—I don’t know if you’d call it a will to power or something. It would not be enough for him to be talking to the President; he wanted to suck the oxygen away from other voices. I got the sense that in his view, to have a debate, how it should go is we all tell him what our opinions were, then he would go to the President and summarize: “Here’s what I think. The people who disagree with me, here’s what they think, and here’s why they’re wrong, and that’s why you should go with me.” [laughter]

We would have different issues where it would play out like that, and to the extent that he thought about me, he probably he didn’t like me. Maybe some part of it was that I had this long-standing relationship with President Obama, so, in a way, the last thing he wanted was there to be some other economist who had a different view. If Obama asked me, “Hey, Goolsbee, do you agree with that?” and if I said, “I don’t totally agree,” Obama might say, “Well, then I want to reconsider.” That’s the last thing that he wanted in running the process.

I’m trying to think of parallels, and I’m guessing that the NEC is too young, but if a relevant metaphor is with the National Security Council, it strikes me maybe when Henry Kissinger was head of the National Security Council—

He does kind of have that vibe of both brilliance but also, “I’m going to be the one,” so it did have that vibe. In a way, you can’t argue with the accomplishments. President Obama accomplished an incredible amount, and part of that was done with the help of the economic team.

When we started our discussions, I told you about the University of Chicago, and what’s special about the environment is people are in there fighting over much bigger divisions than the ones we would have on the economic team, but in a way, it works because the people love each other. And in this thing, in a way we were like a dysfunctional band or something.

The Beatles at the end.

Everybody’s fighting, but in the end, mostly because the President has good judgment, he would reach the right outcome, I guess I would say. There were several points in the heart of the financial or economic part of the crisis where I can remember us going to meetings, and one side’s firmly held, “We must do this, we must do this.” And it was like, wow, everybody can have an opinion, but he has to make the decision, and everybody’s going to hold him accountable, like on the rescue of the auto industry.

That was a really hard problem, a thorny, awful political and economic problem, and it ends up coming down to the tangible thing of can we afford or can we succeed at saving Chrysler. If we save General Motors, can we also save Chrysler? Or will that then endanger Ford and GM and Chrysler because we’re trying to cram three planes onto two runways?

Only after the fact, in the 2012 election, [Willard] Mitt Romney basically says, “Oh, well, that was obvious. Anybody would have done that.” Totally not true. Totally not obvious. I was sitting there watching as at least 50 percent of the advisors said, “I don’t know if this is going to work, and I don’t think you should do it,” and others said, “No, I do think you should do it,” and the political people said, “Just so you know, this polls really badly. Nobody wants you to use their money to save the auto industry, even if it saves a whole bunch of jobs.”

I remember thinking in that one, What a crappy job. You’re the guy. If nothing can be fixed, it comes to you, and it’s all on him. We can have an opinion, but nobody’s going to come back and be like, “Oh, you were wrong. This and that happened.” But for him, that’s all that’s going to occur. So the Osama bin Laden raid and rescuing the auto industry both had the feature of major advisors saying, “Don’t do it. It’s too risky. I don’t think you should do it.” Obama would think it through and decide, so, in a way, that kind of saved us from what was a confused process.

Do you think the President thought that?

Yes, and look, he would get frustrated. It came to a head on these fights about the budget. There were ones I was involved in, arguments about the auto industry, arguments about housing and stuff, and there was one I wasn’t as involved in, but I witnessed—the fight about health care, should they go big or go small on health care.

But the economic team was most divided on these issues about the budget. And, as I say, the bizarro thing about it is it was all for way in the future. “Should this start in two years, or in four years should we start the budget cut?” They went back and forth, and they would go to the deputies, to the principals, to the whatever, and they couldn’t agree. Basically it was always about the same issue of, “No, it’s too early, we need to emphasize the economy.” “No, the deficit, and the Republicans are giving us a hard time.” And it just went back to the same arguments of the stimulus and the transition. “No, we need Republican votes.” “No, we need to think long term.” “No, we shouldn’t; we should do the opposite. It’s going to be short-lived.” It was back and forth.

So in the process they kept basically going to the President to try to get him to resolve this standoff, and over time this thing morphs into—They have the midterm election, the Republicans win, and now they’re putting the heavy pressure on everything must be cut. The deficit is too big. We must cut. And the discussion about the grand bargain—Should there be a grand bargain?

At one point Christy’s still there and Larry’s still there. It’s come down to this thing of now it’s basically Orszag and Geithner for sooner starting on the deficit cutting, and Christy and Larry saying, “Let’s not do that sooner.” They reach a tentative peace behind the scenes, and they’re going to go to the President. They’re going to just kind of fudge the fact that there’s a fundamental disagreement, and they’re going to say, “Hey, let’s have some short-run stimulus, and we’ll have long-run deficit cutting.” I can’t remember what the exact detail was, but they were going to kind of fog it up.

President Obama asked Peter Orszag at this meeting in the Roosevelt Room—and everyone was there—“I’ve read the memo. It’s interesting. So everybody agrees, huh?” “Yes, Mr. President, we all agree.” He says, “I had one question that I didn’t really fully understand.”

He turned and goes right to the scar. “This page five, where it says—” There’s some amorphous language that we’ve all agreed we can agree if we just leave it vague. “What does that mean? Are you saying we should start deficit cutting, or you’re saying we shouldn’t, or what?” He probes and he probes, and finally Orszag breaks down and he says, “Well, no, you’re right, Mr. President. That’s why we should start deficit cutting right now.” And then, “Wait a minute, we do not agree with that!” So the thing erupts, and they start arguing again.

Then finally you see Obama—The meeting’s supposed to go for an hour. This happens like 15 minutes into the meeting. The popular view that Obama’s very even-keeled, he doesn’t get real hot, is from my experience pretty accurate. He seldom gets really irritated, but when he does you can see it, and you can see he’s starting to get really annoyed. Finally he says, “You know what?” And he shuts the book, and he’s like, “I have heard each of you say the same thing. I’ve gotten the same memo. I’ve heard each of you say the same thing in defense of your position six different times in a row! I’m done with this! Sort out the thing and call me when you’re ready. This was supposed to be the decision meeting. Call me when we’re ready to make a decision.”

