TERRY GROSS, host:

This is Fresh Air. I'm Terry Gross. President-elect Barack Obama has to deal with the greatest economic crisis our country has faced since the Depression. My guest, Robert Kuttner, is the author of the new book "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."

Kuttner is not an adviser or consultant to Obama. His book is more of an open letter analyzing the economic crisis and suggesting strategies to deal with it, drawing on the legacies of presidents Kuttner considers to have been transformational, such as FDR, LBJ, and Ronald Reagan.

Kuttner is an economics writer. He co-founded and co-edits the magazine "The American Prospect." He's previously been a columnist for "Business Week," economics editor of the "New Republic," and chief investigator of the U.S. Senate Banking Committee.

Robert Kuttner, welcome back to Fresh Air, and I think I should say congratulations to you on Obama winning because if he didn't win, your book would have a very short shelf life.

Mr. ROBERT KUTTNER (Economist; Co-founder, The American Prospect): It would be a historical curiosity.

GROSS: Yes. So you were obviously banking on him winning when you wrote this book. You're not neutral in your book, so before we get going, I'd like you to just spell out where you're coming from, what your economic overview is.

Mr. KUTTNER: I took a close look at Obama and decided, in my own mind, that he was the one candidate who was potentially a transformational president. And I took this gamble of writing the book before he had won the election and predicting the crash before the crash happened, and assuming that, because there would be a crash which would both be a financial challenge, but also a discrediting of the ideology that brought the crash, Obama would have an extraordinary opportunity to lead the country in a different direction.

During the campaign, for reasons that I think are pretty obvious, politically, he was not as far reaching as I think he's going to need to be as president because of the seriousness of the crisis. He was the man who would be post-partisan, post-ideology. A lot of his Chicago friends call him incremental and his thinking very pragmatic. I think the same way Roosevelt did and Lincoln did, he is going to have to grow into a much bolder president, and I think it is within his character to do so. And I think the economic situation will require him to do so if he is not to fail.

GROSS: You wrote, a campaign that was based on the principle of holding people together and not dividing the country, and one would assume he'd want to go into the presidency taking council from all sides and proceeding from there.

Mr. KUTTNER: One of his great strengths, and this has something to do with his character, it's also reminiscent of Lincoln, if that's not too much of a stretch, is he has the self-confidence and the intellect to listen to a lot of different of people who disagree with each other - Roosevelt also did this - and then come to a decision and then ask the people whose advice he agrees with to take the ball and run with it.

I think the idea that you are either a unifier or a progressive, I think, is a false dichotomy, if you will, in the sense that, if you look at Roosevelt or Lincoln or the Johnson of the Civil Rights era, they governed as radical reformers, but they were also great unifiers. And so the challenge here is to define a new consensus that is necessitated by the circumstances that Obama inherits and lead people to it and encourage the people to put pressure on him to succeed.

So I think this is going to evolve fairly quickly. That is, if it becomes necessary to spend $700 billion on a bank bailout, as has been done under a Republican administration, it's a whole new day. And I think if it becomes necessary to spend several hundred billions more every year to keep a financial crash from triggering Great Depression Two, that will become the new consensus. Now, is that bridging differences, or is that leading as a progressive? Well, I think it's both.

GROSS: I'll just - when you mentioned that President Johnson as a uniter, you weren't talking about the war in Vietnam?

(Soundbite of laughter)

Mr. KUTTNER: No, on the contrary. I mean, there are two Lyndon Johnson's here, and the tragedy is that, until the war ruined his presidency, he was the greatest president since Roosevelt. He had accomplished the legislation of much of the unfinished business of the New Deal, plus the three great civil rights acts, and that took not just legislative craft, which Johnson was famous for, of course, but it took leadership with the people.

GROSS: Now, Obama has to pick a Treasury secretary, and that is expected to happen very soon. They will inherit a lot of the financial crisis. How much power will a new Treasury secretary have to modify the plan that the current Treasury secretary, Henry Paulson, and Congress came up with?

