Chapter Nine
The End of the Beginning

IN THE AFTERNOON OF APRIL 5, 2011, PRESIDENT OBAMA MADE an unscheduled appearance in the White House briefing room. He was exasperated.

That morning he had met with John Boehner and Harry Reid in the Oval Office. Obama and Reid both thought that the three of them had agreed on $33 billion in spending cuts for the continuing resolution needed to fund the government through September.

But Boehner issued a new demand: $40 billion. The speaker apparently had not been able to sell the $33 to the conservatives and Tea Party freshmen of his caucus. Obama argued that he had already gone more than halfway to the $61 billion in the Republican House budget bill. Now Boehner was backtracking, when they were three days away from a government shutdown?

Standing before the journalists, Obama made a case for sealing a deal quickly: the last thing the economy needed was “a disruption” caused by a government shutdown. He said he would not agree to another short-term CR extension (unless it was only to provide time to finalize an agreement).

He denounced the riders and decried the process: “What we’re spending weeks and weeks and weeks arguing about is actually only 12 percent of the budget, and is not going to significantly dent the deficit or the debt.”

Americans, he added, expect us to “act like grownups.”

Obama was sharp but not personal. He didn’t assail Republicans by name. Boehner was not as kind. That day, he blasted Obama for “not leading on this year’s budget”—even while the two of them were engaged in intensive talks to craft a deal.

The next night the speaker was back in the Oval Office—with Reid, Biden, and the president—again wrestling over the final amount of spending cuts and the legislative riders. The atmosphere was tense.

“Nothing will be agreed to, until everything is agreed to,” Boehner reiterated. He offered $39 billion.

Obama felt he was being jerked around. The number had been $33 billion, then $40 billion, and now $39 billion. The Republicans were holding the government hostage and exploiting the situation, tacking onto this must-pass bill provisions that otherwise could not get through Congress. Obama had wars to oversee, uprisings in the Arab world to handle. He had to work out a deal. He and his aides truly believed that the economy could be roiled by a shutdown.

AFTER THE MEETING, WHITE HOUSE OFFICIALS, REID AIDES, and Boehner staffers met through the night, until 3:00 A.M., with the Democrats countering Boehner’s last offer with a package of about $34.5 billion in cuts. Each side, though, had different ways to tally reductions—Jack Lew was looking for as many CHIMPS as he could get—and there was disagreement over funding for the Pentagon.

As for the riders, Obama was willing to consent to the less consequential add-ons. But he was holding firm against the provisions aimed at health care reform, environmental protections, and Planned Parenthood.

Later that morning—this was the day before D-day—Boehner defied the president by bringing to a vote a stop-gap bill that would fund the military for the rest of the fiscal year and keep the rest of the government open for one more week. Obama had vowed to veto the measure. This was a sideshow, perhaps designed by Boehner to bolster his position among Republicans suspicious of his private dealings with the president. He was juggling two imperatives: forging a deal and retaining the backing of his caucus so he could remain speaker.

That afternoon, Obama, Boehner, and Reid gathered once more in the Oval Office. Much of the talk was about the riders, not the big numbers. The three found themselves in the weeds, haggling over mountaintop mining rules. Was this any way to run the government of the most important economy of the world? The meeting ended with no agreement.

Through the day, Democrats were complaining that the policy riders were the main obstacle at this stage, especially the Planned Parenthood measure. “We are very close on the cuts and how we make them,” Reid told reporters. “The only things—I repeat, the only things—holding up an agreement are women’s health and clean air.”

BOEHNER’S PROBLEM, IT TURNED OUT, WAS NOT ONLY THE TEA Partiers; it was the veteran social conservatives within the Republican conference. A Tea Party tussle had morphed into yet another skirmish in the decades-old culture wars.

The main policy rider threatening to sink everything was the anti–Planned Parenthood measure that would kill $327 million in Title X family planning funds for contraception services, cervical cancer screenings, annual gynecological exams, sexually transmitted infections testing, and other health services. This program, signed into law by President Richard Nixon in 1970, assisted millions of low-income women who obtained these services at forty-five hundred clinics across the nation, some run by Planned Parenthood. With this rider, antiabortion foes were lashing out at the nation’s leading abortion provider. Obama had tried to duck a battle over Republican cuts only to become mired in the never-ending abortion fracas.

That day, Representative Mike Pence, a leading social conservative in sync with the Tea Party, took to the House floor to chant, “Shut it down!”

IN THE EVENING, OBAMA, BOEHNER, BIDEN, AND REID WERE back in the Oval Office—their third huddle in a day.

Boehner said he needed a big top-line number to sell an agreement to his fellow Republicans. There appeared to be agreement now on $38.5 billion in cuts. The negotiations had been more difficult because the White House had insisted on having a say over the specific cuts. Obama had pushed for that—so Lew would be able to protect the programs the president cared about most.

Obama and Reid told Boehner they would not yield to the GOP’s attempt to defund Planned Parenthood. Obama, though, was willing to make a painful concession.

