Imagine you took Rahm Emanuel and split him into two people. One of the new Rahms was the pure political animal, the wartime consigliere, the tireless fundraiser, the maniac who jams steak knives into the table while calling out the names of his enemies. You took that guy and put him in charge of your campaign.

President Obama announces Chief of Staff Bill Daley's (R) stepping down after only one year in office at the White House in Washington Jan. 9. Budget director Jack Lew (L) will replace Daley. (KEVIN LAMARQUE/REUTERS)

What's the first thing your two Rahms would do? Well, given their personalities, and their different focuses, they would fight.

Monday's chief of staff shake-up brings the Obama administration pretty close to the two-Rahms scenario. Jim Messina, who served as Rahm's deputy chief of staff in the White House, is running the campaign. Messina is the political animal. He's the fixer. “You’d be in a meeting, and Rahm would bark out that something needed to be done," a former senior administration official told Politico. "Jim would disappear from Rahm’s office, pop through the door a few minutes later and say, ‘Got it!’ or ‘Got him!’”

And as of yesterday, Jack Lew, the mild-mannered budget wonk, is running the White House. I would include a funny story about Lew but there are, to my knowledge, no funny stories about Lew in the public record. It's possible something funny once happened involving Lew in private, but if so, the knowledge has long been lost. He does have a famously odd signature, but that's as close as we're going to get to a good anecdote. Lew is a guy who likes numbers and a guy who gets along with people. "Everybody likes Jack," said one former senior administration official. Even House Republicans.

That puts two very different guys, with very different political styles, and very different job descriptions, in charge of the two halves of Obamaland. And so the question is, what happens when they clash? What happens when the political side wants something that the policy side doesn't?

The usual answer, in a campaign year, is that the political side wins. That's how it almost always goes. But there are going to be some very big issues that cut directly across the two mens' zones of expertise, and will reshape federal policy far beyond the campaign. The Bush tax cuts, for instance, which need to be decided before the year is out, and which will be decided very differently if the political team is in charge than if the policy team is in charge.

Top stories

1) White House Chief of Staff William Daley was replaced by OMB head Jacob Lew, reports David Nakamura: "White House Chief of Staff William M. Daley resigned Monday, a year after taking the job, shaking up the administration’s senior management just as President Obama gears up for what is expected to be a tough reelection campaign. White House Chief of Staff William M. Daley resigned Monday, a year after taking the job, shaking up the administration’s senior management just as President Obama gears up for what is expected to be a tough reelection campaign. But Daley never seemed comfortable in the job, drawing wide criticism for his handling of the bitter and protracted legislative battles between the White House and Congress during much of 2011 that helped drag down the president’s public approval ratings. In a brief appearance at the White House on Monday, Obama announced that Daley, 63, will be replaced by budget director Jacob J. Lew, effective at the end of the month. Daley will stay in the job through the president’s State of the Union address Jan. 24 to help ease the transition."

The difference between Jack Lew and Bill Daley:

@jacobwe: Jack Lew's the antithesis of Rahm. All substance. No aggression. Politics only for the sake of good policy.

2) New Hampshire votes today, report Patrick O'Connor and Neil King Jr.: "Polls suggest Mr. Romney will coast to victory, barring an unexpected, last-minute surge by one of his rivals. But political observers will be paying close attention to the margin of his win. 'The spread matters more than anything else,' said Rich Killion, an unaffiliated Republican strategist who advised Mr. Romney four years ago. 'As long as he's ahead by 10 points, that's a strong showing.'...Beyond who wins and loses, Republicans are closely watching to see how many voters stream to the polls. GOP candidates say the party is fired up to oust Mr. Obama, but the jury is out on how excited voters are. In Iowa a week ago, were it not for Mr. Paul's legion of new voters--many of them independents rather than Republicans--turnout there would have been lower than in 2008, as Democrats were quick to note. New Hampshire Secretary of State William Gardner is predicting a record showing today, with 250,000 casting votes on the GOP ballot. But with only 232,000 registered Republicans in the state, that means large numbers of independents would have to vote in the GOP primary, as they are free to do. 'The big question with turnout will not only be how excited Republicans are, but is it interesting enough to draw in large numbers of independents and new voters,' said Mike Dennehy, an unaligned Republican strategist."

@fivethirtyeight: Has become thinkable that Romney could lose tomorrow. Certainly not likely but thinkable.

