Obama’s Reform Agenda: Is He Trying to Do Too Much?

Is this an opportunity …

… or is it just a crisis?

On the best of days, Washington and Wall Street are as antsy as a boy who plants an acorn and then starts talking about climbing the tree. And these are not the best of days. Under the stress of a global financial disaster and juiced up on the amphetamine of 24-hour cable chatter, America’s axis of money and influence is jittery and nervous and primed for panic.

This is relevant background for digesting the news that Barack Obama’s honeymoon in the corridors of power has come to an abrupt end–even as opinion polls show that the public remains by his side. To most grownups, seven weeks is an eyeblink (in baseball it’s called spring training), but along the Acela line it is much … too … long to wait for Obama to fix the economy. And so the doomsday chorus began: He’s trying to do too much. He’s doing too little. His bank bailout is too complicated. His health-care plan is hollow. The great orator can’t communicate his priorities. His priorities are clear–but screwed up.

The problem for Obama, and perhaps for us all, is that some of the hand-wringing came neither from flibbertigibbets nor from opportunists. Some came from Warren Buffett, whose patient ability to take the long view has made him the wealthiest investor in America. Buffett was–and is–an Obama supporter, but he took to the airwaves on March 9 to try to seize the young President’s attention away from health care and education and energy and refocus it back onto the economy. Warning that Obama’s agenda has become too sprawling and provocative, Buffett admonished, “Job 1 is to win the war, the economic war. Job 2 is to win the economic war–and Job 3.” He added, “You can’t expect people to unite behind you if you’re trying to jam a whole bunch of things down their throat.” The oracle’s verdict was quickly endorsed by Jack Welch and Andrew Grove, retired CEOs of General Electric and Intel, respectively. And from Federal Reserve Chairman Ben Bernanke came this measured nudge: “Until we stabilize the financial system, a sustainable economic recovery will remain out of reach.”

Another unexcitable voice, from the laconic flatlands of North Dakota–Senator Kent Conrad–warned on March 10 that Obama’s $3.6 trillion budget is already in trouble on Capitol Hill. Democrats may be in power, but they aren’t all in agreement with Obama’s do-it-all-now approach to solving the nation’s most persistent problems. “Anybody who thinks it will be easy to get the votes on the budget in the conditions that we face is smoking something,” Conrad declared.

Obama fired back the same day. “I know there are some who believe we can only handle one challenge at a time,” he said, invoking Lincoln’s launch of the transcontinental railroad in the midst of the Civil War. “We don’t have the luxury of choosing between getting our economy moving now and rebuilding it over the long term.” The political strategy of the Administration can be summed up in a motto: “Never waste a good crisis,” as Secretary of State Hillary Clinton put it. That phrase has been the rallying cry of the Obama team for months. But it increasingly appears that the Administration was unprepared for both the severity of the recession and the political resistance to trying to do so much at once. And so the Obama team is coming to grips with another motto for the ages: Sometimes a crisis is an opportunity–but sometimes it’s just a crisis.

The Confidence Game

As director of the office of Management and Budget, Peter Orszag is a card-carrying numbers guy. But lately Orszag has been reading up on that aspect of the economy ungoverned by numbers: the realm of groundswell and mojo–our “animal spirits,” in the vivid words of economist John Maynard Keynes. Spirits such as trust, belief and confidence. When surging, these spirits can turn a slump into a boom and a boom into a bubble, but once they shatter, it’s a devilish job trying to resurrect them. That’s because other animal spirits rise up to take their place: doubt, fear, even panic.

The arrival of a new President tossed some tinder onto the cold coals of economic confidence; now Orszag and others inside the Administration are trying to feed the fire. And in spite of Obama’s insistence that his team must walk and chew gum at the same time–make that “run and chew gum,” his advisers recently amended–it is starting to register that nothing would stoke the flames better than a credible strategy for cleaning up the banks. As a senior Administration official puts it, “The money is less important than restoring a sense of confidence.”

So although the President defends his broad agenda, he understands how much is riding on the gradual rollout of version 2.0 of his bank plan–not necessarily bigger than the $787 billion package that left the markets cold, but sharper and more plausible. The trouble with the initial draft unveiled unartfully last month by Treasury Secretary Tim Geithner, says Moody’s Economy.com chief economist Mark Zandi, was that it was “too clever by half,” creating elaborate incentives for private investors when the simple solution would be to have Uncle Sam immediately wade in, grab control, wring out the bad debt and punish the malefactors. The more complex approach attempted to avoid the stigma and huge up-front costs of “nationalizing” banks. But “the Administration hasn’t sold its policy efforts well enough,” Zandi says.

There are good reasons for the Administration to focus on the banks. The first is clarity. In recent days, the President has highlighted his long-term plans for education, energy independence and health care–all of which, he argues, are essential to the long-range vitality of the U.S. economy. But to borrow from Keynes again, in the long term, we’ll be dead, and in the short term, the LIBOR rate–that esoteric measure of financial vigor–has been creeping in the wrong direction again. “The public really needs to know what he thinks is important,” says a senior Democrat. “There’s no prioritization.”

