New deal or no deal?

The New New Deal - review

Barack Obama and Timothy Geithner
Barack Obama with US Treasury Secretary Timothy Geithner (Photo: Getty Images)

The New New Deal – the Hidden Story of Change in the Obama Era

Michael Grunwald

Simon and Schuster, 518pp, $28

The Coming of the New Deal

Arthur M Schlesinger Jr.

Mariner Books, 688pp. $17.95

Progressive governments have often taken power via a descent into the mistakes and poor management of the previous government. In the US, the presidency of Franklin D Roosevelt was under the shadow of a Great Depression for which the previous administration of Herbert Hoover was, if not ultimately responsible, then at least partly to blame. A comparison to the present recession and the measures taken inside the Beltway seems a no-brainer, given the global crash of 2008 and the entry of Barack Obama onto the presidential list after George W Bush rather slouched off the scene.

However, calling what is happening now – including the latest attempt at stimulus announced by the federal Reserve in September, an initiative known as QE3 (QE=Qualitative Easing) – as a new, new deal while making a natty book title may distort the reality.

When Barack Obama stood in the chilled January air for his unlikely inauguration in January 2009, his country was in dire economic straits. Employment had slumped, the housing market had demolished, the banking sector was bleeding to death and the global economy was reeling from the numerous blows the great derivatives wipe-out had rained upon it. By the time the fresh-minted leader of the free world's backside hit the leather in the warmed interior of the POTUS-mobile and drove away from the cheering crowds, his mind was already bending to a solution.

It was still not clear where his mind was leading him. Coming to office on a wave of hope and change, and of taking on Wall Street, expectations were high. But those in the know were cautioning that the new president was no populist and counselled that his bold performances on the hustings might morph into a more sober performer when ensconced behind the White House desk.

Subsequent nominations to President Obama's economics team underlined the need for caution and watered down much of the febrile emotions generated on the stump. Insiders like Larry Summers and Tim Geithner, the latter whom some saw as one of the guardians who slept while the economic citadel was raided when he was head of the New York Fed, were seen as less hairy chested than many suffering the gritty realities of the crash would have liked.

Obama's hand was guided to some extent by the previous administration's TARP scheme, which wafted something of a Keynesian aroma over the smouldering ruins of the US economy. Stimulus quickly became the solution of choice and it was a view Barack Obama seems ideologically and personally comfortable with right from the time his people started measuring the curtains in the Oval Office.

He was also driven by a collegiate, seminar-like approach by which he pits the adversarial opinions embodied in figures like Summers and Geithner against each other to find the essence of an issue and to decide accordingly.

Michael Grunwald captures all this pushing and shoving, the tension headaches and the fractured relations that assembled around the financial crisis with aplomb. As the Obama administration wrestles with first the concept of and then the shape of a stimulus package that escalated into hundreds of billions of dollars in government outlay, a world economic crisis of the kind unseen since the 1930's, widespread outcry over the role of irresponsible financial sector fat cats, a domestic economy having a stroke, job losses piling up like cliches at a political convention, as well as a one or two other issues, like a war in Afghanistan and occupation in Iraq, Grunwald circles the Beltway and runs through its many back-alleys at speed and with a savant's eye for detail and nuance.

The author, a senior writer for Time, has a well-honed journalistic discipline which ensures each paragraph is packed tightly with enough information and rippling vernacular to pull the reader on through a tale that reads like a book-length episode of West Wing; a rambling Aaron Sorkin without the pressure of weekly scripts.

But, its all real. The internal blow-ups and personality clashes, the war of ideas, the stress of spending the money of future generations to atone for the greed of this generation's elite are all captured with each racy, high density page.

For Obama, the first president since FDR to face an economic crisis, the first since Nixon to face an on-going war, the stakes are legion and the expectations, stratospheric. But, never one to panic, President Barlett, er Obama, heeding the words of his first Chief of Staff, the abrasive Rahm Emanuel, to not “waste a crisis”, he and his team push on. Public works, tax cuts, job creation and green energy and more are dumped on the table for the new staffers to sift through, force into the sausage maker on the Hill – with its earmark threats, spending tails and dirty party tricks – and shape into what would become the American Recovery and Reinvestment Act 2009.

In Grunwald's hands, its both an enervating and engaging read; draining for the effort of those involved, fascinating to see it all unspooling. Nothing in the Beltway view of the world out there is left untouched. In the style of Bob Woodward, this is a fly-on-the-wall view of history in the making, full of seemingly leaked quotes and insider input.

