The New New Deal (17 page)

The memo went through fourteen drafts, and the entire economic team signed off on the final product. Romer had no issue with the deletion of her $1.8 trillion figure, which was less a proposal than an illustration of the scope of the problem. The fiscal stimulus package didn’t need to plug the entire output gap; monetary policy could help, as could emergency aid for banks, car companies, and distressed homeowners.
“Even I knew $1.8 trillion was non-planetary,” Romer says. She did think her $1.2 trillion figure should have been in the memo, but it was never a major topic of discussion, and she did mention it to the president-elect. In any case, she didn’t feel like Summers was undermining or censoring her; she felt like Summers was on her side, a fellow maximalist, similarly worried about undershooting rather than overshooting. Orszag, more of a minimalist, later complained to colleagues that Summers had orchestrated the entire Chicago meeting to advance his “make-it-big” agenda.

“I kept saying: Look, guys, there’s no danger of doing too much. It’s like worrying about how much weight I should lose,” says the bulky Summers. “There’s no danger that I’m going to become anorexic.” Larry was the pill without the applesauce.

The Summers memo did include a caveat that “an excessive recovery package could spook markets or the public and be counterproductive.” And it did warn that in the world of stimulus, higher quantity tends to produce lower quality: “While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy.” But the main reason he kept the $1.2 trillion option out of his memo was that it didn’t seem like a real option. Rahm had told him there was no way Congress would go over $1 trillion. Pelosi didn’t even want to go past $600 billion.
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Maybe the B-word had lost some of its power, but the T-word could still drop jaws on Capitol Hill, especially after the blow-back over TARP, which was already generating stories about bailed-out firms wasting taxpayer dollars on junkets. A trillion was a psychological Rubicon. “It just wasn’t going to happen,” says Phil Schiliro, Obama’s legislative chief. “Nothing I had seen in my time in Washington led me to believe that was a workable proposition.”

Failure would be unthinkable—the Obama team didn’t want a reprise of the market crash that followed the House vote against TARP—and delay could be almost as damaging. But getting a bill done quickly would be impossible if congressional eyes were popping out of sockets. “If we tried for a trillion, we’d chew up four or five months, the economy
would fall off a cliff, we’d end up with nothing, and we’d have to start all over again,” Schiliro says. He thought $800 billion was a huge reach, but it was at least imaginable.

Most of Obama’s advisers also assumed that if more stimulus was needed in the future, they could always go back to the Hill and get it. Congress loved jobs bills, especially in election years. Surely by 2010, there would be plenty of appetite for additional tax cuts and spending goodies if Americans were still struggling. On the other hand, if the stimulus somehow turned out to be too large or too late, there would be no plausible way to roll it back to prevent inflation. “It is easier to add down the road to insufficient fiscal stimulus than to subtract from excessive fiscal stimulus,” Summers had written.
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Adding was always easier than subtracting in Washington—especially when it came to tax cuts, since the vast majority of Republican legislators had signed no-new-taxes pledges.

“It seemed blindingly obvious at the time: Who would want to run for reelection without a jobs bill?” Furman recalls. “It was a perfectly reasonable judgment.”

It wasn’t a universal judgment. Some liberals questioned whether Obama would get a second bite at the apple if the stimulus turned out to be insufficient. House Appropriations chairman David Obey, a prickly New Deal Democrat who kept a picture of FDR above his desk, warned Obama’s economists that the Blue Dogs in his caucus would never agree to multiple deficit spending bills: “You damn well better know how much you need to get this job done, and you damn well better err on the high side, because you won’t be able to come back for a second kick at the can!” After a meeting with Jared Bernstein—who privately admitted to his union pals that the Obama proposal wasn’t big enough to restore full employment—the AFL-CIO’s chief economist warned in an internal memo: “There does not appear to be a Plan B. … An inadequate fiscal effort following a heavily contested congressional battle will leave economic policymakers with very few alternatives.” Paul Krugman also predicted that if the initial stimulus failed to fix the problem economically, the whole concept of stimulus would be discredited politically.
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“In retrospect, that was prescient,” says Summers, who does not make this kind of admission often. “At the time, I didn’t agree. That was a mistake.”

