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POLITICS DECEMBER 6, 1999

Trapped

It's 4:30 in the afternoon on a Wednesday in mid-October, and, as on most of the more than 2,000 days that Gene Sperling has worked for Bill Clinton, the schedule has exploded. The president's press conference started late and ended later, which meant that Sperling, head of the White House's National Economic Council (NEC), had to scrap lunch with a Democratic senator and leave a gaggle of European trade officials cooling their heels. Now, at the conference table in his wood-paneled West Wing lair, the president's top economic adviser is working the phone. Sperling instructs an aide how to navigate the latest bump in talks with Republicans on the banking bill. He plots Clinton's upcoming visit to Newark with a New Jersey multimillionaire. As plans for this evening's budget strategy meeting take shape (for Sperling there is always a night shift), Sperling, who will turn 41 next month, seems in his element. It's been a year since Clinton was humiliated and then impeached, when the good fight Sperling came to Washington to wage seemed near its end. Now the capital is full of possibilities again. "Policy is back!" Sperling announces, to no one in particular.

But not in the way he once hoped. On Sperling's wall is a framed copy of the 1994 State of the Union address. "To Gene," reads the inscription in the president's looping hand, "whose dreams and ideas are here." Many of those dreams are still trapped under glass.

They were trapped initially, of course, by deficits. Clinton roared into office waving a Sperling-drafted pledge to "put people first" to the tune of $50 billion per year in new public investment; but, as Bob Woodward and countless others have detailed, a tidal wave of red ink brought this new plan to naught. That straitjacket, however, has now been overcome--thanks to tough choices, GOP prodding, Alan Greenspan's steady hand, and a dose of good luck. The deficit is now gone, replaced by an era of surplus.

Yet, ironically, Sperling's long-deferred plans are now imprisoned by a straitjacket of his own making: the call to "save Social Security first." This strategy, aimed at preventing new spending or new tax cuts so the surplus can, in theory, be used to shore up the retirement system, was Sperling's brainchild. It has brilliantly put the Republicans on the defensive, setting the stage for yet another Clinton budget triumph. But it has also meant that, over hte past weeks of budget negotiations, Sperling has devoted his considerable talents to assuring that virtually the entire surplus is locked away to pay down the national debt--leaving pennies for the education, health, and anti-poverty initiatives that might help the millions who are left out of today's prosperity. In the seven years since Sperling came to Washington, what began as fiscal limits have become ideological ones. The center of political gravity has shifted so radically that today, with the money finally available, a Democratic administration can't even discuss the bold new public investment that it successfully championed during the era of scarcity. And, in the bitterest of ironies, Gene Sperling, once the architect of that sweeping liberal agenda, is now its undertaker.

As Robert Rubin's deputy on the NEC, Sperling entered the White House in 1993 as the liberals' "keeper of the campaign flame." He even went toe-to-toe with Treasury Secretary Lloyd Bentsen to more than double the administration's boost in the Earned Income Tax Credit (EITC). But, from the beginning, Sperling was a realist. He figured out, as the then-Secretary of Labor Robert Reich never did, that administration liberals must either jump on the deficit-reduction bandwagon or abandon any hope of real influence. At first, Sperling thought a deficit reduction mostly as a political imperative, a prerequisite if Clinton were to avoid being "Carterized" as an undisciplined spender. But, as the administration's economic plan bore fruit, Sperling saw that lower deficits, by sparking private investment, did more for the disadvantaged than he and others on the left had imagined. Lower interest rates and steady expansion forced business to reach into the fringes of the labor market, bringing the unskilled into the workforce and training them more effectively than any government program could. And, watching congressional sausage-making up close, Sperling also began to question whether the political process could direct public investments wisely.

In any event, the 1994 GOP takeover made such debates acadamic. Clinton spent the next two years playing rope-a-dope with Newt Gingrich in hopes of living to fight another day. As Dick Morris terrorized and divided the White House staff, Sperling turned Morris's sound bites into policy and kept the Clinton economic team at peace. In return, a grateful president tapped him to lead the NEC for the second term. Sperling was 38.

