Inside the President’s Inner Circle

Twenty-two hours before giving what was being billed as a major economic address in Kansas, President Barack Obama had an idea to strengthen the 29th paragraph of his speech: He wanted to put a number to the odds that a child born into poverty today would grow up to be middle-class. Alan Krueger, then Obama’s chief economist, was just about to squire his wife to that evening’s black-tie White House holiday party when he got the call.

“What the president asked is almost impossible,” Krueger, a Princeton professor, recalls of that Monday afternoon, Dec. 5, 2011, just one month after he’d taken the job as chairman of the president’s Council of Economic Advisers. Already in his tuxedo, Krueger phoned former Princeton colleague David Card *83 at Berkeley and spent almost three hours on the line with him, knee-deep in Gini coefficients and logarithms. They came up with a number for the speechwriter: a one-in-three chance of moving from bottom to middle (down from 50-50 a few years after World War II). “And my wife,” says Krueger, “was sitting there in her gown the whole time. We only made it to part of the party.”

Breakneck demands. High stakes. The sacrifices of a patient (if you’re lucky) spouse. Throw in an undertow of partisan ugliness, and the story behind the 29th paragraph of Obama’s speech pretty well sums up the story of Krueger’s life for the almost four years he spent in the economic inner circle of the Obama administration. He returned to Princeton in August.

In the immediate aftermath of the 2008 meltdown of the financial industry, Krueger served as an assistant secretary at the Treasury Department, under Tim Geithner. Then, after a one-year return to Princeton that he jokingly calls his sabbatical, Krueger was confirmed by the Senate on Nov. 3, 2011, to lead the council in the White House. His profile already had risen far enough that Vanity Fair published a guide on how to tell him apart from that other notable Princeton economist with a similar name, Paul Krugman. (Krueger, 53, has a Harvard Ph.D. and gray-flecked hair like a “granite countertop,” the magazine said, while Krugman’s is “Tony-Bennett-esque,” and his Ph.D. is from M.I.T.) Obama said in announcing the CEA appointment that what distinguished Krueger was his “invaluable counsel” at Treasury during the financial crisis. Or, as Krueger now sums up that period: “You know, a few bad decisions and we could have had the Second Great Depression.”

All of this came after Krueger spent a year in the Clinton Labor Department. He swore then, in August 1995, that because of the pressure and the sense of overwhelming responsibility, he would never go back to Washington. How was he lured back? Amid piles of papers and files in his office on the third floor of Robertson Hall, Krueger remembers: “Tim Geithner called right around Christmas 2008 and said, ‘The economy’s in a free fall. Why don’t you come to Treasury and work on big, consequential things?’ That was his line. And I couldn’t say no.”

In the politics-fueled power centers of the nation’s capital, it was, ironically, Krueger’s academic reputation for methodical and meticulous data-based research that made him, as veteran White House economic adviser Gene Sperling says, “a go-to person on economics for a lot of us in Democratic circles for a long time.”

Much of Krueger’s work has focused on issues such as education (in a study on the value of an elite education, he and economist Stacy Dale *96 found that “you are equally as likely to succeed, in terms of future income, if you go to Harvard as if you apply to Harvard and get rejected”) and employment and wages (in two surveys of fast-food chains in New Jersey, he and Card found no evidence that a minimum-wage hike reduced employment or caused chains not to open new restaurants). It didn’t hurt that Krueger also had a knack for pursuing ripped-from-the-headlines research. “After 9/11, I thought I’d work on terrorism,” he says, and his work evolved into his 2007 book, What Makes a Terrorist. (He concluded that suicide bombers tended to be well-educated and middle- or upper-income, challenging the belief that poverty and ignorance are what breed terrorists.) He dubbed his research on why middle-aged men were dropping out of the workforce the “Kramer Effect,” after the never-working neighbor on Seinfeld. And then there were his contributions to The New York Times economics blogs from 2000 to 2009. Sample column: “Madonna vs. Springsteen? How Economists Judge Popularity.”