3) Mitt Romney is under attack for his time at Bain Capital, report Neil King Jr. and Danny Yadron: "On the eve of the nation's first presidential primary, Mitt Romney's Republican rivals sought to weaken a central plank of his campaign--that his 'real world' experience prepared him to fix the economy--by portraying the former governor as a corporate marauder who profited off the misery of others. Sparking an extraordinary debate within the Republican Party over what constitutes acceptable capitalist behavior, Rick Perry, Newt Gingrich and Jon Huntsman laid into Mr. Romney on Monday for his years at Bain Capital, the private-equity firm he ran until the mid-1990s...The Wall Street Journal examined 77 companies Bain invested in during Mr. Romney's tenure, and found that 22% either filed for bankruptcy or closed their doors by the end of the eighth year after the initial investment. The Journal also found that Bain under Mr. Romney produced exceptional profits for its investors of roughly 50% to 80% annually, but that most of those gains were produced by a relatively small number of deals, and some of these winning companies later ended up filing for bankruptcy protection."

@jbarro: What is the implication of the Bain hits on Romney? That we should have German-style labor market rules to prohibit layoffs?

4) Romney accidentally gave the Obama campaign the soundbite they were waiting for, reports Philip Rucker: "'I like being able to fire people who provide services to me,' Romney told a breakfast forum of the Nashua Chamber of Commerce. 'You know, if someone doesn't give me the good service I need, I want to say, ‘You know, I'm going to get someone else to provide this service to me.’' Romney’s comment came in response to a question about health-care policy before more than 300 area business leaders. The former Massachusetts governor was referring to being able to change insurance companies. Before making the 'fire people' comment, Romney said: 'I want individuals to have their own insurance. That means the insurance company will have an incentive to keep you healthy. It also means that if you don’t like what they do, you could fire them.'"

5) Candidates' with the strongest ground game are faring the best, report Nate Silver and Micah Cohen: "The 2012 primary campaign has been by far the most volatile on record, with one candidate after another surging to the front of the pack and then falling back again. Although this might seem self-evident, it can also be quantified. The Times’s FiveThirtyEight blog has developed a measure of poll volatility that calculates how much a candidate’s polling shifted month to month, above and beyond random variance. Since 1984, when primary polling became widespread, the candidates with the three highest volatility scores have been Newt Gingrich, Rick Perry, and Herman Cain, all of whom ran this year. But there are also two candidates who have been clear exceptions. Support for Mitt Romney and Ron Paul has remained remarkably stable. They also happen to be the favorites in Tuesday’s New Hampshire primary. What might explain their ability to avoid the swings of their rivals? In part, it relates to an old-fashioned form of politics: the ground game. Mr. Romney and Mr. Paul have built the best field operations in New Hampshire and other early-voting states, many Republicans say."

Top op-eds

1) The idea behind Romney's 'firing' gaffe is unworkable without an individual mandate, writes Derek Thompson: "Let's take the argument around his gaffe seriously. What Romney is arguing here is that our health care system should be more consumer-focused and that individuals should be able to switch their insurance company more easily. 'I want individuals to have their own insurance,' Romney said, with the all-important caveat: 'if they wish to.' What Romney is calling for is a market-based approach to health care without a universal mandate. Romney says 'the insurance company will have an incentive to keep people healthy.' That's not true. The insurance company, as Romney knows, has an incentive to make a profit. One way to make a profit is to have way more healthy clients than sick clients. But that's not the easiest way. The easiest way is to rescind coverage when your healthy clients get sick, or to refuse coverage or discriminate on the basis of preexisting illnesses to ensure your group has only healthy people. Without regulation to prevent insurers from discriminating against or pushing off the sickest policyholders, healthy patients would all belong to cheaper plans and sick people would all get stuck in the same insurance program that death-spirals toward bankruptcy...Romney wants to give families the power to choose and fire insurance companies. That's commendable. It's also unworkable in a market where 'people [only] own insurance if they wish to.' That's the real gaffe from this morning."

2) Liberals may not like Lew any better than Daley, writes Noam Scheiber: "Before we get to whether liberals will warm to Jack Lew, the incoming White House chief of staff, in a way they never did to his just-ousted predecessor, Bill Daley, it's worth pointing out that Lew is, at the very least, absolutely beloved by the president and the top West Wing operatives. He’s an egoless Obama-type guy with something the president appreciates almost as much as the low profile: Deep, institutional knowledge of Capitol Hill and the way money is doled out there...As for whether liberals will warm to Lew, my reporting suggests it could cut either way. On the one hand, Lew has a well-deserved reputation for defending programs that serve the poor, particularly Medicaid. On the other hand, as I elaborate on in my book, Lew and Treasury Secretary Tim Geithner were the administration’s chief proponents of accepting cuts to Medicare during last year's ceaseless deficit-bargaining with Republicans. Lew's enthusiasm for making a deal on Medicare was such that it prompted considerable grumbling in progressive circles. There’s also the question of whether accommodating the GOP’s demands for large-looking cuts, even while minimizing them in practice, was as successful strategically as it was tactically. One could argue, after all, that the approach shifted the conversation entirely in the direction of cuts for much of the year, which wasn’t exactly a smashing success."