Mr. KUTTNER: A huge amount because, in bargaining with the administration to get this plan through Congress, the Democratic leadership in Congress had to give Paulson a lot of discretionary authority, and they do not like the way he's using it. Two examples, the banks are refusing to lend because they're so traumatized by conditions in the markets. The banks are going on paying dividends even as they are refusing to lend, and some of the banks are giving their executives large bonuses.

The administration takes the line that, if you try to prevent them from paying dividends, you're going to scare off private capital. We need private capital. So the administration is playing very gently with the banks. The administration is also not putting too much pressure on banks and savings institutions to refinance distressed mortgages. They're leaving that up to the private sector.

The Democrats in Congress are very unhappy with this. I assume President Obama will be very unhappy with this, and you will either get a revision in the legislation, or you will get a very different use of the legislation by Obama's appointees of Treasury.

GROSS: Why are many Democratic members of Congress unhappy with how the $124 billion that has been given to - what is it, 24 banks...

Mr. KUTTNER: 24 banks, I believe.

GROSS: You know, why are they unhappy with how it's being used? They wanted it to be used for loosening up credit for making loans, and you say it's being used for raises and to pay dividends to share holders...

Mr. KUTTNER: Well, let me be clear. It's not exclusively being used for dividends, but they are continuing to pay out dividends. It's not being...

GROSS: Don't they have to do that. Don't they have to continue to pay out dividends?

Mr. KUTTNER: No. Oh, no. No. When you buy shares in a company, whether you've got your dividend is simply a function of whether the company is making money. And in normal circumstances, when the company is having a losing year, it would be perfectly normal to suspend dividend payments. It happens all the time. It's not like an interest payment. It's not contractual the way an interest payment on bond is. And yet, they're afraid, since their stock prices have taken such a hit, if they suspend dividends, it will take even more of a hit.

But the point is, Congress did not pass this legislation so that banks could continue paying dividends. It passed this legislation so that banks would restart lending. But having erred on side of being too loose in their standards, now, they are erring on the side of being too tight, and Paulson's being very gentle with it. So, the congressional leadership is not happy with the way Paulson is running this for the reason that it is not achieving the goals that they hay set out to achieve when they did this extraordinary act of bailing out the banks to the tune of several billion dollars of taxpayer money.

And I do think Obama's people will handle this differently, but I must say there is - there are divisions among different people within the Obama camp. Some of the veterans of the Clinton administration would take an approach similar to Paulson's, like Larry Summers, and other people who have been mentioned, I think will take a somewhat tougher approach.

GROSS: Larry Summers is one of the people that seems to be high in the list as a possible Treasury secretary. You say you think he'd be likely to continue the Paulson policy?

Mr. KUTTNER: Well, he'd be closer to the Paulson policy. I mean, there are a couple of big positives with Summers and a couple of big negatives. He's obviously very smart, and as the Summers' advocates like to say, he knows us. We're around the building. He's been Treasury secretary before, in the last two years of the Clinton administration. The negatives are that his views are too much like the views that helped bring us the crisis. He was a big deregulator when he was Treasury secretary, a lot of things that looked like they were smart policy in the '90s, but turned out to not be so smart.

GROSS: So, if Larry Summers represents one point of view within the Democratic Party, what are some of the other points of view, and who are the candidates for Treasury secretary who represent those points of view?

Mr. KUTTNER: I think that the three most interesting candidates are Tim Geitner, who's the president of the Federal Reserve Bank of New York. That's the bank that (unintelligible) when Lehman Brothers was at risk of going under, and he's generally credited with doing a good job. He is somewhat more inclined, I think, to be a tougher regulator than Summers, and he has admirers all over the political spectrum, ranging from Barney Frank to Peterson, the former commerce secretary under Nixon, who's a huge advocate of cutting back entitlements. He's a civil servant, rather than somebody who made a lot of money on Wall Street.

Another name at here who's the person who I admire most is Sheila Bair. She's the head of the FDIC. She has run the FDIC as an absolute model agency. When she takes over a bank, she goes in and takes it over. She doesn't just throw money at it. And she's also used the banks that she's taken over, like IndyMac in California, to pro-actively refinance mortgages so that people are spared the high peak of foreclosure.

And she's been the toughest of all of the regulators currently in office. And the marvelous thing is, she's a Republican. So if Obama appointed Sheila Bair, he got a woman. He got a Republican. He got a tough regulator. He got a clean break.

