Bo Cutter

Roosevelt Institute Senior Fellow and Director of the Next American Economy Project
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Recent Posts by Bo Cutter

  • The Budget Chronicles: Saving the Economy (and Obama's Presidency)

    Aug 16, 2011Bo Cutter

    Here's a proposal for renewal that can focus the president's campaign and spark the electorate.

    Here's a proposal for renewal that can focus the president's campaign and spark the electorate.

    The economy is slightly above stall speed. Unemployment is stuck around 9% and is set to fall slowly at best. The arguments for a lost economic decade look more and more plausible. The stock market is down 20% over the past two months. U.S. debt has just been downgraded. We have recently endured a disastrously inconclusive debt default fight. The U.S. Congress is at its lowest approval level in history at 18%, and the President towers above Congress at 39%.

    President Obama had better be spending his time at Martha's Vineyard thinking through a fundamental reset of his administration's direction. There are two important reasons: the U.S. Economy is headed toward that lost decade unless we change course and, absent a change, this is beginning to feel like a one-term presidency. The President must explain to the American people where we are and offer a picture of economic renewal he is willing to fight for. There is no -- I repeat: no -- finesse move out of the corner into which the President is now boxed.

    I do not have any idea what the President or his senior staff believe about where they stand. But White Houses, and particularly presidents, are normally impervious to outside information and reflexively opposed to bad news and fundamental resets. Changing is always seen as more risky than not changing. (That's called omission bias.) And they will be enormously tempted to underestimate the opposition because part of the Republican core has been, in fact, stark raving crazy. That would be a big mistake. The Republican ticket looks as though it will be some combination of Romney, Perry, or Bachmann -- and it will be formidable. And as the President looks more and more vulnerable, the pressure on someone like Governor Christie of New Jersey to join the race will get greater and greater. President Obama might get lucky, but that's not a plan.

    So what direction might a reset take?

    First, the reset has to be real. From the rumors I hear, right now the White House is -- completely predictably -- debating two of the three choices Presidents face when they are caught in positions like this.

    • Choice 1: Do nothing. This is normally camouflaged as improved communications and a tougher focus on the opponent. Both fine things, but the White House has to be capable of massive self-deception to see this as a sufficient strategy right now.

    • Choice 2: Make small changes and talk about them as big deals. This is always the choice of the White House pragmatists. This was Dick Morris' strategy for Bill Clinton. But it works better with a 5% unemployment rate than a 9% one. And does anyone in the known universe think the Republican House will give this President anything? In any case, given where we are, small, low-risk proposals will disappear without a trace.

    • Choice 3: Go long. Fight the next 18 months on big, meaningful ideas: directions involving real risks, but, more importantly, real returns for the nation. This is, of course, not being debated. No one inside the White House can ever propose this kind of direction -- that person would be eaten alive in meetings.

    But to accomplish a real reset, President Obama is going to have to go long and do something big.

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    Second, the reset, the big ideas, have to be about the right thing: American economic renewal. What do we have to do to continue the recovery, to lower unemployment, to move away from a lost decade, to maintain our position in the new world economy? The President's mantra has to be economic growth. The President's obligation, but also his political necessity, is to give the nation a sense of direction.

    Finally, the reset has to take on the right specific tasks. I see the following five essential tasks for the President:

    • Provide the economic story: Why was this recession different? Why does a lost decade threaten? What must we do now? Talk directly and honestly to the American people. I cannot understand why one of the best communicators in presidential history has not yet communicated with Americans on this central topic.

    • Reduce the chances of a double dip recession. Simply allowing another slowdown -- doing nothing to lower unemployment -- is a financial, economic, social, and moral disgrace. Right now we should keep payroll taxes at zero, extend this to the payroll taxes employers pay, and put in place a jobs tax credit.

    • End the debt standoff. Waiting around passively for a Congressional Super Committee to tell President Obama what to do is a bad idea. He should reverse one of his major mistakes, call in Alan Simpson, Erskine Bowles, Alice Rivlin, and Pete Dominici, ask them to spend a couple of weeks harmonizing their two overall proposals, and then adopt the result.

    • Stimulate growth, encourage savings and capital investment, and raise revenues through a truly fundamental tax reform.

    • Revolutionize public investment and provide the foundation for a decade of infrastructure investment.