By this point, bigger-name liberals had bailed out. Reich wrote a memoir blasting Clinton, an Oxford pal, as a triangulating sellout. George Stephanopoulos cashed in on his celebrity and plotted his own nasty kiss-and-tell. Why did Sperling stay? "I've always thoguht we were fighting the good fight," he tells me, "even in divided government." Rebuffing Gingrich's drive to scrap basic guarantees of food stamps and Medicaid, he explains, had as big an impact (albeit in defensive terms) as expanding the EITC. What, Sperling seems to imply, was the nobler alternative? Taking your marbles and going home?

The budget deal Sperling helped negotiate in 1996 makes his point. The year poisonously, after the White House's shamless Medicare demagoguery helped Clinton win reelection. Now Clinton wanted a deal to finish off the defecit. After teh inauguration, SPerling shrewdly suggested that Clinton unilaterally increase the amount of Medicare cuts he would accept, and the gesture worked, bringing a thaw that eventually led to negotiations. Democrats had to swallow capital-gains-tax and estate-tax reflief that favored the rich. But they won $24 billion to expand health care for poor kids and create HOPE scholarships that made most community colleges free, plus billions more to reverse the welfare bill's attacks on immigrants. They also got the deal's $500-per-child tax credit extended to 13 million low-income children that the GOP meant to exclude. Sitting across the table from Gingrich and Trent Lott, Sperling, with his push for the last five million kids, nearly derailed the talks. But he won.

Perhaps even more importantly, the budget deal got the Clintonites out of hte box they had been in since 1993. Within a few months, in late 1997, forecasts began showing unthinkable a few years earlier. For the first time since Clinton's election, there was cash to fund big new public investments or to ramp up others that had received only token sums. But the Republicans who controlled Congress were, of course, hostile to new spending; tehy'd want to return surpluses to voters via huge tax cuts skewed toward the wealthy. Meanwhile, Social Security and Medicare soon faced a potentially bankrupting rendezvous with the baby-boomers' retirement.

Sperling responded by holding a series of secret meetings. The result was Clinton's call to "save Social Security first"--i.e., to leave the surpluses untouched (and therefore use them to pay down the debt) until the retirement program's long-term solvency was assured. The Sperling-orchestrated plan was "substantively sound, politically brilliant, and didn't leak, which is almost unheard-of in Washington," recalls Michael Waldman, then Clinton's chief speechwriter. It was Sperling at his best.

Yet Sperling's best meant that Clinton would forgo his last real chance to achieve the large goals he had sought office to accomplish. Here was a president who pooh-poohed the deficit in his first campaign now saying we had to go further and actually pay down the debt. This while evidence of the public-investment gap mounted, even amid macroeconomic good times. One in four children still lived in poverty; only two in five eligible kids got Head Start; and 44 million Americans had no health insurance, five million more than when Clinton tried, imperfectly, to address the issue in his first term.

Clinton's odyssey, and that of his alter ego, Sperling, had come to this. They knew the Republicans would enver accept large public investments. They feared that if Clinton tried to use the surplus for his wish list, there would be no stopping a feeding frenzy of GOP tax cuts and mountains of pork from both parties. Clinton thought Republicans just might want a deal on Social Security and Medicare. The GOP stood to gain, after all, if a Democrat like Clinton pulled a Nixon-to-China and made the concessions that would keep his party from continuing to demagogue the issue in election after election. The administration could still use non-surplus sources like a tobacco tax to fund modest initiative (such as reducing class sizes) and hope the political equation after 2000 would leave room to aim higher. In the meantime, debt reduction would boost private savings, investment, and growth in ways that better positioned the nation to cope with aging boomers. It would also lower the feds' $215 billion in annual interest payments, freeing up precious budgetary space down the road.

It was complex, ambitious strategy for a sixth-year president facing a hostile Congress, packaged in an unanswerable slogan and meant to keep the case for public investment alive while casting Clinton as the savior of his party's signature programs. Who knows? Given a clear shot, it might even have worked. Then Ken Starr's men confronted Monica Lewinsky at the Ritz-Carlton and started scripting a different historical legacy from the one Clinton (and Sperling) intended.

 

The standard lefty narrative of the Clinton administration--which blames the lack of a liberal agenda on administration timidity and duplicity--is too crude. The truth is that Clinton had no choice but to tackle the deficit when he entered office. The budget gap's drain on the economy and the prospect of its continued spiraling made any other course irresponsible; it was not some sop to Wall Street. Then, in the wake of the 1994 blowout, Clinton had little choice but to adapt to the Republican "revolution"--or else we'd likely be governed today by President Dole. The fact that Republicans are now coalescing around George W. Bush and not Gingrich testifies to Clinton's victory in retreat. By throwing overboard so much liberal baggage, Clinton may even have prepared the way for renewed government activism on a scale even larger than he proposed in 1992.

