In an Uncertain World (23 page)

In April 1995, an act of domestic terrorism in Oklahoma City killed 168 people, including 18 Treasury Department employees and members of Treasury Department employees' families. I flew to Oklahoma City with the President and others in the administration to meet with the families of victims and attend a memorial service. President Clinton's words at that service movingly expressed the feelings of people throughout the country. I had groped for words when meeting with victims' families, so I not only appreciated but greatly respected the President's ability to comfort these families and the country at a time of shock and tragedy. Political analysts said that these terrible events—and President Clinton's response to them—did much to revive public respect for government in our society and were something of a turning point in the President's standing with the American people.

Clinton's political turnaround unfolded through the budget battle that culminated in two government shutdowns. I remember that at the outset of that conflict, George Stephanopoulos told me, as we were leaving a meeting in the Cabinet Room, that we were going to attack the Republicans over their proposed Medicare cuts. George said that Gingrich had made a big mistake by proposing drastic reductions in Medicare, and we were going to ride that mistake through to the 1996 election. Gene Sperling had described George as a political genius, but it seemed to me that George was just being ridiculous. That Medicare cuts could become the organizing principle of a presidential campaign seemed almost inconceivable. I remember laughing with Larry Summers about how small and insufficient that approach seemed.

I was, of course, wrong. Government spending in the abstract might not be popular, but specific programs resonated with people. The attempt to cut Medicare by $270 billion and reduce taxes by a similar amount, in a way that primarily favored the affluent, was an issue with special political force. The Clinton administration had learned a few things since 1993, when the Republicans had been so successful at casting deficit reduction as what it was not, a tax increase on middle-income people. This time, my colleagues weren't going to stand by while our opponents created the prism through which our policies were viewed. The President told me that in 1993 we had “left the field.” In 1995, we stayed and played hard. Of course, there was much more at stake in the budget conflict than just Medicare, and the President cared passionately about many of these issues. “Medicare is the thing that matters politically,” he said at one of our Cabinet Room meetings, alluding to the powerful lobbies that protected this health care program for the elderly. “But I'm not going to let them gut Medicaid just because no one cares about a program for poor people.”

The President's defense of Medicare and his opposition to tax cuts aimed primarily at the affluent was only part of the reason he bounced back and won reelection in 1996. Another important aspect of his political recovery was that he was at last coming to be seen as a centrist. The prevailing view in the media was that this represented a change from his first two years in office. My view was that Clinton remained the centrist that he'd been all along, as evidenced by our original deficit reduction plan, his support for NAFTA, and a host of other issues. Although his health care reform was often touted as a big-government program, Clinton had proposed a private-sector solution—albeit with a significant government role—as opposed to government provision of health care. In 1995 and 1996, however, the President communicated this orientation more deliberately and effectively. The change in perception makes an important point that goes well beyond Washington politics. The President's policy choices remained on a largely consistent track, but it was only after the first two years that the perception of what he was doing began to accord with that reality.

In 1995, we put out a budget that continued deficit reduction as a proportion of GDP, but with a stable actual deficit number. Our congressional opponents kept hammering away at our budget's failure to balance. I remember that when I testified before the Senate Finance Committee, several of the Republicans on the committee wanted me to acknowledge that our proposed budget would mean $200 billion deficits “as far as the eye can see.” I wouldn't describe the ongoing deficit in dollar terms because that could be used to argue—incorrectly—that we were not committed to deficit reduction. Instead, I responded by pointing out that our proposal would continue to reduce the deficit as a share of GDP. But the reality was that I was in a holding pattern I couldn't acknowledge. Our strategy was to put out a budget while at the same time we were working on additional spending cuts that would lead to much lower deficit numbers. In this detailed and painstaking work, we were lucky to have the help of one of the unsung heroes of the federal government, Alan Cohen, an indefatigable, disheveled Treasury staffer who had perhaps the greatest knowledge of and passion for the federal budget process of anyone in government. But we had not wanted to put in the cuts Alan helped us find in our original budget submission for fear that the Republicans would “pocket” them and then seek additional cuts that we objected to in negotiating a final budget. And so, for some time, we continued to work on developing what would be our real budget, but without any decision at that point on whether it had to go to absolute balance. In May, the congressional Republicans introduced their proposal to cut taxes, paid for with Medicare and Medicaid reductions, in a budget that went to balance.

From early on, President Clinton sensed that the persistence of a deficit, even a small one, created a major political problem for him. In our regular meetings in the Roosevelt Room and the Cabinet Room on the 1996 budget, he kept asking, “Shouldn't I come up with a balanced budget?” All of his economic advisers, myself included, responded that he shouldn't, because there wasn't any real economic difference between small deficits that continued to decline as a share of GDP and actual balance. We had successfully addressed the deficit problem in 1993 and intended to continue reducing the deficit. Going all the way to a truly balanced budget would require additional program reductions that would serve little economic purpose.

It was in a meeting in the Cabinet Room sometime in May that Clinton finally said to us, “If I'm going to get heard on anything else, I first have to show a balanced budget. Once I do that, I can talk about progressive programs. But if I don't show a balanced budget, they'll never listen to me about progressive programs.” Basically, I knew what he was saying was right. We advisers were all sitting there telling him there was no economic difference between a few billion dollars and zero, which is true as an analytical point. But there was a much bigger point, the one Clinton was making: if we wanted to talk about spending money on education and programs for the inner city, people weren't going to listen to us unless we talked about those programs in the context of a balanced budget. The President realized that while fiscal responsibility was not itself politically resonant, balancing the federal government's books did resonate and was a goal that voters could relate to and rally around. In that meeting, the President was pretty much alone in what really was an extraordinarily perceptive insight about what was needed to make his agenda work with the public. And I later realized that without the politically resonant goal of a balanced budget, fiscal responsibility itself becomes much harder to establish and maintain.