    I should be very clear about this proposed agenda: Not a single piece of it is risk free. Each part will explicitly draw from positions of both the right and the left. Clear compromises are figured in and will be required. This would be an agenda the radical center could embrace.

    This would also not be an agenda that had any chance of being enacted between now and the 2012 elections. But nothing that actually matters will be enacted between now and then. And this direction -- let's call it "The Project for American Renewal" -- could provide direction for a campaign. And it could galvanize an electorate.

    But most importantly, the nation needs an agenda for renewal that the vast center of America could come together around. The nation cannot waste much more time on an utterly sterile debt debate that, to date, is neither solving the debt problems nor addressing America's much deeper problems of growth. The country can't afford to be a captive of the ideologies of the dinosaur progressives or the nihilist conservatives much longer.

    If you are a progressive and you care about the issues of unemployment, poverty, inequality, and environment and climate, all of those issues will be worse after a lost economic decade. If you are a fiscal conservative and you care about the deficit and the debt, business performance, productivity, infrastructure, public sector competence, and environment and climat, all of these issues will be worse after a lost decade.

    And if you are President Obama, how do you want to spend the next 18 months? Skirmishing about the debt, the deficit, further downgrades, and government shutdowns while you try to convince the nation that a couple more modest proposals are actually game changers? Or do you want to go to war over the future of America? Right now, I put reelection at only very marginally more than a 50-50 proposition. If you find yourself flying home on January 20, 2013, don't you want to leave knowing you fought the real fight, that it meant something, that you left a marker behind? And if you find yourself giving that speech on January 20, 2012, don't you want your inaugural to launch the Project for America's Renewal, knowing that you put down its foundation in your campaign?

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • The Economic (And Continuing Budget) Chronicles: End of Act 1, Beginning of Act 2

    Aug 11, 2011Bo Cutter

    Act 1 ended America's AAA credit rating. Act 2 could be the end of both major parties.

    The Three D's -- default, deal, and downgrade -- have brought us to the end of Act 1. They convinced the American people that the current cast of characters won't lead, certainly won't follow, and don't want to get out of the way.

    First, the financial markets. As a friend of mine once said: "the financial market may be made up of idiots, but collectively it's a genius."

    Act 1 ended America's AAA credit rating. Act 2 could be the end of both major parties.

    The Three D's -- default, deal, and downgrade -- have brought us to the end of Act 1. They convinced the American people that the current cast of characters won't lead, certainly won't follow, and don't want to get out of the way.

    First, the financial markets. As a friend of mine once said: "the financial market may be made up of idiots, but collectively it's a genius."

    So what is the genius telling us right now? It hates uncertainty. After watching our collective leadership argue for months about a sideshow; never address our central problems of growth; and agree at the last second to a non-solution, the market now knows that our current political structure can't, won't, doesn't want actually to do anything. And it now expects economic growth to be substantially lower than it had hoped. (The CBO projects an average rate of real growth of 2.9% over the next 10 years. My own current estimate is at least one-half a point lower than that -- average growth below 2.5%. That's pretty close to a lost decade. This lower growth will also add around $1.8 trillion to our current debt levels.)

    But that won't happen in a vacuum. There is another market -- the political market. And in that one, the key number is 18%: 18% of American voters have a favorable view of Congress, a historical low point. President Obama has also hit a new personal low: in the Washington Post's new poll, 33% of the respondents had confidence in the President. This is very clearly one term territory.

    The House Congressional Republicans have taken the worst hit and the Republican brand has incurred long term damage -- both deserve it. How can a party possibly pursue with great pride a strategy consisting of asserting that default is a reasonable policy alternative, then when our credit rating is downgraded, blame the President?

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    And how could anyone not see that the downgrade became inevitable? Just incidentally, the several displays of chair gnawing anger at S&P from senior administration economic officials was beyond dumb and missed an opportunity. In the just-published Washington Post poll, 71% of the respondents said they felt that the S&P description of our economy and politics was fair.