@pourmecoffee: White House Chief of Staff is a very important position. They try to trick the Congress into accomplishing things.

@brianbeutler: Oh good, a confirmation fight over the WH Budget Director.

3) Obama's got one shot to help the housing market without congressional cooperation, writes Ezra Klein: "A more promising avenue for an impatient administration is to recess-appoint a new director of the Federal Housing Finance Authority -- the body that oversees Fannie Mae and Freddie Mac...If the White House recess-appointed a friendlier director, the agency could write the rules so that anyone with a loan backed by Fannie and Freddie and current on their payments for six months would be automatically approved for refinancing. Then -- and this is crucial -- the president could make Americans aware of this fact during the State of the Union and in subsequent public addresses. Fannie and Freddie could send a letter to every eligible homeowner. The combination of easier rules and vastly better publicity would lead many millions of Americans to refinance their loans."

4) Supply-side economics is losing its political advantages, writes Ramesh Ponnuru: "Supply-side economics is supposed to be a cheery creed, and its devotees have good reason to be happy. Keeping the top federal tax rate low has traditionally been their key policy objective. Today, that rate is 35 percent: It has been lower than that for only five of the past 80 years. Yet in this campaign, the keepers of the supply-side faith are grim. So far the two Republican candidates who have departed the most from supply-side doctrine have done the best...It’s still a supply-side party. And in none of these cases could it be fairly argued that the candidate’s tax proposals caused him to lose altitude. But supply-side boldness clearly isn’t paying the political dividends its advocates say it should...Taxes do reduce the incentive to work, save and invest. We should strive to keep them low. They should be designed to distort economic decisions as little as possible. But these truths, like any truths, can be pushed too far.The progress of the Republican race suggests that supply- side politics, in its present form, is hitting its limit."

5) Liberalism can't win until Americans trust government, writes David Brooks: "Given the circumstances, this should be a golden age of liberalism. Yet the percentage of Americans who call themselves liberals is either flat or in decline. There are now two conservatives in this country for every liberal. Over the past 40 years, liberalism has been astonishingly incapable at expanding its market share. The most important explanation is what you might call the Instrument Problem. Americans may agree with liberal diagnoses, but they don’t trust the instrument the Democrats use to solve problems. They don’t trust the federal government. A few decades ago they did, but now they don’t. Roughly 10 percent of Americans trust government to do the right thing most of the time, according to an October New York Times, CBS News poll. Why don’t Americans trust their government? It’s not because they dislike individual programs like Medicare. It’s more likely because they think the whole system is rigged. Or to put it in the economists’ language, they believe the government has been captured by rent-seekers...If Democrats can’t restore American’s trust in government, it really doesn’t matter what problems they identify and what plans they propose. No one will believe in the instrument they rely on for solutions."

Late night interlude: Wild Flag plays "Short Version" live on "Late Night With Jimmy Fallon."

Got tips, additions, or comments? E-mail me.

Still to come: Consumer borrowing jumps; health care spending growth stays low; a step forward for "right to work"; electric cars' promising future; and a puppy that is very excited to eat.


Romney faced little personal risk at Bain, reports Greg Sargent: "As you may have heard, Mitt Romney declared over the weekend that there were times when he, too, worried about getting a 'pink slip.' Romney’s GOP rivals immediately pounced, with Rick Perry claiming: 'I have no doubt that Mitt Romney was worried about pink slips, whether he was going to have enough of them to hand out.' Now the Obama-allied group Priorities USA Action is set to attack Romney over this in another way, pointing out that Romney getting a pink slip during his years as a Bain Capital executive wouldn’t be all that comparable to the fate that befalls ordinary workers when they get fired...This is another sign that Dems recognize the urgency of winning the war to define Romney’s Bain years in the public mind, and that if Romney succeeds in defining them on his terms, it could be dangerous. Expect Dems to use this one as another data point in the case that Romney is out of touch with the anxieties felt by many ordinary Americans coping with job insecurity and the stresses and travails of joblessness."

