The New New Deal (23 page)

Their report—just thirteen pages, barely half of that text—was cluttered with caveats: “It should be understood that all the estimates presented in this memo are subject to significant margins of error.” And later: “The uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.” Unfortunately, nobody remembers caveats.

Romer-Bernstein even included a humdinger of a footnote about
the baseline: “Some private forecasters anticipate unemployment rates as high as 11% in the absence of action.” Unfortunately, nobody reads footnotes.

Before releasing the report, Romer shared it with the economic team, as well as some academic peers. Summers and Furman advised her not to put her name on it before she was confirmed, but she says her husband was the only reader who raised concerns about including the unemployment prediction. He reminded her that a fellow economist who had muffed an employment forecast based on an overly optimistic baseline once told them ruefully that forecasters should stick to predicting changes in unemployment, not levels of unemployment.

“Oh, for heaven’s sakes,” Romer replied. “If unemployment goes to 10 percent, we’ll have much bigger problems than this.”

Romer and Bernstein both say that no one else flagged anything amiss with their report. “Rahm loved it,” Bernstein recalls. “He said: Do more stuff like that!” The political team did exchange emails about the potential damage from the report’s suggestion that men would get more stimulus jobs than women, but no one seemed worried about putting the optimistic unemployment forecast in writing.

Republicans did not even make a fuss when the report was first released. But two weeks later, McConnell aide Derek Kan, who had a very un-Washington habit of actually reading reports, mentioned the 8 percent forecast in an email to Don Stewart, McConnell’s communications director. Stewart immediately raced over to Kan’s desk. “Are you telling me they’re predicting the unemployment rate?” he asked.

Looks like it, Kan said.

“Oh my God!” Stewart shouted. Economists all seemed to think the situation would be even worse in a year. Now Obama was promising instant relief? Stewart quickly started blasting the 8 percent figure out to reporters, and he never stopped.

“If I were doing this over again, I’d be more politically astute,” Romer says. “But those were our best estimates at the time. We weren’t trying to puff up confidence or do the reverse. We were trying to do an honest forecast.”

It was honest. It just wasn’t accurate. Several days after Romer-Bernstein hit the streets, the private forecasters at Macroeconomic Advisers downgraded their economic outlook.
¹⁶⁸
They told Romer they had collected hideous new data from Japan and Europe. The entire global economy was now gasping for air.

“That was my first inkling that, oh God, our forecast might be quite wrong,” Romer says. “It’s even worse than we thought.”

T
he big-ticket items in the Recovery Act—state aid, middle-class tax cuts, extended unemployment benefits—would not even make it halfway to Obama’s goal of $800 billion.
¹⁶⁹
That left a lot of room for Change We Can Believe In. For the transition team, it was an exhausting but exhilarating time, a chance to chart a new path for the country while trying to stop it from collapsing. Obama’s wonks thought both goals were achievable, even if they weren’t always perfectly aligned.

One of the enduring criticisms of the stimulus has been that Obama exploited an emergency to do things he wanted to do anyway. It’s true. He thought they were good things to do. He had just spent a long campaign explaining why he wanted to do them. And he had said throughout his transition that he expected the Recovery Act to create a footprint for future growth as well as an instant spark. Did his critics expect him to fill out the $800 billion with things he didn’t want to do? When did they want him to start keeping his promises and pursuing his vision?

“Administrations go fast. You don’t have that much time to change things,” says Brookings official Bruce Katz, a Clinton administration housing aide who led the Obama transition’s review team for HUD. “The narrative coming from the top was: ‘Let’s make sure we take advantage of this disruptive moment.’”