    But what is more consequential is that the voters are angry at everyone in office. Only 17% of those polled in the Washington Post poll want their current representative re-elected. And 78% have no confidence in the existing political structure. Moreover the intertwining of the two markets -- finance and politics -- will, over the next few months, serve to make the economy more unstable and volatile and make virtually inevitable the dismantling of the two current parties that these polls suggest has begun. The economy is not suddenly going to improve, unemployment will stay in the 8.5% to 9.0 % range, markets will be scary, investors will watch their 401Ks go south, and the voters will be madder and madder. We are likely to have a government shutdown drama in the midst of this, and it is close to inconceivable that there will be a grand bargain in six months. Most of this is inevitable.

    But what will give this next six months energy is that the two parties are highly likely to continue driving right over the cliff. The Republican Party thinks it won two weeks ago -- hell, it did win (and the nation lost). And as all of the after-accident reporting said, the GOP is proud of its tactics and dying to repeat them. There is not a Republican campaign advisor in the country who is going to take any very different course. The Democratic Party thinks it lost because it didn't hammer away enough against Paul Ryan and his Medicare position. There's not a Democratic campaign advisor in the country who won't take that direction. Recent events have served entirely to convince the true believers in both parties that the only flaw in their efforts to date has been that they weren't ideological enough; we are doomed to repeat the same sterile, played out quarrel that we have already had far too much of.

    Act 2's end result will be to convince Americans, not that today's leaders aren't good enough -- they already believe that -- but that the system can't work. There is going to be mass desertion from both parties with a growing, but formless independent center larger than the two parties combined. Someone is going to organize that energy.

    You might ask, "so what do we do? And what about Act 3?" Which reminds me of the story of the civil defense official who, when asked at a Congressional hearing about what to do if a nuclear attack actually happened, said, "Stand still. Spread your legs very wide. Bend way over. And kiss your ass goodbye."

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • The Budget Chronicles: The Deal

    Aug 2, 2011Bo Cutter

    Not the worst deal in history. But certainly not a victory for Obama.

    Ok -- I was wrong. There finally was a deal; and President Obama did not have to shut the government down. Although I am convinced the President and the nation would have been better off if he had shut it down in order to avoid default. As matters now stand, those who were willing to risk all of this -- the House Republicans -- have not experienced any consequences except being yelled at by their own Speaker Boehner.

    Not the worst deal in history. But certainly not a victory for Obama.

    Ok -- I was wrong. There finally was a deal; and President Obama did not have to shut the government down. Although I am convinced the President and the nation would have been better off if he had shut it down in order to avoid default. As matters now stand, those who were willing to risk all of this -- the House Republicans -- have not experienced any consequences except being yelled at by their own Speaker Boehner.

    As to the deal itself, about the best you can say is that the combined forces of American governance -- both parties, both Houses and the Presidency (led by the Republicans in the House of Representatives) -- took us to the brink of a "self goal" and then at the last minute rescued the rest of us from the catastrophe they damn near caused. However the Financial Times overstated the point a bit when it said yesterday that this is not the worst last minute deal in history, the 1938 Munich Accord was certainly worse.

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    The reality always was that all this was ever going to be - as I've said repeatedly - was a stop-gap, a momentary pause in the budget policy wars. And that's all that it was. It leaned much more in the Republican Congress's direction in part because that side had a cohesive minority group willing to be completely irresponsible. But that's not the only reason. First, there was no real alternative. I may have missed it, but I did not see the group of Democratic Senators or House members with a compelling centrist or left alternative plan. Second, the White House was simply not strategic in thinking through how we would reach this point, and what we would do when we got here. More on that later.

    But here are some concluding points to take away: this deal

    • Does not come close to solving our debt/deficit problems;

    • Is not an economic plan: why is it that economic growth has not become someone's battle cry?

    • Does not end the drama -- we will have a government shut-down confrontation in late September, and probably when the new Commission composed only of elected members of the House and Senate are unable to agree on anything;

    • Has accelerated the sense of dismay normal Americans have when they watch Washington and our current political structure in action; and

    • Reduced President Obama's support levels for the remainder of this election cycle by about 5 points or 10%.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • The Budget Chronicles: The First of Several End-Games - Get ready for shut-down Drama 2

    Jul 29, 2011Bo Cutter

    A step-by-step guide for turning turmoil into triumph.

    At this point everything is tactical; but for President Obama some tactical steps are more strategic than others.  Above all he has to show that as opposed to the House Republican children he is doing everything possible to limit the damage of this debt limit debacle they have created; while they are pouring gasoline on the fire.

    A step-by-step guide for turning turmoil into triumph.

