Just before 1:30 p.m. Aug. 3, a frustrated President Obama gathered Gene B. Sperling and the economic team in the White House and told them to design a jobs package he could offer the American public.
Obama had spent much of the year locked in negotiations with Republicans over the national debt, with little to show for the effort but a sagging approval rating. He had wanted to argue publicly for ideas to create jobs, but hesitated in the midst of negotiations. Liberal critics reprised a familiar critique of the Obama White House: that it too often bows to political constraints and forfeits what’s right for what’s possible or easy.
With his aides in the Roosevelt Room, Obama was clear about his vision for the jobs plan: “No self-censorship based on what’s politically possible or legislative handicapping. I want to hear the best ideas that you all think will make a difference and are worth fighting for.”
Sperling proceeded to create the $447 billion American Jobs Act, which led to a new, confrontational and decidedly more populist stage of the Obama presidency.
It was a clarifying moment after years of economic debates that had gripped Obama’s White House.
Sperling, 53, the director of the National Economic Council, has been at the center of these debates, just as he was in the Clinton administration. Like the Democratic presidents he has served, Sperling has wrestled with the competing demands of idealism and realism, liberal orthodoxy and financial markets.
This has meant knowing when the president should fight for exactly what he thinks is right and when he should adjust policy to work within legislative constraints. And it has meant balancing the urge to use government spending to create jobs and invest in public programs with the imperative to curb the nation’s debt.
“Gene is deeply committed to a traditional, Democratic, FDR perspective on policy issues,” former Treasury secretary Robert Rubin said in an interview. “But he has a deeply internalized sense of the severe risk that an unsound fiscal regime presents with respect to markets and financial crises.”
In the view of many liberals, the Obama White House has too often struck the wrong balance: The 2009 stimulus was too small; the 2010 deal that extended upper-income tax cuts was too generous to the rich, and the 2011 embrace of deficit reduction was the wrong priority.
But with the American Jobs Act, which proposed heavy government spending and middle-class tax cuts to boost the economy, those critics have been largely silenced. In fact, many on the left cheered the president’s proposal.
“I think you’re always torn between two fundamental balancing acts. One is between your ideal policy and what are the practical achievements you can do to help people. And the second balance is progressive policies that invest in a growing middle class, in a more just economy and the need to establish the trust in government that comes from being fiscally responsible,” Sperling said in an interview. “You try to keep your sense of basic values and why you’re here and just work your heart out through each tough trade-off to try to get it right.”
This story — about how Sperling and the White House have managed that balancing act — is based on interviews with current and former administration officials and others familiar with the deliberations. Some declined to be named in discussing internal deliberations.
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The economic debates that have consumed the Obama White House can be traced back to January 1993 in the Arkansas governor’s mansion. Two weeks before President-elect Bill Clinton was inaugurated, Sperling sat debating whether to sacrifice principles of Clinton’s campaign — a traditional liberal agenda that included universal health care and spending on education and job training — to curb the growing national debt.
Rubin, then a top Goldman Sachs executive and Clinton adviser, argued that reducing the debt was crucial to maintain the confidence of international bond markets. The other “Bob R.,” Robert Reich, an old friend of Clinton’s and a liberal academic, wanted the president-elect to stand by his campaign promises.
Sperling, who had worked as a research assistant to Reich in the early 1980s, leaned in his direction. But Clinton was convinced that debt reduction was an imperative that would require sacrificing parts of his agenda.
Rubin, who became head of the NEC, tapped Sperling as his deputy. Reich served as labor secretary. “He viewed the two of us as his mentors,” Reich said. “He expressed some stress about being pulled in those directions.”
During the first term, Sperling was lionized by liberals for fighting to preserve a crucial anti-poverty program as the Clinton vision was scaled back. In the second term, after Rubin took the helm at Treasury and Sperling became NEC director, he was seen as betraying the liberal cause for insisting that newfound budget surpluses be used to shore up Social Security rather than to fund new social programs.
In the last months of the Clinton administration, Sperling sat on Air Force One chatting with a relatively little known member of the administration, Timothy F. Geithner, who was in charge of international affairs at Treasury. They talked about what they’d do next in life. Despite encouragement to take jobs on Wall Street, both were planning to go in a different direction.
Sperling ran several nonprofit education organizations focused on girls and women in developing countries (one sponsored by Goldman Sachs, which paid him handsomely for his services), and he worked at a liberal think tank. Geithner worked at the International Monetary Fund and then took the helm at the Federal Reserve Bank of New York.
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In August 2008, the two men were playing tennis at an economic conference and talking about what might happen if Barack Obama became president. Sperling, who had advised Hillary Rodham Clinton, didn’t expect to play a major role, but he said Geithner had to take seriously the possibility that he would be asked to run Treasury. Geithner told him: No way.