He gets up and he walks out. Axelrod and Valerie Jarrett get up and follow him out, and everybody’s looking, like, Oh, man, what just happened? Because it’s supposed to be an hour meeting where we decide.

Then all hell breaks loose, and they begin yelling at each other. “You betrayed us! We had a deal! You betrayed us!” “You did that!” They’re yelling, and Geithner says, “I don’t understand how we disagree. We had an agreement. What happened to our agreement?” Christy says, “Eight hundred fucking billion dollars of stimulus is where we disagree!”

Then they break into two groups. Larry and Peter are yelling at each other, and Christy and Tim are yelling at each other. They’re yelling, and she says, “We say the economy needs $800 billion of stimulus, and you’re saying deficit cutting! That’s why we don’t have an agreement!” And then over at this one, Peter’s saying, “You betrayed us! You betrayed our deal!” And then Larry says, “Don’t tell me! What you’ve leaked to the newspaper about me has been an outrage!” And the deputies are looking at each other just like, Oh my God, what are we going to do?

So there were certainly moments when the process fell apart. Even though that was a scarring moment—The parents are fighting; let us never speak of this again—I don’t think that’s that unusual. And it was all in the backdrop of there was so much stress that it mattered such a tremendous amount. If we screwed this up, we’re going into a depression, so that’s what got everybody as worked up as they were.

I would say those are places maybe where the process worked the least well, and maybe I would lump autos into that, too. There were others where the process really worked great, and in a way how it was supposed to, and it was made infinitely better by having people who were not just process people. There were various issues, one being stimulus, coming up with the stimulus and diagnosing how do we figure out things that would make sense, or which ones were too risky. They ran, I thought, quite a good process on that one. And with Dodd-Frank I thought it was a pretty good process.

They had gotten the deputies—Diana Farrell and Neal Wolin were the deputies at NEC and Treasury—who worked on that, and they did tons and tons of work coming up with things—That was solid work. There was one moment where this same ambiguity about the role of principal and advocate versus runner of process rears its head again, and that’s about the Volcker Rule, but for the most part I thought that they ran that pretty straightforward and down the line.

Russell, can I ask you a question?

Me?

Yes. In the description that Austan is giving, I’m thinking about the wheel and the spokes, and the pyramid model of how Presidents want to organize their administrations. In explaining that, it always sounds like the [Dwight] Eisenhower hierarchical model, where things move up through the chain of command, and then they get pretty well clarified and presented to the President, and the President makes a decision—I always thought wheel and spokes sounded like that example of a more chaotic structure. And yet, it was also pyramidal, in the sense that—

Pyramidal?

Yes. Isn’t that a great word? It starts from the bottom up, and it would go up to the deputies, and the principals, and to the President. So is this an example where, in a way, the two get combined on some issues, where if it’s going up through a chain of command but still when it gets to the President it can’t yet be clarified because people can’t—

Let me say this, and I’d be interested what you have to say.

No, I don’t have any particular insights on—

Because Russell’s the Presidential organization and structure expert.

I have not been in previous administrations—

Yes, I know.

—but a bunch of these people were Clinton people, so I would often ask them, “Is this what it was like, or is this different?” Or, “How do Obama and Clinton differ?” Or, “How is the decision making different?” I would ask Republicans I knew, “What was it like under Bush?” It was kind of interesting. The Clinton people said they thought they were equally brilliant, that in different ways they were both, Obama and Clinton, very intellectually curious.

They said, in a way, Obama was more into the formal structure, decision authority, and that was already a little bit of a hard transition, because in the campaign Obama loved most of all, “Hey, we’ll bring in some experts on science, on labor economics, on whatever. They’re going to come talk to you about what’s really happening with the middle class.” He loved more than general education, but kind of the general education.

He could ask amazing questions when he was introduced to some topic. I brought Larry Katz and Alan Krueger in to talk to him at one point, when he was a candidate, about the middle class and how it’s going, and how were they squeezed, and whatever. And although it wasn’t his thing, he’d say, “Ah, now wait a second. You said this, but doesn’t that contradict what Larry just told us?” They left, and I asked Katz and Krueger, “Well, what do you think?” That was their first time meeting him. After, Alan told me, “I wish I’d prepared more. I thought I was just going to lecture him.” So he was good at drawing that out.

But the other thing they described about Clinton—and it makes me think about your bottom-up system—they said Clinton had way more taste for, and even preferred it, when you thought the decision is made, but then we’re revisiting it. It’s like he’s having second thoughts, so he’s calling a whole bunch of other people outside the chain. “Hey, what do you think about this?” And then if that person’s like, “Oh, that’d be a terrible idea,” but they already decided to do it, they’d be like, “Oh, well, we’re going to have another meeting to revisit this thing we already decided.” Obama was not like that. “Look, I want to hear this input, but I want to decide, and when it’s decided, it’s done. Let’s move on to the next thing.”

That said, Clinton would also, according to these people, call advisors from the Residence, and it might be 11 o’clock at night. “So at our meeting today, what did you mean when you said—?” He wants to take the office home. Obama’s nothing of the sort.

Well, the word that comes to mind is “discipline,” that Obama was more disciplined in his—

He was more disciplined, though it’s kind of funny: if you’re more disciplined, then you would also think that the structure that you would want would be a more disciplined structure. Instead, they kind of designed it to be, at the outset, one in which there are a lot of strong personalities with firmly held opinions, and there’s not clear authority. They’re kind of arguing in a way that—In Bill Clinton’s day they had a formal structure, “We’ll bring in views. You say what you want in front of the President,” but he wouldn’t make a decision. I don’t know.

I think another big difference would be discipline from the Chief of Staff, that Rahm didn’t have any trouble—

Rahm is a complicated figure. He was our mayor. I view that I am friends with Rahm, or friendly with him, but he’s prone to having an inner sanctum, and doing things in secret. He was close with Larry. He’s like, “I’m going to bring Larry in here, and we’re going to decide something.” So there’s information missing from the—

Right. It got to the point with Clinton, after Leon Panetta came in, that there was more discipline in the process, but that was, I guess, probably two years into the administration.

I see. So the way I had heard it in the process of economics was there was the possibility that somebody like Bob Reich, who had known Clinton before, could kind of go around the process. And in a way, one of the procedural insights or credibility or something that Rubin had had was convincing Reich or others that—

Respect.

