Moving In

By Michael Kramer

IN THE EARLY EVENING OF DEC. 7, A small group of economic advisers met secretly with Bill Clinton at Blair House in Washington. Their message was depressing: The long-term outlook for the nation's economy is worse than the public appreciates; the euphoria surrounding the latest growth figures is unfounded; and some of the underlying assumptions behind the economic plan Clinton embraced during the campaign are wrong. "Blair House," as it is now referred to in shorthand among a close circle of Clinton aides, was not a pleasant meeting. The President-elect feared that his advisers had misled him during the campaign, and the discussion's revelations constituted the beginning of what he himself calls his "first political crisis."

The events leading to Blair House, the session itself and Clinton's current attempts to turn its implications to his advantage offer a rare glimpse at the President-elect's leadership style and governing philosophy.

Different Presidents use their transitions differently. Clinton's has been marked by two factors: the beginning of what promises to be a drawn-out and difficult education process designed to change the way Americans think about themselves and their country, and the appointment of advisers whose primary roles will involve salesmanship and the implementation of programs more than policy development.

In choosing his top team, Clinton has been guided by three considerations: a quest for ethnic and gender diversity; an emphasis on collegiality; and, in the case of his senior economic assistants, a desire that their selection be perceived calmly by the financial markets, whose skittishness could doom his tenure even before it begins. The last two goals have been met. The first, + diversity, has been harder to achieve, but its importance has been misunderstood. Clinton in no way feels obligated to the women's, ethnic and liberal lobbying groups that seem to have driven him to distraction. To Clinton, diversity is desirable because it supports his overarching ambition: that the public turn from its traditional craving for immediate gratification to an appreciation of the pain, sacrifice and mutual obligation necessary to bring about structural economic change. Without that change, Clinton feels, the nation will not be able to continue growing in an increasingly global economy. To that end, a Cabinet that "looks like America" helps.

Thus begins the education of Bill Clinton -- and Clinton's first moves toward educating his nation. Along the way Clinton has displayed several facets of his personality: a leader feared by his aides, who attempt to shield him from some uncomfortable truths; an insightful student of economics nevertheless capable of holding to notions most economists view as errant nonsense; a man determined to set the country on a difficult path, who views every setback as an opportunity.

Blair House was inevitable. When the chore changed from campaigning to governing, Clinton had to confront the flaws in his prescriptions and the excessively optimistic projections of the institutions over which he has no control. "The bad news had to be delivered at some point," says Labor Secretary-designate Robert Reich. "It was only a matter of when and where."

Clinton's economic education began in earnest in late 1991. Facing an electorate immune to campaign promises, Clinton added heft to his diagnosis of the nation's ills with a 15-page paper titled "A Plan for America's Future." With its emphasis on a tax-rate cut for the middle class, the plan served Clinton well in New Hampshire and for most of the remaining primaries. But by late spring Clinton was pretending he had never seriously proposed the tax cut, and he knew the plan could not survive the close scrutiny it was beginning to receive. It had accurately signaled Clinton's priorities -- which remain basically intact -- but there was little supporting data. Experts like Representative Leon Panetta and Alice Rivlin (whom Clinton has tapped for the two top slots at his budget office) derided the plan as unsound, and Ross Perot ridiculed Clinton for a "a bunch of junk numbers that don't compute." Perot's criticism dovetailed perfectly with Republican claims that Clinton was a tax-and-spend liberal, and the Democrat's standing in the polls sank precipitously.

Sent back to the drawing boards in June with orders to "firm up the math," Clinton's team quickly produced Putting People First (or PPF, as it is called), a 232-page paperback chock-full of numbers, all of which Clinton swore "added up." At its bottom line, the proposal promised to halve the nation's deficit by 1996, an assessment many considered sober and even courageous because it backed off Clinton's earlier intention to wipe out the red ink entirely by the end of his first term. But even this modified deficit- reduction promise owed little to Clinton's programs. Almost all of the decrease was due to what Clinton's economists call "natural effects," in this case growth assumptions generated by the Congressional Budget Office and estimates of when the government's savings and loan bailout operation would be completed. Nevertheless, the prospective halving of the deficit was well received by an electorate starved for a plan -- any plan -- that seemed to signal tough action.

The trouble began almost immediately; the "natural effects" started changing shortly after the new plan surfaced. By August the anemic economy and spiraling health-care costs caused the CBO to increase its estimate of the 1996 deficit by $100 billion, a profound change that both the Clinton and Bush campaigns conveniently ignored. "To accommodate the CBO's new predictions would have made it look like we were caving in to Perot's view of the world," says a Clinton adviser. "Also, redoing PPF would have told the constituencies we needed to win that we'd be hard pressed to fund the programs that were attracting them to us. Shutting up was smart politically, and it worked because it was in Bush's interest too. For Bush to scream about our numbers would have forced him to admit that his were wrong also, and that the recovery he kept saying was just around the corner wasn't."