The other name here is Jon Corzine, governor of New Jersey. He's terrific. The problem is, the Goldman Sachs dynasty would continue. Rubin came out of Goldman. He was Treasury secretary. Paulson came out of Goldman. And I don't think the Obama administration, as much as they might like Jon Corzine personally and respect his skills, would dare to appoint a third Goldman alum in a row.

GROSS: So when the new Treasury secretary does take over, will there need to be new legislation for the new Treasury secretary to modify the way the bailout is being handled now, the bailout of the banks?

Mr. KUTTNER: Well, there are two issues here. One is recapitalizing or bailing out the banks. The other is putting a floor under collapsing housing prices, which is the single most serious thing that's going on that's dragging the economy into a deeper recession. On the question of recapitalizing banks, they could use the existing law more or less as it stands in a very different way.

But there's a whole other agenda having to do with the need to re-regulate banks and regulate non-banks that act like banks, so that we don't get into the cycle of financial bubbles that then require taxpayer bailouts after the bubble pops all over again. That's going to require new legislation. That is not quite as urgent. But I think, for the most part, they could work with the existing legislation. Now, putting a floor under the housing crisis and getting re-financings of these distressed mortgages fast tracked, that may well require new legislation.

GROSS: My guest is economics writer Robert Kuttner, author of the new book "Obama's Challenge: America's Economic Crisis and the Power of the Transformative Presidency." We'll talk more after a break. This is Fresh Air.

(Soundbite of music)

GROSS: My guest is Robert Kuttner. He's the author of the new book, "Obama's Challenge: America's Economic Crisis and the Power of the Transformative Presidency." He's an economics writer and the co-founder and co-editor of the magazine "The American Prospect." What are some the options in terms of refinancing mortgages that face President-elect Obama?

Mr. KUTTNER: Well, I think the best and cleanest way of doing it is to resurrect something that Franklin Roosevelt invented, which was called the Homeowner's Loan Corporation, which used the government's own borrowing rate to refinance mortgages directly. During the Depression, after Homeowner's Loan Corporation was created, the government refinanced one mortgage in five. It saved more than a million families from foreclosure. It was clean. It was simple. It was straightforward. Some 12,000 people worked for it. At its peak, it had retail offices. It functioned like a bank.

The problem with the present situation is that, because subprime mortgages were sliced and diced and converted into bonds, and some collection of bondholders may have to sign off on the refinancing of your mortgage, it's like unscrambling an egg or disentangling - an impossible backlash. It would be much cleaner to pass legislation. And this kind of thing has been upheld by the Supreme Court, creating the emergency right to abrogate a contract, and a mortgage is a contract. And make it clear that the bank, or the Homeowner's Loan Corp, could not be sued by the bondholder if the Homeowner's Loan Corporation modified the terms of the mortgage and required the bondholder to take less than 100 cents on a dollar in order to spare the homeowner foreclosure. That's the best way to do it.

I think the second best way to do it is to put a lot more pressure on the private sector to modify the terms. The problem is, this thing has gotten so hopelessly tangled up with banks no longer holding mortgages, mortgages no longer being held but being converted into bonds that have lots of different layers of risk. That is very difficult for a bank that no longer holds the mortgage to get the investor who ultimately does hold the bond to agree to the terms of a refinancing.

GROSS: Yeah, that's an interesting point. Like who - no one really holds the mortgage anymore per say. The mortgage per say doesn't exist, that it's been chopped-up into various kinds of securitizations, is that the right word?

Mr. KUTTNER: Yes, that's right. And the bondholder could be anywhere.

GROSS: Right.

Mr. KUTTNER: So the clean way to fix this is to empower a Homeowner's Loan Corporation to refinance the mortgage, send the proceeds of the refinancing off to the bondholder, pay off the bondholder at 50 or 60 cents on the dollar, and get on with it. Some of these bonds are trading at a lot less than 50 cents on the dollar. Some of these bonds are not trading at all.

GROSS: Why is it in the national interest, do you think, to help homeowners who can't pay their mortgages?