    At this point everything is tactical; but for President Obama some tactical steps are more strategic than others.  Above all he has to show that as opposed to the House Republican children he is doing everything possible to limit the damage of this debt limit debacle they have created; while they are pouring gasoline on the fire.

    The odds are now better than even that there will not be a deal by August 2 -- I never thought that Republican congressional leadership would allow things to get this far.  But what does the President do?

    To begin with he should not propose a deal yet; in any case, he would simply be  stiffed by the Congressional Republicans.  But the real problem is that no one has defined a gettable deal yet.  The President should not move with his own compromise until he can have some sense of what strange mixture might succeed. But he will have to move.

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    At the same time, the President cannot let us lapse into a default.  That would cause permanent damage to our economy and ordinary Americans.

    Therefore the President has to announce now that he will not allow a default and give the Treasury instructions to pay interest on the existing debt;  to be sure that debt can be rolled over; and to allow for essential debt increases.  Remember: we are spending at the rate of $300 billion a month; collecting revenues at the rate of $170 billion a month; and therefore increasing the deficit by $130 billion a month.  So the President has to find $130 billion of bills not to pay.  To make it all more complicated,  it is not at all sure that the President or the Treasury had the legal authority to pick and choose what bills to pay.

    I do not see how the President can avoid the following steps:

    • Commit to honoring our debt;
    • Announce an impending government wide shut- down;
    • State that he will use the authority implicit in the 14th Amendment to choose what bills to pay;
    • Make public the broad priorities he will follow in paying what bills he can -- he should be able most days to pay critical defense costs and major entitlements. But there will be days when this is not possible.

    If the President takes these steps now, he will shift the debate from the debacle that is rolling on before our eyes to the damage the Congressional Republicans are doing to the country.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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  • The Rise of the Radical Center: The Crisis of the Old Order

    Jul 26, 2011Bo Cutter

    Big changes are coming for Americans fed up with the crisis in governance.

    Big changes are coming for Americans fed up with the crisis in governance.

    Last week one of my oldest friends -- named Les Francis -- and I hosted a small dinner in Washington D.C. we called "the annual meeting of the Radical Center." Policy preferences differed. Party allegiances differed. Explanations for why we are where we are differed, but among this group -- everyone of whom had long histories of deep involvement in government and politics -- there was no disagreement on a central point: in the deficit/debt ceiling debacle unfolding before us we are seeing a crisis of governance.

    This debacle is confirming -- and solidifying -- a view that has slowly been building among ordinary Americans for a long time: the Republican and Democratic parties are essentially bankrupt in a central sense of the term. They are not capable, separately or together, of governing America. The effects of this realization and conclusion will not be felt immediately -- next month -- but the avalanche has begun to move down the hill and it is going to pick up speed.

    The evidence is increasingly hard to deny. Republicans have a 55% unfavorable rating by voters -- only exceeded by a 57% score in 1998 during their stupid effort to impeach President Clinton. Democrats have an unfavorable rating of 49%, their highest ever. A resounding 12% of voters express confidence in the Congress. And 62% of Americans think the country is on the wrong track. My bet is that these numbers will become worse not better between now and the 2012 election.

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    But so what? Don't the two parties constitute a duopoly, so there is no real way for dissent to be registered except by not voting? Well, that may be changing.

    To get a sense of this, I recommend two recent articles to you: first, Tom Friedman's column of July 23, "Make Way for the Radical Center"; and John Avlon's July 22 Daily Beast column, "The Web's Stealth Presidential Race." Both columns discuss the emergence of a new group -- Americans Elect -- which intends to do two simple things: (1) Provide ballot access to an independent bipartisan presidential ticket, which will be chosen through (2) a web based convention to be held in June 2012. I've been part of this effort for a couple of years, but that is not why I mention it here. Rather, I mention this new group to emphasize the following points: we are in the midst of a governing crisis; we are also in the midst of fundamental change in the "old order"; Americans are losing confidence rapidly in existing political arrangements; and technology now provides a way of leap-frogging the two party duopoly and going directly to the voters with a different message.

    Both the necessary and the sufficient circumstances for the effective emergence of the radical center are now fulfilled. And the odds are mounting that within the next 2 presidential elections we will see political changes of the kind this country sees about twice a century.

    Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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