Campaign staff members could not take into account another part of the "natural effects" problem until after the election. Congress adjourned without appropriating further funds to cover lost deposits in the failed S&Ls; the effect of that inaction was not known precisely until mid-November. Now, says Clinton, there is "a need for more money to pay depositors and therefore less debt relief than I was counting on."

As head of the Clinton transition's economic planning group, Reich became responsible for putting it all together for the President-elect at Blair House. "By definition, the 'natural effects' stuff was out of our control, so laying that much on him was easy," says one of the Blair House participants. "The question beforehand was how to tell him that some of the cost estimates and revenue projections in PPF were, to put it mildly, unrealistic. Clinton has a fierce temper -- you don't ever want to be on its receiving end -- and he was convinced the PPF numbers were airtight. So we rehearsed what to say and scripted around a bit in the hope of avoiding an outburst."

The Blair House session was held in a first-floor conference room dominated by a portrait of Franklin Roosevelt. At least one of Clinton's aides noted the irony: "Here it was Pearl Harbor Day, and we were dropping an economic bombshell on the boss under a painting of the Depression President." To minimize the chances of Clinton's insisting on a line-by-line reassessment of his plan's assumptions, a chart titled Budget Deficit Forecasts Under PPF Policies was, according to one Clinton aide, "rounded off in a conelike fashion and rendered approximate." It was a fool's errand. Clinton stared at the chart, pointed to the cone that represented his advisers' estimate that the numbers were off by at least $24 billion (and perhaps much more) and said, "What's this?" In a nanosecond, an old debate reopened over two items Clinton is counting on to cut the deficit $67 billion over four years. The first involves the President-elect's proposal to recapture $45 billion (over four years) in tax receipts he believes is owed by foreign corporations doing business in the U.S. Among those who have studied this problem seriously, Clinton is about the only person left who still thinks such a windfall is possible. "Ain't no way," says Panetta. "Maybe we'll get $3 billion a year -- if we're lucky."

"I know what everyone else thinks," says the President-elect. "But I'm going to push for it, and I think we can pull it off."

CLINTON'S AIDES ALSO TRIED DISPUTING THE PROposal's claim that unspecified "administrative savings" can yield $22 billion over four years. They were cut short. Clinton is unimpressed by his predecessors' failed attempts to swipe at waste, fraud and abuse. "I told my people I'd force those savings simply by cutting agency budgets by 3% a year," Clinton says. "I did the same kind of thing in Arkansas. There's a lot of flab, believe me."

) As Clinton dug in, his aides folded their tents. "We didn't talk about the other softness," says one of the Blair House briefers. "We weren't getting anywhere, and Clinton was beginning to turn the bad news around." In fact, as an incurable optimist, Clinton actually became exhilarated. He acknowledged that his aides' report made their collective challenge more difficult, but, says a Blair House participant, "he clearly relished the chance to use the news to help teach people to appreciate the severe structural problems of the economy, the need to sacrifice even if the short-term situation improves."

Blair House left Clinton to ponder his campaign pledge. In public he now calls his promise to cut the deficit in half in four years "a goal." Privately he understands that a true halving (in absolute dollars) would require a gasoline tax and other levies he is loath to impose. Eventually, the political trick will probably involve redefining the problem, either by 1) claiming that halving the deficit as a ratio of the debt to the gross domestic product should be considered a promise fulfilled or 2) arguing that there are different kinds of deficits, and that any funds appropriated for long-term improvements like public works projects should be viewed as welcome investments rather than as crippling and wasteful current-consumptio n expenditures.

But changing the terms of reference is tomorrow's problem. To push far- reaching reforms like an overhaul of the nation's health-care system, and to ensure that any temporary fiscal stimulus is inextricably tied to a long- term deficit-reduction scheme, Clinton had to decide how exactly to spread the bad news he got at Blair House. He had already become famous for downplaying whatever encouraging economic statistics have come along, and he followed suit within hours of Blair House. But he knew the mega-message would be better received if it were broached first by a third party whose analysis he could thereafter second. This is the key to understanding Clinton's governing style. As the historian Arthur Schlesinger notes, Clinton views successful leadership as a process of persuasion rather than preachment. Throughout the campaign, Clinton scored repeatedly by engaging voters in a dialogue that demonstrated his knowledge of public issues while at the same time convincing his audiences that he heard their concerns and was actually learning from the colloquy.