Consumer borrowing increased dramatically in November, report Jon Hilsenrath and Joshua Mitchell: "Consumer borrowing leapt as holiday spending kicked in late last year, according to a new Federal Reserve report which hinted that the era of household debt reduction that has held the economy back for years might be entering a new, milder phase. The Fed said Monday that household borrowing on credit cards, car loans, student loans and other kinds of installment debt jumped at a 9.9% seasonally adjusted annual rate in November, the fastest monthly increase since November 2001. That was when the economy was bouncing back from the Sept. 11 terror attacks and Detroit car companies were rolling out zero-percent financing on auto loans. Households have become more willing to take on debt after years of paring their borrowing, the Fed report suggested. For several months, borrowing for car loans and student loans has been on a modest upswing. The latest report showed households also are starting to add to their credit-card balances. Credit-card balances, which the Fed describes as 'revolving' credit, increased to $798.3 billion in November, on a seasonally adjusted basis, rising at an 8.5% annual rate from the month before...The rise in consumer debt could reflect what some have called 'frugal fatigue' and others 'pent-up' demand: consumers who put off purchases are now replacing items such as autos and T-shirts, either out of necessity or a sense that the economy is improving and the urge to clamp down financially has eased."

@crampell: November had the largest single monthly gain in revolving credit since March 2008, per IHS Global Insight

A strong dollar will hurt manufacturing, reports Kathleen Madigan: "A strong dollar may enhance the U.S.’s sense of pride. But it will be a headwind for U.S. manufacturing. That isn’t because a weak euro will cut U.S. exports to Europe. The euro zone is in recession and won’t be buying much from any nation. The challenge will come in emerging markets that have the money and pent-up demand for foreign-made goods...But materials and capital goods, plus vehicles, are important tradable goods for the euro zone as well. A weak euro will give European producers a price advantage in emerging markets. This is especially true for commodity materials, such as chemicals and paper, that compete on price more than brand-name preference. Slower export growth won’t derail the U.S. factory recovery, but it will slow growth on the margin at a time when the U.S. is expected to expand at a modest pace. Of course, busier euro-zone manufacturers offer a plus to the global economy. A debt solution would be easier to reach if Europe’s economy was growing. That could mean stronger financial markets and more confident consumers and businesses around the world. A solution would also calm the foreign-exchange markets and reverse the euro’s slide. If so, remove one headwind from the U.S. outlook."

The number of firms paying no taxes is rising, reports John McKinnon: "StoneMor Partners LP, the publicly traded firm that specializes in running cemeteries, expects to see handsome profits in coming years as baby boomers age and die. But unlike its largest rivals, its corporate tax bill from the federal government will be zero. StoneMor is among the many businesses organized so they don't pay a penny in federal corporate income tax. And yet such firms don't employ an army of accountants to shield profits in complex tax shelters. Their enviable tax position is perfectly legal and has been encouraged by Congress and state governments. Known as pass-throughs, these firms pass along profits to investors who pay taxes on those sums through their individual returns. This exception has been around for decades, and has been broadened repeatedly in recent years as a way to spur entrepreneurship. Millions of small businesses have organized this way, but so too have some behemoths like private-equity giant Blackstone Group LP, construction firm Bechtel Group Inc. and pipeline firm Kinder Morgan. The percentage of U.S. corporations organized as nontaxable businesses has grown from about 24% in 1986 to about 69% as of 2008, according to the latest-available Internal Revenue Service data. The percentage of all firms is far higher when partnerships and sole proprietors are included."

China's trade surplus is shrinking, reports Sharon LaFraniere: "Exports from China rose 13.4 percent in December compared with a year ago, while import growth slowed to 11.8 percent as domestic demand weakened, government data released Tuesday shows. Over all, the Chinese trade surplus shrank to $155 billion in 2011, from $183 billion in 2010, as imports picked up and demand for Chinese goods in Europe and elsewhere softened. IHS Global Insight, an economic forecasting firm, said that while still sizable, the trade surplus was China’s lowest in three years. That could help China fend off pressure from the United States to allow its currency to appreciate faster...The Treasury Department said last month that the United States would continue to push China on the exchange rate but stopped short of accusing China of manipulating its currency. The United States argues that despite slow appreciation, the renminbi remains undervalued to bolster Chinese exports. Some analysts predict that China will allow its currency, the renminbi, to strengthen by about 3 percent against the dollar this year."

Graph interlude: How most people feel about graphs, in one graph.

