Mitchell E. Daniels Jr. Oral History

By the way, thank you for all of this. It’s amazing. I can keep this briefing book, right?

Absolutely.

It has all this stuff I’ve forgotten about. I’d love to tell you that I got through every page of it and it reminded me of everything. It did remind me of a few things, but I know there are going to be gaps because it has been a while and I’ve been busy.

Exactly.

I’m forever running into people who say, “Oh, man, I’ll never forget when—” I say, “I did.” [laughter]

Exactly. I understand that we’re good until 10:30. Is that correct?

Yes. If we can steal back any of that time it will help me a lot today, but if we can’t, that’s the plan.

The reason for the question is, if you got to the last tab, there are two pages of questions we’ll never get through. If there are things that you particularly want to talk about, then maybe we ought to go ahead and start down that path.

There are just a few things that if they don’t come up I’ll want to toss them in.

I’ve identified a few question areas. Maybe the thing for me to do is get them out on the table and then you can gravitate to what you want to. Let me put these out there just for you to think about.

The first one is your appointment, the role that you had in the campaign, and then if you could clarify, to your knowledge, who was involved and how you came by the position.

I’ve been telling people this during this month just passed. If someone had asked me up until December of the year 2000 when Florida was decided, “What would you be doing in April of 2014?” I would have said, “I’ll be retiring from Eli Lilly and Company.” That’s where I was working. I was very much involved in it at the top layer of management in the company. That’s what I expected to do.

Sure.

I was in Washington, D.C., for something and in the Willard Hotel, I think. I don’t know why I remember that, because I don’t remember where I stayed last Thursday. I got a phone call. I believe it was the day of the Supreme Court decision when everybody finally knew who won the election. By the way, the answer about my role in the campaign is zero.

Is that right?

I knew a lot of people who were involved in it and so forth, but I was a private citizen.

Was your job just too sensitive for you to lapse over into the campaign?

Too busy, I guess. In any event, I don’t even think I had any informal role. Andy Card, I think, called me first. I said, “Congratulations, Andy. How are you?” He said, “We’re finally free and clear to start building an administration and we’ve got your name on the list.”

I said, “Been there, done that. But I’m excited about the change and for you guys.” I’ve always blamed it on him and [Richard] Cheney. As I understand it, that’s where such a crackpot idea came from. I guess it must have been in that conversation I said, “What do you have in mind?” He said, “Legislative Affairs.” I said, “Oh, Andy—one, I don’t think I’d particularly be interested, and second, there are a thousand people better equipped for that job than I am.” I had not been in Washington for 14 years and it just didn’t seem like a good idea. Vaya con Dios and have a great administration and so forth.

Then either one or two days later he called back and said, “Got another idea.” I said, “What is it?” He said, “OMB” [Office of Management and Budget]. I went home and told my wife. I said, “Now we have a problem. They’re talking about the one job they’ve got that would really grab my attention because of the opportunity there for service.” I can say more about this if you like, but if a President decides to and empowers that particular job, and I had seen it both ways—

Right.

—then it’s a place where you can be useful all day, every day. It touches every part of government. It’s the one job that is both in the Cabinet and at the White House. I guess we treat the Chief of Staff sort of that way these days, but anyway, those other line jobs. So everything about it interested me, fiscal policy of course. I was very interested in the possibility of regulatory review, trying to slow down the avalanche of rules and regs and even the idea of trying to see if the federal government could behave a little more competently.

I have to tell you that almost everything for the next three months is kind of a blur and has been for years. It’s astonishing how fast everything had to happen. The next thing I knew I was in Austin, Texas, saying yes.

What do I remember about that? I went down there. He was having these conversations at the Governor’s residence.

Had you met George W. Bush before?

Yes, but I didn’t know him very well. I had met him. The first time I remember meeting him was in ’88 or ’92. In ’92 I was asked to come in on a volunteer basis. They were having trouble on the campaign. Bob Teeter, who was heading that, asked me to come in and try to bring a little more clarity or purpose to their advertising. I remember sitting at some desk, I guess at their headquarters where I was trying to contribute a little bit, and he came in and asked a lot of questions. I don’t remember much about it.

He clearly—he was right and I shared it—was skeptical about the direction that his father’s campaign was going. That’s about the only time I believe I saw the President until when he was running. They had a parade of groups, state by state, come down to Austin. I was part of one of those. I may have been asked to organize the group. I was just a businessperson. The short of it is I didn’t know him much at all.

So you went to Austin.

I went to Austin and I thought about this, all the questions he might ask naturally enough and what you’d answer. It took maybe a minute for him, almost no time at all, before he said, “I want you in this job. Will you do it?” I said, “Yes, sir.”

I told people when I came back you ought not go to such a conversation unless you’re prepared to say yes sir, and so I did. We spent about an hour talking about other people. He said, “What do you know about—” That was the thing that I always recall from that conversation. There were people that I knew something about. One of them was Dan Coats, then a Senator, now a Senator. In all the newspapers he was sort of frontrunner for Secretary of Defense, which I thought was a good idea. He’s on that committee and a wonderful person.

He asked me about him, and I started in on all the virtues of Dan Coats and gave him all that. Then I said, because I thought you had to have a little balance, and the natural question would be that’s a huge bureaucracy. He hasn’t really had a chance to run something like that before, but that would be manageable. You just get a great supporting cast number two, number three. The President said, “No, no, I know all that. What I really want to know is can he go head-to-head with [Colin] Powell and Cheney?”

I immediately thought two things: This guy figured it out. He wants strong people, but people who will argue with each other and so forth. My second thought was, I don’t think I like Dan’s chances anymore. It was only one or two days later that they named Don Rumsfeld. The minute I heard that I thought, Hmm, I guess that’s the model he was looking for. Dan Coats would have been a great Secretary of Defense, but it wasn’t quite the model he was looking for.

He asked me about Steve Goldsmith, a friend of mine who had been a mayor of my hometown and had spent a lot of time in their campaign. He was, I know, considered for a high appointment, and frankly was lobbying hard for one at the time. I told Steve, “Don’t do that. You don’t have to. People know who you are and what your skills are; it might just not help your cause.” I think it did not help his cause. He not only was not Secretary of HUD [Housing and Urban Development] or something, but wasn’t offered a significant role. I remember he asked me about him and I talked him up. That’s that.