The second point is that a lasered-in President is an antidote to the flightiness and indiscipline endemic to both Washington and Wall Street. Fixing one problem at a time may strike Obama as mere gum-chewing. But in modern-day Washington, one is a very high number. The reason so many people were left slack-jawed by the Obama budget was not that they disagreed with his premise that health-care costs are out of control or that energy independence is desirable or that better schools are important to the future of the economy. It was the real-world knowledge that financial calamity has not magically transformed our slow-moving, reform-resistant, cantankerous government into a peaceful, streamlined, problem-tackling machine. Every one of Obama’s reforms will mean bigger political fights, consume more intellectual bandwidth and require more bravery from politicians than Washington has witnessed anytime in the past 15 years.

Which once again argues for knuckling down on the banking issue, because that’s a matter of unquestioned urgency. Political opportunists will no doubt jockey to claim credit or place blame, but ultimately everyone is looking to the Administration for leadership in this area, and only ideologues will grumble if Obama manages to find a way through it. The President and his team were elected to fix the economy, a senior Republican acknowledges, but the electorate is less clear, he argues, on the rest of the Obama agenda.

Yet another reason to focus–perhaps the hardest for the Obama team to accept–is that this is a rookie White House still finding its legs. That’s not criticism. It’s just a fact. Obama defended his vast agenda by citing John F. Kennedy, who didn’t have the luxury of choosing between civil rights and a mission to the moon. But history shows that seven weeks after being sworn in, Kennedy was bumbling his way toward the Bay of Pigs. It takes time to get good at the presidency.

And Team Obama isn’t there yet. Even for a great communicator, confidence requires an investment in credibility–and Obama has been a little risky with his portfolio. He said no lobbyists would be working in his White House–except the ones he really, really needed–and that no pork would fatten his budgets once he got past the $410 billion omnibus spending bill with its 8,570 earmarks. By promising higher standards for hiring, tighter controls on spending and greater transparency in execution, Obama set himself up to let people down. Consider Orszag’s March 10 trip to Capitol Hill to testify before the Senate Finance Committee. Senators are intrigued by Obama’s proposed 10-year, $634 billion “down payment” on health-care reform, but Orszag pointedly avoided going into detail. “You will not be receiving definitive answers from me on exactly what the Administration does or does not favor on the benefits-and-coverage side of health reform,” he told the panel. This may be a good way to get a bill through Congress; whether it is a good way to instill broader confidence in the President’s priorities is another question.

How Long Will Americans Wait?

Americans under stress are more receptive to the robust government that Democrats offer. So Obama believes conditions are ripe for his party’s answers to problems that are far beyond the present storm. Inside the Administration, Obama’s audacious budget sketch is seen as an intricate web of reinforcing reforms, an exquisite piece of re-engineering in which stimulus creates jobs, jobs generate revenues, revenues fund an efficient health-care system, which in turn tames the deficit. What critics consider a massive intervention to impose a price on carbon emissions is, to the White House, the engine for the growth of a robust new green economy. Meanwhile, students will begin graduating from improved schools and moving seamlessly into this prosperous future. Shortcomings may lie in the details, but the economy won’t really be fixed until the entire web is assembled. “I see this document differently,” Obama told Congress as he introduced the budget. “I see it as a vision for America–as a blueprint for our future.”

This is the reason behind the Obama team’s madcap multitasking. As press secretary Robert Gibbs put it the other day, the whole American house is on fire, not just the particular room where the flames happen to be roaring. “Are you going to call the fire department and ask them to put all of it out?” Gibbs asked. “Or are you going to say, ‘You know what? We love the living room. Start over there. And if you can, get quickly to the kitchen, and next to the den.’ We could do that. And maybe by the time they get to the kitchen or the den, the whole house is in ashes.”

But moderate Democrats in Congress may douse some of Obama’s grander ambitions. As infuriating as that is to progressives eager to seize on this “good crisis,” it’s a natural by-product of giving the vote to Americans who live in coal-burning, oil-drilling, far-driving and heavy-manufacturing regions. One such place is Indiana, whose Democratic Senator, Evan Bayh, will be tough to sell every line of the Obama budget to. “I’ve spent some time with the President, and my strong impression of him is, at the end of the day, he’s a pragmatist,” Bayh says. Translation: Obama will take what he can get.

The thing nostalgic Democrats forget about Social Security is that it did not come in the first year of Franklin Roosevelt’s presidency or even in the second. The major initiatives of the New Deal passed only after F.D.R. had convinced Americans that he had his priorities straight. His immediate attention to issues like the run on banks and sky-high unemployment gave him a congressional landslide in 1934 that ratified his 1932 victory. That’s when he grew strong enough to pass his broader agenda. The best way not to “waste a good crisis” is to put the stress on “crisis.” Once Obama does that, the antsy gang on Wall Street and in Washington will have to pay attention.