“John, I will give you DC abortion,” he said, referring to a rider that prevented the District of Columbia government from using nonfederal funds to pay for abortion care—a restriction Republicans had previously imposed on the capital city.

Boehner pushed the president on the Planned Parenthood rider.

“Nope, zero, this is it,” Obama said.

But as this session was drawing to a close, Boehner tried again on the Planned Parenthood rider.

Biden lost his temper and stood up.

If Boehner didn’t relent, the vice president said angrily, “We’re going to have to take it to the American people.”

The ability of the federal government to function during wartime appeared to hinge on subsidized pap smears.

Before Boehner left, he said, “Mr. President, if you don’t mind, I want to go and pray about this one.”

THE GOVERNMENT WAS NOW ALMOST TWENTY-FOUR HOURS from shutting down. The White House canceled a trip Obama was scheduled to take to Indianapolis the next day.

As staffers met on Capitol Hill to go over details and once more crunched numbers into the wee hours of the night, Lew became suspicious that the Republicans were not abiding by the terms agreed upon by the president and the speaker.

The GOPers were insisting on a number higher than $38.5 billion, and they were still talking about the Planned Parenthood rider. Around 3:00 A.M., Lew told Barry Jackson, Boehner’s chief of staff, they seemed to be going around in circles, with the Republicans trying to reopen issues already settled in the Oval Office. Lew went home, believing the government would close at midnight.

ON FRIDAY MORNING, FIRST READ, A NEWSLETTER PUT OUT BY NBC News, noted, “The question Dem and GOP lawmakers need to ponder: Are they really going to shut down the federal government over $300 million to Planned Parenthood? That’s what the debate has really come down to.”

The mainstream media narrative was not that Republican extremists were on the warpath. It was whether or not Washington could work. A Washington Post article seemed to blame the president, asking if Obama was out of touch: “Is he diffident in the face of serious challenges?” The piece charged Obama with “procedural caution” and “an innate distaste for ideological confrontation,” noting that Obama had raised “doubts about the strength of his leadership.” Republican antiabortion fanatics were forcing a shutdown showdown, yet the problem was supposedly Obama’s leadership style.

For good or bad, Obama was demonstrating strategic discipline, hewing to the blueprint Plouffe had designed and staying true to his top policy priorities: preventing any dislocation to the economy that could be caused by a government shutdown and defending programs that were part of his growth agenda. He was also taking a stand on the Planned Parenthood and environmental riders.

Obama realized he could be bashing the Republicans for their extremist cuts and policies and for their threats to crash the government. But he had calculated that doing so would lessen the chances of reaching a shutdown-preventing accord. As the drama built on this deadline day, he ordered his aides to refrain from assailing the Republicans—to preserve political space for the negotiators to nail down a deal.

By late morning, Lew and Nabors were stationed on Capitol Hill, catching and throwing offers and counteroffers with Republican staffers. The Republicans abandoned the EPA riders. The White House believed that $38.5 billion was the final number. But the Republicans were still pressing for more. Obama had to call Boehner to ensure the negotiators stuck with the $38.5 billion.

“I am the president of the United States and you are the speaker of the House,” he told Boehner. “We are the two most consequential leaders in the US government. We had a discussion last night and the staff negotiations don’t reflect that. If we have an agreement, it has to stick. We will have to do business for the next year and a half from our different perspectives.”

The number stuck, and by midafternoon, the work was done, a provisional deal had been reached—or so it seemed to Lew. He headed back to the White House, anticipating an announcement by 5:00 P.M., with seven hours to spare.

Then nothing happened. Lew waited hours for the final word from Boehner.

As evening came—and the minutes toward midnight ticked away—Lew and Biden were in Daley’s office at the White House, with Lew constantly on the phone with Nabors, who was waiting for an answer from Boehner. Republican staffers were telling Nabors there were still a few unresolved issues.

On another line, Lew was talking to federal officials about how to proceed with the government shutdown.

At one point, Nabors was asked to meet with Republican aides on the House Appropriations Committee. After listening to them for a few minutes, he got the impression they wanted to reopen issues already decided.

“I don’t have time for this,” Nabors told Barry Jackson. “Either make a deal or not.”

WITH THE MIDNIGHT DEADLINE APPROACHING, BOEHNER started a meeting with his Republican caucus at 9:45 P.M. in the Capitol basement. He didn’t have a deal, but he started describing what a deal might look like.

Forty-five minutes later, Reid’s chief of staff David Krone, Nabors, and Jackson—meeting several floors above the Republicans—shook hands. They had an agreement. It was 10:30 P.M.

The final deal was $38.5 billion below current spending levels. The Planned Parenthood rider was dead; the District of Columbia abortion provision remained. Almost half the cuts were in CHIMPS, with several billions in savings coming from programs that would in all likelihood not spend the funds being cut. Lew had succeeded in protecting the baseline for discretionary spending. He also had secured Obama’s top priorities in education and other investments. The White House had also wrung $3 billion out of the Pentagon budget.