Did you talk any at that time about—you said earlier if the job were properly structured it would be a terrific job. Did you talk about how the job would be structured?

I think I probably did. I must have asked a question or two. I think in that brief moment before he said will you do it, at that time you talk about the job, not yourself. I think I did say that I had seen it, for instance, in the [David] Stockman era. I worked in the [Ronald] Reagan White House. I think I said that I saw it as a great opportunity, because I used to always say if OMB is allowed to and is doing its job well, you can solve ten problems a day the President doesn’t have to hear about and you can save his time for those things that he must do and only he can do.

I guess I probably indicated that in the job I would hope to be empowered to be his shield and hammer and all the things Republican administrations do that Democrats don’t, loosely speaking. OMB tends to recede in importance (in Democratic administrations) because there is almost no interest in stopping regulations or stopping the departments from doing that. There is a lot less interest in trimming spending and so forth. So in the event—we can talk about it if you like—he gave us all the leeway one could hope for and we tried to use the terrific human resources of the place to his advantage.

I’m curious about the budgeting agenda versus the managerial agenda. Did you have a chance to talk with the President-elect about his view of your role to do—

Eventually. Not in that first conversation, but yes. He had some interest in it, first MBA [master of business administration degree] President and all that. We all saw it in its place, but we spent a lot of time and effort picking up some of the documents. Talking about putting the “M” in OMB and that sort of thing. A very serious effort.

I just ran into this woman last weekend and she said, “You know, I just worked at OMB.” In the conversation—I never could remember what we called the thing, PART [Program Assessment Rating Tool] Program Assessment something, something. I knew it started with a P because we kind of replicated it in state government. I remembered the acronym for that, but I couldn’t—she knew all about it. I said, “Do they still print it in the budget?” I don’t know what she answered to that, but she said it lingered on. They modified it and now they were starting to call it something else. Hopefully some vestige remains.

Your team of people—did you have freedom to bring in who you wanted to?

Yes, but I didn’t have anybody. I was very pleased with the team we were able to assemble, but I’m not sure I’d ever worked with a single one of them before. I don’t think so. But there was a terrific pool of people to pick from. There were people who had been in and around the campaign. There were all kinds of people who had been on the Hill or elsewhere who were interested.

We got first pick, now that I think of this. The other thing was, remember, we had to get up and running immediately because the budget is supposed to be the first official thing an administration does. We’d already lost a month and a half. That’s one reason it’s such a blur. It was literally 24/7 until we got that thing done. That included trying to put the crew together to do it. Andy and the Vice President put together a good apparatus. Someone was assigned to me for HR [human resources] purposes. I remember them saying we get first pick because everybody knows a) how important the place is, and b) you’ve got an assignment right in front of you. So I felt we got a terrific group of people, but again, I was coming in from outside.

Did you get the sense that the Vice President was particularly interested in this area? Would he have been relatively more engaged in helping with personnel and priorities there or not?

I don’t remember that in particular. As the book points out, we set up a little appeals process and I suggested that he be the head of the appellate court, the chief justice of the appellate court, so to speak. He took an active interest in that, but in terms of setting up, he was so busy on everything.

Exactly, OK.

This jumps ahead a little bit, but so I don’t forget it—one thing I do remember with clarity, and I think it’s fun, enabling OMB to do as much as it can, protecting the President’s time, and so forth. We knew there had to be a vehicle for Cabinet members and other key unit heads, and if they were dissatisfied with what OMB wanted to do to appeal it. That’s why we set up that little committee. We set up a system where if they didn’t like what the committee said, they could go to the President.

It was well known, certainly to the people in OMB, that apparently in the [William J.] Clinton administration they spent hours—stuff would go to the President, yes, no, maybe. Every department would send in a list; here’s 22 things we want more money for. So in the three years I was there, I can’t speak after that, the total number of appeals that went to the President was zero. Why? Well, one, I think they knew that he had our back at OMB, and two, if they couldn’t get it through Cheney and the group—who’d we have? We had Josh [Bolten], Andy, Larry Lindsey, Cheney, I think Paul O’Neill and me. If they couldn’t get it through that group, then don’t bother. So the President never had to spend any time on that.

What we would do is I would go show the President trajectories. If spending goes up like this, here are our basic assumptions, give us that direction. The big categories—how much you want defense to go up? Then I would show him, if you pick line A, here are some of the things we’d have to do. Line B was different. Sort of like that.

He would give us strategic guidance. He would tell you the answer to some of the big questions, how much this or that big category would go up. Then we’d go work on it. The Vice President also took a role in the strategic classes and was, I thought, very effective. He was very engaged.

Mindful of the time, there are a couple of large historical questions—

Can we do a 2001 question about the surplus?

Exactly. That was what I was going to go to next.

The famous multitrillion-dollar surplus.

Right, the transition from surplus to deficit.

It’s a very interesting thing. It’s a little like—no, it’s very like after an economic or a market bubble bursts, people go back and say, “Why didn’t somebody see that? How did everybody buy in?” It was like that. And of course it was related to a bubble. In this case it would have been a good term to use at the time. The fiscal bubble was what all the models that everybody used, not just OMB, CBO [Congressional Budget Office], the Fed [Federal Reserve Board], tended to take revenue of today, plug in expected economic factors, interest rates, inflation, employment, and all the rest, growth, and that would tell you by how much revenue would go up or down. So everybody had assumed different trajectories, but all of them off the same base. Nobody got that the base itself was incredibly artificial.

It was built on, we discovered, a lot of market-based income. So in the last couple of years of the last century revenue just surged, but a ton of it was based on a relatively new phenomenon, not wages and good old-fashioned salary and earnings but stock options and grants and capital gains and things like this. When the stock market bubble popped, the dot-com bubble, and the recession came, revenues didn’t flatten or go down on an historical line. They dropped down where they had been a few years before.

The only thing that could be said in defense of OMB’s numbers—by the way, they weren’t Bush numbers. We came in and inherited them and they said, “Here’s what’s going to happen.” We didn’t rewrite—even though you could see the recession—remember Cheney said in December, “I think we’re on the cusp of a recession.” He was criticized, but he was right. Even factoring for that, not OMB, not CBO, not the Fed, didn’t see the—the real point was the surpluses we were planning on were never going to happen, ever.