Krueger, right, and other advisers meet with President Barack Obama in the Oval Office in August 2012. Michael Froman ’85, then an economics adviser and now U.S. trade representative, is pictured at left.

Official White House Photo by Pete Souza

Krueger’s work on the music industry is, in fact, one of his signature research pursuits, springing from a promise he made to his dad. Growing up a New York Giants fan in Livingston, N.J., where he went to high school with future New Jersey Gov. Chris Christie, Krueger promised to buy his father a ticket if the Giants ever made it to the Super Bowl. So in 2001, Krueger found himself shelling out $2,500 on StubHub for the big game against the Baltimore Ravens. He explains: “I thought, can I learn about economics from this? Within a week I arranged with the [Princeton] Survey Research Center to question 250 fans tailgating at the game about how they got their tickets, how much they were willing to pay.” His findings, written up for the Times blog, intrigued the editor of Pollstar, a trade publication for the concert-tour industry, who invited Krueger to have a look at Pollstar’s data on 300,000 pop and rock concerts.

Soon, Krueger teamed up with Ticketmaster and was working live shows by the likes of U2 and Bruce Springsteen, wearing a green apron with pockets for his golf pencils and questionnaire cards. His research paper on the secondary market for concert tickets (co-authored with Marie Connolly Pray *07) is yet unpublished. But Krueger took some of what he’d found — the average concert-ticket price spiked by nearly 400 percent between 1981 and 2012, with the top 5 percent of performers taking home almost 90 percent of all concert revenues — and labeled it “rockonomics.”

Later, in the White House, he packaged rockonomics as a metaphor for the lopsided American economy and presented it in a June 2013 speech at the Rock and Roll Hall of Fame in Cleveland. “The same forces of technology, scale, luck, and the erosion of social pressures for fairness that are making rock ’n’ roll more of a superstar industry,” he said, “are causing the U.S. economy to become more of a winner-take-all affair.” Obama later pressed the speech on his Cabinet secretaries, Sperling says, and what had started almost as a lark at the 2001 Super Bowl ended up as required reading in the White House.

What’s the value that an academic brings to the White House? “In economics, we talk about comparative advantage, and, to some extent, mine is doing research,” Krueger says in an interview in February. But as a planned two-hour conversation stretches past four, it’s evident that the self-described “absent-minded professor” (he was just off the tennis court, freshly showered and, having forgotten socks, barefoot under his loafers; when it came to paying for his lunch, he realized with a chuckle that he was without his wallet as well) also brings to the table another advantage. “One of Alan’s great skills,” says Donald Marron, director of economic policy initiatives at the Urban Institute, “is an ability to communicate economics in a way that’s understandable by normal human beings.”

Krueger deployed that gift at Treasury, where he initiated monthly briefings that put his two decades of teaching experience to work on the non-economists among the communications, political, and policy aides to Geithner. Sperling says the sessions provided “data-based ammunition for policy battles” and were so popular that the White House senior staff asked Krueger to reprise them there, later expanding his audience to key congressional Democrats.

Another Krueger innovation is the confidence interval he calculated for projecting when the U.S. Treasury will hit the annual debt limit — that mysterious date when the government reaches the ceiling of what it is authorized by Congress to borrow to pay for obligations like military salaries, tax refunds, and Social Security benefits. In recent years, the deadline, which requires congressional action to avoid government default, has been at the center of political brinksmanship on Capitol Hill.

The limit also had long been a subject of suspicion, says Aaron Klein *00, who worked on the Senate Banking Committee and later joined Krueger’s staff at Treasury. Klein, now director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center, says administration officials of both parties would seek a debt-limit increase without being able to pin down for skeptical lawmakers of the opposing party when, exactly, it was needed.