While it seemed that Clinton had merely adapted his campaign techniques to * reflect the fact that many people take their cues from television talk shows, he had actually (and typically) studied the problem of changing perceptions quite rigorously. A treatise Clinton has found particularly useful in this regard is Reich's book The Power of Public Ideas. The central tenet of Reich's argument is contained in two sentences: "The core responsibility of those who deal in public policy . . . is not simply to discover as objectively as possible what people want for themselves . . . It is also to provide the public with alternative visions of what is desirable and possible, to stimulate deliberation about them, provoke a reexamination of premises and values, and thus to broaden the range of potential responses and deepen society's understanding of itself." Or, as Franklin Roosevelt once said, "All our great Presidents were leaders of thought at times when certain historic ideas in the life of the nation had to be clarified." As an admirer of both Reich and Roosevelt, Clinton views their analyses as crucial to his overarching goal. His proudest achievement so far, he says -- his "enduring legacy" -- is that he taught the people of Arkansas to "think long term. It's what I want most to do nationwide. It won't be easy and it will require a constant dialogue with the country, but it has to be done and I mean to do it."

To begin that march, to spark the discussion that Clinton most wanted to flow following Blair House, his already scheduled economic conference in Little Rock offered a flag of convenience -- and a particularly apt messenger was quickly engaged.

John White "drafted Ross Perot's economic plan," Clinton said as he introduced his chosen agent in Little Rock, "and later, much to my delight, endorsed the Clinton-Gore ticket."

White's pedigree was especially important to Clinton. The 19 million people who voted for Perot represent the nation's political balance of power. To ensure his re-election and garner the support he needs for his programs, Clinton must have the Perot constituency in his corner. His challenge is analogous to Richard Nixon's in 1968. Following that election, the George Wallace vote was up for grabs. The Wallaceites were mostly Democrats, and they could have reverted to their traditional home, but Nixon lured them to the G.O.P. with his Silent Majority rhetoric.

Clinton views the Perot vote as similarly in flux, and he intends to secure it. Thus, those of his plans deemed most attractive to Perot's voters, like welfare reform, national service and campaign reform, have been designated high priorities by the President-elect. Welfare reform and national service could be costly, but Clinton says he can push the "big bucks" into the "out years." Campaign reform is even better, a twofer from God. "The Perot people share my view that the system is broke," he says. "Campaign-finance reform is part of the way to begin fixing it. We're gonna do it" -- and it costs nothing.

White's Little Rock audience knew he had strayed to Clinton from Perot, but they also knew he had never wavered from describing Clinton's numbers as "strained." So when White spoke, people paid attention. To those who had been at Blair House, it was all familiar. In fact, almost all White's comments reflected the Blair House presentation to Clinton, and a Clinton aide worked closely with White in Little Rock. "I was told they needed someone to deliver the hard message," says White. "They dumped the data on me and provided me with the graphics." In fact, the charts White used in Little Rock were some of the very same diagrams Clinton's briefers had used in Washington. But not all of them; White wasn't told about the Clinton team's own view of the PPF numbers that he had himself questioned earlier, and he played the dutiful soldier in Little Rock. White's audience heard him ascribe the bad news entirely to the changing "natural effects."

"Well," White says now, "the PPF part of the problem is not really that great, and all of Clinton's numbers are going to have to be refigured anyway to deal with the new realities. All that counts at this point is that Clinton follow through on the central idea, that his energies be directed toward getting people focused on the long-term stuff that needs to be addressed at a time when the nation is getting giddy about a possible recovery."

White's brief remarks in Little Rock ended with these words: "In summary . . . the deficit problem is growing worse and must be dealt with through a multiyear, specific deficit-reduction program with real targets, one that is published now and shows significant progress in this decade." Clinton could not have put it better himself, and he quickly reiterated the salient points in White's presentation, cleverly tying his analysis to White's by asking "Is that correct?" Assured that he had indeed accurately reflected what his staff had prompted White to say, the President-elect remarked, "Thank you very | much. It was a terrific job." To those who knew what was going on, Clinton's smile seemed just a little wicked.

Clinton was pleased, but the message has received less play than he would like. "Frankly, I'm surprised that it hasn't been understood more widely," he says. "We're going to have to work on that. I told you it wasn't going to be easy." No doubt Clinton will himself take an increasingly active role in spreading the news, but the collusion between White and Clinton in Little Rock may be a model for future setups. Clinton, it should be noted, believes change requires dialogue -- or at least its patina. "People engaged by their leaders in a conversation feel better about the outcome even if they would prefer a different one, simply because they are given a chance to have their say," Clinton says. "Dialogue is the way to teach" -- and the best instructors confect it when it doesn't occur naturally.

They began calling him "Slick Willie" long ago. The Arkansan who coined the sobriquet didn't mean it as a compliment. But as Clinton the teacher grows into leadership, the nation will have to learn another lesson: slick is a word that need not always be interpreted pejoratively.