But you didn’t know it at the time.

The world didn’t see it.

Didn’t know it at the time. I guess part of the question then is, inside the administration, when do you start recognizing this bubble is not going to last?

By midyear, anyway. It’s hard to remember exactly, but this reminds me, I was saying, we’ve got a very different situation well in advance of the next year’s budget.

And in advance of 9/11.

I think so. What was the phrase? I invented it—“maximum reducible debt?”—this is how far detached the whole world was from the reality that was coming. In all those forecasts we were going to pay down debt. The last Clinton year they paid down some, in 2001 we paid down some. Everybody was excited about paying down the debt. Nobody wanted to go spend all the money; that wasn’t the plan. Maximum retirable debt? You’ll find it in there.

Anyway, I came up with some phrase, but the whole point was Alan Greenspan and many others were beginning to raise the concern—it sounds fantastic now. What happens when you pay the debt down below a trillion or something where there is not enough liquidity out there. Remember?

Yes.

Fascinating. Don’t we wish we had that problem?

I sometimes raise this with my students in classes. They don’t believe me.

Well, I can vouch. But again, it was based on the unnoticed or undetected phenomenon that this big surge of revenue was a one-time event, and in fact not only wasn’t going to carry forward, but would be reversed.

OK, now, within the administration, once you had this recognition, can you trace for us what the responses are? Are they rhetorical? Are there policy consequences to what you’re finding? In other words, you recognize a new reality. Do you have enough time before 9/11 to develop some sense of what the adjustments are going to be required?

Let’s see. The tax bill passes in the spring. I remember it was a very gracious thing—I must have a picture somewhere. The President signed it in the East Room and he had Cheney and O’Neill and me join him to do it because we’d been out on the point. So I do have a memory of that.

And explicitly thanked you. I remember that.

I think that’s right, yes. A lot of the debate inside and outside, as the revenue fantasy began to evaporate, was around that. Our story, which I think was validated, was that the tax cuts would be helpful. See, there was a recession, Cheney was right, or whoever said it first. This should help buffer us.

I think—I haven’t looked at it in a long time, but the evidence seemed really clear to me—fiscal policy is not really well regarded in terms of fighting downturns because of the timing and so forth, so this was very lucky. Candidate Bush did not argue for the tax cuts based on a recession; he didn’t know there was one coming. He was arguing on the basis of equity for families and long run—

And the existence of a surplus at the time.

Yes, exactly, and that. So even by the time of the tax cut the rationale was beginning to shift to fighting recession. I always thought it was maybe the luckiest fiscal move that we’ve seen. Again, it was crafted for a different reason. It came into effect at about the right time and it turned out to be a very mild recession. That probably helped. But the argument then began to shift; is it causing deficits and all that. As I recall, the opposition was yelling about it causing the deficit even before it took effect. That’s an argument that almost still goes on, even though it has been exposed as false.

What about your sense of the country’s resilience after 9/11, the economic resilience and what you saw of the budget picture and economic policy within the administration?

Right. Where to start? I went to the National Press Club and gave this speech—it must have been scheduled ahead of 9/11. I think it’s the one where I took three agencies along. Is the speech in here?

I’m not sure.

I didn’t get through it. It’s on the list of things. Anyway, it is possibly worth looking at.

National Press Club, you say?

Yes.

You’ve got a November 28, 2001, National Press Club.

Yes, I think that’s it. I have it. I’m not sure that the text is in here.

It is, behind tab five [finding document].

Here it is. You see, we talk about how we’re unlikely to return to balance before fiscal ’05. Everything is pretty clear now.

You say at one point that the twin towers of America’s fiscal health and strength were leveled at essentially the same time.

Yes.

Was that one of the main points you wanted to convey?

The main point I wanted to convey, now that I reread it, that probably belongs there. Yes, it’s the stuff on page four. I start talking about how if we’re going to shift to this war footing and we’re going to spend all this money on recovery in New York, we’re going to spend all this money on this new thing called Homeland Security, then we’ve got to do less of all these other things, and I go through this history. What did FDR [Franklin Delano Roosevelt] do? What did [Harry] Truman do? Of course this got nowhere ultimately, but that was the line.

But it’s important for anybody looking at the transcript to know that that speech you consider an important statement of policy.

Yes.

Do you remember the preparation for this? Was this something that had been scrubbed a lot internally, or did you have—

I write all my own speeches. Actually, this would have been done from notes, I’m sure. By the way, the other thing that I remember about it, and it’s there, what I had intended to do before the attack was talk about other things. I was talking about evaluating programs in government. Here is a new idea. Let’s find the things that work and do more of them. Let’s stop the things that don’t work. We’ve got this new evaluation going on (the PART—Program Assessment Rating Tool). I took three programs along to praise them. Here are three that work: WIC [Women, Infants and Children], the Weather Service, and I can’t remember what the third one was.

National Science Foundation?

Maybe so. That’s the kind of speech I went to give.

Something happened.

Something happened, obviously, then it completely—I said there were two causes—the recession, which was by then a well-established fact, now compounded by this blow. That’s not the way that Congress chose to act, so we piled all the new spending on top of what was, just the opposite of what had happened in other times.

Can you tell us in general, after 9/11, about your relationship with Don Rumsfeld and the Defense Department? Was it in any way contentious?

Occasionally, but I think he would say we had a really good relationship. I remember one time—it would have been the end of ’02 anyway, maybe even later, there was one time in which we had had a disagreement between us and the Department about the cost of something big.

I remember in the Oval Office saying to the President, “Mr. President, before we get to the other subject, I need to tell you something. I was wrong, we were wrong. The Defense Department was right.” They said something would cost X and we said it was 1.2x. It was something like that. I felt I owed it to Rumsfeld to take responsibility. I was the one who made the mistake, our team had, and I should talk about it, not him. He would have been within his rights to point it out.

I don’t know. I think we got along great. Look, I always felt the President sets the policy, we all get a chance, on most occasions, to talk about what it ought to be, but once he has made the decision, we, OMB, are the soldiers. We are the hammer, we are the shield, as I said earlier. Whatever it takes. He believed the national interests required the Defense Department to have priority and do that. That meant that we were generally aligned with them. I don’t remember a lot of arguments with him.