In the basement, Boehner, still with his caucus, announced, “There’s a deal.” The room cheered.

In a televised statement, Obama noted, “Some of the cuts we agreed to will be painful. Programs people rely on will be cut back. Needed infrastructure projects will be delayed.” But he boasted that he had achieved “the biggest annual spending cuts in history,” as if that was what he had set out to do.

The president had been forced to cut important programs beyond which he believed prudent, yet he was now embracing what he had been opposing. This was not winning the future. It was beating back a Republican assault by accepting a portion of it—in an attempt to protect the economy and seize higher ground for the next and more consequential round of combat.

Obama walked over to the State Dining Room, where Biden, Plouffe, Carney, Daley, Lew, Sperling, Reed, Pfeiffer, and others were waiting for him. His aides applauded him. After a few moments, Obama returned to the Blue Room to reenact the statement for photographers. He stood at the podium and said, “This is where I pretend I’m talking.” Then, with a big smile on his face, he left.

Shortly after midnight, Lew issued a memo to be circulated throughout the federal government: continue normal operation.

This was a moment of relief, not celebration. Perhaps Obama had scored points with independent voters and advanced his adult-in-the-room strategy. But the previous December’s tax-cut compromise had given Obama an economic policy of consequence: a second stimulus. This budget compromise ate up much of the president’s time for the relatively small matter of financing the government for another six months. And it had reinforced the Republicans’ ultimate message that cutting spending ought to be Washington’s first priority.

“We became consumed with how to get through the negotiations,” a senior administration official later recalled. “Our negotiators were heavily invested in getting a deal and everything became inside baseball. We were not trying to publicly win a debate. We were privately trying to win a negotiation.”

The Republicans got the bumper-sticker victory, another senior administration official later observed, but the White House won on the details. As Lew saw it, the cuts probably seemed to be an eight on a scale of one to ten, but in reality they ranked maybe a two—or, at most, a three.

MEMBERS OF THE PROGRESSIVE COMMENTARIAT WERE NOT cheering. Obama and the Democrats, Washington Post columnist Ezra Klein wrote, were “sacrificing more than they let on. By celebrating spending cuts, they’ve opened the door to further austerity measures at a moment when the recovery remains fragile. Claiming political victory now opens the door to further policy defeats later.”

Other liberals wondered how Obama had ended up accepting $38.5 billion in cuts, when the Republicans had initially proposed $32 billion. MoveOn blasted an e-mail to members decrying the final deal, and Justin Ruben, the group’s executive director, issued a threat: “If the president and the Democrats don’t stand up to Republicans, I don’t see people coming out and doing the work that it would take to get them elected.”

Robert Reich spoke for disheartened progressives who believed Obama had been outfoxed by the hostage takers of the Right: “Once you start paying ransom, there’s no end to it, because you embolden them.” Columnist E. J. Dionne, noting that Obama’s victories were largely defensive, had a sharp dig: “ ‘Concessions we can believe in’ was not the slogan Obama ran on.”

THOUGH POOH-BAHS OF THE RIGHT—INCLUDING RUSH Limbaugh—slammed the deal as a sellout for falling short of the $61 billion (or $100 billion) mark, Boehner had demonstrated a fair measure of savvy. He had been up against a Democratic president and a Democratic-controlled Senate and had to contend with the extremists within his caucus. And he managed to win about two-thirds of the spending cuts his Republican House had passed. He had forced his agenda (or the Tea Party’s) upon Washington.

Boehner’s challenge, though, wasn’t over. The House still had to vote on the deal—and his Tea Partiers were not in a victorious mood. With the Congressional Budget Office reporting that the $38.5 billion agreement would yield only $352 million in reduced outlays in 2011, they were fuming. It looked as if Lew had snookered Boehner, which was somewhat true.

Lew was a budget policy master, and he had structured the package with minimal reductions in immediate government spending. (The CBO estimated that the package would lead to $20 billion to $25 billion in lower outlays over the next five years.) The CBO report enraged Tea Partiers on and off Capitol Hill; they were now more suspicious of Washington compromise—and of Boehner, too. The next time around, they might well be even less amenable to a deal.

WHEN THE BUDGET DEAL CAME UP FOR A VOTE ON APRIL 14, Boehner lost fifty-nine House Republicans who rebelled against the compromise. The bill only passed because eighty-one Democrats backed the measure.

“We were hearing from Boehner, ‘We have the votes, we don’t need Democrats,’ ” a senior House Democratic staffer recalled.

But Boehner was wrong. Nancy Pelosi opposed the bill, yet she hadn’t tried to block her fellow Democrats from voting for it. The House Democrats, as angry as they were about being cut out of the deal making, were not willing to shut down the government and politically damage the Congress and the president just to stick it to the speaker. They rode in like the cavalry to save the Obama-Boehner-Reid deal. The Senate passed the bill without fuss on an 81–19 margin.