Clinton's point was an extension of the one I remembered him making in early 1993 at that initial Little Rock meeting about the economic plan. At the time, deficit reduction had been what he called a “threshold issue” to get the economy moving—a precondition for everything else he hoped to do. Now, a balanced budget had become a threshold issue, because it was a precondition for getting people to listen to us and hence for doing almost everything else the administration cared about. Proposing to balance the budget may also have been the only feasible way to defeat the pernicious idea of adding a balanced-budget amendment to the Constitution. Such an amendment would violate all known wisdom about economic policy. It could compel the federal government to cut spending or raise taxes in a recession, substituting “procyclical” policies (which would cause the economy to contract even more) for the “countercyclical” ones that a recession ordinarily calls for. Even after our decision to support a balanced budget, the amendment failed by only a single vote in the Senate in 1995, and it might well have passed if we hadn't persuaded people that Social Security benefits could be endangered by the spending cuts the amendment might at times require.

I learned a lesson from what Clinton said about balancing the budget at that meeting. Working in the White House, I had already come to understand that if you want people to listen to you, you have to express yourself in a way that connects with them. But sometimes even that isn't enough. On some subjects, people simply won't listen to you unless you say or do something that opens the door first—which was Clinton's point about the balanced-budget proposal. Conversely, on some subjects, certain comments close the door, and people won't listen to the rest of what you have to say. Thinking back to my days in New York, I was reminded of a dinner I'd been at years before with Bill Lynch, an African-American politician who had been a deputy mayor under David Dinkins. Bill had become a friend of ours when Judy had served under Mayor Dinkins—with whom she'd become friendly before he was mayor—as commissioner for protocol. Gathered around the table at the Regency Hotel were a lot of senior Wall Street figures, many of them Jewish. At that time, there was considerable controversy over whether Jesse Jackson had said something anti-Semitic. My own view was that the issue was greatly overblown and that the relationship between the Black and Jewish communities, which should have been very strong, had deteriorated around misunderstandings and unfortunate comments by some people in both communities. Lynch was terrific, smart, and interesting on a whole range of issues. Then at one point during the dinner, he cited Jesse Jackson for some proposition. He immediately recognized that with that comment the dynamic changed. He said to me afterward, “Once I said that, they stopped listening to me.” I've observed the same phenomenon many times in the corporate world. Often a company will deal with a public relations problem by aggressively defending its actions. But even if its actions are defensible, no one really listens if the CEO starts with the defense. People listen only if he begins by apologizing or acknowledging mistakes. That can be hard to do when he believes that he didn't really make a mistake or that his mistake wasn't as it was portrayed, but it may be the only way to be heard.

Agreeing that we should have a balanced budget didn't mean agreeing with the Republicans on their specific proposals. Throughout the year there was a series of highly publicized negotiations, though most of the early White House–congressional meetings couldn't really be called negotiations. Pete Domenici, the chairman of the Senate Budget Committee, and John Kasich, his counterpart in the House, led the GOP forces into battle. Leon Panetta carried the banner for our side. The process started with disagreements over how many people could attend from either side, who they should be, and so on. Most of the substantive discussions, when finally addressed, were handled like a diplomatic summit meeting, at which the two sides essentially exchange talking points. The Republicans would express outrage that we weren't tough enough in our program cutting. We would respond by expressing outrage about their deep reductions in Medicare and other social spending to fund tax cuts for the affluent. Both sides were pretty shrill. These discussions were conducted in secret, but the same people were saying the same things in public. Neither side was trying to persuade the other side of anything or to reach an accommodation.

Even after Clinton offered some significant concessions, the two sides couldn't reach agreement. The Republicans could have declared victory at several points—particularly after Clinton proposed a ten-year balanced budget, or after he later proposed a seven-year goal in exchange for the Republicans' relinquishing big cuts in social spending. For some reason, they never did. The President's demeanor in the negotiations may have contributed to his opponents' disinclination to strike a deal. Based on the many hours I had spent watching Clinton interact with others, I could see that the Republicans were misreading him. They had the sense that he was sympathetic to their views, when I could see that he wasn't—he was just listening intently. Clinton may also have been telegraphing his own feelings, which were that he badly wanted a deal.

What he wasn't making clear was his commitment to his basic principles and his willingness to veto the budget if it didn't move a good deal closer to his position. I was afraid that once again Clinton's body language could be misinterpreted. When we went back to the Oval Office after one of these sessions, Clinton asked me how I thought he had done. “Mr. President, I used to sit in on a lot of negotiations at Goldman Sachs,” I said. “And if you were my client and we came out of this meeting, I would say, based on the way you sounded to those people, they're going to think they can roll over you.” Harold Ickes, who was then serving as deputy chief of staff, later told me that Clinton had repeated what I had told him. My impression was that before that the President hadn't realized the effect he had had in those meetings.

Gingrich and the others did misread Clinton in this way, taking his listening and his desire for a compromise as signs that he would give in on matters on which he never wavered. But in retrospect, the Republicans' misreading of Clinton's negotiating stance turned out to be helpful to us politically. After two government shutdowns, a threat of default on the federal government's debt, and endless meetings with congressional leaders, Clinton found himself in a greatly improved position. He ended up getting most of what he wanted, such as protecting Medicare and Medicaid, and preventing most of what he didn't want, such as large tax cuts favoring the best off. He did all this without ever making a deal. It's a useful lesson in negotiation. Sometimes you're better off not getting to yes.