I suppose the general framing of the question is about the role of OMB in a time of military conflict when the President clearly has two aims. He wants to make sure the defense establishment is funded as much as it needs to be but no more. The question is: Is it OMB that’s responsible for helping to decide where that lies?

When we were putting OMB together, there are a couple of deputies of course, and then there are things called PADs, program assistant directors. Those are really, really critical jobs. These are top jobs for interfacing with the various departments. So we were picking these people. There was one domain for defense, intelligence, they were usually in there. I guess that was the bucket. I remember somebody saying, “Well, don’t worry so much about that. Defense will get what they want.” Or they deal direct or something. And State.

Let’s not start there. That told me I wanted the strongest possible person there. So Sean O’Keefe, we got him as a deputy because they couldn’t con him. He came from there. We had great people who did go toe-to-toe with them. I think there was a relationship of mutual respect.

Another thing that you know but a lot of people don’t remember, George Bush did not come to office to grow the Defense Department. The instructions we had for the first budget were very modest growth. The only promises he made were on the people side, as I recall. We had some people underpaid and things like that. He didn’t come in promising big new weapon systems or we’re going to grow the Army by five divisions or something like that.

Rumsfeld himself was there to reinvent—

That was the original goal, and then circumstances forced something different.

Could I ask a question a little bit out of order about the creation of the Department of Homeland Security, with which you were very familiar and very involved?

Yes.

How did that test your managerial sensibilities? I’m curious about the addition of a new office and then Department at a time when you’re trying to streamline and become more efficient.

I keep asking myself whether it was the right idea or not.

Can you tell us a little bit about your first involvement in the office?

Let me roll the tape back just a little bit if I can.

Sure.

I got pitched into the middle of 9/11 on 9/11. I was—

Were you in D.C.?

Yes, I was right there. To me it is kind of an amusing story. As you know, there were no systems really. Someone ran down the hall, “Run, don’t walk. Everybody should get out!” So we all head outside. Everybody is milling around on the street. I called the military driver that I had. He picked up. I called him on his office number. That’s all I had. He picked up and I said, “Where are you?” He said, “My office,” which is way up in some little corner of the top floor of the Eisenhower building I guess.

I said, “What are you doing there? Everybody is supposed to be out.” He didn’t know. He’s up there reading the sports section. I said, “First of all, you’ve got to get out of there. But since you’re up there, run down, go by my office, grab my briefcase, my in-box, and my gym bag,” I think I told him. I said, “Then get the car and see if you can fight your way through this crowd.” We decided I would go down to 17th or 18th Street and something. Anyway, that’s what happened. We got out. I went to this little apartment that I had.

In D.C. or northern Virginia?

In D.C., up on Connecticut Avenue. Got on the phone. By sometime in the afternoon they had this perimeter set up. So if I wasn’t the first, I was one of the first people let back in. I went inside. We got some phones set up, I remember, on the table of the Roosevelt Room. Somebody helped us out. We didn’t know what we had going on, but I think O’Keefe got in.

Anyway, there were a couple of us in there. We started calling around the different Cabinet departments. “What do you know? What do you think? Start the list of things you might need.” We began thinking about what became a supplemental—

This is that afternoon?

This is that evening. I remember sitting in there and the President is addressing the nation over across the hall. Now immediately, as memory serves, so nobody is flying. Why aren’t they flying? They don’t have any insurance. We have to think of some way to get the airlines back in the air. That quickly got all tangled up with what are we going to do to compensate victims. You can’t compensate or insure just the airlines. The Democrats in general wanted to link those two. That led to these extraordinary meetings in Denny [Dennis] Hastert’s office.

This huge negotiation that I was assigned fell to me to manage for the administration. That too is a blur. As you know, we came out of it finally with a bill that became the framework for both, the rest of the recovery, rebuilding, and compensation of New York City, which turned into a fascinating story on its own. Then the airline backstop and legislation on its side. I am getting to the answer of your question.

We’ve got more time than you do.

From the beginning I kept asking people to think about—we don’t know what we’ve got here, but clearly anybody can see we’re facing a spectrum of possible threats.

Right.

In fact, maybe the least likely thing is that they repeat what they just did and get on airplanes and take them over. Then the whole idea, the fixation, and that’s the way Congress tends to think and operate—you couldn’t get people to think about anything else. They just wanted to throw as much money and outbid each other, all loaded up on one thing, airplanes, including something no one had ever tried and to this day hasn’t, putting a bomb on a plane they’re on. (Well, the shoe bomber maybe.) I’m talking about running something through the luggage system.

Right.

I couldn’t get anybody to think holistically about it. If we’re going to spend all these bazillions of dollars, what about trains, what about ports, what about tunnels, what about snipers, what about, what about, what about? Shouldn’t we—nobody wanted to think that way. That’s how you got Volkswagen-size metal detectors and huge lines. One day some doctoral student will try to calculate on top of the direct cost of what we call Homeland Security the indirect cost to this nation and economy with all the time talented people spend standing around.

So then we get to the subject. The President says, “You guys go down in the bunker there. I don’t want anybody to know you’re doing it.” We wound up going down in the bomb shelter for these meetings. “Tell me if we need a new Department or not.” I don’t know how anybody could be completely comfortable, but in the end the right answer could not be to have this stuff scattered all over the government the way it was. Did we get the right pieces together? Were the Legos put together in the right way? Hard to say. The real question is does it have the right mission in the first place. I voted “aye” by the time we got to the end. I guess I would again.

I’ve got to tell you, I had two ideas that to this day I still thought were good ones. I could not get to first base on them. One of them was give the oil proceeds to the Iraqi people in dividends. As the oil production starts coming back up, don’t give it to the government; spread some wealth and try to create a middle class, like they do in Alaska or something like that. Didn’t get much attention for that one.

The one I really liked that I couldn’t get anybody—I think Andy saw it as a cute idea, but I said, “Look. If we’re going to create a new Department in a wired world”—even in 2003 we had video screens and stuff like that—“and it’s on homeland security, the last place we ought to put it is Washington, D.C.” Make it an obvious target? You don’t put all your data centers in the same place. You want to spread them out for “redundancy purposes,” as they say. So I said, “Look, the federal government only creates a new department, thank goodness, only every so many decades. If we’re going to do this, let me run an auction. I’ll get some cities—let Dallas bid against Denver, bid against Atlanta. I’ll get it paid for for free.” They’d put the building up and everything else. It would make an interesting statement, too, by the way. I couldn’t get anywhere.