To sell the deal to conservatives, Boehner had boasted that he had ended Obama’s “stimulus spending binge.” But, it seemed, he was not such a master of his own caucus.

“A lot of our new members expected big change right away,” a senior House Republican aide recalled. “We had to explain to them that the founding fathers had made it hard to do big changes. And up until the end, they were still complaining that we were only cutting discretionary spending and not entitlements. We’d say, ‘The CR only covers discretionary spending. We’ve been through this a million times!’ ”

This did not bode well for negotiations ahead.

The first round of budget battles had consumed weeks of time that Obama had not spent advancing the grand win-the-future themes of his State of the Union address. The economic recovery was still feeble, with millions of Americans out of work. There were wars going on. Yet the government had become dysfunctional in managing itself. And Obama had not used this near breakdown in Washington to present a larger story.

“We maintained funding for the core growth agenda,” a senior administration official conceded after the fact, “but did not do well articulating that publicly.” The unexpected fight over the Planned Parenthood rider probably captured more of the public’s attention than Obama’s key budget priorities. As another senior administration official later remarked, it was not great messaging to say the GOP wanted $100 billion in cuts, and the White House preferred $25 billion.

Whether David Plouffe’s overall plan was working was open to debate—even among Obama loyalists. Shortly after the deal, a former senior White House official complained that the president’s top advisers were saying “this strengthens [Obama] for the bigger fight. I think the opposite is true.”

This onetime Obama-ite thought the president had become overly tactical: Obama “prides himself for believing in the politics of conviction. The tragedy is he does not live up to his self-perception. The White House is trying to win back independents. They feel they overreached on health care and need to swing back. And that’s a change. The president pushed health care because he believed it was the right thing to do and didn’t focus on the politics. Now he has internalized a lot of the criticism.”

David Axelrod dismissed talk of any Obama shift: “He has been consistent throughout his presidency; he believes that dealing with deficits in the mid- and long term is important. But he’s taken care to make sure the cuts are in the back end and the out-years and won’t throttle down the economy.”

But had Obama allowed the Republicans to turn the national debate into nothing other than a debt seminar? “We can be faulted for this,” Axelrod said later. “Nobody anticipated the degree of Republican obstreperousness and implacability. We knew there would be strident voices, but the degree to which that tail would wag the dog—we didn’t assume.”

It was tempting for outsiders to think Obama should have gone to war over the CR. But the president and his aides didn’t see a choice. A senior administration official later lamented that being responsible for preventing adverse consequences was lonely duty in Washington.

Lew thought of the episode this way: It had been an ugly process, but it worked.

OBAMA DID NOT GET A BREATHER AFTER THE SHUTDOWN STANDoff concluded peacefully. In several weeks, the US government would hit the limit on the amount of debt it could accrue. Unless Obama pried legislation out of Congress to raise the debt ceiling, the federal government would have to stiff people and institutions to which it owed money—a long list that could include Social Security recipients, military contractors, and bondholders. It could end up defaulting.

There was no telling what that would bring, but Timothy Geithner and other administration officials didn’t want to find out. They worried that a default could detonate a global financial crisis. These days, it didn’t take much for financial woes to zip from one continent to the next.

In years past, Democrats and Republicans had raised the debt ceiling without much fuss. During the past decade, this had happened ten times. In 2006, Obama and all the Democratic senators voted against a hike in the debt ceiling in a symbolic gesture to protest George W. Bush’s fiscal policies; but they knew the bill would pass with majority Republican support and didn’t attempt to trade their votes for administration concessions.

This time, Boehner and Mitch McConnell had been telling the White House they realized how dangerous it was to play politics with a possible default. But that didn’t mean they weren’t going to exploit the situation—and demand severe spending cuts to reduce the deficit in return for allowing the government to cover the bills it had previously racked up. A poll at the time showed that only 16 percent of Americans favored raising the debt ceiling. And some House GOPers yearned to say no to increasing the debt limit, period, come what may.

“It was not on anyone’s mind that there would be a big chunk of Republicans who wanted us to default so they could cut government spending by 40 percent,” a former top White House official noted. “Reasonable Republicans were telling us that they knew we would be playing with fire if there was a fight over the debt ceiling.”

But there had been warning signs. Shortly after the midterms, Austan Goolsbee was told by an acquaintance about a meeting of the incoming House Republican freshmen. They were being briefed by a prominent conservative economist and asked why they should raise the debt ceiling. The economist said it would be crazy not to—and he completely lost the room. But, the economist explained, the US government could default and not be able to pay for almost half of its services and that would put financial institutions in crisis.

So? the freshmen asked.

Goolsbee’s acquaintance was passing along a warning that these new guys will be hard to work with. Goolsbee dutifully shared this with the top levels of the White House. Yet it didn’t spook anyone.

“Nobody fathomed,” a former White House official later said, “how out of control this could get.”