Mr. KUTTNER: Well, the problem is that, when large numbers of homeowners go into default and then foreclosure, it drags down the value of housing in the neighborhood, in the city, in the country. Last time I looked, something like $2 trillion of home equity has been lost, and for the typical middle class family. The equity that you have in your home is the largest source of accumulated wealth. People depend on this as a nest egg.

And it also drags down the prices of homes when people need to sell their homes, and when people suddenly realize that the home where they thought they had $250 or $300,000 of equity - they only have $70,000 of equity. They tighten their belts, and you get into a classic downwards spiral of reduced purchasing power, which drags down the whole economy.

Now, if you can put a floor under housing prices by preventing the cycle of foreclosure, then you spare tens of millions of American families the loss of equity in their home. You spare millions of American families the tragedy of having to be foreclosed and having to lose everything in their houses.

And you also create new opportunities for people to become homeowners. One of the other things the Homeowners Loan Corporation could do would be to have a first-time mortgage - first-time homeownership program. You could take some of these abandoned properties and fix them up and have them be affordable rental housing. So I think the grand theme here is, crisis can be turned into opportunity, but Obama has to be very bold in the way he proceeds.

GROSS: But that's the problem, isn't that. I mean, that there are so many places that have grave financial need now. Cities and states, infrastructure, you know, bank bailouts, homeowner bailouts. The auto industry wants money. I mean, there's kind of crisis in every sector, so how do you decide what your priorities? I mean, that's going to be a really hard one for Obama, don't you think?

Mr. KUTTNER: Well, there are two ways to look at this. There's the way that Herbert Hoover's Treasury secretary, Andrew Mellon, looked at it. And Mellon said, liquidate everything. Sell off everything. And then there's the way Roosevelt looked at it, which was to say, this is an emergency, and we have to prevent the bottom from falling out.

Now, in my book, I argue that we need annual spending increases on the order of $600 billion a year. Now, that's 4 percentage points of GDP. It would raise the amount of money that the federal government's spends from about 20 percent of the total output of the economy to about 24 percent. And we have had, in peace time, spending as high as 24 percent of GDP. Before, we had it under Reagan, but most of it went to the military.

I think this time, you need first of all to prevent a single state or local employee from being laid off in a recession. You need to extend unemployment compensation. You need a lot of public infrastructure spending. The American Society of Civil Engineers estimates that there's $1.6 trillion in backlog of basic public infrastructure. Things like water and sewer systems and the buildings that haven't been repaired - I can see from my house. Not over at the Bering Strait to Russia, but I can see a bridge that hasn't been painted in decades that looks like it's going to rust out if they don't repair it.

And the virtue of this is, it pumps money back into the economy. It creates a lot of middle-class jobs. It gets demand flowing again, and I think, obviously, a transition to a sustainable energy economy, so there are a lot of virtuous uses for public outlay that would do three good things. They would put money back into people's pockets in a classic anti-recession way. They would create a lot of middle-class jobs that can't be exported. And this is long-differed good policy in its own right. And so I think, with the working majority in Congress, Obama could do this, and he's going to need to do this in order to prevent a crash from turning into what could considerably be a depression.

GROSS: Robert Kuttner will be back in the second half of the show. His new book is called "Obama's Challenge: America's Economic Crisis and the Power of a Transformative of Presidency." I'm Terry Gross, and this is Fresh Air.

Coming up, book critic Maureen Corrigan reviews "Promised Land," Jay Parini's look at the 13 books he thinks set down the stories and myths that shaped our national identity. And we continue our conversation with economics writer Robert Kuttner, author of "Obama's Challenge."

This Fresh Air. I am Terry Gross back with economics writer Robert Kuttner, author of the new book "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency." Kuttner is co-founder and co-editor of the magazine "The American Prospect." His other books include "The Squandering of America" and "Everything for Sale: The Virtues and Limits of Markets."

In spite of America's debt, Kuttner thinks we need to spend a lot of money on a stimulus package to, among other things, rebuild our infrastructure, which would create new jobs. I know you've made the case for this already, but still, it's hard to fathom that, with a national debt that's approaching a trillion dollars, which is a billion-billion in dollars.

Mr. KUTTNER: May I correct you?