I’m not sure Bob Byrd would have allowed that, would he?

He would have allowed it and put it in Charleston. [laughter]

So the government would have paid for it.

Good point.

Interesting. [poses next question to Farrier] Do you have a follow-up on Homeland Security?

No.

Did you feel like you had the right people in the room to make the decision? Of course there is a great virtue in having a closed-off group. The concern is always—

That’s a good question. I can’t even remember exactly who was there. You have it, but I don’t. They probably could have widened the circle a little. I don’t know if we would have come out in any different place. Ultimately the President had to decide.

Sure.

I don’t know that it ought to win anybody’s award for effective governance. Leaving the status quo where it was could not have been the right answer.

You just touched on this a second ago.

FEMA [Federal Emergency Management Agency] could have been somewhere else. It really deals with storms and things. If it really was about security, it could have been a smaller portfolio.

You just talked about Iraq a few minutes ago. One of the other bigger questions that I wanted to get you to reflect on was the costing issue with respect—

If you hadn’t brought it up, I would have. I’ve got a whole file on this.

I’d love to see it.

It’s all stuff you’ve got.

Tell us about how you do it.

It is a total myth that I or anyone said this whole project as it unfolded could be done for whatever we were talking, $50 or $60 billion. That wasn’t the question. The question was how much should the administration request in its supplemental appropriation. The question to DoD was, because I said we’re not war fighters over here, or war planners, “What are your assumptions?” What are we supposed to cost? Answer? Crystal clear. It’s all in the Congressional Record. The answer was: Tell us, what will it cost to beat the Iraqi Army and stay six months, until the end of the year?

That was the question?

That was the question—

Put to you?

Put to OMB.

By?

The President, the administration. The Defense Department had to supply the assumptions. Then our people—it’s really fascinating stuff. It’s got to be somewhere. It was a fascinating buildup, how we got to the number. They were counting—“We think they’ll use this many Scud missiles, so we need this many Patriot missiles. We think the rate of ammunition expenditure will be this many per vehicle, this many per day.” It all boiled down to a hard cost number. And as often happens, many of these assumptions were wildly wrong. The Iraqis I don’t think ever fired a single Scud. However, by blind luck, or some luck, the number came in uncannily correct. There was a little money left over at the end of the year, as I recall.

So that was the question. Beat the Iraqi Army, stay six months. In everybody’s naïveté, the thought was, Win it, and start getting out. In fact, that supplemental may have had some cost assumptions for the beginnings of withdrawal.

If someone had said what will it cost to beat the Iraqi Army and stay eight years or ten years, we’d have given a different answer. That was not the question. So I did call out Larry Lindsey. Larry said look at the Korean War, World War II, or something like that. He just did it. This much of GDP [gross domestic product]. I said, “Now, that’s no way to figure this. Besides, that’s not the question on the table.”

Anyway, I’m very touchy on this subject because it was completely misrepresented later on by people for political reasons. Of course we would have given a different answer if someone had known or even hypothesized an extended war, ten-year occupation. Anyway, that’s that story. It’s in the Congressional testimony. I go over there, ask for the supplemental, and I tell them exactly what we’re talking about.

Can you give us just a little clue about the use of supplementals as opposed to the regular budget process, including in the first year, since the authorization had happened in October?

This takes me back. I remember making a lot of fun. There was a commercial at the time, a beer commercial or something, where these guys would say, “What’s up?” to each other. You remember that commercial? I can remember sitting at the table at OMB and people saying, “You know, Senator So-and-So is going to suggest a supplemental for that.” I said, “You tell him, ‘What supp?!’ That’s our answer.”

Somewhere along the line we stood them down. They were determined to have a supplemental. We said, “We’re not doing it. We’re going to reallocate within the—because it’s just bad practice.” You work and you work—back then they were actually passing budgets after a lot of effort. Then if they wire around and start passing supplementals—now, an attack on the country nobody saw coming, that’s what a supplemental is for. A war aid plan, that counts.

We tried to resist them on every other occasion because they become, the term is “Christmas trees.” So when they came along we worked very hard to keep them within the scope they started on. When they involve disasters, where did that come into the picture? We were trying to get them, in essence, to self-insure against disaster. They’re going to happen. Let’s put it (a disaster cost estimate) in the budget at this number. The problem is if you wait until it happens, then they want to tack on 50 things that are unrelated to the storm.

I wanted to get you to elaborate a little bit again on this question about the costing in Iraq. You said that you were presented with a case of assumptions to cost out, which makes perfect sense. Was there debate about the assumptions?

I wasn’t in most of that. I said we had strong people in that area. We didn’t know a war was coming. Again, think back—the President comes in, he wants to largely modernize and contain the Defense Department. That was our entering instruction. We did have, I thought, very strong people who weren’t about to roll over and knew enough to challenge the assumptions.

I wasn’t in the meetings where they went toe-to-toe. Why do you think it’s going to take 35 days of combat instead of 30, or whatever it was? I’m sure they would have been fascinating to listen to, but at the end of the day you do have to accept the basic assumptions. I guess we probably did, and then our people did a superb job. The talent level was tremendous there. They did a superb job, I think, of figuring out what that would cost. As I say, inevitably there were undershoots on some things and probably some overshoots on other things, and it kind of netted out. It wound up—if you go look at what got spent by the end of the supplemental period, which I think was December 31, you’ll find out that it was really close with a little room to spare. After that things got expensive.

Technically your apparatus did what it was supposed to do, which was to be fairly accurate given the set of assumptions provided.

Sure.

Let me just throw this out for you to respond to. The criticism often was made in the economic realm that there was political pressure internally to understate the cost because there was a concern if you were presented with a bad cost estimate at the outset that it would undermine the argument for going to war. How do you respond to that?

I don’t have a clear recall. There wasn’t any pressure to change numbers. There was, I think, from early on a big debate about what kind of war are we going to have here.

Right.