When Obama tapped him as Treasury secretary, Geithner asked Sperling to join as a no-title adviser. “The great thing about him was he was willing to come help do anything,” Geithner said. Sperling asked to be Treasury’s top adviser on fiscal policy. But he also encouraged Geithner — who was focused on stabilizing the financial system and faced critics who accused him of being too sympathetic to Wall Street — to pay more attention to populist ideas such as curbing executive pay.
Geithner gave Sperling an unusual degree of freedom to share his opinion in White House fiscal policy meetings. But there were some differences between the men. Geithner placed a premium on the country making a clear commitment to reducing its debt over time. Sperling agreed with the need for fiscal discipline, but often argued for somewhat greater flexibility to guard against cuts in social programs such as Medicare. Geithner allowed Sperling to speak his mind at the White House, though he was insistent on this: There must be a strict target for the ratio of the annual budget deficit to the size of the overall economy.
As the year dragged on, many economists complained that the stimulus passed at the beginning of Obama’s term was insufficient. In particular, Obama’s aides were horrified by the steep budget cuts that emerged at the state and local level — and that teachers were being laid off. They needed to be offset, and it would require tens of billions of dollars in federal funding.
But Obama’s legislative aides predicted a losing battle, and the president didn’t fight for it.
In summer 2010, Sperling and Geithner decided that the administration should set the stage to fight the extension of the upper-income Bush tax cuts due to expire at the end of the year. But when it became clear that Republicans would take the House and that Obama would be unable to stop the extension, Sperling set his sights on something the administration could get in return: a cut in payroll taxes, which many Republicans previously had said they would support, as well as an extension of other measures.
When Obama supported the deal, liberals savaged the president. Sperling was dispatched to talk to House Democrats, who accused him of being a sellout. But Sperling and the White House felt they had received a lot in return for extending the tax cuts.
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In May of last year, Rep. Paul Ryan (R-Wis.) was concluding his remarks at a conference on fiscal policy hosted by the Peter G. Peterson Foundation when the moderator asked him what he wanted to say to the next speaker, Gene Sperling.
Ryan had been the architect of an ambitious deficit-reduction plan to cut more than $4 trillion from the federal debt over 10 years. His work, along with the rise of tea party Republicans, had helped propel the national debt to the forefront in Washington. The White House responded with a plan — partly designed by Sperling — to cut $4 trillion over 12 years, in part by raising taxes on the rich, a step the Republicans opposed.
“What is wrong with the president’s plan is it doesn’t fix the problem,” Ryan said. “The problem is a debt crisis. It doesn’t do anything to address the drivers of our debt: our entitlement programs. . . . Even with all the tax increases in the president’s plan, which I think chills economic growth, it still chases higher spending.”
When he got on stage, Sperling acknowledged that Ryan’s plan reined in the debt at a faster pace. But, he added, the Republican plan included significant spending cuts, in particular, to Medicaid, the health insurance program for the poor.
“You can’t say to anybody who would be affected by that that we have to do that . . . that we have no choice,” Sperling said. “The fact is that all of the savings would be unnecessary if you were not funding the high income tax cuts.”
“From a policy perspective, from a values perspective, we should be very deeply troubled,” he added later.
For the moment, liberals cheered Sperling’s defense of social programs such as Medicaid. But in fact, many were upset with him and the White House at the time. Obama had entered a series of negotiations with Republicans to tame the debt over the long term.
Liberals complained that Obama was abandoning a more urgent matter: spending to lower unemployment. The jobless rate hovered above 9 percent. Millions of Americans were facing foreclosure.
In reality, Sperling and the White House wanted a combination of short-term stimulus with a long-term plan to curb borrowing. But it was a trick to stake out that position.
“The strategic approach may well have been to try to preempt on deficit reduction, so the president could get out ahead of the Republican message,” Reich said. “The danger, of course, is that in doing so, the president may seem to be endorsing and legitimizing the Republican message instead of advancing a sharply different set of ideas.”
As 2011 dragged on, Sperling was torn. Obama was clearly frustrated that he could not hit the road to campaign for ideas to reduce unemployment. And Sperling was developing those ideas — even giving a lengthy presentation in early June at a quiet White House retreat at the National War College.
But even if a new economic plan was needed, Obama’s team decided it was too risky to announce one. If he made proposals while budget negotiations were under way, Obama reasoned, he could undermine those talks.
“Anytime you’re locked in a confidential negotiation,” Sperling said, “you are to some degree sacrificing your ability to fully speak your heart and mind for the sake of trying to focus on getting one very important thing done.”
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In early August, Obama finally reached a deficit reduction deal with Republicans, though it did not achieve as much as he had wanted.