GROSS: Please.

Mr. KUTTNER: It's $5.6 trillion.

GROSS: All right.

Mr. KUTTNER: You talk about the - distinguished deficit from debt. The deficit, which is, you know, one year's budget deficit, that is - it's not really a trillion, it's probably seven-800 billion, and the accumulated national debt is $5.6 trillion.

GROSS: It's just impossible for me to wrap my mind there on numbers of that size, but - no, no, I mean, but when you have figures that are huge like that, that are that overwhelmingly large, how do you justify spending, you know, hundreds of billions of dollars more? Like, why does that make sense to you?

Mr. KUTTNER: There has been a mantra in media that deficit and the debt are the biggest problems facing us. They're not. The risk of a depression is the biggest problem facing us, and let me put the deficit and the debt in context. Even with all of President Bush's deficit spending - and don't forget, he started from a fairly low base because Clinton handed him a surplus. Even will all of Bush's deficit spending, the accumulated national debt relative to the total gross domestic product, that's the ratio that is the all important ratio, is just under 40 percent.

Now, to put this in context, after World War Two, it was a 125 percent, and yet, we had a 30-year boom after World War Two. So you ask the question, well, how could that be? How can a country that was saddled with debt that was greater than one year's output of the whole economy usher in a 30-year boom? And the answer is to look at what that debt went to buy.

During World War Two, we incurred this huge debt to recapitalize American industry, invest in science and technology, retrain a generation of American workers, put them back to work. We did it to win the war, but there were all kinds of spillover benefits on a civilian economy. And if you compare that to where we are in late 2008, the ratio of debt to gross domestic product is about 40 percent. It's only one-third of what it was at the end of World War Two.

So, in order to spare the country a depression, if that ratio needs to temporarily go up to, say, 50 percent, even 55 percent, and the benefit is to get the economy back on a recovery track that much sooner, then we can get back to fiscal balance that much sooner. The alternative is to just sit there and watch the economy spiral downward and conclude that, well, we can't do anything because that would increase the deficit. I mean, I think that would be really insane.

GROSS: How do we ever pay back trillions of dollars of debt?

Mr. KUTTNER: We don't pay it back. We roll it over, and as long as the overall debt to GDP ratio is moderate, and I would certainly consider anything under about 60 percent of GDP to be moderate, the interest on that debt is one of the costs of doing business in the same way that the interest on my mortgage debt is one of the things that I pay for every month. As long as that doesn't overwhelm me, it enables me to live in a nice house.

And I think the analogy is that, as long as the interest on the debt doesn't overwhelm the economy, which it is in no danger of doing when it's down around 40 or 50 percent of GDP, some of that debt goes to pay for roads and bridges and science and technology and housing and training and higher education and early childhood, things that make the economy more productive. We need to have a kind of a New Deal for young people, and the economy will then grow at a higher rate, and the debt will cease to be this bogeyman.

GROSS: What are some of the controversies now within the Democratic Party about how much debt is justifiable and how much money spent on economic stimulus is justifiable?

Mr. KUTTNER: Well, I think you can parse out the controversies on a number of dimensions. One, you just articulated, how much spending do we need? A related question is, how much of that spending should be deficit-financed and how much of it should be paid for? And my view is that most of it should be paid for. If you restored the tax code to the Clinton era, you get about $200 billion a year more simply by restoring taxes on the top two percent to what they used to be.

GROSS: This is basically what Obama has already proposed.

Mr. KUTTNER: Right. And, of course, the question is, how much of that do you use for new spending and how much of it do use for tax relief from moderate-income people. One of the things that doesn't get as much attention as is should is, all of the money that is left on the table because the Bush administration crippled the Internal Revenue Service, and most of that money is in tax dodges used by the top one percent that often involved moving money offshore, often involved things that are so complicated that it's difficult to tell what's legal and what's illegal.

But there was a conference a few years ago of former IRS commissioners, Republican and Democrat, they all agreed that there were about $300 billion in collectible uncollected taxes because audit resources have been shifted away from auditing the upper, upper brackets. And you know where they have been shifted to? They have been shifted to auditing people who used the earned-income tax credit, low-income wage earner. They are more likely to get audited than a multi-millionaire who use a very - uses a very complicated offshore tax shelter.