Investments in Obama’s long-range agenda wouldn’t always inject the swiftest short-term stimulus. But the economy clearly needed support for an extended period, so just about any investments would provide some stimulus. And in some cases, Obama’s priorities would be excellent stimulus. For example, aid to poor families with high propensities to spend would provide high bang-for-the-buck, while advancing Obama’s spread-the-wealth agenda.
¹⁷⁰
So the transition team secured hefty increases in safety net programs like food stamps, child care, rental assistance, and the Earned Income Tax Credit for low-income workers.
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It also subsidized the COBRA premiums that help laid-off workers keep their health insurance. Obama even gave seniors, veterans, and people with disabilities a one-time $250 check, because—well, why not? Economically and morally, it beat giving tax breaks to billionaires. It would drop more cash into circulation, helping people who needed help while nudging the inequality dial in a fairer direction.

Similarly, as long as Obama was creating jobs for construction workers, it made sense to have them advance his education agenda by modernizing schools, or his research agenda by renovating labs at science agencies like the National Institute of Standards and Technology, or his health agenda by building new community medical clinics that would expand access to low-cost care. Upgrading decrepit electrical substations, Amtrak trains, and public housing would promote his priorities, too. He didn’t want to pour more money into weapons systems, but building wounded-warrior complexes and child-care centers at military bases would be solid stimulus. He didn’t want to boost agricultural subsidies either, but paying farmers to restore flood-prone land to its natural state, while only mediocre stimulus, would at least create wetlands and reduce crop insurance payouts. And as long as he was spending more, why not keep his promises to spend more on things like early childhood education, preventive medicine, and the Americorps national service program? These were all opportunistic ways to use dollars to drive incremental change—and nursery school teachers, physician’s assistants, and even community organizers needed jobs, too.

But the Obama team was also looking for openings to drive more lasting change. Summers was concerned that the desire to exploit “the Democratic moment” could overshadow the need for timely stimulus, but he thought this was an ideal time to invest in research and critical infrastructure that could build long-term prosperity. Borrowing was cheap, and there was only so much money that could be spent both quickly and effectively. A wind farm that was approved now and created jobs for a U.S. turbine manufacturer later in the year but didn’t begin construction until 2010 would still help fill the output gap.

“No matter how you structured it, you couldn’t get too much out the door in 2009,” Orszag says. “It was okay if some of it wasn’t so fast. You couldn’t let the perfect be the enemy of the good.”

Anyway, this was, in fact, a Democratic moment. Republicans had already exploited their moment. Obama thought he had been hired to do better.

“He wanted to break through the conventional wisdom right away and do some big things that people had never been able to get done,” press secretary Robert Gibbs told me. Then his voice trailed off. “Arrgh. Washington. It’s not used to doing big things.”

O
f all his exploitations of the Democratic moment, the biggest was Obama’s effort to launch America’s transition to a low-carbon economy.

Clean-energy investments were win-win-win-wins: reducing our thug-empowering oil dependence, our planet-broiling emissions, and our wallet-straining exposure to oil shocks, while replacing the unsustainable housing jobs of the bubble years with the green jobs of the future. A permanent transition to clean energy would still require government to impose costs on dirty energy; as Summers put it, stimulus would be one blade of the scissors, cap-and-trade the other.
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Still, the Recovery Act would be a hell of a start.

“You talk about this stuff all your life, then suddenly, it’s: Wow. We
can actually do it. Like, now,” marvels Obama energy adviser Heather Zichal.

The stimulus allowed Obama to make inroads on all his energy promises at once, to start transforming the entire food chain—reducing energy use through efficiency; shifting from fossil energy toward renewables; accommodating those renewables with a smarter grid; financing cutting-edge green research; and building a manufacturing base for a green economy. “We didn’t want to put our thumb on the scale for any one sector or one technology,” Carol Browner explains. “We wanted to do
everything
.” Any proposal that could reduce fossil fuel dependence on the electricity side or the transportation side while at least passing the laugh test when it came to the three T’s and job creation was fair game. And Rahm’s Rule was in full effect. When a former Clinton budget aide on the transition reviewed the green team’s initial proposals, his reaction was: You’re not spending enough.

“That was probably the first time in history an OMB guy said that to anyone,” says Joe Aldy, the environmental economist for the green team and later the White House.