A very honest debate. OMB wasn’t in it, I wasn’t in it, and that’s the right debate. Some people thought you’d get bogged down from the beginning. The Iraqis—I don’t know what they thought, but in the end our military was fantastic and they beat the Iraqis faster than they thought they could. That was one of the undershoots in our estimate. I don’t remember the days, but whatever the day’s assumption was, they beat it.

Then there were others who correctly said, “Whatever happens in the fighting you’ll get stuck a long time.” They were right, but that was not the assumption we were working on in doing the costing, so it didn’t really spill on us. I suppose if I were ever asked, and I must have been somewhere, I would have taken the administration’s position that we don’t see that happening.

Sure.

I don’t know if I said it, but it would have been my job to. That was the administration—we’re operating again on the assumption, literally, that the war would be over, things would be turned over in the beginning at least, because I know there were assumptions in the supplemental based on the—I remember our folks explaining to me that it will cost us more to bring each soldier home than it cost to send him over. It was all very fascinating, but we can only wish that things had ended that quickly.

Can I ask a quick follow-up?

Sure.

Even if you had doubts about the administration’s rationale and assumptions, is it ever appropriate for a budget director to challenge another policy head on any issue? Even if you had had those feelings, or doubts, or nags, how could you have expressed it successfully?

I would say first of all, in the OMB job, properly empowered, you can challenge anything. We challenged policy all the time across the government. “Is that really a good idea? Why? That thing doesn’t seem to work. We can’t fund—” all of that. Now, when you get down to fighting a war on the other side of the world—the other thing I would say is that I believe that the President, though some people claim to the contrary, encouraged open debate.

I gave you the example, not picking on the Defense Secretary—that was certainly my view. I never felt constrained about doing it. Now, in the specific instance of winning a war and what happens in terms of that country after, I didn’t have any competence to challenge those particular assumptions. If I thought I had, I wouldn’t have hesitated. But in that case I’m sure we asked questions. “Are you sure? Couldn’t this be a problem?” that sort of thing. That was squarely, I thought, the province of the Defense Department, the State Department, and folks who would be responsible for running it. I remember sitting in meetings with General Jay Garner, and they were, I thought, fairly impressive folks. They were going to have the job. I saw our role as trying to get them the tools they needed to succeed and to do what they said they’d have to do and to give the President and then ultimately the nation the best estimate for what that was going to cost.

How hard was it to do the OMB piece of the provisional authority and the reconstruction? You mentioned the idea that didn’t take, but there was a lot of money going into Iraq.

Yes.

Is it difficult to monitor that much new funding?

Oh, sure.

Particularly when it is in an area—

A person you ought to go talk to is Robin Cleveland. Is she not on your list? Robin Cleveland was the PAD for this whole area. She is at American University now, I think. I’ve got a number for her. She might be able to take you well into this. She will remember a lot that I don’t, and if I misremember she can correct it. Before you leave I’ll give you her contact.

OK.

She went over there. She is a hard rock. I love her. For the reasons I talked about—they might try to mess with her, but she was as tough a bird as they had had to deal with at OMB.

I know we’re on transition to probably the last question, but I’m curious about your view of the use of supplementals for almost the entirety of the war. Senator [John] McCain of course became quite critical about that.

I think that’s probably right. Again, I wasn’t there after the first one.

Do you feel you can talk about that?

I had a jaundiced view of supplementals in the first place. I thought they ought to be reserved for only rare cases—certainly the front end of this whole experience, post-9/11 and the war, yes. But if that’s the case the Senator was making, it was clearly going to be a protracted thing. Read the Press Club speech. What I think I’d have said is that’s correct; this is going to be an ongoing program. This part of the budget is going to get this much bigger, therefore all these parts have got to give way for a while. That would have been my view. I’m sure it would have had zero success, just as we did in the first round.

I wonder if I could get you to talk a little bit more about the President’s own operating style and his decision-making style. What should we know about this man in the Oval Office? You worked with several Presidents, right?

Two.

But obviously a close observer of the office. What should we know about his operating style?

I personally felt he was properly inquisitive. He asked a lot of questions, good questions. I know O’Neill and others claimed that they saw something different. I felt that he encouraged exchange and debate; I certainly never felt the least bit hesitant. He was decisive, some might say to a fault. I thought that he had a pretty good balance. He certainly kept his mind on the big picture. He did not allow himself—sometimes we would try and distract him with things that were a level or two down. He didn’t blow them off.

President Reagan, whom I thought matched his times perfectly, really well, he really stayed on the high level and spent very little time, personal energy, wasn’t particularly inquisitive about the smaller things. He was following someone who was remembered as having been too involved in the details, scribbling notes in the margins of everything. I always thought President Bush, in between, and I think he, by the way, was looking back to those lessons of his father. He was looking back to the last three Presidents at least and trying to blend the best of each. That’s my recollection.

He was informal. He was generally fun to be around. You know about being on time and all that business. That’s all true. I knew exactly how long it took to get from my office to the Oval Office. There were a lot of legends around OMB. I got the slide—“That’s not right. That’s got to get changed.” “There’s no time.” “Yes, I’ve got to have it by two minutes and twelve seconds before the meeting starts.” We had a lot of those close calls. It was a standing joke around there. I was going to be on time, but a lot of times it was the 11th hour and 59th minute. I think that movie—Shakespeare in Love, was that out by then? I think it was. I think I remember there was a line there, “It’s a miracle.” I can remember people saying, “How in the world did we get that ready for the President? It’s a miracle.”

And you got a nickname?

Yes. I wish I’d lived up to it. It lives on. People bring it up still. It came from the Nicknamer in Chief. Funny thing, somebody brought that up the other day. I was telling them a reporter brought it up. It started right out of the blocks and it got out somewhere, started getting used. I had a nice little collection of blades going on for a while. People sent me little knives. I got carved wooden ones. I got a big Samurai sword from somebody. Then comes 9/11. You can’t send that stuff to the White House. So my blade collection stopped instantly, but I’ve still got a bunch of them at home.

You didn’t stay through the whole administration.

This is sometimes misunderstood. I didn’t decide to run for Governor and then decide to quit. I decided to resign and then I decided to run for Governor. Again, I hadn’t seen this coming. I barely get home for one daughter’s graduation. My youngest daughter goes through high school and I’m away even more than I thought I’d be, especially after 9/11. Even the number of weekends I could get home fell down.