WITH THE DEBT-CEILING DEADLINE APPROACHING, IT WAS TIME for Obama to head into Round Two of the budget showdown: the fight over a deficit plan. And as Plouffe had hoped for, the Republicans did go first.

On April 5, in the final and frenzied week of the 2011 spending squabble—the day Obama was haggling with Boehner over whether the budget cuts would total $40 billion or $33 billion—Representative Paul Ryan introduced the House Republicans’ budget plan for 2012, which also covered spending and taxes for the next ten years. His $40 trillion blueprint was as radical as White House strategists had dreamed of.

Ryan claimed his budget would reduce the deficit by $4.4 trillion over ten years. The proposal would repeal Obama’s health care overhaul and reduce tax rates for corporations and wealthy individuals. Nearly $1 trillion in discretionary domestic spending would be hacked away.

Two of the plan’s most out-of-the-box provisions targeted medical entitlements. One would turn Medicaid, which covered health care for low-income Americans, from a matching program (under which the federal government pays states on the basis of the number of enrollees) into a block grant program (which would distribute a set level of funding to the states). In essence, there would be a cap on Medicaid, which would likely lead to fewer services for low-income Americans.

The other measure was truly radical: the traditional Medicare system of reimbursing doctors for health care provided to seniors would be replaced in several years by a system in which seniors would purchase a subsidized insurance plan. The Medicare guarantee would be gone, and seniors would pay on average $6,000 more a year. The savings for the feds: $389 billion.

In a way, this budget bill was a cover for the Bush tax cuts, which over the next seven years would cost about $4 trillion, close to the savings Ryan claimed. And over the coming decade, the government, under the Ryan budget, would add $5.1 trillion to the national debt. (Obama’s budget called for spending that would increase the debt by $7 trillion.)

The White House had been waiting for this. Not a scuffle over where to slice domestic spending programs for the coming six months, but a roll-up-the-sleeves confrontation over Medicare, Medicaid, and tax fairness. House Democrats eagerly pounced on Ryan’s Medicare proposal, seeing this call to end Medicare’s guarantee as their ticket back to the majority. The campaign ads would write themselves.

“The Ryan proposal could be the foil Obama needs,” Paul Begala, the strategist/pundit, said. “ . . . I hope every vulnerable Republican in Congress signs on to the Ryan plan to kill Medicare, because we will beat ’em like a bad piece of meat.”

Yet the White House’s immediate response to Ryan’s budget was restrained. In a little over a week’s time—after the CR fight was done—Obama was giving a major speech to reveal his own deficit-reduction plan. He would wait until then to address Ryan’s scheme. Plouffe wanted as many Republicans as possible to jump aboard the Ryan Express before Obama moved to derail it.

FOR WEEKS, OBAMA AND HIS AIDES HAD BEEN WORKING ON THIS speech, and the president wanted a “values-based” address. It would not be a dry recitation of facts and figures defending the necessity of tightening the nation’s fiscal belt. It would be the moment he had been anticipating since the end of last year, when he could directly compare his vision with what the Republicans were peddling.

In one meeting about the speech, Obama told speechwriter Jon Favreau, Gene Sperling, and other aides that a recent trip to Chile had sharpened his thinking about the address.

“I have something really important I want to say in this speech,” he remarked. “I’m going to other parts of the world and they’re showing me tremendous investments in infrastructure and innovations in education. They’re willing to spend money on that.”

Back home, he added, it was a different picture: “The Republican budget reflects a fundamental pessimism. It says that to get the deficit in line, we can’t afford to be as visionary as these countries, and we can’t be optimistic because they’re not willing to let an extra penny come from high-income people.”

The Republican vision, he added, was simply cut Medicaid and be less generous to families with disabled children—and not whip up the financial will to modernize the nation’s infrastructure. Smaller countries were aiming bigger.

Obama had a lot of pent-up passion. During the budget negotiations, he had not fully spoken out. He felt the time had finally come. To draw lines, to be visceral, to call out the Republicans. He was ready to have that battle of values.

DEFICIT REDUCTION WAS NOW FULLY INTERTWINED WITH THE debt-ceiling issue. On the morning of April 13—five days after the near shutdown—Obama met with the eight top congressional leaders at the White House. With Vice President Biden, McConnell, Kyl, Reid, Durbin, Boehner, Cantor, Pelosi, and Hoyer sitting at the polished wooden table in the Cabinet Room, the president noted that he did not believe in linking the debt ceiling to spending cuts. It had never been done in the past. But tying an increase in borrowing authority to cuts had become gospel within the GOP. We understand, Obama told the lawmakers, that we have to do both at the same time. The president was yielding on practical terms without conceding the principle.

Shortly after that session, the presidential motorcade left the White House and raced the five blocks to an auditorium at George Washington University. It was time for Obama’s latest Big Speech. Only a small fraction of Americans that weekday afternoon would be sitting in front of televisions airing the speech live, but Obama was hoping this address would carry far beyond the cable news reports.

