Anger Management

Can the Obama administration stoke public outrage about AIG without getting burned?

President Barack Obama

Everyone is outraged about AIG. The president is outraged. Press secretary Robert Gibbs used the word (or some form of it) 13 times in his briefing Tuesday. Mild-mannered budget director Peter Orszag told reporters that among the White House staff, “the outrage is visceral.” Members of Congress are competing to see who can be most outraged. The fever could almost become stimulative: Think of all the economic activity that would be produced if all 418 AIG bonus recipients purchased home-security systems to protect themselves from the advancing mob.

Administration aides know this outrage can go too far. If the president stokes too much outrage, he’ll have a tougher time asking for more tax money for future bailouts of banks and other industries. But, as it was explained to me by an administration adviser, it is impossible for the president not to show that he’s outraged. If he didn’t, he’d lose credibility, which would eventually hurt his ability to sell future bailouts and his budget.

If we thought it was tricky to price these toxic assets at failed banks, try calibrating outrage. That’s going to be the president’s task after this AIG mess is over: figuring out how much unfairness the American people will tolerate, even as he promotes a new framework based on fairness.

At the heart of Obama’s economic plans has always been a tension about fairness. Obama is selling his budget, with its reorientation of spending priorities and taxes as an effort to make the system fairer: Government resources must be redistributed to reverse a three-decade-long trend of rising inequality in incomes and wealth. At the same time, however, he is stuck promoting efforts to revive the economy that are inevitably unfair. It’s not just rewarding people who helped us get into this mess with $165 million in bonuses or paying back Wall Street investment banks that mislead investors about their health. It’s explaining why your neighbor gets help with his mortgage but you don’t.

So far, according to polls, Obama had been able to navigate these tensions. People are realistic about the country’s economic problems and aren’t demanding a quick fix. They don’t blame Obama for policies that were put in place before he was in office, and they believe he will put regulations in place to keep the bad behavior from happening again. In polls about the administration’s housing plan, for example, people said that while they thought the program was unfair because it bailed out those who had been imprudent, they nevertheless thought it would improve the greater economy in the end, so they were willing to tolerate some unfairness.

Putting tough rules in place was crucial in helping the public stomach this unfairness. So Obama has repeatedly stressed that while a lot of taxpayer money may be going toward bailouts and stimulus packages, it will be carefully accounted for. In the Obama administration, we are told, old ways of mismanagement and waste are gone, and no one will benefit from special dealing. The president has railed against CEO pay, boasted he would go line by line in his budget to eliminate waste, and explained how the stimulus-bill spending would be tracked to ensure the money was being spent wisely. If it was going to ask people to accept some level of unfairness, then the administration also wanted to make sure that it was as little unfairness as possible.

All of these initiatives have been aimed at building trust—because Obama needs trust for his big ask: his budget. The budget rests on a “grand bargain,” as Obama puts it, in which individuals agree to make some sacrifices in order to improve our collective lot. No one is going to make a sacrifice if he thinks the new game is just as crooked as the one that allowed our economy to get so out of whack.

The AIG bonuses threaten to undo all of the Obama team’s patient work. Whether the Obama team knew about the bonuses and only became outraged after they became public or simply lacked the legal ability to break contracts doesn’t matter. Clueless or powerless, the episode is especially dangerous for Obama because it suggests that the candidate of change cannot change the system. It’s as if the public is saying, We knew there would still be unfairness, but it’s the same old unfairness we’ve always had. (And, as Eliot Spitzer points out, beyond the bonuses there’s another whole level of unfairness we’re being asked to tolerate.)

This poses several political problems as Obama tries to pivot from cleaning up the mess he inherited with the banks and housing to the restructuring of the federal budget. More people are going to ask why they should sacrifice when the well-connected didn’t have to. And the president is going to have to do even more work explaining that his team will be good stewards of taxpayer dollars. That’s why Wednesday the president went before the cameras to stress that in the wake of the AIG mess, he was putting new rules in place. “We’re going to be moving that on a fast track. This is part of the broader package of financial regulatory steps that we’re going to be taking that ensures that going forward in the future we’re not going to find ourselves in these kinds of terrible positions again.”

Obama is asking for more time, but just minutes before he said, “I don’t want to quell anger.” He was wrestling once again with the old tension. He needs to sympathize with the public’s outrage while at the same time hoping that the public calms down enough to be patient.