—you can’t go around this process. “I’ll set it up for you to speak your peace, and I’m not trying to muffle you, but we’ve got to set it up where you don’t go around—” If you can go to the limo and hand a thing to the President that other people don’t see, this thing is going to melt down. In a way, that plays into indiscipline.

You’re exactly right, but I do think that it merits returning to your starting point, which is that the times were so completely different. They had the great luxury, even though it was the first episode. I do think Roger Porter and others say that there was something similar to this under Gerald Ford, but it was the first time it was formally established. You didn’t have the crisis going on, so you really had the luxury to kind of sit down and pick a process.

Yes, right. Maybe you could focus more on that. I think Obama really wanted to have Larry there to give his opinion, and, in a way, Larry would be the world’s greatest hall of fame CEA chair, where the CEA is not really running process; you’re just giving opinion on the economy. But, in essence, the CEA is too low. Larry would not take that job. I think it was the same for NEC chair. He’s thinking, I’ve been the Secretary of the Treasury.

Exactly.

What role—? But Obama really wanted him there, so he said, “I’ll make up a job for you.”

Sure. Figure out a way for him to do it. Was there a third member of the CEA when you first came in? Usually there are three.

Yes, [Cecilia] CeCe Rouse. Christy Romer was the head. CeCe Rouse, a labor economist. And I was the other—

That name is unfamiliar to me, so—

She works on a lot of labor- and education-type issues. She’s now the dean of Woodrow Wilson.

OK. Well, I should know that, then. All right. Let me ask you—

[BREAK]

One thing before I forget: you mentioned the President, on your first meeting, teasing you about your surname. What is the derivation of your surname?

We’re not 100 percent sure. They’ve been in the United States for a very, very long time, or they’ve been in what is now the U.S. I think they’re from Golspie, Scotland. There are also some in Golspie, England, so it might be one of those two. But they came to Virginia in the 1620s or something, then they were in Colonial Williamsburg, and then they moved out to Charlottesville.

We should’ve had you to Charlottesville.

Yes!

And some Goolsbees signed the Albemarle County Declaration of Independence with Thomas Jefferson. That was the highlight of what they ever did, because they were never heard from.

Until you.

They never did anything. They kept moving because they were in the war or whatever. They gave them land, first in Georgia and then Revolutionary War land. They kept moving. They were clearly illiterate, because the name started changing with the census because they couldn’t spell it. So any Goolsbee with an EE is related to me, because that’s one branch. The person got switched off, and they ended up in Texas.

I would think that in some respect it would be easier to track than—

Yes. But if you get back and you look in the phone book in Charlottesville, I think there’s a bunch of Goolsbys with a Y, because that’s where they were.

But you think that’s still basically the same family?

In some vague sense, yes, I think it is. So I say it’s Scottish. I’m pretty sure it’s from this Golspie thing, but they’ve been around for a long time, and they were kind of—It’s weird; do you know the book Freakonomics?

Sure.

The guy who wrote that, Steve Levitt, was my best friend in graduate school, and there’s a chapter in it that’s about names. It’s about the first names. It’s about how there are high-class names, and then low-income people adopt high-income names, and then they become low-income names over time, and all this stuff.

He’s doing the research that became that paper, before there ever was a book, and he comes and he says, “I can tell with a 99.9 percent certainty that you come from a white trash family.” [laughter] And I said, “What are you talking about? What are you basing this on?” He said, “First of all, you’re named after a southern city. That’s a 99 percent indicator right there. And second of all, your name is misspelled, and that’s a 99 percent indicator. To have them both, it’s impossible. That’s a guarantee.” And in a way, that was kind of their thing. He wasn’t wrong about them. My dad was the one who sort of got out of that.

My people are sharecroppers from Alabama, so—

Yes, exactly. You know the deal. That’s what it is. And so it’s fun to see.

All right. Here’s a question for you.

Yes.

You said earlier that there was a sort of influx of Clinton people in these high positions.

Pause for one second. Take a pencil now, and let’s just write down a couple of episodes that I would like us to get to before we close.

OK. I’ve got it.

Grand bargain. White House whiteboards/economic messaging as a topic.

Good, that was one of mine.

Two, grand bargain, and it will kind of bleed over into that White House whiteboard, and how did that go, and what went wrong, and why was that such a thing. And then that’s around when I leave. As I say, three hours after I left the government, S&P [Standard & Poor’s] downgraded the government’s bond rating. [laughter] I don’t know that it was the cause, but that’s what it was.

Excellent.

All right. Got it.

All right. Let me start with this, and then I’m happy to go straight into that, and that is that there has been a significant left-of-center criticism of the administration for not being more aggressive in pressing for equality, not taking more liberal positions on economic issues, some of which people have charged to the neoliberals that they say are out of the Clinton side. What I’m basically doing is throwing the critique at you to get you to talk a little bit about that criticism—

About that space.

—and for you to offer your observations about where it may or may not be accurate.

Let’s talk about the grand scheme, and then let’s talk about the practical politics of what they’re saying. In the grand scheme, I don’t think it’s wrong. They made the critique at the time, and I think there is something to the critique. There were a lot of economics PhDs. at high levels of the government.

Obama himself was a policy wonk type, in a different way, but not unlike the way Bill Clinton was. He wanted to make sure it worked. So if you had come in with a fantasy that we’re finally going to get a President elected again, and it’s going to be the first African American President, and maybe we’ll get a huge wish list of the most progressive policy program, the President did a bunch of fundamentally important things: getting health coverage for millions of people; reregulating the financial sector. He tried to do a major energy bill and passed the huge stimulus, but it certainly wasn’t utopian.

That moves me into category two, which is we have the system we have. I consider it either dangerously naïve or at best just a purely academic exercise, because it wasn’t that President Obama opposed progressive policy; it’s that on thing after thing—the fantasy that he should have just done X—if you just go to the next step and say, “How would it work?” the answer is it wouldn’t have worked and that’s why he did X.

Let’s go from the big level to the small level. At the big level, the contemporary critique, made forcefully by Paul Krugman and others, that the stimulus should have been bigger, that instead of a trillion it should have been $2 trillion—as I mentioned, that was inconceivable, totally impossible. It came down to one vote, and all the marginal voters, both the ones that ended up voting for it and the ones who wound up voting against it, wanted it smaller and wanted less spending and more tax cuts. So the fact that they got the largest stimulus of all time, even in percent-of-the-economy terms, is a huge triumph. It’s an unbelievable success.