At the university, Obama’s audience included students, university officials, and invited notables, including Republican Representatives Paul Ryan, Jeb Hensarling, and Dave Camp, who each had served on the Bowles-Simpson deficit commission. Prior to the speech, a pro forma invitation had gone out to members of the commission, but no one expected these three to show. When Sperling saw them in the auditorium, right before Obama was to hit the stage, he was stunned. The way the room was lighted, the president wouldn’t be able to see them. Their attendance, in the ways of Washington, was a conciliatory gesture, and the president was about to rip into them.

Uh-oh, Sperling thought.

Obama wouldn’t have fundamentally recast his speech had he known Ryan—his chief target—and the others would be in the rows before him. But he would have added a line or two to note their presence and emphasize that this was no personal attack. In Washington, a city of big but easily bruised egos, such niceties can matter.

Not that the Republicans were always mindful of such protocols. That morning, McConnell, Boehner, and Cantor—after their meeting with the president—had held a press conference to blast Obama’s speech before it was even delivered, declaring that any plan with increased taxes for the wealthy would be unacceptable.

OBAMA BEGAN BY TRACING RECENT HISTORY. AFTER THE NATION started amassing debt “at alarming levels” in the Reagan 1980s, Presidents George H. W. Bush and Bill Clinton forged agreements with their political opponents to reduce deficits, and “America’s finances were in great shape by the year 2000. We went from deficit to surplus.”

Then “we lost our way.” The Bush-Cheney administration launched two wars, created an expensive prescription drug program, and enacted tax cuts without covering the costs for any of this. Obama entered office facing a $1 trillion annual deficit, and the emergency steps he had taken to deal with an economy in crisis added to the deficits. He was reminding people that the Republicans had gone wild with the federal government’s credit card and now were blaming their bender on the guy stuck with the tab.

It was time, Obama insisted, to restore fiscal responsibility. But, he insisted, a deficit plan was more than just numbers; it reflected “a vision of the America we want to see five years, ten years, twenty years down the road.” And then he turned to the Ryan plan—which was scheduled for a vote in the House in two days.

The GOP proposal “would lead to a fundamentally different America than the one we’ve known.” Obama listed some of the proposed cuts: a 70 percent cut in clean energy, a 25 percent cut in education, a 30 percent cut in transportation, and cuts in Pell grants.

“These are the kinds of cuts that tell us we can’t afford the America that I believe in and I think you believe in.”

Obama bluntly challenged Ryan’s devotion to the nation’s future: “I believe [the Ryan budget] paints a vision of our future that is deeply pessimistic. It’s a vision that says if our roads crumble and our bridges collapse, we can’t afford to fix them. If there are bright young Americans who have the drive and the will but not the money to go to college, we can’t afford to send them.”

The president noted that China was opening research labs and solar facilities. South Korean schoolchildren were outpacing American students in math and science. Brazil was investing billions of dollars in new infrastructure and running half its cars on biofuels. “And yet,” he said, “we are presented with a vision that says the American people, the United States of America—the greatest nation on Earth—can’t afford any of this.”

OBAMA BLASTED RYAN’S MEDICARE PROPOSAL, ASSERTING, “PUT simply, it ends Medicare as we know it.” He maintained that up to fifty million Americans could lose their health insurance due to the Ryan budget.

“Worst of all,” he continued, “this is a vision that says even though Americans can’t afford to invest in education at current levels, or clean energy, even though we can’t afford to maintain our commitment on Medicare and Medicaid, we can somehow afford more than $1 trillion in new tax breaks for the wealthy. Think about that.”

He was charging that Ryan and his crew intended to sell out hardworking Americans to help out millionaires.

“This vision is less about reducing the deficit than it is about changing the basic social compact in America,” he said. “. . . I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”

This was no policy-wonk speech. Obama was excoriating Ryan and the other GOPers, questioning their commitment to a just and generous society. As Ryan, Hensarling, and Camp listened, they seethed.

Obama unveiled his own “more balanced approach” to reducing red ink, a “framework,” not a plan, for $4 trillion in deficit reduction over twelve years. Obama would cut $770 billion from nondefense discretionary spending and save $400 billion from security programs. He proposed policy changes in Medicare and Medicaid targeting wasteful subsidies, erroneous payments, inefficient practices, and expensive prescription drugs that he said would result in $480 billion in savings—without shifting costs to seniors or low-income Americans. Obama’s proposal would wring $360 billion from farm subsidies and other mandatory spending programs.

Obama would not extend the Bush tax cuts for the wealthiest, and he would pursue tax reform to close assorted loopholes. He would limit itemized deductions for the wealthiest 2 percent and pick up $320 billion over ten years. Obama proposed nothing specific regarding Social Security, noting it “is not the cause of our deficit.” Altogether, his framework included $2 trillion in cuts, $1 trillion in reduced interest payments, and $1 trillion in extra revenue from tax reform.

