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Brad DeLong


Review: Ron Suskind's Confidence Men

Posted: 09/26/11 12:00 AM ET

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

I thought he would do equally well on economic policy.

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

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

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

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

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

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

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

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

  • What if more things go wrong in the next year or two--what might the world 
then look like three years from now?
  • In those possible scenarios, what will we wish then that we had done today 
to prepare the way for dealing with the situation?

The major risks that confronted the Obama administration-to-be in the fall 
of 2008 and the winter-spring of 2009 that are relevant here were:

  1. That the moderate Republicans in the Congress would, rather than engaging 
in normal American governance, join their colleagues out of party loyalty 
and help them wage a scorched-earth war against all administration 
policies--even their own Republican policies--following the Gingrich 
playbook that the road to victory in the next election is to make the 
Democratic President be and appear to be a failure.
  2. That the Federal Reserve would ignore half of its dual mandate, and be 
satisfied with policies that avoided deflation now matter what unemployment 
rate or capacity utilization rate those policies brought. 

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

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

  5. That mortgage finance might not resolve itself, and that construction 
might remain deeply depressed for a very long time.
  6. That government attempts to support weak banking systems would set off a 
wave of sovereign debt crises that would then deepen the global downturn.
  7. That repeated waves of expansionary policies might set off a dollar and 
sovereign debt crisis inside the United States.

To deal with all of these, Obama needed to staff his administration up--to 
choose and nominate officials and, if the Senate did not confirm them in a 
timely fashion, recess-appoint them.

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

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

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

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

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

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

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

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

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

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