The argument that it should have just been $2 trillion—the onus is on them. For that to be something more than an academic exercise, explain how that would work. How would you get two Democrats from North Dakota, one from South Dakota, one from West Virginia, two from Louisiana, one from Nebraska, all of these groups that were saying, “Whoa, you’re going to kill me if you pass something as big as that.” Two from Arkansas? How would you have passed that? You wouldn’t. It’s impossible.

Look, I’m an academic. I’m prepared to have an academic discussion about would it have been better if there were more stimulus, but I want to know what would it be, because in the transition and in the beginning it wasn’t that easy to come up with the money that was in the stimulus that we did. So how would you have spent this money, and how would you have gotten people to vote for it?

Then back up to the health care. Most of the economic advisors and the political advisors were saying, “Don’t try for an Affordable Care Act. Do some modest expansion of the Child’s Health Insurance Program, the SCHIP [State Children’s Health Insurance Program]. That’s very popular. We could pass that. We’ll say it was a big increase in coverage, and we’ll be done with it.” And the HHS [Health and Human Services] nominee—

Tom Daschle?

Tom Daschle. Tom Daschle had gotten into this trouble, so he wasn’t going to be there. At this critical meeting it’s basically all budget and economics and political people, and there is unanimity. They’re like, “Hey, we should do something modest.” And it’s the President who says at that meeting, “Where are the health people? They’re not at this meeting. That’s not enough. We didn’t come here to do this tiny thing. I ran on getting millions of people health care, and that’s what we’re going to do.” So he overrules the economic advice, the neoliberals or whatever you want to call them. The President overrules them and says, “No, we’re going ahead and doing it.”

Then comes the public option, and Obama wants a public option. Once again, we go back. We need literally every single vote to pass this. There are many red-state Democrats who say, “I can’t be for a public option. That would get me killed, and I won’t vote for it if it’s in there.” Since it comes down to literally one vote, they have to take the public option out, because they can’t pass a health plan that has a public option. So we’re again having an academic debate about would it have been better to have a public option. Yes, it would, and that’s why he proposed it, but people need to get real. That’s what it is.

In the micro-est of micro levels, on the issue of housing, you cannot shed mortgage debt in bankruptcy. For whatever reason, that’s in the law. You can cram down all forms of debt, except not mortgages. There was a proposal for what’s called “cramdown” in bankruptcy, which would allow a mortgage judge to say, “I don’t think it’s realistic to hold them to this mortgage, so we’re going to just cramdown the mortgage. They owed $500,000, $200,000, whatever; I’m going to just write it down.”

Again, Obama was for that, and there was disagreement among the economic team between the more financial types who said, “This is a bad precedent to set,” and the more real economy and progressive types. We would argue, “No, this is important, and it treats it just like other forms of debt, and we should do it.”

They asked me to go down and talk to [John] Conyers’s people. He was one of the committee chairs. He was the one who pushed the most for cramdown in bankruptcy, partly because, I think, this moved the mortgage space into the Judiciary Committee space, because now it was with judges. Anyway, they’re agitated. They’re super pissed off. “Why aren’t you for this?” “We are for this. He’s for this.” “No, he’s not bringing it up for a vote.”

I said, “Look, this is your space, but they told me that there are 30 Democrats and every Republican’s against it.” We need the votes, and they told me there are 30 Democrats who will not vote for cramdown in bankruptcy, and that’s why it doesn’t pass. Their thing was Obama’s betraying the cause because he should put it in the stimulus. OK. So what they wanted was to put cramdown in bankruptcy attached to something else, and that way we’ll get it. But the thing is, the stimulus came down to one vote, so if you attach a thing that 30 people are against, you’re going to endanger the stimulus, and the stimulus is important.

Back to the case of stimulus, and that it should have been $2 trillion, I observe, and I observed at the time, it was $2 trillion.

They passed almost a trillion in the stimulus, and then the President was able to extend tax cuts, extend UI [unemployment insurance] benefits, do a bunch of other things, cut the payroll tax. If you add those things, it actually adds up to $2 trillion of stimulus. It just wasn’t called a stimulus bill. Then the answer, they said, was, “Well, then it should have been $3 trillion.” And then I raise my hands. Look, now we really are in the academic discussion, because if we got the biggest stimulus ever, and then we were able to get a bunch of extra stimulus moneys that weren’t even called stimulus to get it up to $2 trillion, and the only response is “Well, why wasn’t it $3 trillion?” It’s fine. Economic historians can debate.

As I said, I was on this panel later where I was debating Jack Welch. He was espousing some view of this thing was screwed up, and this money in the stimulus was misspent, and whatever. I said in that moment the hotel was on fire, and we were running up the stairwells and throwing kids out the windows of the 14th floor into the pool to save their lives, and now it’s four years later and you want to judge that like it was the Olympic diving contest, and, “Oh, the splash was too big, [laughter] and you should have done this and that.” There was no depression, and that was a major, major accomplishment.

Look, in spirit, I do agree that maybe the progressive critique that there were a lot of econ PhDs and neoliberals around giving advice, that’s true. There were also a lot of progressives around, and Obama was pretty remarkable at taking a lot of advice and achieving things that had, for many years, been viewed as not achievable. Now we move into a different decade, and different stuff, and if they want to go a different way, that could work, too. But the Bernie Sanders view circa 2016 that “Barack Obama’s not a real Democratic President,” that kind of drives me nuts, and it harkens back to the 2004 Senate campaign of Alan Keyes, saying, “Barack Obama’s not a real black person.” Spare me.

You had two or three things that you wanted to—

So the White House whiteboard and messaging—

Oh, right. OK. Let’s think about this topic of messaging. That was an area that I increasingly got pulled into to explain, defend, and rationalize what is it that the administration’s doing. I’m sure every administration feels like they’re not properly understood, they need better press, whatever.

Yes. Barbara and I can confirm that.