Obama would also implement a “debt failsafe” that would trigger across-the-board spending cuts (except in Social Security, low-income programs, and Medicare), if by 2014 the ratio of debt to the gross domestic product was not declining. He called on the congressional leaders to designate members to participate in bipartisan negotiations aimed at constructing legislation embodying comprehensive deficit reduction (and lifting the debt ceiling). The talks would begin in early May and be led by Vice President Biden.

Positioning himself as the defender of Medicare while also adopting portions of the Bowles-Simpson report, Obama was blending his progressivism with deficit-oriented centrism. He said little about jobs—other than to insist that the nation’s rising debt will “cost us jobs” and to reaffirm he was committed to investments that will lead to jobs in the future.

This was a forceful counterattack. Obama had waited for Republicans to act like, well, Republicans. Then he had jumped on them, claiming he was the protector of the social compact and a policy visionary who could leverage government investments to steer the economy toward long-term prosperity.

After weeks of the grinding CR ground war, it was an energizing moment for Obama’s economic team and a reaffirmation of their core progressive values.

Was it really possible to be a liberal deficit hawk? Obama knew he couldn’t beat the Republicans on the question of who wanted to cut the deepest. Voters looking for slashers would be drawn to the GOP. But if the president could change the channel from a contest over cuts to a clash over values, he might have a chance—in the upcoming negotiations and in the 2012 election.

AFTER THE PRESIDENT WAS DONE, SPERLING LOOKED FOR RYAN to tell him this wasn’t personal, but he and the other Republicans left quickly.

Ryan, Camp, and Hensarling had interpreted the invitation as a peace offering, but they left feeling the address had been a personal attack on them.

A furious Ryan denounced the speech as “extremely political, very partisan.” Camp, chairman of the House Ways and Means Committee, told the Washington Post, “What came to my mind was: Why did he invite us?” And the newspaper reported, “The situation was all the more perplexing because Obama has to work with these guys.”

Boehner immediately confirmed that it would be difficult for Obama to forge a compromise, for he reaffirmed that the Republicans would not yield an inch on boosting tax revenues.

The deficit speech seemed a turning point. Obama was playing offense. With a full-throated defense of government, he was appealing to his ideological base. With his concession to the deficit worrywarts, he was courting back independent voters. A top Democratic strategist noted, “The speech against the Ryan budget was what we wanted in 2010.”

Referring to the address, a senior Treasury official gushed at the time: “The best of Obama and as robust a defense of the role of government in today’s world. He did the Clintonian thing—managed to make both [Paul] Krugman and the centrist types happy—more or less.”

Obama also satisfied the deficit-minded gang at Treasury: “Treasury folks are just happy to have a marker down on fiscal policy. We’ve been taking a lot of heat from the bond buyers who have been bitching and moaning that we’re not serious on the debt, and this allows our team to push back.”

Progressives—who days earlier had been down in the dumps about Obama’s budget-cutting deal with the GOP—were heartened. Author/academic George Lakoff praised the speech as a “work of art” and a return to Obama’s “moral vision.” Krugman (sort of) hailed the president: “Obama made the moral as well as practical case.” Robert Greenstein, the head of the Center on Budget and Policy Priorities, praised the plan, though he noted the two-to-one cuts-to-revenues ratio was not sufficiently balanced and that Obama’s call for $360 billion in mandatory program cuts could unintentionally lead to “substantial cuts in core programs for low-income Americans.”

The establishment’s budget hawks tended to praise Obama. Pete Peterson, the doyen of this crowd, proclaimed: “President Obama’s proposed framework is a big step toward the compromise we need to achieve fiscal sustainability.”

Obama’s top advisers were pleased. The president had won over Washington’s deficit-über-alles crowd and the progressives. After weeks of budget bruises, Obama seemed to be roaring back.

TWO DAYS AFTER OBAMA’S SPEECH, THE HOUSE REPUBLICANS took a leap of faith and approved Ryan’s budget on a party-line vote.

Democratic strategists were giddy. This, they believed, was the path back to power. And that day, Kathy Hochul, a Democrat running in a special election to fill an open congressional seat in a Republican district northeast of Buffalo, New York, began decrying the Ryan budget measure as part of her campaign against a Republican millionaire named Jane Corwin who supported Ryan’s plan.

Soon lawn signs popped up in the district: SAVE MEDICARE/VOTE HOCHUL; and the Democrats were running ads warning the Corwin-endorsed legislation would “essentially end Medicare.” (A month later, Hochul won this open seat 48 to 42 percent.)

Across the country, Republican House members holding town hall meetings—including Ryan—were met by angry constituents decrying the GOP plan to end Medicare as a guaranteed service. The DCCC released an ad showing seniors who had lost Medicare mowing lawns, selling lemonade, and performing as strippers to raise money for their health care. One survey found that 78 percent of Americans opposed Medicare reductions.