Health Care

Health care spending growth remained near a historic low in 2010, reports Louise Radnofsky: "The growth of health-care spending was near a historic low at 3.9% in 2010 as the weak economy prompted people to cut back on medical care, according to data released by federal analysts. Health expenditures in the U.S. totaled $2.6 trillion in 2010, or $8,402 per person, the Centers for Medicare and Medicaid Services said. Health-care spending was roughly in line with overall economic growth for that year, and followed a record low of 3.8% in 2009. Health spending accounted for 17.9% of gross domestic product in 2010, the same as the previous year...Stephen Heffler, director of the National Health Statistics Group, said it wasn't possible to say if slower growth would continue, but noted that in the past, health spending had rebounded along with economic growth...The health-care law passed in March 2010 didn't significantly affect costs in that year, as many of its most significant provisions aren't due to take effect until 2014. However, a few early-starting provisions in the law--in particular a $250 prescription-drug rebate for seniors--may have been responsible for about 0.1 percentage points of growth, the analysts said."

SLIDESHOW: The history of health-care costs.

Domestic Policy

Indiana Democrats ended, for now, their legislative boycott over a "right to work" bill, reports Mary Beth Schneider: "The Indiana House went into session for the first time in 2012, as Democrats ended their walk-out which began on Wednesday. But while Democrats returned today, they made no promise that they won’t boycott the floor again to slow up the so-called 'right to work' legislation. That legislation bans companies and labor unions from negotiating a contract that requires non-members to pay fees for the representation unions are required to provide all members of a bargaining unit...A rare joint House/Senate committee held a five-hour hearing on the issue Friday, taking public testimony for and against the legislation. While the Senate members vote 6-4 for the legislation, the House members could not vote because of the walk-out. The House Employment, Labor and Pensions Committee will meet again at 8:30 a.m. Wednesday to consider possible amendments and vote on the bill. That clears the way for the full House to debate changes to the bill on Thursday and vote on it on Friday."

FCC Chair Julius Genachowski is pushing broadband expansion for low-income households, reports Hayley Tsukayama: "In a Monday speech, Federal Communications Chairman Julius Genachowski outlined a draft proposal that would expand a program that provides affordable telephone service for low-income Americans to include broadband Internet service...In his remarks, Genachowski said the program, known as Lifeline and which provides discounts on monthly telephone bills, has been successful, but has also been plagued by problems of accountability and efficiency...The chairman said the FCC would work with existing broadband adoption programs to establish its own pilot program using savings from its budget reforms. It will also look at how to use Lifeline to encourage adoption among those consumers. Genachowski said the program will be 'modernized to meet the needs of low-income Americans in a broadband world' and is in line with the agency’s other efforts on broadband adoption. The Lifeline program is supported by the Universal Service Fund, which was created to connect all Americans to the telecommunications infrastructure."

Adorable animals being adorable interlude: A puppy is totally psyched to eat.


@MacMcClelland: I feel like people would care a lot more about global warming if they knew it might ruin pancakes.

The future is bright for electric cars, reports Brad Plumer: "Hybrids and all-electric vehicles have had a rough go the past year, despite hype and hope surrounding them. Still, as the 24th annual Detroit auto show reveals, automakers are continuing to make big bets on the market. One company that exemplifies the uncertainty ahead is Ford. On Monday, the firm announced that it was pulling the plug on its ­7-year-old gas-electric Escape sport-utility vehicle, which has seen sales plunge of late. But Ford also revealed that it was doubling down on the future of electric vehicles, announcing three new versions of its top-selling Fusion family car, including both gas-electric and plug-in hybrid models. The U.S. hybrid market made up just 2.2 percent of auto sales in 2011, down from 2.4 percent in 2010. And more-advanced plug-in cars, such as the Nissan Leaf and the Chevrolet Volt, sold only 17,345 units last year, missing expectations. Placed in perspective, though, those modest sales aren’t too apocalyptic. Randy Essex and Ben Holland of the Rocky Mountain Institute observe that when the first gas-electric hybrid models rolled out in 2000, the Honda Insight and Toyota Prius had sales of just 9,350. Those figures looked anemic at the time, too. But the technology eventually caught on and more than 2 million hybrids have been sold in the United States since then."

The Obama administration banned mining near the Grand Canyon, reports Andrew Restuccia: "The Obama administration will ban new uranium mining on 1 million acres of federal land near the Grand Canyon, the Interior Department announced Monday. 'We have been entrusted to care for and protect our precious environmental and cultural resources, and we have chosen a responsible path that makes sense for this and future generations,' Interior Secretary Ken Salazar said in a news release. The ban prevents new uranium mining claims in the region, but does not halt projects that have already been approved or have existing mining rights. Interior said the ban will allow scientists to monitor the effect of uranium mining on water quality...Interior’s Bureau of Land Management estimated that 11 uranium mines that have already secured rights on the land will be able to operate under the ban. About 30 mines would have operated in the region during the next two decades without the ban, BLM said."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.