Yes, it feels like that’s what everyone thinks. We needed to explain it better. I told you what, to me, is a microcosm, but an important one, of this thing about the tax cut in the stimulus, that this really was a messaging thing in that it was completely false. People were viewing that their taxes had gone up, and their taxes had gone down by thousands of dollars. The Republicans absolutely loved to play into it and say, “Aren’t you tired of the tax increases?” And there have been no tax increases! What are you talking about? That is, in a way, a thing of messaging.

We started those White House whiteboards in an effort to try to do that, to have a little more than the five or ten seconds or something that you might have to explain a policy, have a little more explanation time of why did they rescue the auto industry, why did he extend the tax cuts for high-income people in order to get more unemployment insurance benefits and cut the payroll tax, and how one was much bigger than the other and that’s the only reason he went along with those. It was a series of those. Did I say the grand bargain? Is that my second one?

That’s your second point.

Yes. In some sense in no space was that more frustrating at the time than about the deficit, which, if you plot the history of the deficit in the United States, it tracks the business cycle rather directly. In recessions revenues come in lower, spending comes in higher, and the deficit gets bigger. In booms it comes down, and the improvement in the ’90s was in large measure because the economy was doing better.

Yes, they raised some taxes, but the economy was doing better. So it was totally obvious that if you have the worst downturn in our lifetimes, the deficit is going to look the worst in our lifetimes. It got worse by something like $800 billion to a trillion dollars on a per-year basis. That wasn’t from the stimulus. In the biggest year of the stimulus, it was about $250 billion, and that’s a short-term phenomenon. It was totally obvious that what’s driving the deficit larger is the business cycle, and that as soon as the business cycle’s over, the deficit is going to come down. That was the context of a lot of the internal debates about the deficit.

The Republican Party, and maybe just the Tea Party part of it, but heavily in there, was a highly disingenuous critique conflating the long-run fiscal challenge facing the country, the level of debt in the country, which of course is the past accumulation of a whole bunch of debts growing at the rate of interest. That’s not the same thing as why is the deficit big this year, and a willingness to go well beyond previous norms and threaten the default of the government, and threaten what they called prioritization, where we’re going to default on some payments but we’ll keep paying interest to the Chinese on the debt, and therefore we’ll try to claim that’s not a technical default.

Nobody’s really threatened default before, and virtually no country in the world has a debt ceiling of the form we have, where Congress can pass bills that require payment and then come back later and say, “Oh, actually, we’re not going to approve raising the debt ceiling to cover the bills that we already have accumulated.” Republicans wanted to conflate all of those things, and basically said, “Help us vote against Obama’s stimulus and health care, et cetera, because the deficit is big, and that’s the same thing as our long-run problem.” It had nothing to do with our long-run problem.

I say to Axelrod at some point along the way, probably in 2011, “They’re attacking the stimulus, that it didn’t work, but 85 percent of it did work, and I can show you the evidence that what they’re saying is totally bogus. It’s like the thing with the tax cut. You can see, here are the programs that came in. Here is economic activity in that state compared to what it was forecast to be.”

David said the following, which totally changed my view of what is our task and what are we doing with the message, “So you believe that if we focused on it, you could prove that the stimulus was better than what the Republicans are saying now, that it was just wasted money?” And I said, “Yes, I can prove it. I can get you the statistics. I can show it.” He said, “OK, great. Let’s say that were possible. That might not be possible. People have already decided in their minds what they think, but let’s say it was. If I tell you that we only get the attention span to persuade people of one thing, is that the thing that you would want to persuade them?”

I was like, “Uh—” He said, “Because we basically only get one thing, and I assure you what I think it is, is not, ‘Let’s go back and prove to you that what happened in 2009 was better than you remember it being.’” He basically said, “That’s how that one went. You lost the battle over that. What I think is in 2012, I want everyone in America to know that Barack Obama cares about people like you, and Mitt Romney is out of touch with people like you. That’s what I want to persuade them, and I’m not going to spend any time persuading them that the 2009 stimulus was better than it was.”

OK, fine. Once you see that, then you realize we live in a world of massively limited attention, so the messaging effort is really hard. And that’s especially hard in an environment where we’ve moved off just TV broadcast, and even just TV cable. Now we’ve got massive small subunits, each of which care about their own particular thing. So we tried to invent those whiteboards to get around that, and we’d go up here on different types of shows. I’d go on The Daily Show or whatever—

The briefing book is just filled with your interviews. You’re all over—Meet the Press—and you’re obviously very good.

The interview book is super impressive, all the stuff they’ve been able to track down. It’s oriented around the same political shows—Meet the Press and cable news and whatever. There was a heavy effort with whiteboards, with online forums. I would go on The Daily Show, and Stephen Colbert’s other show, or stuff like that.

The Colbert Report.

Here are other audiences who aren’t normally involved in politics, and we’ve got to get the message to them. I do think that would be important, and had they done that from the beginning, maybe there would have been fewer of these fundamental misunderstandings of what the administration’s doing, although maybe not. On the case of the deficit, look at how quickly literally the same people were able to just convert to, “I have no problem passing a $2 trillion unpaid-for tax cut that blows up the deficit.” Boom.

Seeing that makes me realize maybe I was taking the content way too seriously at the time. I don’t think it was about the content. I think it was just that they wanted to block Obama, they wanted to stop him, so they’d talk about the deficit if the deficit was big. If the deficit goes away, then they’ll talk about the next thing, something else. “Oh, it’s all about Hillary Clinton’s emails,” whatever.

That began on the messaging stuff, and that was kind of important. It bled into the debate about what the grand bargain was to be. They had started the [Erskine] Bowles-[Alan] Simpson Commission. There is a group of people who, to this day, are probably the business neoliberals. “Oh, why didn’t they just embrace Bowles-Simpson?” The thing about that is people forget that the Simpson-Bowles Commission was unable to agree on the Simpson-Bowles proposal.

The Simpson-Bowles proposal was a proposal just of Simpson and Bowles, the chairmen themselves, who proposed a bunch of stuff. The committee had to have a vote of the committee to approve it, and they couldn’t get it because the Republicans in Congress on that committee said, “We will in no way ever support any tax increase.” Once you recognize that Republicans in Congress will support no tax revenue, there can’t be a grand bargain. The grand bargain is dead.