In any case, the political team was unanimous that a one with twelve zeroes would freak out the Hill and gum up the machinery. This was the dominant view among Democratic leaders, although again, not a unanimous view. When Rahm told Obey he feared the shock value of the word “trillion,” Obey replied that shock value was exactly what was needed. “It will help people understand this is a damn serious problem,” he said. The solution, he said, needs to be just as damn big.

On December 16, Obama decided his administration’s stimulus goal should be in the 800s, which seemed plenty damn big—just big enough, his economic experts said, to avert an epic disaster, yet conceivably small enough, his political experts said, to avoid paralyzing sticker shock.

“The economic team wanted 899.99,” one economist recalls. “The political team wanted 800.01. Either way, we were going where nobody had gone before.”

Obama’s advisers made one more miscalculation about size: They assumed that whatever number they suggested to Congress would grow once lawmakers inflated the package. I made the same assumption in a
Time
article titled “How to Spend a Trillion Dollars,” arguing that Obama “doesn’t need to beg Congress to spend; that’s like begging Cookie Monster to eat.”
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Democrats were eager to plus up their favorite programs, and Republicans had exhibited few qualms about deficit spending when they ran the show. Capitol Hill did not seem burdened by an excess of fiscal restraint.

So Obama’s team agreed to propose a stimulus between $675 and $775 billion to Congress, while emphasizing the higher end of the scale.

“We figured Congress would take all our stuff and add its own stuff,” Furman says. Another reasonable judgment that turned out to be wrong.

T
o Obama’s liberal critics, December 16 was less Rosebud than original sin, the first step down a road of inadequate half measures. But it sure
didn’t feel that way at the time. Obama had approved a package well over four times the size of his campaign proposal from just two months earlier. “People were talking $50 billion, maybe $150 billion, and then suddenly it’s $800 billion,” recalls his former press secretary, Robert Gibbs. It’s true that a few progressive voices were calling for even more, but very few. Obama’s political team was worried that hardly anyone outside the transition offices seemed to grasp the depth of the crisis—not the public, not congressional leaders, not even most of the left.

“You’ve got the unions calling for $300 billion, and a week later, you’re saying: Fuck! That’s not half what we need!” recalls Jim Messina, Rahm’s similarly unexpurgated deputy.

Rahm kept pushing the economists to push outside groups to push for more stimulus, so Obama wouldn’t look like the only big spender in town. If you need it, he said, then build the case for it. Ron Klain, who had been Vice President Gore’s chief of staff and was now Biden’s—the rule against Clinton retreads returning to the same job was not absolute—recalls plenty of discussion about how to get Congress to pass more stimulus, and how to get the country ready for more stimulus. He doesn’t recall any discussion about settling for less.

“The idea that everyone knew this would be too small and we just punked out, it’s ridiculous,” Klain says. “We felt like we were in the deep end of the pool.”

Klain was another behind-the-scenes Washington veteran; he had staffed the Clarence Thomas hearings in the Senate for Biden and the recount battle in Florida for Gore. Now his political antennae sensed danger. Obama was blaming the meltdown on Wall Street leveraging money it didn’t have and homeowners taking out mortgages they couldn’t afford—so his solution was for government to spend $800 billion worth of borrowed cash? Klain accepted the gospel of Keynesian economics, but he wasn’t looking forward to preaching it in a time of retrenchment.

“This is going to be a hard thing to message,” Klain told Summers.

Summers shrugged. The politics might seem complicated, but the economics did not. As odd as it sounds, financial crises caused by too
much borrowing, too much confidence, and too much spending are solved by more borrowing, more confidence, and more spending.

“We have to do what we have to do,” Summers said.