Even clean-energy advocates were flabbergasted by the magnitude of the money. State energy offices that had expected a total of $50 million in 2009 would get $3.1 billion. The stimulus would pour another $3.2 billion into energy-efficiency grants for cities and towns, most of which didn’t even have energy offices yet, and $4.5 billion into smart grid programs that had never received a dime. It would also include $3.4 billion for clean coal, more than Bush had managed to spend in eight years of devotion to the extraction industries, and $5 billion for low-income home weatherization, almost as much as the program had spent in over three decades.
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Now it was Obama’s turn to produce numbers that seemed to have the decimal point in the wrong place. For example, in 2007, Congress had authorized a $100 million grant program to finance advanced battery factories for electric vehicles, but had yet to provide any funding. The Recovery Act flooded the zone with $2 billion. “It was such an extraordinary time,” says the green team’s David Sandalow, a Michigan
native and the author of
Freedom from Oil
. “It was like, okay, let’s see if we can create a new American manufacturing industry that can make a real difference in the Midwestern economy. And yeah, it turned out that we could.”

Obama aides joked about
Brewster’s Millions
, the movie where Richard Pryor’s character rushes to spend a vast inheritance in a month. Congressional staffers began quoting the late senator Everett Dirksen’s famous line: A billion here, a billion there, pretty soon you’re talking about real money. Still, they accepted almost all of Obama’s proposals, and added some of their own.

“Some people think we were just trying to spend as much as possible. Well, they’re right!” recalls one transition aide. “You’d find this great program that needed $1 billion. Then someone would ask: Can you do it for $10 billion?”

Obama’s energy experts and the Hill’s veteran energy staffers didn’t have much time to plan how to reinvent a multitrillion-dollar slice of the economy. But they had been thinking about this stuff for years. They had reams of reports about cost curves and supply chains at their fingertips. They were ready for their Democratic moment.

I
t’s often forgotten that in early 2009, green energy was not just a tiny industrial sector. It was a tiny dying industrial sector. Renewable electricity projects were financed with tax credits, and after the financial meltdown, investors didn’t need tax credits, because they had lost so much money they didn’t have tax liabilities. The credit crunch had ravaged project finance in general, but funding for wind farms and solar installations in particular had totally dried up, and U.S. manufacturers of wind turbines and solar panels were rapidly shutting down.

“Renewables were dead in the water,” recalls Denise Bode, a former natural gas lobbyist who had just taken over the American Wind Energy Association.

The Recovery Act’s solution, forged over several meetings between Obama’s aides and Democratic congressional staffers, was to replace the tax credits with equivalent cash grants. “Monetizing” the credits
was not, perhaps, the most exciting public policy, but it was exactly what wind, solar, and geothermal developers needed to resurrect their industries. Joe Aldy was assigned to inform the clean-energy advocates, and he still remembers their tense faces when he arrived a bit late.

“Once I explained what we were doing, you could just see the daggers turn to joy,” he says. “Those guys were really desperate.”

Unfortunately for literary purposes, that’s about as dramatic as the energy discussions got. Again, the Obama team pushed for flexibility, while congressional Democrats preferred specifics. And the Hill’s energy staff did question some of Obama’s more audacious requests. Were there really $2 billion worth of shovel-ready battery factories? How did he expect to ramp up weatherization more than 1,000 percent in a stimulus time frame? How on earth would state energy offices handle even bigger windfalls when governors were slashing their administrative budgets?

“We said, ‘Hey!’” recalls one Senate aide. “There’s no capacity out there!”

In general, though, the discussions were collegial, wonky, earnest efforts to achieve Obama’s goals. A fly on the wall would have gotten extremely bored, unless the fly had an abiding interest in diesel retrofits or smart grid network protocols or EISA Title V Subtitle E. Nothing sexy happened, except the wardrobe malfunction that Zichal suffered while getting out of a cab on her way to a January session on the Hill. (It forced her to wear her overcoat for two hours in a sweltering basement meeting room.) Some participants graciously gave me binders full of spreadsheets, notes, legislative text, and other documents from these meetings, and I hope I don’t sound ungrateful when I say that Hollywood is unlikely to option the rights.