Obama had made a fundamental promise that he would not raise taxes on anybody making less than $250,000 a year. The Simpson-Bowles proposal did raise taxes on people making less than 250,000 a year, so the Republicans on that commission said, “That’s great. Endorse it. We want President Obama to endorse it, because the first thing we’re going to do is we’re going to spend this whole time saying, ‘See, he lied about raising taxes on middle-class people, just like we told you he was going to lie.’” So you couldn’t do that, and it was, in a way, not properly thought through. It was formed at a moment in response to a big short-run deficit, which was not what it should be about. It should be about this long-run thing.

We had a series of meetings, and the negotiations were headed by Vice President [Joseph R.] Biden [Jr.], who had a long relationship with Mitch McConnell.

This is the first time Biden’s name has come up today.

That’s true. It could come up on the issue of the Volcker Rule, if we wanted to go on that one, because he was involved in that. That’s not to say that Biden was uninvolved, it’s just that Biden did not often weigh in on economic team debates. He did in autos, he was involved in that, and the Volcker Rule, and this negotiation. His view was Mitch McConnell wants a deal. He wants to be the majority leader. He thinks that it’s hurting him to just be the party of no. He wants to do a deal. “I think we can do a deal.”

My thing was if you looked back at the Clinton shutdown and fight over the budget in 1994, many of the people who were in those negotiations, like Gene Sperling and others, are in the Obama administration. They remember the Clinton victory on that topic as fundamentally being about the negotiations between Republicans and Democrats, that they kind of out-negotiated them. And my impression, as just an outside observer at that time, is that fundamentally something completely different had happened, which is they both started from intractable positions: “We’ll never compromise. We will never do what you say.” They said, “We’ll never give in,” which felt very much like the early stages of the grand bargain this time, too. That triggered their memory script of how they negotiated last time

So the government shuts down in 1994, and fundamentally the American voter has this function in their head. They don’t know who they agree with. What they did simultaneously with the indoor strategy of the negotiation was have an outdoor strategy where Bill Clinton went around and said, “This is my budget, and this is their budget. They want to balance the budget in seven years. I’m going to balance it in ten years. But if you try to do it in seven years, you have to cut Social Security and Medicare. You have to do all these awful things. My budget’s better than their budget.”

Once the American people decided, yes, actually, they liked the Clinton budget better than [Newton] Newt Gingrich’s, then their whole negotiating position fell apart, and the Republicans would cave, which they did. They agreed with a whole bunch of things that at the outset they insisted they would never agree to, only because you had an external strategy, not just the internal negotiation.

So in 2011, we prepared two whiteboards that were about here’s why the Republican position doesn’t make sense and the Obama position is better, that in the grand bargain, if you’ve got to get $4 trillion over the ten years, you should do it with some tax revenue and some cuts, not all spending cuts, which is what they want to do. It was kind of like going through, “Here’s what’s going to have to be cut if you do what they say.”

There was one on taxes, but they wouldn’t let us release that. You will never find those whiteboards, because they told us, “Don’t do anything that will poison the negotiations. If you do anything that makes the Republicans uncomfortable, they will balk at these negotiations.” So they didn’t do it. The problem with that approach is then the negotiations break down at the end, which might have been inevitable because there wasn’t actually enough common ground for it to work.

When they broke down, it ends up being a major messaging mistake not to have laid any groundwork before that about here’s why these two worldviews are different and which one is better. Because now the administration comes forward and wants to say, “The Republicans are being totally unreasonable.” And the public’s response is, “You’ve been talking to them for the last three months. How unreasonable could they be? They can’t be that unreasonable.”

That ends up going down into this poisonous rathole of the debt ceiling and the fight, and they’ve kind of got the administration over a barrel. They demand cuts. The sequester is the only way out of it, and there are all of the forces of inertia. If everyone does nothing, the Republicans get their way, so that’s why they have all the power in the negotiation.

Later, when it comes to the expiration of the high-income tax cuts, in a way it’s reversed, and the onus is put on them. If we can’t agree, then everybody’s taxes are going up, so then they want to make a deal. But the grand bargain didn’t have that feature.

The negotiators kept coming back to our meetings with Obama, essentially saying, “Would this be enough to call it a grand bargain?” Obama’s position was, “You tell them if they want to do a real grand bargain it has to be big enough that the budget experts will look at it and say, ‘Wow, I never imagined they would be able to do that.’ If they’re willing to do that, then I will endure the attacks from my own people. Our thing is taxes are going to go up, a lot on high-income people. Just letting the Bush tax cuts expire is not enough. If they’re willing to have the tax revenue go up, then fine. Give me a list,” he says to them. “Give me a list of what they want to do on entitlements. Do they want to change COLAs? Do they want to change Medicare? Do they want to change the retirement age? What do they want? Let’s discuss it.”

He was blasted by his own people even for asking that. They said, “Why were you asking them for their ideas? You should demonize them.” And the negotiating team would come back each time and say, “What if we had cuts and there wasn’t that much increase in taxes, but there was a little?” So they said, “What if we did this minimal thing and we called it a grand bargain?” And Obama says, “No, that’s not the deal. If they want a grand bargain, we’ll have a grand bargain, but we will not do a thing in which the Republicans get what they want, but we get only 15 percent of what we want, and our people are furious at us, and the budget experts say that it wasn’t even anything anyway. It didn’t add up to a big-enough number.”

That’s a petty bargain.

Yes, a petty bargain. We will not do a petty bargain. He said, “They can forget it. We would rather just go down swinging, if that’s all they’re going to propose.” And basically that’s all they were going to propose.

There’s no doubt in my mind that if it had been just the Republican leadership and Obama, they would have been able to do a grand bargain. The root of the problem was that the Republican leadership could not speak for their own people. They were making promises that their own people would not accept. So when it comes down to the end, the Republicans say Obama changed the terms on them. In a way that’s true, but in a way that’s not true. They said they never saw a specific proposal from Obama. That part’s true and not true, in that negotiations like that are done in very Shakespearean, King James Bible kind of language. So you would never say, “I will offer you this in exchange for that.”

No quid pro quo.

Wouldeth one considereth a policy in which one would have this happen, and what wouldest thou think of that? [laughter] Because if you literally said, “I want to cut Social Security; what will you give me for that?” the other person would go straight to the press and say, “They just proposed cutting Social Security.” So it’s ultimately completely total deniability—that’s still possible—that they’ll say, “We never made an offer. Nobody ever proposed that.” Boehner kept saying, “I never saw any proposal.” Yes, it’s true, there wasn’t. But everybody knew what the nature of the grand bargain would be.