Days later, Sperling presented Obama and his top aides economic forecast after economic forecast showing that U.S. economic growth was rapidly slowing. Unemployment probably would be stuck around 9 percent. The government needed to pump hundreds of billions of dollars into the economy to create jobs — and fast.
In the internal discussions, Obama’s political strategists, led by David Plouffe, presented the risks of unveiling a big economic stimulus package. Although they supported taking any steps necessary to help the economy, they noted a bigger package would be easier for critics to attack. It also couldn’t be sold as simply a big “stimulus” because using that word became problematic when unemployment charged higher after Obama’s first stimulus in 2009. Each component of the plan had to have a defined purpose.
Plouffe, joined by budget director Jack Lew, argued that the White House would also have to simultaneously announce a plan to pay for the stimulus through tax increases or spending cuts down the road.
Sperling, however, consistently argued for making the stimulus as big as possible.
“His view was we need to do things that will create demand and boost employment right away,” Plouffe said. “Gene was always very insistent that there’s a black-and-white mathematical assessment about what needs to be done for the economy.”
After Sperling unveiled the basic outlines of the stimulus plan, Obama asked whether he had omitted any proposals because he thought they had no chance of passing.
Sperling said he was unsure if they should include a program to provide aid to states and municipalities — specifically to prevent teacher layoffs — because the legislative team had made so clear they would not pass.
Obama wanted to include those ideas anyway.
“The best ideas,” the president told Sperling, “like [preventing] teacher layoffs, are the ones with the biggest connection between short-term job creation and our long-term agenda.”
Sperling felt liberated.
“It was invigorating because we had spent a summer of painful bargaining over what was achievable to avoid a default and a potential economic meltdown and now we were engaging in a back-and-forth with the president on what he felt was the best and smartest policies to jump-start jobs,” Sperling said.
By the end of August, the White House had settled on a package of $375 billion. It was a mix of tax cuts and fresh government spending on efforts such as teacher aid and building roads and bridges. Sperling also included, at the president’s direction, a program to rebuild foreclosure-beaten neighborhoods, even if the idea wasn’t likely to create many jobs across the country.
“Oftentimes, there’s been an assumption that all proposals need to be more focused on the macroeconomic state,” said Shaun Donovan, the secretary of housing and urban development. “One of the things that Gene brought to the discussion was that there is a set of things we can do that are going to help the hardest-hit places.”
On Sept. 2, it became clear that even $375 billion was not enough. Sperling and Katharine Abraham, a member of the Council of Economic Advisers, walked into the Oval Office and handed a sheet of paper to the president. “0,” it said, on the line listing the number of jobs created the previous month. Obama — called “President Zero” by opponents later that day — was surprised.
On Sept. 8, Obama was scheduled to go before a joint session of Congress to present the Jobs Act. After the release of the jobs numbers, Sperling went to Chief of Staff William M. Daley and said the stimulus plan needed to grow to nearly $450 billion.
Daley, Sperling and Geithner took it to the president, who agreed with Sperling’s suggestion that the size of the payroll tax cut be increased to have a greater impact on the overall economy.
“He did an excellent job leading a collaborative process that produced a result much larger than where people started,” Geithner said.
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On the evening of Dec. 23, Obama was on Air Force One, halfway to his winter vacation in Hawaii, while Sperling was still in his office, wrapping up before going on vacation with his wife, son and daughter. After one last showdown, Congress had done the bare minimum, extending the payroll tax and unemployment insurance for just two months. The rest of the Jobs Act appeared to lie in ruins.
The odds looked a bit better the day after the president’s address to Congress. Paul Krugman, a liberal critic, wrote in his New York Times column that the plan was “bolder and better than expected” and House Majority Leader Eric Cantor (R-Va.), an Obama antagonist, said some of the ideas “merit consideration.”
Republicans, however, did not support how the administration proposed to pay for the plan — increasing taxes on the rich — and in the end fought every part. This time, Obama did not compromise.
In fact, the president doubled down, traveling around the country to promote the ideas in the Jobs Act. Obama made income inequality the centerpiece of a major speech in Kansas and the middle class the focus of his State of the Union address. He bypassed Congress by announcing a range of executive actions to benefit the economy. And he used a recess appointment to name a consumer financial regulator deemed important by the left.
“I think it was important in giving the American public a very clear sense of what he believes, who he’s fighting for, and who’s been standing in the way,” Sperling said.
Even if nearly the entire bill has been blocked by Republicans in Congress, Obama’s strategy seemed to have had a political payoff. The president’s poll numbers are far off their lows and his ratings on jobs are the highest they’ve been in two years. His advisers say the strategy initiated by the American Jobs Act will continue to frame the campaign for reelection. Sperling is likely to play a central role.
“Let’s build a more durable recovery that works for more people,” Plouffe said. “That’s not just a debate that we have politically. That’s something the president pushes Gene on all the time.”