"What we did for eight years," Mario Cuomo tells me in speech-like cadences, "was lift the albatrosses one at a time." Democrats were big spenders? They've solved the deficit problem beyond anyone's wildest dreams. Democrats were soft on crime? Crime is down dramatically, helped by Clinton's 100,000 new cops. Democrats coddled the poor? Welfare has been reformed; enrollment has plummeted. "They have made a case for economic credibility," continues the former governor. "Not, at last, our hands have been freed to do the real work!"

By this logic, the real measure of Clinton's and Sperling's work won't come until 2000, when we learn whether the terms of this administration's survival made the world safe for progressives to think big agin. But there's the rub. Sperling's "save Social Security first" battle cry has proven so politically potent that, like Richard Darman's 1990 spending caps, it could shape public debate on resources allocation for years. For three decades both parties spend Social Security surpluses without a qualm (and, for arcane but uncontrovertible reasons, without hurting the retirement system one bit). In the budget just put to bed, however, both made a fetish of saying that trillions in future Social Security surpluses shouldn't be touched. Once you realize as many experts note, that spending a good chunk of these surpluses would have no effect on Social Security's health and that, contrary to both parties' hype, there may not turn out to be any surpluses beyond what Social Security brings in, the result is depressing. The Sperling-built straitjacket may prove as constricting in the next decade as the Reagan straitjacket was in this one.

The new straitjacket is largely intellectual. In Clinton's early days there were robust internal administration debates over the relative merits of public investment versus private. At the margin, economic advisers would ask, what does more to promote long-run growth with equity--an additional $10 billion of deficit reduction (and thus private investment) or an extra $10 billion devoted to early childhood education and school repair? As it turns out, Clinton has lifted the private investment dramatically by turning a five percent of the GDP deficit into a 1.4 percent surplus, while public investment as a share of the economy has dropped. Yet the effect of "saving Social Security first," with the bipartisan debt-reduction craze it has spawned, is to preemptively rule out this debate over public versus private investment at precisely the moment it must be renewed.

 

The reason, as Sperling should, is that time is short. Like many liebrals, he's a fan of universal preschool and braoder health coverage. He authored Clinton's creative (and under-reported) call for highly progressive Universal Savings Accounts that would use $30 billion a year to help lower-income Americans build nest eggs. But if, as seems likely, there is little non-Social Security surplus available for such goodies and the huge Social Security surplus is off-limits, liberals will either have to punt on public investment again or call for new taxes to pay for it--which is madness at a time when the government's cup runneth over. What's more, after the next presidential term, it may be all Washington can do to cope with the onslaught of 78 million graying boomer5s. If the unfinished progressive agenda isn't addressed now, in other words, there may be no later.

It's possible that, if the Democrats hold the presidency and win the House in 2000, the terms of debate will change and a progressive agenda will once again become thinkable. But that would require not simply a change from Republican to Democratic congressional control but also a change in the Democratic Party itself. And, as of now, there is no sign of such a change. Al Gore is hoping to win the Democratic nomination from Bill Bradley by discrediting universal health coverage as a dangerous pipe dream. And, while he may be right that Bradley doesn't know how to pay for his plan, the result of Gore's strategy may be to bury the very idea of non-incremental progressive initiatives for which Clinton's long odyssey should have set the stage. If it does, it will hardly matter whether the Democrats recapture teh House, because timidity will reign.

Which, as Gene Sperling knows well, can be tough on the soul. "I have my own little personal thing," he told me. "I always think of Crisler Arena in Ann Arbor [his hometown]. A lot of times we have an initiative [for disadvantaged kids] where there may be a need for one and a half million slots and you get seventy-five thousand. It's realy pretty small compared to the need, but when you think about filling up the Crisler Arena four times with people you help, that seems like a pretty good years work.

"I go back and forth," Sperling says.

Matthew Miller, a syndicated columnist, is a Los Angeles-based senior fellow at the University of Pennsylvania's Annenberg Public Policy Center.

By Matthew Miller

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