This was all the more delicious for Democrats because the Republicans had won back the House in part by attacking Obama and the Democrats for cutting Medicare. (Obama had not actually cut benefits for Medicare beneficiaries; he had reduced payments for Medicare Advantage, a program that subsidized private insurance plans that operate at higher costs than traditional Medicare.) Now it was the Democrats’ turn to stick it to the Republicans. In private, Pelosi repeatedly urged Obama to advance this attack on Republicans.

But instead the White House throttled back. The bashing of Ryan and the Republicans—over values, visions, and budget numbers—ceased. Within the White House, the order came down from on high to tone down rhetoric and not demonize the Republicans: we’re going to need to make a deal on the debt ceiling—and soon.

Asked at the time why the assault evaporated, a top White House aide said, “After that speech, we moved to the process”—meaning the talks with the Republicans.

Some in the White House, though, were in a more pugilistic mood. Austan Goolsbee produced a whiteboard video explaining what was wrong and excessive about the Ryan budget. The White House decided not to release it.

From the outside, it looked as if a switch at 1600 Pennsylvania Avenue had been turned off. A former top Obama White House official was puzzled by the lack of follow-up to the anti-Ryan speech: “Why not say that five times? Emphasize why we won’t cut off the vulnerable, why government investment is important. Why not follow up over and over?”

An outside Obama adviser also was taken aback: “There was forty-eight hours of knocking the shit out of Ryan. Why nothing after that?”

Axelrod subsequently explained, “The decision was made to go out and talk about jobs and the economy and allow the negotiations to proceed until the president needed to intervene.” And as Robert Gibbs put it, “It’s difficult to put out your right hand to shake their hands and then strike them with your left hand.”

Democrats and progressives questioned the back-to-talks strategy and yearned for a political brawl reminiscent of the Clinton-Gingrich clash of the 1990s. This political dreaming rankled some within Obama’s circle. It’s easy to criticize and concoct combative political strategies, White House aides complained, when it’s not your job to avert economic calamity.

The president wasn’t doing what he wanted to do; he was doing what he believed he had to do. “The president is not wild about his message now,” a top Obama adviser said at the time. “And he understands that if independents won’t listen to him, he can’t bring them to where he needs to bring them. He is anxious to get to the next chapter.”

WHAT WAS MOST CONCENTRATING THE COLLECTIVE MIND OF the White House was the debt ceiling. In an April 4 letter to Reid and Boehner, Geithner had reported that the US government would hit its limit on borrowing in mid-May—though Treasury could take steps to delay the moment of reckoning for weeks.

There was no time to waste.

Obama and his top economic advisers—Geithner, Sperling, Lew, and others—felt as if they were dealing with a ticking time bomb. (Later the default D-day would be pushed back to August 2.) They had taken their shots at Ryan and now needed to move on to negotiations that had to succeed.

Pondering the criticism from the left, Sperling thought of an old joke. A physicist, a chemist, and an economist are stranded on a desert island. One day, a can of tuna fish washes ashore. But they have no way to open it. The three decide to take twenty-four hours for each to come up with a possible solution.

The next day, the chemist tells the others he has found several chemical compounds he can place at the edge of the can. Once exposed to sunlight, they might burn a hole in the can. The physicist reports that he has found a boulder slanted on one side. If the can is dropped on this part of the boulder at a certain angle, it might break open. Then it’s the economist’s turn. He says, “Now suppose we had a can opener. . . .”

Sperling saw the critics as that economist. They wanted to relax the one constraint that could not be relaxed: Republican intransigence. But Obama and his crew were the responsible party; if they didn’t drive a resolution with the Republicans, the economy could crash. They couldn’t assume away the stakes. Wishing for a can opener wouldn’t help.

Was this overly cautious? Overly deferential to political reality? Obama and his aides were outraged that the Republicans were using the possible default of the United States as a bargaining chip. Obama wanted a clean debt-ceiling hike, no strings (or cuts) attached—though such a bill wouldn’t likely pass the House and pushing it would leave Obama open to the charge (false as it was) that he was in favor of more national debt, while the Republicans were championing fiscal discipline.

Obama and his team had decided there was little they could do to alter the basic dynamic at hand. Could they deny the hostage taking that had occurred? Could they call the GOP’s bluff—dare Boehner not to raise the debt ceiling without spending cuts—and take a chance on default? It didn’t help that the economy was once again in a precarious condition.

About this time, Goolsbee surveyed the gathering forces and thought of the Battle of Gettysburg. When he and his family had toured the Civil War site in nearby Pennsylvania, he had been impressed by a fundamental question: Why did this pivotal engagement of the Civil War take place at Gettysburg? There was not much there. The location did not have tremendous strategic importance.

But the great armies of the North and the South had been on the move and a collision was coming. The two stumbled upon each other in the small Pennsylvania town, and the inevitable and decisive battle ensued.

To Goolsbee, who would soon leave the White House and return to the University of Chicago, it looked as if a monumental clash between two opposing forces was now unavoidable and the confrontation over the debt ceiling would be the political and policy equivalent of Gettysburg: a big and bloody fight.