They, effectively, made a proposal, and the Obama administration, effectively, made some counterproposal, expecting they would have another counterproposal, and they just walked away at that point. That’s the moment where Boehner goes and talks to his people and they say, “We’ll never allow one cent of tax increase,” so Boehner takes the counterproposal and says, “Oh, they changed the terms. We can’t abide by this.” In my world, that was all a bogus show, a face-saving way for him to back out of a deal that he couldn’t make. They would have had an agreement, but his own people could not support his own agreement. Then we did suffer, like I say, on message, because we hadn’t laid the groundwork for that fight. In the end that was kind of a message mistake.

Was there something—

Now we’re on the timeline—

Those are your two things?

I was going to ask you: we’ve heard a lot of praise about the President’s turn of mind, and his work ethic, and so forth. Economically, did he have any blind spots? Were there places where you occasionally had trouble dealing with him on an economics matter?

Honestly, no. Not really, although it might have been more because I was already one of the believers from the beginning, and it led to some of the process disputes that I would have with Larry. My view was if it’s $10 billion or more, and the economists do not agree, then it really has to go to the President. He has to know the economists don’t agree, and he has to decide. My view was if President Obama hears the thing and he decides, then I’m totally fine with that.

In cases like the auto rescue, where—In a way Larry had already decided he wanted to do the rescue of both General Motors and Chrysler, and, to my mind, was engaged in some efforts to not just shade the other side, kind of physically removing the pages that present the other case from memos, and presenting it like, “Oh, we all agree; here’s what it is.” I was on that side of the view that Chrysler wouldn’t work, so I thought it was too risky to Obama. All the fight was more about being able to present both sides of the case to Obama. When Obama hears it, he decides that he wants to proceed anyway. I didn’t have any problem with that, because, like I said, I was one of the believers, and I thought, He’s the guy who’s elected, so let us have this debate and he can decide.

It wasn’t that I would get cross with him on details. He did have one feature that would drive a lot of the economics team crazy. Having come from the campaign, I didn’t mind it that much. I told you in the campaign he loved seeing people and hearing their stories, and then coming back and saying, “Hey, I was just at this thing, and all these people, they had these problems with subprime mortgage refinancing. Is that a thing?”

He viewed that as a major source of information on the ground for him, and once you’re the President you don’t have that anymore: a) you don’t have the same kinds of meetings with regular people; b) everybody’s getting screened when they come in to see you, so it’s not just random Americans; and c) you always have to start suspecting the motives of everybody who comes. If you’re talking to a small-business person, he’s not just giving you his opinion, he’s coming to talk to the President of the United States, and whoever, the NFIB [National Federation of Independent Businesses], might have told him, “You lobby. You tell him X, Y, Z.” So you’re always kind of wondering, Is this truly organic or is this a set up?

The President chafed at that a little bit, and the way he tried to scratch that itch is he committed that he was going to read some number of letters every day. He would tell the correspondence people, “You give me some letters.” So they’d give him letters.

Ten.

I don’t know how many it was.

It became a book, Ten Letters.

Oh, OK. Ten letters. So he would go through, and he would circle and underline and write stuff in the margins. There’s a Staff Secretary. There’s a whole process. If the President wrote on it, it needs to be in the National Archives. It needs to be kept.

That’s right, yes.

So he would get letters from people like, “I lost my house, and I followed your policy. You said you were going to save us, and I wasn’t saved.” So he would write in the margin, “Is this true?” Well, then it goes to the Staff Secretary, and it goes to somebody, and then they come down, and it was like my dad used to say when he was in the Marines, the general would show up and the colonel would be like, “The general’s coming. Go clean the runway.” Then they’d say to the captain, “The general’s coming and he wants a clean runway,” and on down the chain. My dad’s a private, and someone tells him, “The general wants you to go sweep the runway.” And my dad would be like, “How does the general even know me. Why does he want me to sweep the runway?”

So it would come through, and then eventually it would come down to me. “The President wants to know these statistics. Is Bob Jones’s mortgage a problem?” We’re going to call and figure it out.

The economic team, it would kind of drive them crazy, because on, say, foreclosure prevention, Obama would say, “Hey, my understanding from my letters is there’s something wrong,” and they would basically reject that type of evidence and Larry would say, “If we succeed, we’re going to help two million people avoid foreclosure, and there are still going to be eight million people who lose their home. So you’re still going to get tons of letters, even when our policy is right and doing well.”

But the ultimate joke was on the economic team, because what a bunch of the people complained about in letters became known as the “dual-tracking problem,” and it was a real thing. We got the banks to agree to refinance people’s mortgages with lower payments and instead of writing down principal—We don’t have time to go into the detail, but it would be logistically virtually impossible, because you’d have to get a vote, and these things had been securitized, so the owners are all spread out. You just couldn’t get them to write down principal, but you could get the servicer to reduce their monthly payment, so if you counted on lower monthly payments—People didn’t want to leave their homes. If they could get it to be affordable, they would keep making the payments, even if they were underwater.

That ends up proving to be true, and they got the banks and the servicers to agree to reduce their payments to 31 percent of their income. Let’s say that’s cutting their payment in half. The bank would offer them a loan modification to cut their payment in half. They would then start making the payment, half of the other payment. A different side of the bank, knowing nothing about that, would say they only made half their payment and commence foreclosure on them because they’re not making their payments.

It’s crazy. It’s insane. It’s in the same bank, but the two sides of the bank aren’t talking to each other. A bunch of people get foreclosed on because of that dual-tracking problem. They then go to court and sue, and it’ll go to a judge, and the judge will say, “No, you’re right. You should have never been foreclosed on. You can have your house back.” But now it’s been dormant for eight months. Vandals have come in and taken all the copper pipes out. It’s totally beaten up. And the people say, “I don’t want the house back!” Some of the letters were people complaining about that.

It was true that Obama’s ear to the ground had identified what would become a flaw in some of the things, but the economic team doesn’t want to deal at the level of anecdote. They want to deal at the big level of policy. So sometimes that would happen, but, like I say, that didn’t bother me, because that was very similar to what was in the campaign.