When Krueger arrived at Treasury, he discovered that officials were using a 25-year-old study to project the date, plus or minus a week. “I thought, where did the week come from?” Krueger recalls. His analysis found that the date could be predicted only within a margin of plus or minus three weeks. “You don’t want to play dice with this, because default could come three weeks earlier than you think,” says Krueger. The Urban Institute’s Marron credits Krueger with putting the timing of the debt limit on more solid ground. “It’s an incredibly important good-government thing for Treasury to have more reasonable statistical techniques for projecting when we’ll hit that limit,” he says.

The confidence interval is highly technical, but Krueger regards this contribution with satisfaction: “I thought to myself, for the first time in 225 years in the United States, somebody calculated a confidence interval for this, and there are some things I can address that other people couldn’t.” Plus, he says, he now has a compelling real-life example to press on Princeton undergrads who balk at the complexities of the confidence interval — “because students always say, ‘Why do I have to learn this?’”

In a place where socializing among political rivals has been replaced with rancor, Krueger tried to be friendly. “Academics are often uncomfortable, and they’re inclined to stick with people they know. Not Alan. He’s very easy with a wide range of folks,” says former Princeton president William G. Bowen *58, who ran into Krueger at the White House last year. That range now includes rock stars (“I bumped into Bono at the White House, and he remembered his Madison Square Garden concert where I had done one of my studies”). And starlets (he has saved a 2012 email in which Scarlett Johansson calls him “numbers guy”). And, of course, students.

Since Krueger’s wife Lisa, then a math teacher at Princeton High School, did not move to Washington until after his first year at the White House, he often spent evenings with the president’s personal aide, Reggie Love, who was taking executive MBA courses on the side. “From 10 till midnight, I’d help him with his econ and stats homework,” says Krueger, “while watching a football game.”

Perhaps the biggest social leap Krueger took in Washington was with the self-dubbed “Young Guns” in the House leadership. After meeting California Republican Rep. Kevin McCarthy at the British ambassador’s backyard barbecue, Krueger took McCarthy up on an offer of a bike ride with a few Republicans: 25 miles at 6:30 a.m. Krueger cleared the outing with White House Chief of Staff Denis McDonough, who considered it “part of the charm offensive” and later biked with the Republicans himself, going on to help McCarthy sway Democratic votes for one of his bills, says Krueger. “It was small, but it did teach me that having these relationships can be important.”

As much as Krueger’s work — be it economic or diplomatic — was behind the curtain, he also spent a good deal of time out front as a face and voice of Obama’s economic policy. Whenever the periodic labor numbers came out, Krueger was there on the north driveway, explaining them to TV news cameras. Media training by former White House press secretary Joe Lockhart came with the job, Krueger says. So did his wife’s coaching. “She told me I need to smile more, but if the report is that unemployment rose from 9.3 to 9.4 [percent], you look like you’re out of touch if you smile,” says Krueger. “Jessica Yellin of CNN told me, ‘Smile when they ask the question, not when you answer,’ which was good advice.”

He learned other things, too — some of them unpleasant. People found his University phone number and left him voicemail messages spiked with anti-Obama vitriol and racist taunts. Krueger saved all the messages — “I don’t know how to erase them” — and still marvels at how many offensive callers left their names: “Don’t they think?”

Vice President Joe Biden taught him that sometimes it is possible to think too much. The two were traveling together during the 2012 campaign when Biden asked him to predict what the unemployment rate would be on Election Day. “I know not to make a forecast unless I really have to, so I hemmed and hawed,” Krueger remembers. “And he said, ‘The problem with you smart guys — and I include the president in this — you’re too worried about making a mistake. Tell me [what’s in] your gut.’ ”

Below 8 percent, Krueger said. So when it was announced in early October 2012 that unemployment fell from 8.1 to 7.8 percent, Biden called. “He said, ‘I love you; you were the only one brave enough to make the call.’” Krueger told his staff the story because they often held onto analysis “until the last minute to make sure it was right, just to the point where it was no longer relevant.”

