When the Next Big One Hits

When the Next Big One Hits

Unemployment is two points below the average of my entire life span. Housing prices continue to rise for the seventh straight year. For an incumbent president winning re-election next year should be a walk in the park.

On the other hand, as I write on a chilly rainy Friday, recession worries took a big chunk out of the stock market indices. Besides, United States greenhouse gas emissions rose in 2018: Florida-drowning and Midwest-flooding calamity beckons. Health care costs continue to rise. Banks’ capitalization is dangerously low.

Whereas Bill Clinton famously ran for president in 1992 guided by the mantra that “it’s the economy, stupid,” in 2008 Obama faced the tsunami of a stupid economy crashing down on nearly every American household. Donald Trump may have a trip to beach in 2020, or his successor may prevail on the Clinton theme. In any case, sooner or later, because history rhymes, a president will face the situation presented to Barack Obama as he competed for the presidency in the fall of 2008.

That president should learn from the history of what candidate and then president-elect Obama decided, as he defined his idealistic, frustrating eight years in office even before he was inaugurated.

My book, A Crisis Wasted, is a tale of success and disappointment, aspiration and heartbreak, partial triumph and tragic conclusion. The protagonists are the brilliant, altruistic, myopic, belatedly informed, and unfortunately cautious team Obama assembled in the fall and winter of 2008. 

Che Guevara, who probably for good reasons is not quoted much anymore, wrote in his diary days before his death, “It was a good day, considering the exigencies of the life of the guerilla.” Under the immense pressures of the economic exigencies of the fall and winter of 2008, the Obama advisers balanced what they considered the art of the possible against the predictions of economic models. For them, avoiding unstoppable bank runs was a good day.

But the models proved wrong (as was later conceded), and the politically possible proved insufficient to deliver to most Americans the promised hope and change. The problem-solvers brought to the crisis the beliefs and values of neoliberalism: the “theory…that proposes that human well-being can best be advanced by…private property rights, free markets, and free trade,” and that government should do little more than create and protect markets. This doctrine barred the decision-makers from exercising the full power of government to do what was needed. As a result, the American people, through the contortions of Electoral College system, chose as the next president the person who was, from Barack Obama’s perspective, to the single worst person in the United States to succeed him. Donald Trump portended to reverse Obama’s policies, ethical compass, factual assumptions, and even his legitimacy as an American.

From this history, there are five political lessons to be drawn for the next president facing a crisis that resembles even in diminished degree the economic and financial catastrophe that fell upon the United States, as well as the global economy, in 2008.

Here they are:


Each of these maxims is a quote from the legendary Andy Grove, CEO of Intel in its glory days, when the chip undergirded the emergence of the information age.

Don’t be surprised that they apply to political decisions. The United States, like every other nation-state since the Protestant Reformation gave birth to that form of social organization, is a mixed economy – the public and private sectors overlap. No one in government or business doubts this much denied truth.

In application to government in crisis mode, point one is that the situation must be clearly understood. From March 2008, when Larry Summers told Treasury Secretary Hank Paulson that Fannie Mae and Freddie Mac were bankrupt, to January 9, 2009, when Obama’s advisers misstated the spike in unemployment that was about to occur, neither the Republican nor incoming Democratic advisers to the presidents grasped and explained publicly the dimensions of the great recession. They did understand the risks to the banking system, and they dealt successfully with that sector (no small feat). But they did not inform the presidents accurately about what would happen to the real economy. They can be forgiven, but rule one in decision-making is to “wake up and listen” so that forgiveness is not necessary.

The reason to say “no” is to squeeze from advisers better plans. On December 16, 2008, Obama’s advisers gave him four options for his economic strategy. All fell short in scale and scope. None was as large or innovative as the situation demanded. “No” would have been the right answer to all questions put to him that freezing day in Chicago.

The more “lasting solution”, rule three to follow, would have been public spending on the infrastructure of the five basic platforms for all social and economic well-being in a modern economy. Obama’s advisers should have begged him, and his supporters in Congress should have insisted, in a massive reconstruction of these networks: power, communications, transportation, water, and sewage. In the last decade private savings has exceeded private investment by about four trillion dollars. Government’s job was to bring all that money into these platforms – by tax breaks, public-private partnerships, catalytic public spending, research and development money, or whatever it took. Neoliberals could not bring themselves to argue for such measures. Regret came too late.

Fourth, when the economic advisers told Barack Obama’s astute councilor David Axelrod about their recommendation that he spend a record-breaking sum just to get unemployment barely under 8% by the mid-terms in 2010, he said, “That’s going to be tough to message.” Instead of changing the plan, the team changed the topic. No sooner than the stimulus was approved in early February, the Obama Administration turned to health care, reform number one, and emissions reduction, reform number two. Neither produced a compelling narrative. The government’s leaders were not well understood. Political gridlock ensued.

Lastly, by early January 2009, all knew that the winds had shifted. At the deepest level, the neoliberal prescriptions, which all had sworn by, were defunct. More immediately, all knew also that the economic recovery plan had little chance of producing happy results. At best, the depression would be avoided. It was. But, as Barack Obama said to his chosen Treasury Secretary, Tim Geithner, “that’s not enough.” And it was not sufficient to produce the generational change that he so admirably sought as his legacy.

My history, drawn from more than four dozen interviews, percipient observation, memoirs, and other evidence, offers these lessons in regret, not recrimination. I think they will serve better than the maxims of defunct neoliberalism. When the presidential candidates think, in the few small hours they have to themselves in the motel rooms of Iowa and New Hampshire, about what has to be decided by the person who holds the job they are seeking, my book might be worth a skim.

Reed Hundt was a member of the transition teams for the Clinton and Obama presidencies. He was the chairman of the Federal Communications Commission from 1993–97. He has written four books, taught at Yale College, Law School, and School of Management, practiced law in California and Washington, DC, started for-profit and non-profit firms, served as a board member for numerous technology and communications firms, and raised a family with his wife Betsy in Chevy Chase, Maryland. He is the author of You Say You Want a Revolution and In China’s Shadow.

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