I remember talking to Ari Fleischer about this. He was trying to make up his mind at the same time. I said, “You know, Ari, I noticed in the Reagan administration that it is not a service to the President—if you’re going to go, you want to go about the middle of year three or q3 or something, because they’re going to have to break in somebody new.” You don’t want to create a little problem for the President in an election year. So I thought the decision was, do you stay for the full four and then go home, or go now? I remember I had a little list of four things. Winning the war was one. If the actual shooting war with the Iraqi Army had gone on, that was one. The supplemental was one, the budget was one. I’m going to say there was a fourth and it might have been the whole wrap-up of the compensation system and the package—Ken Feinberg and all that business. That’s an interesting story. It was like a checklist.

When the fourth one checked off I decided I was going to go seek my honorable discharge and I did. In the meantime I’d been approached about this other little adventure. It was in that sequence. I felt as though I’d done my duty sufficiently that I could with a clear conscience go ask to be released.

In retrospect as you were looking back on your service, can you point to a couple of things that you felt like you were really pleased with in terms of your accomplishments?

I think so. The one I just mentioned is one. The compensation system in New York City—it’s just an interesting story and I think a good outcome.

Can you take—

I’ll try to be quick about this. Starting in, as I said, those first meetings, this was the big issue. The Democrats wanted to start with everybody gets a lawyer, everybody gets the amount of money they would get if they sued and won—just sitting there in real time doing mental math or scribbling on the back of a notepad I thought, Holy cow. We’re talking about an unbelievable amount of money here without necessarily any justice in the picture. So I thought that whole thing, moving that to an arrangement that I think became very fair—in other words, why should the jillionaire be treated much, much better than the busboy? They both got killed. We fixed all that stuff.

In the end I think mercy and justice were served, and back when we thought this was a lot of money, I think the estimate ranged up to about $25 billion and it came in at $11 or $12 or something.

Were you the chief action officer for—

All that stuff, yes, negotiator and all of it. There was a lot of drama, and some funny things happened in the whole “How much money does New York get?” thing. If we had time I could tell a couple of funny stories. I felt that that whole thing was pretty well done. In all honesty, certainly the shaping and passage of the tax cut, the tax reforms, I felt good about participating in that. Here and there I believe we brought a little restraint that wouldn’t have been there necessarily.

I thought there was good camaraderie in that administration. I was, of course, one of the few noncampaign people—I think I had to earn my spurs for a while. I knew a few of the people, Andy in particular. We had worked together in the Reagan years. But the Texans I didn’t know particularly well. They had to see that you were there for the President and the enterprise first, not for any other reason. I think we got there fairly fast.

Almost from the outset—the senior staff meeting started at 7:30-8:00—a half hour before, about four of us would always drift over to Andy’s office. That was me, Josh, Karl [Rove], Karen [Hughes] while she was there. Just where are we? What’s up today? Is there something we really want to cover at the senior staff roundup?

Was [Irve Lewis] “Scooter” Libby in those meetings?

No. I can’t say never. It was kind of unscheduled, off the books. Andy just set that up right away.

That got you in with the Texans there, right?

Yes. That was sort of the inner team, once again dealing with things that maybe we didn’t want to speak more openly about. I feel very pleased and proud to have done it. I didn’t see it coming, but wouldn’t trade the experience.

You said you had a couple of things you had made notes about.

Let me see if there’s something we didn’t cover. We talked about lucky timing of fiscal policy, fictional surplus, airline rescue, the cost of war. Actually, we hit the ones I wanted to make sure of.

I’ve got one other general question I’ll pose to you.

I don’t know if it matters here. There are a couple of just little factual things. Is this thing going to be part of any record?

It will be, so if there is a mistake—

In ’85 to ’87 I was—the actual term is Assistant to the President for Intergovernmental and Political Affairs. I really started in the job—intergovernmental works with Governors and all that. Then they added the other thing. Then ’90 to 2000 it wasn’t really sales and marketing, that was in there. I managed their North American Pharmaceutical Unit is the way to say that. It was the whole shebang.

Can you talk a little bit about the OMB Director’s relationship with Congress, both at the Member level and at the chair level of the key committees?

You are the face of the administration to the budget, and generally, along with the Treasury Secretary to the Finance Committee, the Ways and Means Committee. So I spent a lot of time up there. Got off, I think, on an OK foot with Senator Byrd. I tried to show him lots of respect. He was an interesting guy to sit and listen to, and you would do a lot of listening. You’d hear a little Cicero and a little scripture. There would be a little of everything in there. Once we got to disagreeing about things he was not that kind, but that went with the territory.

Were these interactions mostly in the committee, official context, or at his office?

Both. But there were multiple private conversations for every committee appearance. I didn’t look for it exactly, but I was willing to take the bad cop situation and try to do it politely with some humor. But when you’re disagreeing about the thing you care about most, you have to expect it.

There are some things people didn’t understand. Ted Stevens, it is still quoted all the time, “You should go home,” and all that business. Sure, he got angry with me about a few things, but Ted Stevens was an interesting man. I really enjoyed getting to know him. We had a back-channel communication. He was an early email adopter. He had been at IBM [International Business Machines] early in his life or something; I think it was IBM. He was a technophile. He was always a step ahead of most Members of Congress. Anyway, we had a back-channel email and other communication that was pretty darn constructive. I understood he needed to represent up to a point the interest of the people who wanted to spend money. “I’ll tell that Daniels what’s up,” he’d say to his fellow appropriator, but he was a genuine patriot and he really wanted to help the President too. So it was a lot more complicated, or as they say in Washington, “nuanced” situation, than you would get from the press.

Senator Byrd was Senator Byrd. [Kent] Conrad was OK; we had a little fun together. He wanted to be a fiscally sound guy. He couldn’t always bring himself—and of course he had pressures from his side. [David] Obey was the other one. He was just unreconstructed and hard to deal with. But anyway, I’ll tell you how I looked at it. I didn’t expect to go down there again in my life; I wasn’t going to make a career there. I felt in a way liberated. I didn’t want to cause trouble for the sake of it, but I felt liberated to talk back. A lot of people in Washington get in front of all those committees or they’re representing something, they don’t want to make anyone mad because they might be in there lobbying next week. Well, that wasn’t ever going to be me.