So I think, between those two things and maybe a little bit of cut in the military, we're going to get some relief on the Iraq front, but I think much of that is going to be reprogrammed to Afghanistan, so I don't think we should hold out hope for massive savings but maybe we could get 50 or $75 billion a year. You know, those three things plus a little bit of an increase in deficit spending give you the kind of spending you need to prevent the crash from turning into a depression.

GROSS: My guest is economics writer Robert Kuttner, author of the new book "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency." We'll talk more after a break. This is Fresh Air.

If you're just joining us, my guest is economic writer Robert Kuttner. He's the co-founder and co-editor of "The American Prospect" magazine and the author of the new book "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."

One of the things that you suggest in your new book is professionalizing the human service economy. Would you explain what your idea is?

Mr. KUTTNER: You know, one of the problems that has faced so many Americans is the risk of their jobs being moved offshore. And if you think of all of the jobs taking care of America's children and taking care of America's old people and taking care of America's sick people, by definition, these are jobs that have to be close to home. There are some good jobs, like public school teacher or physician in the human service sector, but there are millions and millions and millions of really bad jobs that ought to be professionalized, and I'm thinking of people who take care of very young children, people who work in childcare centers for elementary-school-aged kids, and people who work in nursing homes.

GROSS: When you say bad jobs, you don't mean the work is bad. You mean the pay and the conditions are bad?

Mr. KUTTNER: Well, that I mean if...

GROSS: Or do you mean both?

Mr. KUTTNER: If the pay is bad, and the conditions are bad...

GROSS: I don't want to put words in your mouth.

Mr. KUTTNER: But if the pay is bad, and the conditions are bad, it's a bad job, and you look at what some other countries do, you look at what we do around the edges, every job teaching or nurturing a preschooler ought to be a professional job, and I don't want to see a lot of people who have those jobs be laid off and replaced by people with master's degree. I want to see them have opportunities to become professionals, to train for better credentials, and then get compensated as professionals. And there's no reason why somebody who works in a preschool should not have at least the same training and the same pay and the same career security as a kindergarten teacher.

And by the way, at the other end of spectrum, certified nursing can - certified nurse aids, who do 95 percent of the hands-on care in the nursing homes, they make five, six, seven, eight bucks an hour. They have very little training. The turnover rate is typically above 200 percent. Those people could get better training. They could make more like $15 an hour. They could join the middle class. They could treat our parents and grandparents with greater professional skill. And that would be both an act of macroeconomic stimulus; it would also be an act of mercy. These are the things that we should be doing as a country. These are the things that we need to do to get out of an economic crisis. All it takes is money.

GROSS: Well, yeah, all it takes is money, but I mean, it's so...

Mr. KUTTNER: Well, I know.

GROSS: So expensive to send your child to daycare as it is, so if everybody's wages...

Mr. KUTTNER: Right.

GROSS: Were raised, much as we would like to see that happen, it would make daycare even more unaffordable, to which you say what?

Mr. KUTTNER: To which I say, it should be publicly financed, the same way kindergartens are publicly financed. Sometimes I think that, if the founders of this country, beginning with the Goodbergers of Massachusetts in the 1630s, hadn't invented free public education, people today would say, oh my god, free public education, that's crazy. We can't afford that. And it seems to me, we can't afford not to do it. And now, we have a good macroeconomic excuse to do it.

If we don't increase public spending dramatically, we're going to have a depression, which is a lot worse that spending $50 billion so that every preschooler in America can have child-development-oriented early education. So, I think it's really interesting, the mindset that, oh my goodness, how can we afford this is going to very rapidly change to the mindset, what can we do to spare America depression and restore good quality public services while we're at it.

This is Obama's challenge, and only a president, someone as gifted as Obama as a teacher, and god knows this is a teachable moment, can use the power, the moral authority, the explaining power of the presidency to explain to the American people that we are in a crisis in a same way that a conservative Republican Treasury secretary decided that we needed to throw $700 billion at banks. We need to spend some money on human needs, and that is the way we will prevent a financial crash from cascading into a very serious recession. Now, that is completely inverting the conventional wisdom, and this is what it's going to take for Obama to have a successful presidency.