The author is unashamedly pro-Recovery Act. He sees it is part of his remit to highlight its many good points – and there are seemingly plenty – and to emphasise President Obama's attempts to depoliticise and de-spin the whole process. That this was and is largely unsuccessful leads Grunwald to pour molten scorn on the Republican's recalcitrance, at being offered an olive branch and making of it kindling to stoke the fires of fear, division, negativity and bloody-mindedness, of regaining power at any cost. The birth of the Tea Party has inspired, argues Grunwald, an extremism and a power obsession in the GOP that is simultaneously frightening and risible. If only it was just a West Wing episode. If only.

However, for all the obvious strong points drawn into Grunwald's desk lamp, the bright, shiny thing the Recovery Act appears is over-shadowed to some extent by certain negatives. For one, its questionable whether the package has worked. As the recent QE3 release suggests, the body economic in the US is more or less comatose. Even the massive stimulus it has been given already has failed to get its eyes flickering again, let alone get it back on its feet.

Secondly, there is little evidence the system which produced this generation's deepest economic death-spiral has been reformed. In the Roosevelt, there was a clear agenda to dismantle the failed system of “rugged individualism” embodied in this predecessor's hands-off approach to the impending economic disaster.

This time around, banks and financial service operators, who invented and profited enormously from the detestable derivative markets that eventually became deadly, continue to charge onwards, spending big on lobbying against laws to restrict their movements and overseeing ballooning salaries, if not profits for shareholders. Opportunities presented to President Obama to take the sector down a few notches were not taken. When bankers were called to the White House early on in the administration, for what many believed would be a dressing down, there ended up being a hug-fest and the bankers wandered off high-fiving and dreaming of more money piles to be had, unloved by the great unwashed, but largely unfettered too.

The recently announced QE3 measure simply furthers this rejection of banking reform by diverting $US 40 billion per month of bad bank debts onto the tax-payers' ledger book, with payouts being fuelled by a possibly profligate release of fresh new bills. It's a rolling Fed funded bank bailout in all but words. Some argue that President Obama considered the fight with Wall Street too hefty and time-consuming and chose healthcare reform as the more important Big Ticket Item to sap his administration's resources. Whatever the reason, the moment is now lost and the system chugs on unaltered.

Another issue not canvassed by Grunwald is the fact that the previous New Deal was largely bipartisan. The Roosevelt administration's first legislative act was the Emergency Banking Act – effectively authorising a bank nationalisation at the president's decree. It took just days to pass into law. In a characteristically definitive work on the topic The Coming of the New Deal first published in 1958, Arthur M Schlesinger Jr noted “The whole affair, from the first introduction to the final signature, had taken less than eight hours. Not for years had Congress acted with such speed and decision.” Not for many years to come either.

The pointedly significant Glass-Steagall Act which crucially enforced a division between banks' proprietary and client dealings (the overturning of which by the Clinton administration in 1999 has been identified as one of the sources of the 2008 crisis) took just over 3 months to become law. The differences between 1930 and 2008 could hardly be more pronounced. The latest “New Deal” has become, as Grunwald notes, one of the platforms upon which the Tea Party's crazy paving has been laid, almost as if the conservative side of politics is determined not to give ground - as they can be argued to have done in the 1930's – and spend a generation trying to win it back.

Hence, the potential distortion of the title. This is no New New Deal at all. Perhaps its No Deal at all.

The jury is still out on whether the post-2008 government stimulus matches the New Deal for historic impact. The 1930s' entity reached into the future with its welfare and social security, its arts initiatives and of course the systemic erosion of unsustainable banking omnipotence in the shape of Glass-Steagall. The 2008 edition has the potential to similarly colour the future; its green energy programs, as one example, may power generational shifts. But, 2008 hasn't re-invented the system nor has it cut a swath through ideology, and so, such comparisons must be conditional.

Grunwald has made a major contemporary history contribution to the study of the post-2008 effort to save the world, or the US economy which is occasionally, even today, the same thing. While the relationship between the eras may be conditional at best, Grunwald can be safely aligned with the likes of Schlesinger, having produced a work of style, wit, pace and depth. As comparisons go, that one is the more secure.

James Rose released his latest novel “Virus”, a political thriller, in 2011. He blogs at www.jamesroseauthor.com and www.randomaxmedia.blogspot.com