So to this day I’ll have people say, “Man, I used to love watching you on C-SPAN [Cable-Satellite Public Affairs Network] in front of those committees.” I’d say, “You watch that stuff?” “Yes. You were the best television.” Why did they like it? Because I’d give it back to them (the Congressmen) a little bit and didn’t just—I mean, I hope I was always polite and observed the niceties, but we had some, by Washington standards, very direct exchanges. You asked what did I feel good about? I think that was useful. Politically, I think for people who cared about that sort of thing they saw that the administration did care about spending and not letting government get out of control and that sort of thing.

Again, it left room for the President to do the good things. I’ve got to tell you one story I really remember and you might think is fun. One of my lowest moments was in the frenzy after 9/11 somebody comes in and says, “You’ve got to take 20 or 30 minutes. The New York press is just storming the place. What is the number going to be? How much money? The rescue package.” I said, “OK, OK.”

We had them jammed in this conference room down the hall, and I think in general everything went well, except I made a couple of misstatements and I said something about—they kept saying, “How much money? How much money?” I said, “What we’re thinking about is not an arbitrary dollar amount, but what are we trying to do? We’re trying to rebuild the subway system and you’re trying to do this and you’re trying to do this. Then we’ll add that up.”

The President, very emotionally—[Charles] Schumer comes in the office, was it $25 million, billion? Just a number out of thin air. The President says, “We’ll do it.” So that became this talismanic number, detached from anything. They embraced $25 billion. I kept saying, “No, I don’t know, maybe it’s 26, maybe it’s 21. Let’s figure out what it is we need to do and then we’ll figure out what that will cost.” They weren’t having it. “Are you going to renege?”

I said something like, “Let’s not turn this into a bean-counting exercise.” Boom. At one point Schumer told me later that somebody said they thought it was anti-Semitic. I said, “Anti-Semitic?!” “Yes, you know, some old stereotype about Jewish people being—I told him that was not fair,” he said. “Thank you, Senator” I said.

Anyway, here’s the fun part. It wasn’t quite “Bush to New York, Drop Dead,” but it was headlines like that. Bush is going to New York City the next day and I felt terrible. In those jobs you never feel worse than when you feel you let down the side and caused problems that somebody else is going to have to deal with, especially the President.

Anyway, he goes off. I come in the next morning. I don’t even want to go to the little meeting with Andy and everything. I walk in and Karl was already there. He had gone on the trip and he is looking at me and he said, “Brilliant.” I said, “What?” He said, “They say we’re brilliant.” I said, “Who does?” He said, “The New Yorkers. They really love us.” I said, “What do you mean?”

He said, “They think we set the whole thing up. You go out and say, ‘It might not be 25,’ and the President can come in and say, ‘Oh, yes it will.’ They love him.” New York is so cynical, they assume—they can’t assume that just some dummy said something thoughtless—

From Indiana.

Yes. Some rube. The truth, no, it had to be a clever little ploy, tee it all up, right? Later that morning it was the National Prayer Breakfast. I didn’t usually go to stuff. I had signed up to go to that. In the motorcade I don’t want to see the President, even after I hear this. So I’m in a car back down a way and we get there. He goes in and I kind of stalled a minute and then I start going in. From down the hall I hear his big voice, “Hey, Mitchie, hey, Blade, are we a team or what? Good cop, bad cop.” I said, “Mr. President, please.”

Here’s something I forgot. The end of this story—by the way, we’re coming out and I’m still sheepish. Obviously everything had worked out fine despite me. We come out and I’m headed down back for my car and he calls me out. He says, “Come here.” I go over and we’re standing by the door of the car. He says, “Ride back with me.” Then he stood there for a minute. It took me a while to figure out what he’s doing. Without saying a word, he is showing the press we’re OK, he’s still my guy. Very nice little touch.

Sure enough, he stands there about 10 or 15 seconds. People were taking pictures. He says, “Now, get in the car.” We get in the car and all is well. That was a funny moment of my shrewd setup.

I can yield three minutes of our time back.

If you’ve got one more, I’m remembering things. This is fun.

I’m curious about something. What is the technical or unwritten rule about submitting your resignation? How does that work? Is it a delicate matter? And do you know the proper channels when you’re hired?

No, you don’t. That’s interesting. If there’s a rule book, nobody ever showed me. I resigned twice. I remember when I left the Reagan administration Lou Cannon later on said, “I never remember those goodbye notes. I just reported that So-and-So left. Except yours.” I said something like, “Mr. President, you’re the only man in my life, but there are five women, four of them quite small.” That was my main reason. We were moving home. The girls were two, four, five, and six.

I’m tired just listening.

I don’t think I wrote anything special. Again, I think I’ve told you what I remember about the Bush thing. It was based on is this the right moment, have I fulfilled some reasonable definition of my duty, and that’s the way I thought about it. I think that’s the way I explained it. He was not pleased. I think he was genuinely not pleased.

Now the other thing—there is certainly no rule for this, but I thought a lot about—one reason I would have stayed was I thought we had built a pretty good—not built, but certainly established OMB as a very effective tool for him, all the things we talked about. I really didn’t want that to just evaporate. So part of deciding to leave was I figure out that Josh is the right guy. By the way, he hated the idea. He still holds it against me, but he was just the right guy. He did a great job. Why was he the right guy? One, because everybody knew he’s the President’s guy, you can’t mess with OMB. The President will listen to him, back him up. That was paramount.

Number two, Josh was such a bright guy and he had had a great peripheral vision across the government, which is useful. So he was just perfect. I told the President he was perfect, then I told Josh he was perfect. “No, I don’t want that job.” The President puts him in there and I think that was the right thing for the country and the enterprise. In that respect that departure had a little extra feature.

Josh told me later that when they went into the first Cabinet meeting after his appointment, the President said, “We all know Josh, but now he is here with us in his new capacity.” Everybody looked at him, and Josh said, “What you should all know is, no more Mr. Nice Guy.” [laughter] Everybody laughed because of what we had going.

Exactly. I know we’ve exhausted our appointed time. It has been an extremely fruitful—

I don’t know. I’m sure people remember things better than I do, but this was fun. If this jogs some other memory I’ll write it up and send it to you. Feel free to call back.

Thank you so much.