It’s an enduring lesson as he now dives back into research. “I used to have the view that randomized experiments are the gold standard ... and we should try to come as close to that as possible,” Krueger says. “Then I got asked to work on so many different problems, and you just have to use whatever tools you have.” On his return, he was not “a purist anymore,” which he considers “probably healthy.”

Now Krueger’s research interests, which once prompted whimsically disparate survey outings to rock concerts, identical-twin conventions (where he studied the correlation between education and earnings), and off-track betting outlets (where he mined the circumstances of those unemployed “Kramer-like” men), are more sober and streamlined. Working in the administration on the Recovery Act, the Dodd-Frank Wall Street reforms, the HIRE Act (which provides tax breaks for employers who hire unemployed workers), and the Affordable Care Act (better known as Obamacare) gave him, he says, “a little bit more impetus to work on the bigger problems. Washington has so much trouble solving any problems that you might as well try to work on a big problem. Because if you can only solve one or two, solve a big one.”

And the two biggest problems he sees now are increasing income inequality and long-term unemployment. On the latter, Krueger made headlines again at the end of March with a paper co-authored by Princeton grad students Judd Cramer and David Cho that found only 11 percent of those who were long-term unemployed in a given month had returned to steady, full-time employment a year later. Krueger proposes a tax credit for employers who hire the long-term unemployed, saying he’s starting to think his former grad-school adviser — and Obama administration colleague — Larry Summers is properly worried about structural slumps. “The idea that we’re going to permanently have a slow growth rate — I used to be more skeptical about that than I am now. He may be right,” says Krueger. He still thinks, however, that the economy will keep improving: “When you think of the whole bunch of stuff that was thrown at it — the European debt crisis, the BP oil spill, worries that H1N1 flu virus would cut short the recovery, the tsunami in Japan, which disrupted supply chains — it’s been pretty resilient.”

The heaviest drag on growth, Krueger says, is income inequality — that widening gap between rich and poor that leaves the middle, from which springs the consumption that props up aggregate demand, shrinking. In a 2012 paper titled “The Great Gatsby Curve,” Krueger and Miles Corak of the University of Ottawa showed that children from poor families are less likely to improve their economic status as adults if they grew up in countries with greater income inequality. “I really worry we have an inequality trap that feeds upon itself and leads to more polarization and two drastically different Americas,” says Krueger. “We had the worst economic crisis in our lifetime caused by financial institutions taking irresponsible risk and caused by families borrowing too much because their income didn’t keep up. Now it’s harder and harder for the bottom to borrow, and where’s the consumption going to come from?”

Krueger was one of three outside experts from whom Obama sought input on a major December address on the topic, says Sperling. He offered a quote from Adam Smith, the father of free-market economics: “They who feed, clothe, and lodge the whole body of the people should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.” Obama used the quote, and added: “For those of you who don’t speak old-English, let me translate. It means if you work hard, you should make a decent living ... You should be able to support a family.“

While Krueger maintains a voice within the Beltway, he seems happy to be home in time to see his daughter, Sydney ’14, through her final semester at Princeton (son Benjamin ’12 works in the White House Correspondence Office) and freer to work on his tennis game, serve as faculty mentor to the men’s tennis team, and set his own agenda. But he acknowledges he has changed, saying, “I even read the newspaper differently, looking at the pictures for who’s sitting where, what room they are in.” A new cynicism has taken root. “It’s hard not to be too pessimistic about our system, because you have expectations for Congress to do the people’s business and it’s not,” Krueger says. “It’s dysfunctional. I feel that frustration as much as anybody.”

He misses some of the perks of his Washington life: the view from his Treasury office, where he could see Marian Robinson greet her granddaughters Sasha and Malia Obama as they came home from school; tennis doubles with the president at Camp David; a high-level staff pass that gave him free range of the White House compound. When he returned this year for the State of the Union address, he had to wait in line at the gate. 

Sandra Sobieraj Westfall ’89 is People magazine’s Washington bureau chief.