Yes. What is it that, looking back, you are most proud of?

Most proud of for the administration or for me?

Well, of your time there.

I guess for me, it’s that there was no depression, when the conditions absolutely should have been a depression, is the most fundamentally important thing that they did. He may never get credit. Most people find economics boring, and historians may look back and they may not even remember that, but that really was quite fundamental, and if it weren’t for that, it would have been a lot worse, which Barney Frank used to make fun of: “Nobody ever has a bumper sticker, ‘Vote for me because it could have been worse.’” [laughter] Fine, that may not have—But factually, that is how you should evaluate it. The central question of economics, as I say, is, “Compared to what?” And here, compared to what it was going to be, it would have been a lot worse.

Personally, I felt like my own contributions—I tried to just give as honest advice as I could to President Obama, a person that I deeply respect, and sometimes that advice was weird compared to what he was getting from others, but I think it was important. I think that idea that some people inside the tent will honestly tell you, “Here’s what I think is deeply wrong with your XYZ policy,” is pretty important.

And for me, the other side, as I moved into this message and explained the policy, it was a bit like the old speech and debate stuff. That was more of a natural fit for me, and I felt like even if the people hated Obama, if they hated him less, that was a win. Or it they at least understood what the policy actually was, that was an accomplishment.

For the administration—at least for the first term, I was there for almost the first three years—I think that there was no depression, and passing of stimulus, but others, how we dealt with the financial crisis, which we didn’t go into as much detail, the expanding health care for millions, passing Dodd-Frank and reregulating the financial sector. Any one of those three would be a huge accomplishment. I feel like looking back on that first term you can’t help but view that Obama had major legislative achievements. For that year, year-plus, that rivals any year in modern American political history of legislative achievements.

I feel good to have just been there, and that the guy from the birthday parties ended up being every bit as good a President as we wanted him to be. He’s still my neighbor, but he’s not around as much.

What a great country, huh? Where a guy from the neighborhood birthday parties—

Yes, what a great country. It’s still pretty incredible. There was one moment, personally, and it had to do with the autos. There was one episode where there was a critical meeting where, unbeknownst to me, they’ve excluded me and the other doubters. We don’t know the meeting’s taking place, and it’s in the Oval Office.

Obama evidently at that meeting says, “Is this a unanimous recommendation?” They have a memo. They’ve taken out a bunch of the things from the memo like, “Here’s what the opponents say.” It’s just “Here’s why we should do this,” and it makes it seem like everyone agrees. Obama says, “Does everyone agree?” And they admit, “Well, maybe there are a few people that didn’t agree, but—” He says, “Well, why aren’t they here? Who was it? Why aren’t they here?” “Well, Goolsbee may have written some things.”

So they call me. I’m just sitting in my office working. The phone rings. “You need to be in the Oval Office right now.” I say, “What?” This is early in the administration. I haven’t even been to that many Oval Office meetings. I run over. I open the door. They will only manifest for a meeting as many seats as there are. You can’t be standing in a meeting.

They open the door. All the seats are full, and it’s everybody from autos. So it’s Oh, they’re having an auto meeting, I guess. The only seat that’s open is for Joe Biden, the Vice President, who isn’t there. The President’s chair is right here, and the Vice President’s chair is here, and then there are couches and chairs and stuff. Larry always sits on the couch right here. So I come in and say, “What’s happening here?” And he says, “Here, come in.” The President says, “Sit right here.” There’s only one chair; it’s the Vice President’s. So I sit down right next to the President. Larry’s right on my right. He says, “I understand that you have some qualms about the rescue,” and I think, Oh, boy. [laughter]

So we start, and I speak my piece. “Look, here’s what I’m afraid of with Chrysler. GM, I understand. With Chrysler—” Larry’s giving me the stink eye, basically, When this is done, you’re dead; I’m going to get you. The President listens and says, “Larry, what do you think?”

This is in front of the President? Larry is getting angry, and the—

Yes, he’s annoyed that I’m disrupting. We have the whole process. They have the memo. We could have had a decision. The President said, “Yes, go ahead,” and now here I am, the thorn in his side again. I’m sitting down. I’m giving this thing, and now we’re going to relitigate in front of the President.

He says, “Mr. President, I want to say I disagree for this reason.” He’s got a tough-guy demeanor, and he’s pointing. As he’s talking, I’m just sort of—“This, and another thing!” I kind of phase out. I look over my shoulder, and right here in the Oval Office, one of the things that Obama had until it started getting sun damaged is the original Emancipation Proclamation, signed by Abraham Lincoln, that’s right on the wall. I look at this, and even now as I think about it my eyes kind of well up. I’m looking, and think, Oh my God. And here’s the first black President, right here. I’m in a meeting in the Oval Office and here’s the Emancipation Proclamation. Wow. Then I [inhales sharply] mentally come back in and Larry’s still going on, “And that’s why you—!” [laughter]

You know how with some places and certain smells or whatever you can have an emotional reaction? The Oval Office to this day is both high and low. I’m of multiple minds as I think about it. But it was pretty great.

Even now it makes you verklempt.

Makes me verklempt, it’s true.

Did Larry catch you outside, as I recall, in the story?

Look, he’s a robust guy with strongly held opinions. Like I say, most of the tensions are perennial tensions in Washington. In the end we were lucky that Larry was there, and it was lucky that they had as much brainpower as they had, because there were many points where it was touch and go. I think we have made peace. I was always an admirer and friendly with him before. I think we’ve gone back to that. I bet at the time he did not feel that way about me, but what are you going to do?

But you needed all hands on deck.

You needed all hands on deck, and the ship didn’t sink, so—

We’re glad you’re one of those hands on the deck.

And you’ve been very generous with your time.

It’s amazing how you get started. We’ve been going for hours, and then you start realizing that on housing, on the Volcker Rule, financial reform, on the mortgage stuff, there’s so much detail that you could—

It happens virtually every interview.

I bet.

When we schedule the time, people will say, “I can’t imagine that I’ll talk for more than three or four hours,” and then you look up after—

And then you’re like, “Wait. I haven’t even gotten to inauguration yet.”

Well, we’d be happy to come back and see you some other time, if you want, but your time is valuable, and I think we’ve covered a good deal.

Yes. This was good fun.

Thank you so much.

[END OF INTERVIEW]