GROSS: So, you are choosing to see the economic crisis as an opportunity to change the way we think and operate financially in America when it comes to finances and when it comes both to the financial sector and to public works, to infrastructure, to education, to service economy, to human services positions. You think this is an opportunity to rethink a whole lot of things?

Mr. KUTTNER: I think it's not just an opportunity, it's a necessity, and that's the only reason why anybody in mainstream politics would take this seriously. Six months ago, nobody in mainstream politics would take seriously the idea that we need to throw $700 billion at the banks to bailout their bad decisions. And six months ago, no one in mainstream politics would have taken seriously the idea that we need this order of magnitude increase in spending on infrastructure and public services, but these are not ordinary times.

And in researching the book, I went back and looked at what Lincoln faced when he came into office and what he was able to do by 1863. I looked at where Roosevelt faced when he took office and what he was able to do by 1933, and, of course, Lincoln - Johnson and the civil rights revolution. And what was interesting about all three presidents was that things that were deemed impossible six months earlier were barely adequate six months later. And I'm convinced that this is one of those moments, and I'm convinced that Obama has the character, the leadership, the imagination, the intelligence to rise to the moment.

GROSS: You know, one of the things we haven't talked about is health insurance, which is one of the cornerstones of Obama's campaign, his proposal to reform health insurance. What do you think the odds are that his proposal, as he described it during the campaign, would actually be enacted through Congress?

Mr. KUTTNER: You know, I'm almost alone on this, so here's what I think. The most urgent things President Obama will have to do in his first 100 days or his first six months are to get the financial system back on track and to spend enough money to prevent a crash from turning into a depression, and as part of that, to put a floor under housing prices. I think tactically and legislatively, the worst possible thing he could do would be to put health reform on the front burner.

Why? Well, the other tasks are more urgent. If he fails at the other tasks, he will not have much political capital to spend on health insurance, and health reform is one of the most difficult things of all because you have so many entrenched interests who like things the way they are. You're going up against very powerful industries.

So if I were advising Obama, and I'm not - you know, I'm not an adviser to Obama. The only advice I'm tendering to Obama is the advise in the book, where I argue that he should wait a year and build up some political capital, build up some prestige, get political credit for having prevented a depression and then in year two or year three, use some of that political capital to really push for transformative health reform.

GROSS: You would like to see Obama be what you describe as a transformative president in a manner that FDR was. What are some of the ways that Roosevelt got backing, capital from the American people and from the Congress to do the kind of economic reforms that he managed to put through during his presidency?

Mr. KUTTNER: You know, Hoover had the same crisis for three and a half years, from October '29 through March of '33, that Roosevelt had. But Roosevelt had an optimism. He had an unbelievably magnificent ability to teach, to lead by teaching. His first fireside chat, first week in office, was on the banking crisis, and it's one of the great speeches of all time.

He explained to the people in terms that they understood without being condescending what had gone on with banks, why he felt the need to temporarily close the banks, the so-called bank holiday, while the government sorted out good banks from bad banks. And he then said to the people, you need to do your part. You need to trust that things are going to get better, and instead of withdrawing money from banks and deepening the crisis of banks going broke, you need to put your money back into banks.

And he was so compelling that on Monday morning, people lined up outside the banks, and for the first time in the whole crisis, they lined up to put money back into banks, $300 million that first day, rather than take money out. So he had the ability to inspire. He had to ability to lead. He listened to lots of different advisers, and then he went for the bold stroke, and he demonstrated tangible progress. You know, within six months, he was creating lots and lots of jobs to put people back to work. And even though the Depression dragged on for another six years, there was the sense that help was on the way.

GROSS: Robert Kuttner, thank you so much for talking with us.

Mr. KUTTNER: Thank you so much for having me.

GROSS: Robert Kuttner is the author of "Obama's Challenge." He's a co-founder and co-editor of the magazine "The American Prospect." Coming up, Maureen Corrigan reviews a new book in which Jay Parini chooses the 13 books that tell the stories he thinks shaped our national identity. This is Fresh Air. Transcript provided by NPR, Copyright NPR.