T
he sour news on December 16 did not end with Romer. Geithner reported that the financial system was in virtual lockdown, and nobody knew how many banks were genuinely solvent. Goolsbee said housing futures were plunging, putting millions more homeowners at risk of foreclosure. Meanwhile, the U.S. auto industry was almost broke; mass liquidations and the collapse of the supply chain seemed imminent. “Then to cheer everybody up,” Axelrod says, “Orszag talked about the budget implications.”

Great, one aide thought. We just spent two years campaigning to inherit the economy of Brazil.

Afterward, Goolsbee told Obama: “That must have been the worst briefing any president-elect ever had.” The president-elect replied that it wasn’t even his worst briefing of the week. But when he discussed it in a speech a year later—he called it “unforgettable,” too—he recalled wondering if he could request a recount.
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Obama’s main message to his team was to think big, think bold, think out of the box. This was no time for smallball. “The sentiment was: Don’t feel constrained. Don’t build a tight corral around your thinking,” Bernstein recalls. Obama wanted iconic programs that would create a legacy of change, an updated version of the New Deal. And he urged his advisers to channel FDR’s spirit of experimentation.

They did come up with a few unconventional ideas. Romer, worried that public works would just create jobs for burly men, suggested a new brigade of teacher’s aides. Summers, eager to ignite consumer spending, proposed free-money debit cards that would expire by a certain date. Furman, thinking along similar lines, floated a sales tax holiday. The economists all supported a Cash for Clunkers program that would
offer drivers incentives to junk their gas-guzzlers and buy more fuel-efficient vehicles. They also discussed intensive New Deal–style labor projects, like nationwide efforts to repair water infrastructure or refurbish parks.

Most of these out-of-the-box ideas ran into objections that revealed why they hadn’t been in the box in the first place. Summers argued that it made no sense to thrust new teacher’s aides into schools that were facing epic budget cuts; why not just give the schools more money so they wouldn’t have to lay off as many teachers in the first place? The political team thought the debit card and sales tax holiday proposals sounded gimmicky, too evocative of Bush telling Americans to go shopping. The debit cards also seemed likely to make news once they started stimulating the strip club and head shop industries. Summers actually put Cash for Clunkers to an informal vote; while the economists loved it, the policy types thought it was an overly expensive way to reduce fuel consumption, and the political types thought paying people to buy cars sounded cheesy. The nays had it.

New Deal–style public works did make sense at a time when infrastructure needed repair and construction workers needed jobs, but pouring disproportionate amounts of money into one single-purpose marquee program did not. Advocates had identified $10 billion in shovel-ready water and sewer projects, but it wasn’t clear how throwing any more than that into waterworks would get any more shovels into the ground.
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And the National Park Service had less than $1 billion in ready-to-go projects.
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Logistically, there was only so much money that could be squeezed through these channels. There was also a diminishing returns problem; if you had to go further down the agencies’ lists of projects, you’d fund less ready and less worthy public works. It was fun to kick around grandiose goals, like renovating every school in America. But some schools didn’t need to be renovated. Others weren’t ready to be renovated. Putting too many eggs in a school renovation basket would just shortchange better public works that could provide better stimulus.

Obama kept pressing: Where’s our Skyline Drive? Where’s our
Hoover Dam? But times had changed since the New Deal. The construction of the Hoover Dam had employed five thousand men with shovels, and hadn’t required environmental studies to get shovel-ready. Now a comparable project might require a few hundred workers with bulldozers, after the years it would take to get permits. And even five thousand jobs would replace less than 1 percent of the losses from November 2008 alone.

Some liberals were clamoring for massive government hiring programs like FDR’s beloved Civilian Conservation Corps, which had employed three million young men to plant trees, build parks, and otherwise transform the American landscape. History has bathed the CCC in a romantic glow, but it’s hard to imagine a modern government herding unemployed urban youths into militarized rural work camps—often called “concentration camps,” before the term took on a darker connotation—for less than a dollar a day.
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When FDR took office, there were no unemployment benefits or federal safety net to ease hard times; modern job seekers were at least marginally less desperate. And standing up a modern bureaucracy takes time.